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Regional Report - Africa

The tourism and hospitality industry is one of Africa’s most under-invested assets. The Africa Investor 2010 Wealth Cheque Report estimates that the tourism market today is worth $49.90 billion, but has $203.7 billion of untapped potential..

Africa is rapidly becoming a more attractive proposition for business, tourism and for hotel operators. Although the market (outside South Africa) lacks inventory and recognised brands, finance is readily available.

A 2011 survey by Lagos-based W Hospitality Group reveals that 20 of Africa’s most active hotel operators plan to grow their portfolios by more than 30,000 rooms across the continent over the coming years. And this expansion is likely to bring greater focus on serviced apartments.

In Africa, the funding of many new hotel build projects depends as much on the quality of the operator as the quality of the project itself, because red tape can stall building projects for years. Branded properties’ facilities tend to be of good quality whilst, according to STR Global, markets with a greater proportion of internationally branded hotels hold their rates better than others.

Investment Climate

Delegates at the Hospitality Investment Conference Africa (HICA) in November 2010 agreed there is a lot of money waiting to be invested in Africa’s hospitality sector. However the continent needs to improve the investment climate in order to attract that investment. The World Bank says that Africa has the worst investment climate in the world. The Bank believes investors need to be convinced that there is good governance in the countries they enter, that inflation is under control and that they receive a positive message of opportunity.

In response, African governments have realised that international hotel brands help attract foreign investors. As a result they are cutting red tape and offering tax incentives and grants to woo hotel developers.

Many investors claim there is a lack of robust information. “The lack of sufficient information about a potential investment destination in Africa is often a huge challenge and it should not be too difficult to solve,” says Andrew McLachlan, VP for business development in Africa at the Rezidor Hotel Group.

Hospitality operators seem to have a long term plan for Africa, but there seems to be a dis-connect somewhere along the new build pipeline. For example, there is an acute shortage of economy hotel rooms in Africa but the tendency is to build larger, luxury hotels instead.

Opportunities

A key opportunity for Africa as a business and leisure destination is the 150 million Chinese people, who are likely to become international travellers in the near future. Africa is already seeing rising numbers of Chinese tourists – 126,000 in the first quarter of 2010 compared to 380,000 in all of 2009.

South Africa remains the most developed country in the region for hospitality. However having seen the global recession cause significant declines in foreign and domestic travel, and despite the temporary respite of the FIFA World Cup in 2010, PwC predicts that average rates, stay nights and room revenues will fall locally in the short term.

However hotel supply in South Africa is growing. The World Cup prompted major expansion of the local lodging industry. Over the next two years, the number of hotel rooms rose by 1,600. Between 2008 and 2010, approximately 9,700 additional rooms were added, creating capacity to house an additional 3.5 million visitors annually. In 2010, there were 58,800 hotel rooms in South Africa.

The bad news was that by the time these new hotels began to open, economic conditions had worsened, tourism slowed and supply was outstripping demand. The inevitable consequence of this has been falling rates.

overview domestic and foreign visitors to South Africa