An Eye on West Africa

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I commented last month on the high prices in Lagos hotels, and the reasons for that – high development costs, high operating costs, and so on. Maybe you took pity on the poor hotel owners and managers? Well, despite all those issues, hotels in Africa can actually be highly profitable at operational level, partly because other costs such as payroll are, in many cities, low compared with the rates charged, and because of high occupancies.

If that is the case, why aren’t more people building more hotels to take advantage of this ‘golden goose’?

Well, you see, because hotels are expensive pieces of kit, with high upfront capital costs, they take some years to repay the investors their money. The hotel industry is competing for that money with other sectors, such as commercial real estate and housing, which may not be so attractive in the long term, but return capital much quicker, either through sales or rentals. And African investors, generally (never, ever generalise about Africa, but here goes!) are looking for shorter-term returns than the typical seven to 10 years of a hotel – in trading, government contracts, oil and gas trading, etc.

Compound that with the high interest rates and short repayment terms quoted by local banks; the difficulties associated with a lack of professional expertise and experience in the development teams; the climate; bureaucracy and corruption, and you can see why it’s really tough to get new projects off the ground. 

But they are happening – a survey we carried out at the beginning of 2012 shows that the regional and international hotel chains have signed contracts to manage over 38,000 new rooms in 208 hotels in Africa, which is up from 31,600 rooms in 159 hotels the year before. Of these new rooms, 55% are under construction, meaning that in the next three to four years, we can expect in excess of 20,000 new rooms to open.

So far, so good, but do the arithmetic – those 20,000 rooms are in 35 countries, which is a measly 571 per country! It’s just not enough!

Trevor Ward – MD: W Hospitality Group

www.w-hospitalitygroup.com

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