Hotels are complicated animals, some developers say they are the most complicated type of building they have come across. And complicated means time and cost, which sometimes mean the same thing. Add in to the mix the need for quality, and you have a threesome that can be very hard to manage!
When we analyse a project, it is always the case that the investment returns are the most sensitive to the development cost, more so than changes in net income, because the time and value of money means that the former, which is incurred now, has a greater value than the income, which occurs much later.
How then, do hotel developers keep costs under control?
From the start of the project, having the right professional team will save the developer money. Just because your architect has designed a good house, doesn’t mean that he can design a hotel. Most hotel guests have no idea what is going on behind the scenes, where up to 40% of the hotel’s area can be located. A poor design takes time to get right, particularly when the architect lacks the knowledge to do so. And the longer things take to do, the later the hotel will open, and that means lost revenue, increased interest charges, and in some cases increased professional costs. One international hotel company will not quote a fee for their technical services (advising on design etc), on the basis that they can only determine how much time they will spend, and therefore the quantum of their fee, until they can assess the quality of the professional team. QCT – Quality, Cost, Time, all closely linked.
If one is engaging an operator, the earlier they are on board the better. The later they come on, the more costly will be the changes that they demand. One developer I know says that bringing on board the operator only after he had started construction cost him US$2 million and two years’ delay! Engaging the operator early on, so that they work hand-in-hand with the architect, will definitely result in cost-savings.
Whilst all members of the professional team are important to the success of the project, one discipline that I always insist must be highly experienced and credible in the hotel industry is the quantity surveyor. Too often I have seen QSs underestimating the cost of a project, either through inexperience, incompetence or simply reporting what the developer wants to hear. The consequence is that there are insufficient funds available to complete the project, which causes delays and claims from the contractor and suppliers, and increases the cost even more. Crazy!
The professional team can, of course, be as expert as anything, but without proper coordination, that counts for little. It is so vital for all the professionals to coordinate their drawings and services with each other to ensure, for example, that the architect provides enough space for the
riser shafts, ceiling voids, services panels, ducts etc.. When the architect is doing his thing in isolation, and the engineers are also working in isolation, then redrafting is required, costing, again, time and money.
Talking of funding, many developers will start construction before securing all of the funding. This is a high risk strategy. If additional debt and equity cannot be raised in time to meet commitments, then the contractor will likely stop work, bringing with it compensation claims and remobilisation costs. And equity investors may well demand a greater share for their money, factoring in the pressure that the developer is under.
Now, I don’t want to be seen contradicting myself, but there will be cases where spending more on the development will save money later on – loading the balance sheet to improve the profit and loss account. Specific examples include using higher quality finishes to save on maintenance and, topically, energy-saving design. A higher quality, more expensive power plant will require less maintenance, fewer repairs and will have a lower running cost, but this also extends to items such as glazing, lighting, heat exchangers, gas turbines, water conservation and recycling, and so on. For projects which embrace a “green” philosophy, the cost of finance can be lowered, using government-sponsored schemes and possibly claiming carbon credits.
For projects in Africa, particularly in the less-developed nations (and it is n countries such as Nigeria, Ghana, Ethiopia and Gabon where the highest number of hotels are under development), we often recommend that a Design and Build Contract is used by developers, to avoid many of the pitfalls that bring unnecessary increases in costs. Design & Build is a traditional form of contract under which the contractor actually does the lion’s share of the design work in-house. This form of contract can only be successfully executed by a large contracting firm that already employs all these skills (architects and engineers) in house. Some contractors claim that they can do Design & Build, but then outsource the work to independent architects and engineers, which defeats one of the objectives which is to achieve seamless cooperation between the professionals. So a developer must verify the contractor’s capability beforehand.
Apart from the benefit of coordination – and that benefit can be considerable as described above – a Design & Build Contract can bring reduced costs in itself. Whilst the contractor will certainly add to the contract sum for the design work, they typically derive their profit from contracting, not design, and as they employ these professionals in house anyway, the additional cost they add to the contract sum is less than the normal percentage one would be paying independents for their professional fees.
Further, if the contractor is in control of the professional team, then he cannot claim from the developer for delays caused by the designers and others! Contractors love variation orders – some say that it is on variations that contractors make most of their profits – and the Design & Build Contract can almost eliminate them from the process.
There are other factors, of course, to consider. Transport costs can add hugely to the development budget, and although sea transport is cheaper than airfreight, the challenge of many
of Africa’s ports (delays, inefficiency and corruption), the condition of the roads, and the delays at land borders, can so delay an opening that airfreight actually works out less expensive.
