> Africa Investor

Africa Investor

 Many people know me as being extremely bullish about Africa – after all, I have livedand worked on the continent for almost 12 years, and I have had an involvement in the African hotel industry, particularly in West Africa, for more than 25 years.  I have written in this journal for some years now, explaining why the African hotel industry is a “good bet”, and encouraging investors to “jump in”.

I remain optimistic about the prospects for the future in many, many ways, and I intend to stay here for some time to come, but after a year like 2014, I have to confess to tempering my enthusiasm somewhat, and wondering just what 2015 will bring.

It’s all about jobs.  Our industry, in its widest sense known as the Travel and Tourism Industry, of which the segment I know best is the hotel industry, is, by some counts, the largest in the world, and is certainly the largest employer of any productive economic activity.  And has the potential to generate the most jobs, often in areas where other industries cannot reach, and for unskilled workers, and for women.  An industry to be encouraged, and industry to invest in for good returns.

But it is also an industry which is vulnerable to external shocks, such as the re-emergence of the Ebola virus in West Africa in mid-2014, this time with a vengeance.  Not just Ebola, but also the terrorist attacks in Kenya, threats in Uganda, rumblings of civil unrest in Mozambique, economic problems in Ghana, and so on.  Apart from a temporary influx of aid workers and journalists into affected areas, none of these events are positive for our industry, and all of them result in workers being laid off, and in much slower growth.

The Ebola virus has been the biggest shock in 2014.  Ebola has surfaced before, but in relatively isolated areas and never affected “Westerners” before.  Between 1976 (when it was first identified) through 2013, the World Health Organization(WHO) reported a total of 1,716 cases – in 2014 there are over 10,000 as of October.  The tragedy has most affected three countries, Guinea, Liberia and Sierra Leone, with families destroyed, and the productive capacity of the rest of the population reduced significantly.

According to a World Bank survey of the hotel sector in Freetown[1], hotels are closing, workers laid off, and occupancies in those that remain open are below 20 per cent.  Suppliers to the industry are directly affected - the local brewery has put planned

investment on hold and has considered closing altogether – it is estimated that would result in the loss of 24,000 jobs nationwide.

The World Bank uses the term “aversion behaviour” to describe the disproportionate impact of a highly localised event - of the total of over 10,000 cases of Ebola, fewer than 30 have been reported outside the three countries most affected.  This aversion behaviour is described as “the root cause of the unfolding slow down”.

Hotel occupancies in Nigeria (20 cases of Ebola, and now declared by the WHO as free of the disease) in July, August and September were close to half what they are normally, the same in Ghana (zero cases).  Simply because people were afraid to travel.  The Nigerian authorities responded very well, and prevented what could have been a catastrophe if the virus had taken hold in some of the densely populated areas of the country.  But international and domestic travellers had no confidence that the authorities could control it, and displayed their aversion behaviour by staying away.  Confidence is coming back, at least in Nigeria, but not in all cases – safari operators in Tanzania, deluxe hotels in Cape Town (look at the map for goodness sake!), have experienced cancellations because of what is happening 6,000 kilometres or more away in West Africa.

In East Africa, the resort industry on the Mombasa coastline has also suffered, there due to terrorist attacks, mostly nowhere near where the vast majority of tourists enter the country, and where they stay.  Because of governments’ aversion behaviour (issuing travel advisories) and that of tour operators (evacuating their clients from Mombasa) and tourists themselves (switching to other destinations), hotels closed and staff were laid off.

How is our industry going to live up to its reputation for being a champion job creator when we get hit by forces and events which are totally outside our control?  Well, I think we will.  In our annual Pipeline Report, which provides data on the deals signed by the international hotel chains, we saw an increase of almost 30 per cent in the number of new rooms in the pipeline in sub-Saharan Africa, in hotels due to open in the next three to four years.  A very positive metric indeed.

Except that – we are not seeing enough progress to keep up with the opportunity and the need – need not just for hotels to satisfy growing demand, but the need to create jobs.  At the recent Africa Hotel Investment Forum (AHIF) held in Addis Ababa, I led a panel of several international and regional operators, and asked them “how many hotels did you open in 2013 and 2014?”.  Between the five companies represented, including four very large global players, the answer was, in total, fewer than 10.  In 54 countries.

Will we see more hotels opening in 2015?  Possibly.  No, almost certainly we will, but it’s not enough.  In Lagos, the biggest city-economy on the continent, there are only two hotels with an international brand actually under construction, there have been no new starts this year, and only one hotel, the 74-room Lilygate (no brand) has opened.  In Abuja, there is nothing under construction with an international brand associated with it.

At that same AHIF panel, I asked the participants what they could do to jolly things along, to move from being “deal signers” to “project creators”.  Naturally, the solutions from their point of view are limited – operators’ business model is that they rely on others to build them hotels for them to brand and manage.  But we agreed that they need to get much more involved in pushing things along, and if needs be they are going to have to either invest themselves (and we are seeing that happen in a small way), or mobilise finance from other sources, which is the more likely and faster route to progress.  Will it make much difference?  Well, it is certainly a step in the right direction.

I’m not going to make any predictions for 2015.  The world and Africa are going through interesting, nay turbulent times.  Did I mention the impact of the slowdown in Europe, virtual stagnation in South Africa, and the energy-self-sufficiency in the USA?!  All external factors that can be positive for us – the slowdown in South Africa is leading to investment and professional skills being exported northwards, and the shale gas boom in North America means that our oil industry in Africa must stop being complacent and get out there and sell to other markets.

Here in Lagos, we are seeing a comforting return of international and domestic travellers, and occupancies are on the rise.  The prognosis for the future is, as ever, extremely positive – but that’s not a prediction!

Trevor Ward

W Hospitality Group, Lagos

trevor.ward@w-hospitalitygroup.com

Affiliated to

Plot 10, Ayo Babatunde Crescent, off Oniru Market Road, Lekki Phase 1, Lagos, Nigeria
+234 (01) 295 6236
info@w-hospitalitygroup.com

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