From west to east

I was walking down a Nairobi street the other day, and a local chap falls into step with me and greets me in a most friendly way with “How do you like Africa?!”.  I was so surprised, I just said “Fine” and hurried away.  I wasn’t concerned for my safety, despite central Nairobi’s reputation for street crime, I was just surprised at the question itself – how do I like Africa!

It set me thinking, about how the perception, or single story, of my friend, a Kenyan, who sees amzungu (white man in Swahili) and assumes I am a visitor from Europe or the USA.  I am often reminded of ChimamandaNgoziAdichie, the Nigerian author, who put it so well in her TED talk “The danger of the single story”, pointing out that we need a variety of different, overlapping inputs for our outlook on life to be the reality that it is.  Little did my Kenyan friend know that I have lived in Nigeria for almost 13 years, and therefore not “fresh fish”!

But the other factor that surprised me was that he asked me about Africa, not Kenya or Nairobi, Africa!  If you met a foreigner on the streets of Berlin you wouldn’t ask “how do you like Europe?”, would you?

So even Africans generalise about Africa, apparently.  Why is that?  We have more countries in Africa than on any other continent, 54 nations since the creation of South Sudan in 2011, with immense diversity amongst them – not surprising when you consider that the land area of Africa is greater than that of Europe, North America, China and India combined.

Hotel investors do not decide to invest in Africa, they look at countries and cities, and at projects, assessing their attractiveness in market terms (demand for the product or service to be offered) and the risks (economic, political etc.).  You can’t do that in a single assessment of “Africa”!

So what’s going on currently in the various countries of Africa?

Well, a noticeable trend is that there has been a shift in focus away from the oil-producing nations of West Africa to the more diversified countries of East Africa (with apologies for generalising, but this time it is on a more local level!).  With one or two exceptions, West Africa has been battered by a “triple whammy” in the last two years, starting with the Ebola outbreak in mid-2014, then the collapse in the oil price shortly afterwards, and this year the China impact, the reduction in demand from China for iron ore and other primary products.  Each has had its own “ripple effect”, the Ebola virus affecting travel and consumer demand throughout the region (and beyond), the oil price crash bringing devaluations in the currencies of Nigeria and other countries, and the China impact reducing the inflow of concessionary funds for new projects.

One of the exceptions in West Africa is Cote d’Ivoire, which has put its troubled past firmly behind it, and is seeing its much more diversified economy grow by almost 8% each year (IMF WEO October 2015), and inflation of 2% or lower.  The key there is the fact that its economy is much more diversified than its neighbours’.  GDP growth in Nigeria is down to just 2% in Q3, due mostly to the price of oil – we export virtually nothing else.  In Sierra Leone, the reduction in the world price of iron ore resulted in a shut-down of the entire industry, and the IMF are forecasting a GDP growth of negative 24% this year.

In this scenario, demand for hotels is down severely – from occupancies of over 80% in Lagos in the previous decade, the outlook for the end of 2015 is for an average for the year of about 50%, and this in the absence of any significant new supply.  We believe there will be an upturn, now that the federal government’s ministers have been appointed (5½ months after the transfer of power from PDP to APC) – but it is difficult to know when.  The good news for hoteliers in Lagos is that no new supply is expected to enter the market for at least three years, so occupancies and average room rates should increase.  The lack of new supply is for the most part another consequence of the oil price crash, the subsequent currency devaluation, and the shortage of foreign exchange – it has become even more difficult to finance projects here, the uncertainty regarding the future is just too much at present.  Projects that were underway, such as the Marriott and the Meridien, are facing financial and other challenges.

Over in East Africa, particularly Ethiopia and Kenya, there is considerable activity in new hotel development.  The Marriott Executive Apartments in Addis Ababa opened in early October, and the Radisson Blu in Nairobi opened in mid-November.  Throughout Nairobi, there is considerable construction activity, Including in new satellite towns such as Two Rivers, which create demand for new hotels, such as the City Lodge.  Mövenpick have just announced a new deal in Nairobi, as have Starwood, for a Four Points by Sheraton at the airport.  Unlike in West Africa, we see these projects actually happening……The average occupancy in Nairobi and Addis Ababa is between 55% and 60%, not much higher than Lagos, but both cities have had high levels of new supply recently.

Looking at the IMF’s data, we see that their forecasts for GDP growth reveal why the countries of East Africa are receiving more focus from investors.  The 2015 forecast for sub-Saharan Africa is 3.8%, down from 5% in 2014.  With the exception of Burundi, torn again with civil strife, all the countries in East Africa are expected to experience growth significantly above the regional average – Djibouti 6.5%, Ethiopia 8.7%, Kenya 6.5%, Rwanda 6.5%, Tanzania 6.9% and Uganda 5.2%, and almost all are experiencing greater growth than in 2014.

The reasons?  Because of a lack of minerals or other primary products, their economies are far more diversified than those in West Africa, and some in southern Africa (e.g. Zambia).  Further, as net fuel importers, they have benefited from lower prices.

About 5 years ago, the story was all about “Africa”, and at that time the majority of the then-53 countries on the vast continent were experiencing rapid growth.  At 6.6% in 2010, sub-Saharan Africa had the highest growth in the world.  Today, times have changed, and it is imperative not to talk about Africa, but about countries and cities.

How do I like Africa?  Well, like the curate’s egg, it is good, if not excellent, in parts!  As for the other parts, let’s wait and see!

Trevor Ward

W Hospitality Group, Lagos

trevor.ward@w-hospitalitygroup.com