Import duties vary from country to country, and can change (always upwards!) without warning. Countries such as Nigeria ban some essential inputs for a hotel, such as furniture, so developers must either obtain a waiver, which is not always obtainable, and is not always recognised at the port of entry, or must purchase locally. That would be fine were there a local industry to purchase from, but those manufacturers able to produce sufficient volume at a consistent quality are often fully-booked, and that means higher prices and/or a longer time.
Quality, Cost, Time. An elastic triangle, in which changes to one side will change at least one of the others, if not both. In the hotel industry, never, ever reduce quality – but it doesn’t have to mean increased cost, nor increased time. It all depends on the approach a developer takes to a project, and a determination to do it right first time. We wish!
W Hospitality Group, Lagos
Research from the World Travel & Tourism Council tells us that the global Travel and Tourism Industry in its entirety represents 9% of GDP and 1 out of 11 jobs. In 2012 there were just over 1 billion international tourist arrivals, and an estimated 5 to 6 billion domestic tourism arrivals. That’s pretty big, bigger than any other industry.
But West Africa certainly isn’t getting its fair share, at least where the leisure part of that industry is concerned. According to the UNWTO, just over 50% of international tourist arrivals were leisure travellers, on annual vacations, weekend breaks, quick stopovers, that kind of thing.
Go to cities such as Lagos, Accra, Abidjan, Bamako and Ouagadougou, and there’s hardly a vacationer in sight, it’s all about business travellers, including the Meetings, Incentives, Conferences and Exhibitions market (M.I.C.E.), all about oil, mining, finance, telecommunications and the other primary drivers of those economies.
So why the dearth of the leisure market? East Africa, several countries in southern Africa, and South Africa itself all have thriving leisure markets, based on their beach, safari and other products. West Africa has the products in abundance – I once read a guide book (one of the series that covers every country in the world), which claimed that the safari product in the north of the Republic of Benin was one of the best in the world. The beaches of The Gambia and Sierra Leone can rival the Caribbean, with warm seas, and Liberia has a surfing beach which that community rates quite highly.
Granted, The Gambia is a well-known winter sun destination, and the travel and tourism industry, almost entirely leisure-oriented, accounts for 20% of GDP and almost 18% of total employment – more than double the global average. Cape Verde, another winter sun spot, 44% of GDP and 39% of employment. Nigeria? 3% of GDP and 1 in 38 jobs. And that is almost entirely business-related travel.
Why the huge variation? Nigeria has beaches, Nigeria has game parks, and mountains, and festivals, and a great deal to offer to leisure travellers. So do Cameroon, Ghana and others. Why don’t countries like Nigeria or Cameroon, both brimming with “product” have more international vacationers?
Well, let’s start with visas. Hugely expensive, difficult to obtain, on-line payment systems that don’t work, unreasonable document requests (how does a vacationer get an invitation letter? Signed by the police?), all a big turn-off when you don’t need a visa to go to most southern or east African countries – you turn up, pay your entry tax, and you’re done. In West Africa, Senegal and The Gambia don’t require visas for most nationals, and attract vacationers in large numbers. Mali is also visa-free, and before the recent conflict also attracted vacationers for the historic sites, as well as adventure tourists.
Then there’s air access. The Gambia and Senegal, and the tourism hotspots of east Africa, such as Zanzibar and Kenya, have charter flights operating there, with landing fees and other airport charges which do not screw up the economics of flying in people on packages. Sure, package holiday makers aren’t the only type of tourists out there, but when you’re competing with the Mediterranean, the Canary Island and other destinations, it helps to be more welcoming to the charter airlines. Scheduled airlines charge fares that are prohibitive to the average vacationer, often because the capacity on the routes to the UK, France, Germany and other major demand generators is limited to one (foreign) airline, with no national carrier capable of servicing the route.
The last of the big three challenges, as if the former two were not enough, is the lack of promotion of the destination. Google Senegal, The Gambia and Cape Verde tourism, and what comes up on the first screen are booking channels. Do the same for Ghana, Nigeria or Cameroon, and you get lots of information, but no way to actually make a booking for flights, hotels, anything. Go into a travel agent in Europe, and there will not even be any information available on this unknown countries.
OK, so that wasn’t the last challenge, the other, in countries like Nigeria, is the lack of infrastructure to cater to leisure tourists. The whole arrival experience at airports such as Lagos and Douala is awful, then there’s the roads, the power supply, etc, etc. – they’re not ready for tourists, but they could be. Other West African countries have done it….
