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Hotels rush to Africa as middle class matures

People walk outside the Hilton Hotel in Bogot� on March 13, 2012. JOSE CENDON/BLOOMBERG NEWS

People walk outside the Hilton Hotel in Bogot� on March 13, 2012. JOSE CENDON/BLOOMBERG NEWS

Published Jul 25, 2013

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Nadja Brandt

Marriott International, Hilton Worldwide and Starwood Hotels and Resorts Worldwide are turning to Africa, where a growing middle class and rising travel are fuelling the fastest pace of hotel development in the world.

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Marriott has increased the number of hotel rooms it plans on the continent by 55 percent from last year. For Starwood, revenue for every available room in Africa and the Middle East is the highest of any region worldwide. And the high-end Transcorp Hilton Abuja, in Nigeria’s capital, commands some of the steepest management fees in the world for its operator, according to Lagos-based hotel consulting firm W Hospitality Group.

Hotel investors and operators, finding growth slowing in mature European and US markets, are expanding in Africa as the continent is buoyed by increasing trade with emerging countries and rising demand for services such as lodging. Half of Africa’s countries will post gross domestic product growth of 5 percent a year through 2016, according to the Economist Intelligence Unit.

“Africa’s middle class is almost as large as the entire populations of Russia and Brazil combined,” Starwood regional executive Hassan Ahdab said. “The boom in sub-Saharan Africa is attracting business talent from the rich world.”

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The sub-Saharan region includes Kenya and Tanzania in the east, Nigeria in the west, Angola in the south-west, and South Africa and Botswana in the south.

Young population

Urbanisation in Africa was driven by one of the world’s youngest populations, said Trevor Ward, a principal at W Hospitality, citing International Monetary Fund (IMF) data. People of working age moving to cities had resulted in 40 percent of Africa’s population living in urban centres today, compared with 30 percent in India.

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The median age in Ethiopia and Nigeria is 18, compared with 37 in the US and almost 46 in Japan and Germany, according to the CIA’s World Factbook. Forty-nine African cities have populations of more than 1 million, with five of those home to more than 7 million, according to a 2012 study by London-based research firm Economist Intelligence Unit.

Those demographic trends, combined with rising exports of oil and minerals, are lifting domestic and international business demand for lodging, according to Ahdab.

“Business schools, including the London Business School, are now getting in on the game and offering Africa-specific seminars, training and clubs,” he said. “For many of these business students, Africa is like India and China 10 years ago.”

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Growth on the continent is most dramatic in sub-Saharan Africa. Planned developments, including new properties by luxury hotel operator Kempinski in Nairobi, were up 23 percent from last year by number of rooms, compared with a 9 percent increase in north Africa, which was a bigger, more mature lodging market with such tourist draws as Morocco and Egypt, Ward said.

In Asia Pacific, planned hotels are up 8.5 percent, while in Europe the increase is 4 percent, according to US-based research company STR.

Rising numbers of leisure travellers from abroad to eastern and southern Africa are also boosting demand for hotel rooms. In Rwanda, tourism income would grow to $440 million (R4.3 billion) next year from a projected $317m this year, the Rwanda Development Board said in May.

Tourism revenue in Kenya is forecast to rise to 100 billion shillings (R11bn) this year from 96 billion shillings in 2012, according to its tourism authority. In South Africa, tourist arrivals rose 10 percent to a record 9.2 million last year, driven partly by an increase in visitors from Asia, President Jacob Zuma said in April.

“When it comes to Africa, many people have tended to focus on the negative – the wars, the corruption,” Ward said. “But there is not that much opportunity left in the more developed markets for new hotel developments. Today, Africa is seen as a big blank block on the map [in which] hotel companies need a presence.”

With seven of the 10 fastest-growing countries in the next five years likely to be in Africa, average growth on the continent probably will outpace Asia’s, according to IMF data.

Limited competition, which allows hoteliers to charge high room rates, coupled with low labour costs are driving lodging profitability in Africa.

Largest operators

Among the largest hotel operators in Africa is Hilton. The firm, owned by US private equity firm Blackstone Group, has the most rooms planned on the continent, with a pipeline of 6 230 at 23 hotels, according to W Hospitality. That’s up 84 percent from the number of rooms Hilton had planned last year.

The hotelier plans to have properties in all of Africa’s key cities, according to Rudi Jagersbacher, Hilton’s president for the region. “Growth, particularly in the key business, government and commercial cities, is fuelling the demand for quality hospitality,” he said.

Starwood Hotels, which will open a new St Regis in Cairo in March 2015, will increase its number of properties in Africa to 50 by 2016 from 38 today.

“I saw encouraging signs during our recent market visit to South Africa, Angola, Nigeria and Gabon,” chief executive Frits van Paasschen said in February. “Africa is the one region that was left behind by global development in the last 20 years, but we see that changing.”

The continent is not without challenges for hoteliers. Not all African countries were growing at the same rate, with a lack of economic activity or political instability affecting some areas, Ward said.

“You have 54 countries, and the situations in each can vary greatly,” Ward said. “You’ve got so many small countries, land-locked countries with few natural resources and no access to any ports. The demand there will never be as great as in coastal areas or resource-rich countries.” – Bloomberg

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