Travelling around Nigeria has never been a simple task, but since the tragic crash of a Dana Air flight back in June, it has got more complicated and more expensive.

Two major airlines, Dana and Air Nigeria, are no longer operating on domestic routes – the reason for the former is obvious, but the latter is more murky, with all sorts of tales bandied about.  The bottom line is they ain’t flying!  That leaves two main carriers, Arik and AeroContractors, trying to fill the gap, and struggling to do so.  Delays are so normal that, when I check in, for a flight, I don’t ask “is it on time”, instead “how long is the delay?”.  You might leave on time first flight of the day, but never is the last flight on schedule – ever been delayed 6 hours for a 45 minute flight?  I have.  Ever ben told that the delay would be short?  I have – same flight!

One problem is that the airlines don’t have enough aircraft, and whilst we welcome the opening of new airports such as Uyo (Akwa Ibom State) and Asaba (Delta State), the airlines are overstretched in their attempts to cover all the route permutations.

Airlines in Nigeria come and go – there’s a whole list of “has-beens” such as ADC, Sosoliso, Okada and Oriental.  Dana was a relatively new entrant to the market, and recently we have seen First Nation come – and go, they ceased flying at the same time as the Dana tragedy.  IRS and Chanchangi operate on a few of the main routes, but of all the carriers I tend to favour AeroContractors, despite the move to “buy your coffee” on board.  And their fares are more reasonable, especially if you book ahead.  But most important – their 100% safety record.

For us weary travellers, there’s very little to be done about the lack of flights and rubbish service.  Transport long distance by roads is fraught with problems, including some of the most appalling “highways” you can imagine, leading to accidents a-plenty.  The quality of driving doesn’t help, either.

It’s a big country, Nigeria, and we need better transportation.  Some of the roads are being rebuilt, but experience says that unless they’re using one of the big civil contractors to do the work, they won’t last for long.  The economy needs better transportation – what’s the point of growing tomatoes if you can’t get them to market?  For now we have to grin and bear it, and pray for government to do something about it – or allow the private sector to do so.  Full marks to the Lekki Concession Company for what they have done in Lagos, constructing a proper road, to ease the congestion in Victoria Island

Trevor Ward

W Hospitality Group, Lagos           

[email protected]

As the number of branded hotels in Africa increases, so too does the probability that a hotel asset transaction market will emerge, as investors see the opportunity to purchase well-designed, well managed hotels.  That means that owners will be thinking more about the valuation of their hotels, pursuant to a sale.

Sometimes there is nothing quite as contentious as valuation.  Whilst some might think that this contention would be just part of the negotiation between a buyer and a seller, when the Kenyan government sold The Grand Regency Hotel in Nairobi, the then-Finance Minster lost his job! [see Ai September 2008].  This was at a time when the Kenyan people had become increasingly sensitised to the actions of government, and there was a backlash against what was seen as an incorrect price for a publicly owned hotel.  The sale, to a foreign purchaser, was at a price of around US$44 million, and this was perceived – particularly by opposition politicians and the media – to be too far too low.  “Valuations” of US$114 million were quoted, and this transaction went on to form part of the larger Goldenberg scandal.

However, there was no real evidence to suggest that anything untoward had occurred, but that didn’t stifle the cry that “it’s worth far more than that!”.  And there’s the rub – what’s a hotel worth?  And what’s the difference between worth and valuation?

The main criticism valuation professionals would have of the Grand Regency affair was that it occurred “off market”, i.e. one party made an offer that was accepted, instead of opening it up to bids in a transparent manner, which meant that there could be no certainty that a better price could not have been obtained from someone else.

What is a Value?

The key question is “What is value?”  In summary, Market Value is defined as  ”the amount an asset will sell for on a specific date between a willing buyer and willing seller, where each party had acted knowledgeably, prudently and without compulsion”.  The key points to note in this formal definition of Market Value are a willing buyer and seller, both of whom are being advised well, and therefore have knowledge of what it is all about. If either the buyer or the seller does not have good advice then there is no certainty that they will not pay too much or accept too little for the hotel.

It is important to differentiate between “Market Value” and “worth”. A hotel may be worth more to one owner than another (for example they may have cost savings that they can benefit from, they may have a specific tax benefit that could be exploited, or it is an area where they have a special need for a hotel) and these “worth calculations” only form one part of the Market Value assessment.  There is no compunction for a buyer (especially if professionally advised) to pay what the seller considers to be the “full worth” if the market, and the prospective purchaser’s advisers, are dictating a lower price.