West Africa is not as far from Europe as Dubai, and about the same distance as southern Turkey, Cyprus and the Egyptian resorts. Countries like The Gambia and Cape Verde have had great success in the European winter sun market – as have Dubai and Egypt. Such a shame that other countries in the region aren’t doing more to make their unique tourism products more accessible to those markets, telling them about their destinations, and creating booking channels to close the deal.
Tourism creates more jobs than other industries, and that’s what it’s all about, isn’t it – jobs?
W Hospitality Group, Lagos
September and October have been my personal conference season this year – first the Africa Property Investment Summit (APIS) in Johannesburg, then the Africa Hotel Investment Forum (AHIF) in Nairobi, and I’m just back from the International Society of Hospitality Consultants’ (ISHC) annual convention in Panama. Quite a diverse selection of events and destinations, but there’s a link.
At APIS, there was a major focus on West Africa, and particularly the opportunities for retail development there. Whilst Angola, Mozambique and Zambia were all discussed, the most attention was paid to Ghana and, unsurprisingly, Nigeria, dubbed “the consumer play” by one of the speakers. In markets grossly undersupplied with formal retail, the talk was about how many malls, both major and neighbourhood, could be developed in each country. A link was made to the hotel industry by a presentation by BGI Properties at AHIF. BGI are a USA and Ghana based developer of retail malls in West Africa, and are convinced of the synergies between their sector and the lodging industry. Malls planned by them in Accra, Kumasi, Takoradi and elsewhere in Ghana, as well as in Lagos and Abuja, are morel likely than not to include a hotel component, alongside the normal anchor stores, line shops and service outlets such as restaurants and bars.
Mixed-use developments typically bring enhanced benefits to the owners, tenants and users, with the whole being greater than the sum of the parts. In particular, there is a clear opportunity to develop budget and economy hotels integral to a shopping mall, with the latter providing the “non-sleep” facilities that the hotel operators would rather do without, seeing them as a labour-intensive distraction to the provision of overnight accommodation. The café in the mall becomes the restaurant, the laundrette provides a laundry service, the shops provide the travellers essentials, and so on. And, of course, the hotel provides a useful source of “footfall” for the mall’s shops, plus the marketing of the hotel includes marketing of the mall, as an attractive destination at which to stay overnight.
And so to Panama, where a presentation by Smith Travel Research revealed that Accra and Lagos have some of the highest average room rates in the world, mostly because of a lack of supply in the face of rising demand, increasing far higher than in the USA or Europe. Rising demand brings opportunities for investors, at all levels of the market, and whilst the 4 and 5 star segments tend to see the most activity to begin with, later on - and I believe Accra and Lagos are now at that stage – developers look also at the midscale and budget segments. These hotels provide an alternative to their higher-priced forerunners, and cater more to the domestic and regional markets.
As Accra and Lagos continue to develop, driven by the virtuous circle of a growing economy and the resultant increase in the middle class, expect to see some combined retail and lodging developments coming on stream, and new, exciting places to stay.
W Hospitality Group, Lagos
A client recently asked me what my crystal ball said about the future of the Nigerian hospitality industry. A fair question – after all, I have spent the last 13+ years living and working in Lagos, and adding the time I was travelling backwards and forwards from London, I have 25+ years’ experience of this market.
They say that you cannot know where you are, or where you’re going, if you don’t understand the past. Well, I remember when Lagos was really just a two-horse town, with the Sheraton and the Eko taking the lion’s share of hotel demand. With the return to civilian rule in 1989, GDP growth reached a high of 10 per cent in 2009, and even in 2014, with the Ebola crisis and the oil price crash, was 6.3 per cent, well above the SSA average (5 per cent). Today, there are 20 branded hotels in Lagos, several high quality unbranded properties, and a huge pipeline, some of which are under construction.
Wouldn’t it be nice to look back at the previous 17 years, and input those growth figures into the crystal ball, wave the wand, and there’s the graph with an upward trajectory showing out from the middle of the orb.
That’s just not going to happen. That much we know. With negative growth in the first two quarters of 2016, Nigeria is in recession. The Naira is in free fall – two years ago it was around 160 to the US dollar, today the “official rate” is around 330, and at the Bureau de Changes (BdC, the “parallel rate”) it is north of 400, with the probability of reaching 500 by the end of 2016. All of which is somewhat academic, as there is very little, and at times no, foreign exchange to be had.
