It has been reported that Africa loses £3.2 billion a year in extra interest charges because negative stereotypes about the continent dominate the international media. Risks are artificially heightened and interest rates rise to counter this perceived additional risk.
The negative headlines have long-lasting impact, still resonating when the facts have changed. Who would consider investing in a continent that has 35 active wars, is the terrorism capital of the world and where 45 of 54 countries have had a coup since 1950? Any turmoil in Africa is given greater prominence than other parts of the world and lazy generalizations infer it is a continent-wide issue. The reporting misrepresents the truth and deters investors from examining the opportunities available.
Challenges
The “Africa Rising” optimism of the 2010s was derailed by a wide range of problems, culminating in the COVID-19 pandemic.
Diseases. Excluding COVID, parts of Africa have had to deal with Ebola, Dengue Fever, Mpox, Marburg, Lassa fever and of course Malaria. There is even a Black Death season in Madagascar, where this disease that ravaged the Middle Ages comes to visit Africa.
Wars. At the moment there are 35 armed conflicts ongoing on the continent, including civil wars in the Democratic Republic of the Congo, Ethiopia, Mali, Somalia, Sudan, Burkina Faso and the Central African Republic.
Political unrest. In the last five years there have been nine military coups, including in Gabon, Niger, Burkina Faso, Sudan, Guinea, Chad and Mali. The Sahel region has even been renamed the “Coup-Belt.”
Corruption. According to the Corruption Perceptions Index, sub-Saharan Africa consistently records low scores, indicating widespread public sector corruption. In the 2023 CPI, Africa averaged 33 out of 100 with 90% of countries scoring below 50. Somalia (11) was the most corrupt country in the world, with South Sudan (13) the fourth most corrupt nation.
However, the fundamentals that underpinned Africa Rising still exist. Sustained economic growth despite COVID, rising middle classes, growing consumer markets, the demographic dividend — the youngest population in the world, looking to double its working age population in the next 25 years — improving education and significant Foreign Direct Investment all suggest reasons for optimism.
Indeed, much of that FDI was focused on infrastructure programs — including airports, sea ports, railways and roads — which improve the overall business environment.
New airports have recently opened or are expected to open in Dakar (2017), Accra (2018), Kigali (2027). Airports in Lagos, Abidjan, Algiers, Lusaka and Djibouti expected this year.
New ports that have recently opened include Djibouti (2017), Lamu (2022), with expansions currently underway in Mombasa, Maputo, Tangiers, Luanda, Abidjan, Nouadhibou and Beira.
Africa is changing fundamentally. This investment in infrastructure is helping open up the continent for economic success.
Opportunities
In the hospitality field, the opportunities are vast. Most African countries have a woeful undersupply of quality hotel rooms. In the U.S., there are approximately 16,944 branded hotel rooms per million population. In Europe, there are 29,974 branded hotel rooms per million population. In the U.K., this is 10,495 bedrooms. In Africa this is 56.3 bedrooms.
Many countries with the highest GDP growth and the strongest economic fundamentals have a severe shortage of hotel rooms. This will negatively impact economic growth if unaddressed. Investors have the chance to help Africa grow, doing the right thing to help balance historical inequities, whilst making very strong returns.
A pipeline report by W Hospitality Group shows the time taken from pipeline to opening. Of the 524 African hotel projects with 92,193 rooms identified in the 2024 pipeline, only 59 opened with 9,559 total rooms. This is only slightly up from 29 hotels with 3,500 bedrooms opening in Africa in 2023. The rate of new hotel supply coming online is glacial. Research from HPA showed that the average delay for Nigerian hotels was 12 years, while the West African average was 9 years. It was better in East Africa (average 4.5 years) but still at levels that destroy an investors’ IRR.
But it doesn’t have to be this way. Projects that are fully funded and professional managed are opening on time and rewarding their investors’ faith. We were involved in one project where the ungeared IRR was above 40%. The investor got their money out within two and a half years.
The shortage of quality hotel rooms is leading to many new opportunities for the adventurous. HPA are advising on a hotel expansion in Somalia — usually a no-go zone for investors. The near 100% occupancy levels generated by security-conscious NGOs has meant the specific investment case is compelling. Another war zone and we are advising on the purchase of a hotel that trades almost exclusively to war correspondents reporting to the wider world. We are even helping put together funds for safari lodge projects, something previously considered too small to make financial sense, but now helping to rebalance some company’s ESG requirements.
The key to success in Africa is accurately balancing the risk-reward equation, something that is devilishly difficult to do if you can't accurately quantify the actual risk. Data is hard to come by across Africa. But that shouldn’t come as a surprise, as we cant even be sure which is the biggest city on the continent. The contenders include Lagos — estimates for the population range between 10 million and 30 million — and Kinshasa (between 15 million and 20 million) but no one knows. Just think about that. Lagos could be 10 million people or three times that size, but nobody knows.
This lack of data is endemic, and that means hotel investors need to carefully chose their professional team if their project is to be a success. But if they pick the right team, invest in the right project and manage the process professionally, Africa can generate greater rewards than should be expected, because of this imbalance in the risk-reward profile, led by the inaccurate stereotypes mispricing the actual risk profile.
David Harper is a fellow of the Royal Institute of Chartered Surveyors and a founding partner of Hotel Partners Africa.
This column is part of ISHC Global Insights, a partnership between CoStar News and the International Society of Hospitality Consultants.
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