African hospitality market attracting new investors

With the tourism sector being a key target for most African governments, hospitality investments are strongly supported by public authorities who offer incentives to attract the world’s largest brands, making the continent the new battleground of major international hotel groups.

According to EY’s Africa Attractiveness Survey, the African hotel and tourism sector was forecasted to grow by almost 17%, with accommodation demand increasing from the business travelers connecting to big African cities and many other African commercial capitals, as a reflection of strong economic growth. As the continent remains attractive to investors for business, trade and capital investment, it leads to an increasing demand for accommodation and hospitality products.

The hospitality sector is developing at a rapid pace, with large investments planned in sub-Saharan Africa. It has shown a 29% average yearly growth rate between 2012 and 2016 in terms of room capacity, according to a W Hospitality Group 2016 survey. At the end of 2016, hotel developments were planned for 35 of the 49 sub-Saharan African countries, with western Africa absorbing 45% of the capacity of rooms planned, followed by southern Africa with 26% and eastern African capturing 24% of the planned rooms.

In terms of the number of investments, they are largely focused on the southern region of the continent, with South Africa absorbing the highest amount of investments. Kenya attracts the highest amount of hotel investments in the East Africa region, followed by Uganda, as the countries are offering diverse opportunities for tourism development and therefore large capacity of absorbing hospitality investments. West Africa is also a key target for several investors, with Nigeria the top priority, followed by Côte d’Ivoire and Ghana.

International hotel groups are actively taking advantage of the market opportunities:

  • AccorHotels has set up partnerships with strong investors to conquer the African hospitality market and aims to increase its sub-Saharan Africa network to 15,000 rooms in 100 hotels over the next five years.
  • Carlson Rezidor, with 30 hotels comprised of 6,300 rooms under development across the continent, has set up a hospitality fund, Afrinord Hotel Investments, with Nordic institutions to support its growth on the continent.
  • Marriott International announced in 2014 its plan to expand its African presence to 150 properties in 17 national markets by 2020. Its acquisition of Protea, a 116-hotel group spanning seven African nations, for US$200m, marks a key step in its strategy.
  • The American group Hilton, with 39 hotels in 17 African countries, intend to double its presence to 80 hotels by 2020 with new openings and extensions in Ghana, Kenya and Nigeria.

Even if international hotel chains seem to be the leading players in the field, local groups are also active. Mangalis Hotel Group, the new African hotel chain is investing $340m to build 15 hotels in west and central Africa through three brands (Noom, Yaas and Seen) with a total of 2,200 rooms and suites. Azalaï Hotels, which has footprints in several west African countries, with a capacity of 1,000 rooms, intends to grow above 1,600 rooms. At the beginning of this year, AfricInvest announced an injection of EUR 17.3m ($19.44m) in Azalaï Hotels capital, to support the hotel group’s development across Africa through capacity extension and service improvement.

Beside the hotel groups, institutional investors are also showing interest to the hospitality and tourism sector. Gradually increasing their exposure to the segment, investment funds see the African hospitality sector as a golden egg, and show their enthusiasm for the segment by mainly investing through equity vehicles. Their investments target both greenfield and brownfield projects in all geographies. These funds targeting African hospitality markets are largely funded by development institutions around the world, helping local tourism sectors take off and raise the economy.

As other institutional investors, African sovereign wealth funds are looking to hospitality, as the segment is considered a relatively safe investment sector. The Libyan Investment Authority (LIA), the Libyan sovereign wealth fund, has been actively investing in hotels in Africa through its subsidiary LAICO, Libyan African Investment Company. The fund owns hotel chain Laico Hotels & Resorts, which also owns the Ensemble Hotel Holdings group, proprietor of the high-prestige Michelangelo Hotel in Johannesburg. Laico Hotels & Resorts has 10 properties of four-star and five-star hotels with over 2,200 rooms through two brands: Laico and Ledger. Most of its acquisitions were targeting three-star to five-star hotels and are managed by international operators. In 2008, LAICO established a joint venture, called LAICO Hotels Management Company, with Tunisia Travel Service (TTS), a Tunisian company involved in the hospitality sector through hotel management, airlines and ground transportation.

LIA is similarly followed by Angola’s Fundo Soberano de Angola (FSDEA), which is starting investments in hotel and commercial infrastructure in sub-Saharan Africa. The fund is expected to invest in 50 sub-Saharan African hotels over three years, including in Angola. This is thanks to allocation of $500m in equity capital to a hotel development fund for Africa, as it has earmarked the tourism space as a particularly potent area. FSDEA’s hotel fund will focus on three-star to five-star hotels in sub-Saharan African capitals and other commercial centers, targeting business travellers rather than tourists for their currently returns. The fund will target existing hotels changing ownership or those still under development. Funds from Mozambique, Nigeria and Ghana are all intending to follow their peers and to exploit the recent rises in tourism to Africa.

Gaicha Saddy is a senior associate at Infomineo.

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