Daily we hear about job losses, in all sectors. On a positive note, that includes clearing out the ghost workers from the civil service.
The hospitality industry is hurting, of course, but for travellers to Nigeria carrying dollars has become good value, after years of claiming the top slot as the most expensive destination globally. Whilst prices have gone up, as imports become more expensive, they haven’t gone up that much. The official inflation rate is around 17 per cent, but the squeeze on the local consumer has tempered the ability to increase prices. At my local pub, a beer is now US$1.50 for a large beer, at the BdC exchange rate!
The crystal ball is no use right now. Let’s leave it under its cloth.
Different people have different opinions about when Nigeria will experience an upturn. Some say mid-2017, others two to three years, some even four years. There’s an element of one-upmanship here (“I can be more negative than you!”), but to a man they are all speculating – like mine, their crystal balls are of no use. But note that no-one says “never”, all believe that there will be an upturn, at some time in the future.
Because Nigeria is, and always will be, Nigeria. We’ve been here before, remember the recession in the early 1990s and the Abacha years from 1993 to 1998? Nigeria has a huge, young population, many of them tech-savvy, with rapid urbanisation into a growing number of large cities, and a very positive outlook on life. Despite negative growth, the economy is still one of the largest in Africa, with vast natural resources, huge potential for agriculture and manufacturing.
So instead of crystal ball gazing, I say that we must instead make simple assumptions, and build a case for what might happen. It is, my client and I agree, reasonable to assume that there will be a return to growth.
We then discuss when that might occur, and we pencil down 2018, giving time for the government to get its act together regarding the economy, the currency to stabilise, and for the private sector to get used to the new norm. We agree that the type of growth is likely to be in the non-oil sector, and rather slower than previous growth rates, that were driven by prices in exported commodities, not value-added activities. We might be wrong, but it gives us a basis on which to work, to plan new projects which in themselves will contribute to growth and recovery.
So there you have it. We are seriously in the doldrums in Nigeria right now, and could be becalmed for some time, but we’ll pull out if it. Once the currency stabilises, investors will return. That’s something else we know!
W Hospitality Group, Lagos
I was at a presentation at the Wavecrest College in Lagos recently. Wavecrest specialises in the hospitality industry, turning out really excellent graduates with certificates and diplomas (including HNDs). Professor Peter Jones, a UK-based educator, came to Lagos to look at Wavecrest, and to make a presentation regarding his thoughts and his activities in this sector.
But before I write about what he told us, here are a couple of examples of how the travel and tourism industry suffers from poor service standards.
I checked in for a flight (yes, I’ll name them, Arik) recently, and greeted the man taking my ticket. When I got no response, I repeated my greeting. “I heard you”, he said “and I chose not to answer you”. Knock me down with a feather? Guess which airline I avoid if I can (yes, I’ll name them, Arik!).
I stayed at a hotel in Abuja (yup, I’ll name them, Hawthorn Suites), and dined in the (empty) restaurant. Nice big menu, I spent some time choosing what I wanted, and ordered (lamb). A full 20 minutes later, the waiter comes back and tells me it is not available, because they “had just sold the last portion”. It’s a lie! They never had it in the first place! I was unhappy, but not unused to such an occurrence, so I asked him what else was not available. After several twists and turns, it turned out that the menu was a work of fiction, and that they had chicken with chips or mash to offer. Only.
And finally, I checked into another hotel (then called Le Meridien in Luanda), the porter takes my bag to my room, and not only hovers around for a tip (I can live with that) but actually sticks his hand out and asks for one!
We have all had similar experiences, haven’t we? I suspect that my friend at Arik in Abuja is past redemption, but the others, and their managers, surely can improve? So what’s the answer?
Back to Prof Jones. He was very forcefully making the case that in his opinion, in today’s world of hospitality education, there is the proven opportunity to turn the process on its head. When I was a hospitality management student, we spent two years in the classroom, then went out and worked in the industry for a year and then returned to the classroom for another year. That year in the middle was great (for me at least, others spent their whole year “carrying the keys”), but seemed unrelated to the periods either side (and yes, we did call it a “sandwich course”!).
Prof Jones makes a very strong case for that being the wrong way round, that the classroom has its place, but the best education will be gained from working in the industry, and then going into the classroom to discuss and build on what was learned on the job in a formal educational setting. Makes sense to me.
The best part of this story is that this is not just a theory, it has been put into practice very successfully in the UK, at the Edge Hotel School based at Wivenhoe House, a country house hotel in Essex. Their degrees are accredited by the University of Essex, and Wivenhoe House is a fully operational hotel, where the students are the staff, with guidance from professionals, and the staff are students. A separate block provides the classroom and other facilities required.
