African hoteliers confident as commodities dip
GLOBAL REPORT—When commodity prices fall, the economies of Africa are expected to suffer because those countries have spent the last decade betting on resources to spur their economies.
Hoteliers, however, are confident that a burgeoning middle class, increased growth in manufacturing and services sectors and improved airlift and tourism will help realize their development plans for the continent, according to sources. Countries that do not depend on commodities to shore up the bulk shares of their gross domestic products will do better, though, and might be better candidates for hotel development.
In a 13 January webinar hosted by business consultancy Deloitte and titled “Global economy: An edgy start to 2016,” its chief economist Ian Stewart underlined that view.
“Particularly in East Africa … in economies like Tanzania or Uganda or Ethiopia, those which are not heavily resource-dependent, actually, growth rates still look pretty good,” Stewart said, “and I think that if you’re looking at the world economy, some of the strongest growth rates are probably going to be seen in those non-resource economies.”
Hoteliers remain positive and believe the dip in commodity prices will not have a disastrous effect on Africa, according to Neil George, SVP of acquisitions and development at Starwood Hotels & Resorts Worldwide.
“You would think that would be the case, as there are a number of economies heavily dependent on commodities and Chinese money,” George said. “There is some shaky ground. Not all is rosy, but if I look at our pipeline, none to date have fallen over because of that.”
Starwood has 18 African hotels in its pipeline, including five properties in Nigeria, one in Tanzania and one in South Sudan, the world’s newest nation.
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Some hoteliers see the present as the ideal time to build in Africa, but they admit some countries’ business landscapes have been muddied by political intervention. Dillip Rajakarier, CEO of Thailand-based Minor Hotel Group, cited Mozambique as an example.
“It’s a good time to do development now, I feel, although of course you can see in 20-20 vision in hindsight,” Rajakarier said. “Mozambique’s currency has taken a huge devaluation, some 40%, and the main reason for that is that Mozambique has a huge reserve of gas and oil. What happened there was that the governmet put in restrictions and upset investors, who left, but the government is under pressure to get these investors back, and they will come back.
“We expect things to get better there and in other African economies by (the second or third quarter of 2016), and we need to ride the wave until then.”
Rajakarier said his Avani Pemba Beach Hotel & Spa in Pemba, Mozambique, which opened in 2014, opened 80 serviced apartments in 2015.
“We’d seen rooms selling for $7,000 per month,” he said. “We thought, that’s fantastic, so we added 80 serviced apartments, but once they were completed, everyone left, and we’re now trading at approximately 35% occupancy. Still, here, too, we’re confident it will come back.”
Angola is another African country heavily dependent on commodities, according to sources.
“Angola has continued its strategic expansion of hotels driven by partnerships … (and) the demand for hotels is dependent on the political and economic climate,” said Selim El Zein, associate director and head of hotel asset management, hotels and resorts of the Middle East and North Africa for Colliers International.
“However, there has been a concerted effort to diversify into tourism … the government is working towards that aim,” El Zein added.
The cost of building on the continent is another problem, sources said.
Wayne Troughton, CEO of HTI Consulting, said he was being cautious on Africa this year.
“Certain markets are very costly to develop hotels, and these costs will rise,” Troughton said, who added that much development capital was inbound capital.
The main contributor is China, sources said, which is undergoing its own shaky start to the year.
Elie Younes, Carlson Rezidor’s SVP and head of group development for Europe, the Middle East and Africa, said a huge amount of Chinese money has been invested in mining commodities in China. How Chinese money continues to be invested given the country’s economy will be interesting to watch, Younes said.
“I will not be surprised if there is less heavy exposure, but where the Chinese might be a little less involved, emerging players such as Turkey and Arabic Africa are increasing their investment,” Younes said.
Younes said his company is buoyed by the continent’s steady progress in service industries, but the hotel industry needs to look at improving the labor market in Africa.
In 2015, Carlson Rezidor signed properties in Togo and Republic of Congo, among other destinations.
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