How resource extraction is developing Africa’s hospitality industry

There have been a number of oil, gas and mineral discoveries across Africa in recent years which have attracted a considerable amount of investment in infrastructure and supporting services for their extraction. One industry that certainly benefits from the discovery and production of these resources is the hospitality industry.

Wayne Troughton, founder and CEO of HTI Consulting

Wayne Troughton, founder and CEO of HTI Consulting

According to Wayne Troughton, founder and CEO of hospitality and property consulting firm HTI Consulting, it is interesting to see how eastern Africa has become the new West Africa in terms of demand for hotel expansion around recent oil and gas discoveries.

For example, oil has been found in Uganda and Kenya, and Tanzania and Mozambique are believed to be sitting on one of the biggest gas reserves in the world. “Just to put it in context, they believe there is enough gas [in Mozambique] to sustain China for the next 30 years,” Troughton told .

“So you are seeing a significant growth in real estate, other asset classes, and also in hospitality in these areas in order to be able to sustain [the extraction of these resource discoveries].”

With some of these discoveries being made in areas with little or no infrastructure, Troughton said Africa is seeing the growth of a number of boom towns which can go from having a tiny population to seeing 7,000-10,000 people enter the space for work purposes.

Boom towns and the hospitality lifecycle

HTI Consulting has been conducting feasibility studies and providing financial and development consulting to the hospitality industry – in 35 countries in Africa and the Middle East – for over 10 years.

According to Troughton, the firm has done considerable consulting in a number of African boom towns, which have developed around the discovery of oil and gas. He explained that while these discoveries may not result in much GDP growth until after production starts, the hospitality industry sees benefits from the get go.

“What you have is different lifecycles. When they are starting with exploration they bring in consultants, they bring in engineers, they bring in geo-technical people, they bring in their senior people to come in and assess the opportunities,” Troughton added. “So when they are doing exploration they get many more higher level people coming in and staying in top hotels, four- or five-star hotels.”

For this reason, resource discoveries can result in a demand for high end hotel accommodation, generally for short term stays of about a week or two. However, Troughton explained that when these extractive companies start to move into their production phase there is a demand for lower-end, permanent accommodation, where middle to lower level managers need apartments or apartment-type hotels.

“So we actually often see the boom occurring in hospitality preceding the boom in GDP,” he added.

Catering for supporting services

Troughton added that demand for accommodation is not always driven by the oil and gas companies coming in to an African country, but often the supporting organisations, such as the logistics and distribution services. “They can generate between three to five times more room nights than the actual main oil company because of their role,” he added.

With plans to build liquefied natural gas plants (LNG) around the natural gas reserves in Mozambique and Tanzania, Troughton expects there to be a significant increase in travel to these areas over the next four to five years.

“Around about 2017 to 2020 is where we start to see these plants start to come alive so the next five years we are seeing huge potential for growth in these markets because people have to build these LNG plants,” continued Troughton.

Alongside this will be the construction of transport infrastructure to export the oil and gas, such as ports, as well as office and retail space for construction companies and the needs of foreign investors entering the space. And all of these people will require various forms of accommodation to meet their travel and business needs.

Mixed-use and distressed building developments

“One of the other trends that we are starting to see coming into Africa more and more is the trend of mixed-use developments, [for example] where a hotel is attached to a shopping mall,” said Troughton.

He added that very often mixed-use developments can generate anywhere between 15%-20% more revenue. “In Africa it’s even more important because you have a lack of infrastructure… there are security issues and people don’t want to travel at night, or restaurants are not available elsewhere. So if you can keep it all in one particular node [it is an advantage].”

In addition, Troughton highlighted the trend of old, distressed assets, often owned by governments, being converted and developed. He said they offer good opportunities for investors who can get them at lower prices and convert them profitably. “We are seeing a lot of this happening in Africa at the moment,” he concluded.