With the exception of Wavecrest, the hospitality schools in Nigeria lack basic facilities (think of a training kitchen with not a single piece of equipment actually working), with a lack of practical knowledge in the teaching faculty, and with graduates who have a piece of paper, but no recognition from the industry.
Can’t we adopt and adapt this in-house, deep immersion training system in Africa? With hotels providing the facilities, benefiting from the student labour, and recognising the value of training to the long-term sustainability of their business? Is management, and the educational sector, enlightened enough?
W Hospitality Group, Lagos
I have been in Abuja several times over the past month, looking at proposed new hotel projects there – just ideas at present, and it will be several years before any of them are ready to welcome you.
For those who don’t know Abuja, it is the capital of Nigeria – Lagos was the capital until 1991, when the government moved north, to the centre of the country. They started planning the city in the 1970s, started construction in earnest in the 1980s, and are still building today. Whilst commercial activity is at a low level compared to Lagos, Abuja is the administrative and political heart of the country. If you are doing business with the Federal government, which controls vast swathes of the economy, then you have to visit Abuja. And if you want to meet a Minister – well, the wait can be measured in days! Abuja is also a good place to waylay the State governors, who are frequent visitors, as it is from the centre that funds are doled out to the regions.
Strange that, in the capital city of Africa’s most populous nation, there is not, currently, a single internationally-branded hotel under construction. Plans aplenty, and that’s where we come in, but nothing on-site. Not that there aren’t several other, non-branded hotels on the way. The Ibeto Hotel, in the Gudu district, is due to open very soon, and from what I saw of it last week, it should be a really nice hotel. The AES Suites has opened in Jabi, and although somewhat eccentric in terms of the design (it’s obviously designed only for short people, even I had to duck when I went through any doorway!), and ignoring the ridiculous hype about it being a “6-star” hotel, it’s an acceptable midscale hotel.
Trouble is, these hotels, by which I mean the unbranded ones without a management company, tend not to stay the course. For various reasons, they deteriorate quite quickly (and I pray that Ibeto and AES are different) – general managers come and go, sometimes at alarming speed, maintenance is neglected, the faults in construction become an unmanageable burden, and so on.
Alternatives to the Hilton include the Sheraton, sadly a poor example of that brand (but watch this space, a total refurbishment is on the cards, and the hotel does have great Italian and steak restaurants), the Hawthorn Suites (a good room product, but lousy service), the Best Western (ditto, but the new General Manager has vowed to tackle that), and the three Protea hotels, offering that chain’s normal efficient service. And a host of unbranded hotels, such as the Rockville, the Bolingo and the Reiz Continental (where I had the best meat pie ever last week!), some good, some bad, and the majority in the middle.The market in Abuja is dominated by the Transcorp Hilton Hotel, a 670-room behemoth, where serious business is done in the various restaurants, bars, lounges and Presidential Suites. See and be seen in the lobby, with a constant stream of Ministers, other senior politicians and government officials, and visiting Heads of State. And because of that, it is not for everyone, it’s is virtually impossible to find a quiet corner anywhere, and not everyone wants to be seen!
What’s coming? Radisson Blu, Park Inn and Courtyard by Marriott all have deals signed, but none is yet under construction. I’m not hugely convinced that all of these will see the light of day, but would be happy to be proved wrong. Abuja needs more hotel rooms, it’s a busy city (although weekends are quiet as so many people “go home”), and has the potential to be the main conference venue in the sub-region. Connectivity is improving, with flights to London, Frankfurt and Paris, as well as to Lomé, Accra and other African cities. And compared to other Nigerian cities, Abuja “works”, with an excellent road network, seemingly always being expanded. There’s huge construction work underway all over the city, including Churchgate’s World Trade Centre, and the 170-metre Millennium Tower, both in the CBD.
There’s a great market for the international hotel brands in Abuja, and I know of several of the leading global chains who are keen to get established there. Here’s hoping for some action soon!
W Hospitality Group, Lagos
If Africa is to realise its potential, much needs to be done. Not least, there needs to be less of a reliance on exports to other continents, and more on inter-African trade. Incredibly, African countries’ trade with their neighbours is just 11 per cent of the total, compared with 70 per cent in Europe. On his recent visit to Tanzania, President Obama remarked that it is easier to sell coffee to Europe than across the border.
Travellers around Africa will know that it is not just goods that are difficult to move around, it can be a serious challenge also for people!