Sometimes transactions occur at non-market value prices. However this is generally when one party (in relationship to that specific transaction) did not act prudently, knowledgeably, or were forced to sell at an inopportune time – a sale intended to enforce debt obligations, initiated by a lender who “wants out”, is a prime example of that.  A hotel and golf estate in Ireland was recently sold for one quarter of what the owner paid for it! If someone needs to sell then potential purchasers will usually realise they are dealing with an “unwilling” seller and will take advantage of the situation to make a lower offer.

How are Valuations Carried Out?

A valuer’s job is to reflect what the market would pay for an asset if it were openly marketed. In terms of a hotel they would need to look at who was likely to buy that category of property and how much they would pay. Different buyers use different methods to calculate what they can pay for a trading entity (ranging from a price per bedroom to a multiple of turnover) but the two most universally used approaches  are the Income Capitalisation Method and the Discounted Cashflow Approach.

There are technical differences to each approach, but in essence they both predict the likely earnings for a hotel, which are extrapolated and a value is attached to this income stream. This projected income stream reflects a hypothetical operator unless a lease or management contract is in place, in which case the likely income received, taking into account the specific operator, is used as the basis.

The projections and multiplication factors (yields) will be compared and contrasted with all relevant comparable transactions – if any exist – to assess the final value, which is then compared with market transactions on a price per bedroom basis to analyse the overall reasonableness of the valuation figure.

It is the level of experience of the valuer and their access to market data, along with their skill and judgement that will determine the accuracy of their valuation.

Note that a hotel valuer is basing his work on the trading ability of the asset, and therefore the valuation figure doesn’t always bear any resemblance to the cost of developing the asset, or its book value.  A purchaser of a hotel will always be looking at the cash flow potential, and if that cash flow today, at the time of the sale, is down on what is was when the hotel opened (perhaps because of increased supply in the market), then it is almost inevitable that the value will also have decreased.

How can a valuation be confirmed?

Checking that a valuation figure is correct can be extremely difficult. From an owner’s perspective no two hotels are identical as the value is dependent on location, facilities, condition, local demand, local supply, trading profile, customer base, and a hundred other variables which affect the businesses ability to generate profits, and no two hotels share completely the same trading profile.

A skilled valuer with detailed experience in the local area would be able to analyse trading levels and likely values if the hotel were placed on the market at that time. That said Market Value is determined by market sentiment, which in the hospitality industry changes extremely rapidly. It is therefore extremely difficult for a valuer to keep up with market sentiment unless they are thoroughly immersed in transactional business and aware of the sentiments and thought processes of the most active people in the market.

However the only way to be 100 per cent sure of the value of an asset is to ask an experienced hotel agent (preferably a chartered surveyor)  to widely market the property and sell the property on your behalf.   Because, at the end of the day, whether you are talking about value or worth, the only true figure of either is what someone is prepared to pay for it.

In the African context, outside of Southern Africa the valuation and asset transaction markets are very immature.  Sellers are typically wildly irrational when they put their hotels up for sale, assuming that it must be worth more than they built it for (never mind the fact that the construction budget massively over-ran!), or bought it for, or (and this is often the case) that they have run the property into the ground, and a purchaser will have to spend money on refurbishment and basic maintenance.

Only once the transaction market picks up, and there is more information to work with – and the news is that one of the largest hotel owners on the continent is currently marketing a portfolio of hotels, to gauge investor appetite – will asking prices be more akin to true value.

David Harper is a Director of the UK-based Leisure Property Services (www.leisurepropertyservices.com)

Trevor Ward is the Managing Director of Lagos-based W Hospitality Group (www.w-hospitalitygroup.com)

Trevor Ward

W Hospitality Group, Lagos

[email protected]

 

The hunting of animals and other creatures for sport, choosing individual “kills” or trophies, with exceptional physical attributes such as the biggest horns, must be the most paradoxical sector of the global tourism industry.  Not only paradoxical, but also the most controversial, depending on your point of view.  There are some 23 countries in Africa which permit hunting, the most high profile being in southern Africa, the destination of an estimated 90% of hunting tourists from outside the continent.  Kenya, with one of Africa’s largest safari industries, does not allow hunting.

