CAPE TOWN, South Africa — Hoteliers, developers and investors must stop overgeneralizing hotel operations and ownership in Africa.
Such thinking is hindering expansion in a continent that has vast opportunities for the hotel industry, said Scott Antel, a hospitality lawyer and founder of Scott’s FZ. He added there is something wrong with the industry in Africa when only 35% hotels in development ever open their doors.
“Do your feasibility, your due diligence. Get good advisors and consultants, know what your customer base is and know your infrastructure, as that does not grow overnight. That’s expensive, yes, but all that comes before you get sales,” he said during a panel discussion at the Future Hospitality Summit Africa.
Opening a hotel in Africa requires solid partnerships, and panelists said it's important for hotel investors to find committed professionals and banks who are aligned with value-accretive industry goals. Environmental, social and governance goals are also a priority for any development project in Africa.
Compagnie Hoteliere et Immobiliere du Congo has 660 rooms in five hotels open or in development in the Democratic Republic of the Congo. The country is considered among the difficult African markets to operate in even with its steady domestic hotel demand, said CHIC director of asset management Suhail Ashok Bhatia.
“We try and do what is possible, but some markets do not always support the vision you want to execute,” he said. “When ESG is mentioned, I say, 'Well, I need power first, then I might think of solar.' We are in difficult locations, but we must look at ways to redefine the story. Some of the asks are cost-prohibitive due to where we are, but it does not deviate from the main idea of being as sustainable as possible.”
Finding a financial partner that complements the investment vision for a hotel project is a major factor. Linda Mothibe, principal of property finance for Africa at Nedbank CIB, said her company thinks long term and with solutions that are value-accretive.
Hotel brand affiliation is important and often a prerequisite for financing a deal, and Nedbank focuses on property performance and the correct management and operating teams, Mothibe said.
“We make sure they have the right support,” she said, adding that the South African bank is increasing its exposure in Senegal as one example of having cross-continental risk.
Challenges to hotel development in Africa include rising interest rates and higher construction costs, especially deeper into the continent, including in the DRC. Bhatia said CHIC’s strategy was to open each of its hotels one at a time, and its third property recently opened in May.
“Redefining hospitality is our agenda, a focus on developing each [hotel] on time and in line with requirements,” he said. “What influences our decisions are finding opportunities to up the game, and then we leverage our knowhow on technical construction and making sure we have the right support and operator selections who understand the landscape. That allows us more control, and that creates value in the long term.”
Shaun Dubash, senior director of development for the Middle East and Africa at IHG Hotels & Resorts, said IHG's global hotel portfolio is 80% franchised. He added trusted partnerships are the best way to secure growth.
“We have no no-go areas [in Africa], more so economic and security parameters,” Dubash said, adding IHG is opening hotels in Nigeria and Senegal. “It is about due diligence, the clarity of financing and getting [any project] across the line. Let’s get that 35% [Antel] talked about higher.”
Overcoming obstacles
Hoteliers in Africa are looking for creative solutions to bypass Africa's unique hotel development challenges. Panelists cited government corruption, labor and costs associated with ESG.
Hotel investors and lenders must encourage local and international portfolio scale to help drive costs down and recognition, quality, demand and ESG up, Nedbank’s Mothibe said.
“Good management helps funding through the cycle. We also have no no-go areas and are very passionate about our continent,” she said.
One way to pave the way for growth is to break down operations to show return on investment, Dubash said.
CHIC drives growth by increasing demand and long-term value and being an intrinsic part of the community, Bhatia said.
“We’re trying to create a piece of national infrastructure. It is a point of pride that we’ve created 300 local jobs,” he said.
Antel added that another challenge is the delays throughout development that cripple ROI.
“Time is not the friend of transactions and getting things done. Until the doors open, no one comes in. In Africa, if you are a first mover, or a second one, the returns can be amazing, and it is not true that costs in these markets have to be more expensive and that there is more risk,” he said.
Hoteliers across Africa must be part of a national conversation to get their countries investor-ready, even if the brands are not ready to go in, Dubash said.
“Work on destination strategy with governments, then get investors on board. This is the starting point,” he said.