The whole system of visas can really do one’s head in. What’s the problem? Well, before I give examples of the problem, let me give the solution – a single visa for a region, or (and this needs a real – and naïve! - stretch of the imagination) for the whole of Africa.
It’s been done before. Before 1990, Europe had some of the most stringent border controls, specifically between East and West – getting into Czechoslovakia was not that easy in those days. Now, almost 30 of Europe’s countries, well over half, are in the Schengen area, which function as a single country in terms of visas – a visa for one allows (mostly) unrestricted travel to all the others.
Here in West Africa, visa-free travel does exist – but only for nationals of one of the countries of the region. A Nigerian passport holder can travel throughout all of the ECOWAS states without a visa. Indeed, it is possible to get an ECOWAS passport, valid for travel only within the regional bloc, same day, no biometrics, no security check, just proof of identity – like a utilities bill. Pretty simple stuff, if you are a national of an ECOWAS country.
But between East and West, North and South, visas are required by Africans, are difficult to obtain, and often refused. In recent years, frequent political spats between Nigeria and South Africa have meant increased refusals of visas, a “shortage” of visa stickers, and, in the Nigerian High Commission in South Africa, a rejection of invitation letters signed by anyone with a non-Nigerian name (e.g. me!).
Ah yes, invitation letters. To get a visa for most African countries, you need to be invited by someone. For Equatorial Guinea, that someone has to be the government. So no spur of the moment trips – that letter can take “a while”.
Granted, some countries in ECOWAS allow any traveller from outside the bloc to obtain a visa on entry – Senegal, The Gambia, Mali are the ones I have experience of that do that. Sierra Leone has an on-line system run by a local tour operator, with a visa produced on arrival. Others, like Ghana, also allow a visa on entry – provided a letter has been obtained from the
Ghanaian authorities, by someone in Ghana, who has enough clout to obtain said letter, and the letter is there, at the airport, when you arrive. But, this being Africa, it is not as simple as that. Because, as happened to my colleague recently, he was denied boarding in Lagos for the Accra flight, because they wouldn’t accept the copy of the letter he had with him as sufficient evidence that he would be allowed into Ghana.
As an official and long-term resident of Nigeria, you would think that I might be afforded the same rights as a national, at least for travel within ECOWAS? No, I have to obtain visas like any other foreigner. With the exception of Angola (and Angolan visas are soooo difficult, I am not going there in this piece!), I am not aware of a single southern or Eastern country for which I require a visa – I get one on arrival.
And by “get one”, I mean “buy one”. Because that’s what it’s all about, that’s why the visa regimes in Africa can be so difficult, for Africans as well as for foreigners, that’s why doing a multi-country trip can be well nigh impossible, because it would take so long to get all the visas required, that’s why introducing a Schengen-type visa in Africa (or abolishing visas altogether, ECOWAS-style, but for all travellers) is a pipe-dream, that’s why the visa system in Africa seems, at least to me, to be getting more and more onerous.
It’s all about money. Visas obtained on entry are not a visa, per se, they are an entry tax. Fine, I have no problem with that. Governments have to raise money somehow, and a modest entry tax is one way of doing it. I certainly don’t believe that all this wahala involved in getting a visa in advance is anything about security, keeping out undesirables, it is about collecting money, but in a darn sight more difficult way than charging an entry tax.
Three examples – Turkey, one of the world’s greatest success stories in terms of the growth in its tourism industry, as well as growth in its economy through its export trade, has an on-line system, where nationals of most countries, including most African countries, can apply and pay for their visa. The one condition of using this system is that you hold a valid Schengen, UK or US visa – because the Turks are saying that if they have already done their security checks, which should we do the same?
The second example is the old chestnut of the EAC visa, which is “prioritised” by government for implementation every single year, but cannot be implemented because they cannot decide on how to share the revenue. Nothing about security concerns, it is all about money.
Finally, and fellow travellers will share my pain on this one, have a look at the road border at Seme between Nigeria and the Republic of Benin. The previous dreadful border posts are “under renovation”, and the border now comprises a dirt track between porta-cabins and wooden shacks (I kid you not). The words “medieval” and “primeval” (reference the mud) come to mind, as you
pick your way between the various officials demanding to see your passport, and writing your details in old ledgers, as you avoid the piles of garbage and the animals rooting around in them (I still kid you not) - and as a constant stream of people on motorbike taxis goes unimpeded through the border, “visa” and ID free, having caused the officials to suffer temporary loss of sight through a “handshake”.
