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.
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.
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
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.