Trevor Ward FIH provides expert analysis of the investment and performance outlook for hoteliers across the African continent.
Budgeting for next year used to be so simple – inflation was running at x%, so let’s use that plus a little bit more to increase what we achieved this year in real terms, and there’s your budget. And in a simpler world, that’s often what actually happened. ‘Simpler world?’ When exactly was that?! Definitely not today, when uncertainty is totally the new normal.
Much like British politics at the moment, Africa is very good at uncertainty. It is oft-quoted that in 2000 the Economist magazine ‘wrote-off’ the entire continent with the headline ‘The Hopeless Continent.’ That was, indeed, a sweeping generalization about 54 hugely diverse countries. Then there was ‘Africa Rising,’ the 2011 headline from the same source. What would they say today? ‘Africa, the Rollercoaster Continent’ or ‘Africa, Unpredictable?’
To my mind, one of the biggest events in Africa last year, was the political change in Ethiopia. In just seven months the new Prime Minister lifted the state of emergency, freed many political prisoners, ended the war with Eritrea, opened the long-closed land border with Eritrea (we await the emergence into the sunlight of that fascinating country!) and appointed a gender-balanced cabinet. Ethiopia has already proven to be one of the fastest-growing economies on the continent, and such openness can only improve things.
The economy. That’s the key. Over 70 per cent of Africa’s 2018 hotel pipeline (rooms in planned branded hotels) are in city (including airport) properties, and for them it is economic growth, boosted by rising levels of Foreign Direct Investment and capital employed, that generates increased demand for hotel accommodation.
Looking at the national GDP figures, only two countries out of 49 in sub-Saharan Africa are projected to shrink in 2019: South Sudan and Equatorial Guinea. Look at the per capita GDP figures, and there are now six countries where the figure is negative (income is reducing, meaning more people in poverty) and another three countries are below 1 per cent real growth. OK, nine countries out of 49 is about 20 per cent, so 80 per cent are doing OK? Yes, but the two countries where most of the Institute’s members in Africa live and work, Nigeria and South Africa, are included in the six countries which are getting poorer. And these are the two giants of sub-Saharan Africa.
I’m still optimistic about Africa and my adopted country, Nigeria. Acorns don’t grow into oak trees overnight. And the challenges and opportunities are all muddled up, and very often one clouds the perception of another. In the November 2018 McKinsey Quarterly, the authors said: “We don’t pretend that Africa is an easy place to do business, given its geographic complexity, infrastructure gaps, and relative economic and political volatility.” Well said! Let not the challenges obscure the (many) opportunities, but don’t think those challenges won’t sometimes bite!
Our research shows there was growth of 14 per cent in the hotel development pipeline in 2018, which since 2014 has almost doubled. The chains want to be in Africa, and investors and developers want them to be there. The actualization rate – the percentage of actual on-schedule hotel openings compared to the hoped-for openings – is now above half for the first time. It’s happening. And the chains anticipate that they will open over 100 more hotels in 2019. OK, not that much in 54 countries (all of Africa), but acorns, oaks.
16 countries in Africa have elections in 2019, including Nigeria and South Africa. More uncertainty. GM, how do you do that budget?!
Trevor Ward FIH is the founder and owner of W Hospitality Group, a Lagos-based consultancy firm. He is also the director of consultancy services at Hotel Partners Africa, an alumni of the University of Surrey, and the Institute’s Ambassador for Africa, encouraging the development of branches on the continent.