It’s all about short-term, now-now money, without any thought to the advantages of opening up the borders to people, and their trade.
W Hospitality Group, Lagos
As Africa’s economies grow, the demand for hotel accommodation is also growing apace – in those countries and cities where the main demand is business-related, there is a direct correlation between GDP growth and the increase in demand for hotel rooms. The more diverse the economy, and the greater the share of the tertiary sector in that economy (transportation and distribution, retail, financial services etc), the greater the correlation, and the greater the multiple of GDP growth.
The Africa story is, of course, one of exceptional growth during the past decade, and that’s forecast to continue. So Africa needs new hotels. In years gone by, it was pretty much only government that built new hotels, but now the private sector is making the running. In the ten years that I have lived in Lagos, there has been a sea change in the African hotel industry, made possible by the availability of new sources of finance.
It’s still not easy (will anything in Africa ever be “easy”?!), but we have come along way since the 1980s, when pioneers such as Mr Goodie Ibru, the developer of the Sheraton Hotel in Lagos, were up against all the odds, and more. Goodie received support from the IFC, then pretty much the only international investor in hotels in Africa. It took another 25 years, until 2010 before the next, purpose-built internationally-branded hotel, the Four Points by Sheraton, opened in Lagos, closely followed by the Radisson Blu. Both were funded by local equity investors
What I have seen in the last two to three years is the arrival on the scene – finally - of new, private sector lenders and equity investors. What I call the “special lenders”, such as IFC and Germany’s DEG – “special” because they have a different perspective to risk than “normal” lenders, and because they have a development agenda alongside the commercial return – have been in the market for some time, and are now being joined by others of the same ilk, as well as purely commercial lenders.
One of the largest single hotel transactions in sub-Saharan Africa, the sale of a majority stake in the Southern Sun hotel in Lagos, was closed at the end of June 2013, a US$70 million deal, unique not only because of its size, but also because the buyer, Tsogo Sun, is a hotel operator, and has managed the hotel since its opening in 2009. None of the international brands has expressed any interest in sub-Saharan Africa, seeking instead owners who will engage them to manage their hotels for them. The Southern Sun deal was funded part equity from Tsogo Sun and part debt from a leading South African bank, a “normal” lender.
I wrote about the new and existing funds that are investing in Africa’s hotels in the ^^^^^ issue of Ai – since then I have heard of two international hotel groups who are looking to break the mould and follow Tsogo Sun’s lead, by providing equity to hotel owners, in one case as the majority investor. And then there are other special lenders who are either increasingly active or who are entering the market for the first time. These include South Africa’s IDC, US-based OPIC, and Cairo-based African Export Import Bank (Afreximbank), which seems to have an almost insatiable appetite for hotel investment, so much so that they have developed a special financial product, the ConTour programme, specifically for hotel lending. I was told earlier this year that they have written term sheets for more than US$1 billion of hotel lending. Match that!
Well, others are in there too. I have heard of at least four international construction companies who are willing to invest in hotel projects, and on one case are acting as developers, buying sites and seeking partners to build hotels. One Europe-based contractor is well on its way to establishing a hotel investment fund, which is attracting interest from Africa-based pension funds and others. When fully leveraged, this fund could have more than US$1 billion to invest.
It never is going to be easy to fund hotels in Africa – indeed, they’re difficult projects to fund in many more-developed places as well – but the options are now there, and we’re in a very different funding environment today from what I encountered when I first moved to Africa in 2003, very different and much, much more positive for the future of the African hotel industry.
W Hospitality Group, Lagos
By the time you read this, the brand new Lagos InterContinental Hotel should have opened. With almost 360 rooms, it’s the largest internationally-branded in the city, and the views are stunning! They’re offering an introductory internet rate of US$360 (or ten times that in the Presidential Suite, if you need more space!), which isn’t bad for Lagos. We’ve been looking forward to the opening for – well, for a couple of years now, and in the same way that other new openings have raised the bar, it’s going to go even higher at the InterContinental.
Now, I don’t want to rain on anyone’s parade, least of all that of Mr Didier Coeln, the General Manager of the hotel, but I have a concern about the impact that the traffic is going to have on that hotel. In fact, I have a concern about the impact that traffic congestion is having on all the hotels in Lagos, prompted by the fact that I missed my flight again this morning(!). Not without challenge, I have been telling people that Lagos traffic had got a lot better in the past couple of years. I take it back, it’s not. And, I’ve seen a massive increase in traffic in Accra, too, which is taking its toll on some of the non-central hotels, such as those on La beach.
