Did you know that travellers pay almost three times more for a room at the Radisson Blu M’Bamou Palace Hotel in Brazzaville (Republic of Congo) than they do for a room at the Radisson Blu Plaza Hotel in New Delhi (India)? And a room in the Radisson Blu Hotel & Convention Centre in Kigali (Rwanda) costs well over double the amount of one in the Radisson Blu Hotel Shanghai Hong Quan in Shanghai (China).
There are a number of factors influencing this, including the laws of supply and demand. For example, five-star hotel accommodation is limited in markets like Brazzaville and there is very little competition. But in New Delhi there are a handful of Radisson Blu hotels alone, along with many other competitors.
The cost of running a hotel to a certain standard also comes into play. The World Bank’s Doing Business report, for instance, estimates that electricity costs around 22% more in Rwanda than it does in Shanghai, China. Many hotels in sub-Saharan Africa also have to rely on imports of basic goods (such as luxury linen and toothpicks). They can even struggle to source a steady supply of quality fresh food and have to invest in developing this supply chain. These expenditures add up and are ultimately passed on to hotel guests.
And then there are the general construction costs of a hotel. According to Andrew McLachlan, senior vice president of business development for Africa and the Indian Ocean at Carlson Rezidor Hotel Group (which owns Radisson Blu), it costs 30% more to construct a Radisson Blu in east Africa than it does in South Africa – and more than double in Nigeria. On the other hand, it would cost less to build a hotel in Dubai than in South Africa. These diverse construction costs also cause significant discrepancies in the ‘cost per key’ – the total amount spent on a hotel divided by the total number of rooms (or keys).
“It ranges depending on country and location,” says McLachlan. “For example, is it a port city or is it a city inland and what is its infrastructure like to get a product from a port to 2,000kms inland?
“So a Radisson Blu, at a cost per key, will range anywhere from US$250,000 a key, all the way up to $400,000 per key.”
Specialised skills are also limited and in some African markets hotel construction contractors and designers usually have to be brought in from other countries, adds McLachlan.
“We don’t have the same level of skill sets here. We don’t have as many hotels being built in Africa, so you don’t have too many companies that purely specialise in just doing hotels.”
He notes that, on average, it takes four years to build and open a hotel in sub-Saharan Africa (outside South Africa), compared to about two years in Europe, North America and even South Africa.
To incentivise contractors to complete construction work within a certain time frame and prevent even longer delays, Carlson Rezidor only enters into turnkey design-build contracts in African countries outside of South Africa. This means that contractors have to complete construction within a fixed time, at a fixed price – and will have to carry the cost of any additional expenditures or delays.
“We have been able to bring in European and Turkish contractors and it’s really been quite a successful way to actually build a hotel. The turnkey contractor might cost a little bit more initially upfront when you look at feasibility, because he is obviously pricing in the risk which he has got to take into account. But at least you know that if he is saying it’s a 36-month contract, it’s actually going to be a 36-month contract,” he explains.
“Whereas with some of our competitors, they are into their 10th year of construction and are still not open. Hotels that should have cost $50m are now costing over $100m because its 10 years of a contract of being on site, and there is no incentive for that contractor to get off. So every month he is just generating more and more expenses.”