I suspect that most observers, including me, feel a little uncomfortable with the whole concept of shooting for sport, animals chosen for their exceptional nature, unable to defend themselves against the latest hunting rifle and a man (and the vast majority of hunters are male) intent on securing the trophy.  That tends to be the western point of view.

But the other point of view, which is that pertaining in communities, investors and governments that benefit from the industry. is that hunting tourism is not only extremely lucrative and capable of sustaining job creation, but is also a proven way of conserving the very animals that are being hunted.  And the need for conservation comes, sometimes, from overhunting.  That is the paradox.

According to one survey the estimated annual direct revenue generated from hunting in Sub-Saharan African countries is in the order of US$200 million from around 19,000 hunters, the majority from Europe and the USA.  This generates around 6,000 jobs in South Africa, over 4,000 in Tanzania, 2,000 in Namibia, and 1,000 in Botswana, the four countries with the largest trophy hunting activity.  A study conducted by Radder in 2006 in South Africa’s Eastern Cape Province found that game reserves increased employment by 250% and average earnings by over 450%.

So how can consumptive tourism – trophy hunters – be more valuable than non-consumptive tourism – photo safaris?

Trophy hunting tourists, engaged in “consumptive tourism”, spend considerably more than tourists on photographic safaris – non-consumptive tourism.  It is estimated that trophy hunters spend 30 times more than other tourists in Zimbabwe, and 14 times in Tanzania.  Thus revenues can be generated from fewer people, with less environmental impact.  Hunters also stay longer, sending an average of 14 days on a trip, ranging from

four days to over three months.  In some countries, only the longer trips qualify to hunt the largest game (including elephants).

In economic terms, trophy hunting places a measurable and specific value on wildlife – go online and you can find rates for different types of animal in different countries and different regions.  An elephant will cost upwards of US$45,000 to “consume”, whilst an eland is in the order of US$2,000 and an impala just US$300.  For the uber-rich, a black rhino has a price of over US$400,000 on its head.  Communities and investors will protect wildlife and their habitats given this financial incentive to do so, perceiving value in that protection.  The conservation industry, at least those who support hunting tourism, see the protection of wildlife and habitat as the main contribution of the industry.  This protection means that other, less sustainable activities such as farming and animal husbandry are less lucrative.

Hunting takes place in both State-owned and privately-owned reserves.  Some countries, such as Namibia and South Africa, have both types, whilst in Tanzania all hunting terrain is State-owned, allocated to investors to exploit.  In all cases, hunting is strictly controlled through both a system of licences and hunting guides, with approval required for the equipment used, the targets and the volume of “off-take”, i.e. the percentage of the wildlife in an area that can be consumed.  A figure of 2 to 7 per cent is considered to be sustainable.  The lower the off-take, the more marketable the destination in the future.

In southern Arica, the vast majority of hunting tourism agencies are based in the country, resulting in considerably less leakage of revenues than from photographic safaris booked through overseas tour operators.  The authorities in Tanzania estimate that 33% of trophy hunting revenues accrue to the government, compared to only 8% of beach, photographic safari and other tourism revenues.

The Tanzanian authorities estimate that investment in a hunting block in the country could be up to US$100 million, a significant sum.

Trophy hunting can open up new areas for tourism, and can be undertaken in countries where “traditional tourism is less practical – Chad, the Central African Republic and Burkina Faso all have small hunting industries.  The exploitation of land for hunting has a much lower impact that that for photographic surveys – the protection of a pristine wildlife habitat is essential for the animals’ well-being, and being mostly on foot, intrusive roads are not required.

Kenya, with arguably Africa’s largest wildlife tourism industry, banned hunting several decades ago.  There, the ethical arguments against trophy hunting overcame the economic and conservation arguments.  Media coverage of the hunting industry is typically emotive, targeting the (often high) wealth of hunters, and the darker side of the industry,

such as illegal “canned hunting”, where animals are drugged, attracted by bright lights and so on.  But every activity, including within the tourism industry, has its mavericks, and proper control from government can push these activities out of a well-regulated hunting sector.  Job creation and income generation, wildlife and habitat conservation are convincing arguments for an industry in a continent that needs them all.

 

Trevor Ward

W Hospitality Group, Lagos

[email protected]

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