From my house in VI on a Sunday morning to the Southern Sun hotel, which is on the way to the airport, that’s a 15 minute drive, tops. Took me two hours a couple of weeks ago, on a Friday night going to the airport. I left almost 6 hours before my flight was due to leave, and I still had to run to ensure I was there before the check-in closed (yes, I had checked in on-line, but at Lagos you still have to physically check in. Don’t ask).
From my house to the domestic terminal at MMIA in the early morning, 1 hour max. Nearly 2 hours this morning, hence the missed flight.
The reason for this is simple, it’s rubbish driving, and it will take forever to change the habits of several million drivers.
The InterContinental is on a fairly narrow road, and it just needs one rubbish driver to clog it all up, and you won’t be able to get there, or out again. The same goes for the Four Points, which suffers from a badly timed traffic light (robot) just outside, and the Southern Sun has the same problem – you can see your darn hotel, but just can’t get there! (yes of course I could walk, but it’s the rainy season…..).
I guess this is a fact of life, economic growth brings more traffic, and as fast as you build new roads (drive the Lekki-Epe Expressway, very smart), the traffic grows faster, and goes slower, and slower. If you’re travelling to Lagos, and you want to stay at the InterContinental (and you should), leave yourself plenty of time – or buy a helicopter.
W Hospitality Group, Lagos
I was in Accra a couple of times recently, after an absence of about six months. Boy, that town is booming! Some would say, with justification, that it is creaking at the seams, certainly the traffic has become a real bore, on a par with Lagos’ notorious “go-slows”. And like Lagos, Accra is seeing an explosion in the number of shops, restaurants and bars opening. The city’s hotels are enjoying the best times ever, with room occupancies of 75% and above the norm. And that means prices are up, up, up, as the hotels use the yield techniques that we experience when we book a flight – the later you book, or the busier management expect to be, the more expensive it becomes.
Future hotel openings may make the town a bit cheaper, but I wouldn’t bet on it. The Kempinski and the Marriott, both slated to open in 2014, are more than likely to keep the prices high, after luring us with tempting opening offers!
There’s talk of a lot of new hotels coming into the market, particularly around the airport. The plan is to increase the capacity of Kotoka by building out the terminal down the hill, at the foot of which is to be a hotel “strip”, including (according to the 2011 master plan) a Hilton, a Radisson Blu and a Protea, and probably others. Plus there’s the “transit hotel” next to the existing domestic terminal, rumoured to be a City Lodge.
In Airport City, the scene of immense development activity, and increasingly deserving the “city” tag, as well as the new Marriott there’s African Sun’s Amber Hotel waiting to open, but unable to do so because of a serious lack of furniture!
The new Kempinski is downtown, next to the convention centre, and is part of a much larger development, the Gold Coast City, with retail, residential and offices planned. Management’s plan is to be the best hotel not only in Accra but in West Africa as a whole – and from what I’ve seen and heard, that is likely to be the case. Apart from 80 rooms on Oxford Street in Osu, there’s nothing else underway downtown that I’m aware of, and with the traffic like it is, and likely to get worse, travellers increasingly choose between the airport and the city centre because that’s where their work or other interest is, rather than travel between the two areas.
But, as with so many African markets, don’t place any bets on all (any?!) of these new hotels coming on stream. We can be “sure” the Marriott and Kempinski will open – but when? Both openings are delayed by years, and the dates keep slipping…….
And don’t be too sure that prices will come down, either – it’s all about supply and demand. Hotel prices were already rising, and then Big Oil hit town. Look at Lagos, where the room supply has increased threefold in the last 10 years but, because demand has also risen dramatically, the cost of staying in one of the main internationally-branded hotels is now US$400 and more. Excluding breakfast at US$35 or more a pop!
Room prices in Accra are not there yet, but they’re getting there. What the city needs, in order not to get a reputation of being unaffordable, like Luanda and Lagos, is more hotels at the midmarket and budget level. Ibis have opened at the airport in Lagos, there’s another one on the way in central Ikeja, and both Park Inn by Radisson and Hilton Garden Inn have projects in the same area. So developers in Lagos are already seeking to exploit that market niche (probably perceiving that the upscale market is getting a bit overcrowded), and it can only be a matter of time before Accra gets in the act as well. We’ll then have more choice and, if we want to, can vote with our wallets. Or will demand just be so strong that we end up paying US$200 or more (plus breakfast!) at the Accra Ibis?!
W Hospitality Group, Lagos