As Africa’s middle-class continues to grow, and tourists and business travellers flock to the hub-cities of some of the world’s fastest growing economies, the need for international-class quality hotels is increasing. Hotel Partners Africa is one of the continents go-to companies for all hospitality real estate needs…
In October, the World Bank predicted that sub-Saharan Africa’s continental GDP is expected to pick up to an average of 4.4% and 4.8% in 2016 and 2017 respectively. This is despite the fact that growth is projected at an average of 3.7% in 2015, down from 4.6% in 2014.
This increase in GDP is largely down to the growing economic activity in Africa’s emerging markets – six of the 10 fastest growing economies in the world are in Africa. And with all this development comes the need for quality travel solutions such as hotels, air travel and tourism infrastructure.
But you cannot simply turn up in Africa, buy some land and build a hotel – there is a web of laws, legislations, rules and regulations at every stage of the process and they all need to be stringently reviewed and obeyed so that any investment can be successful.
One company that is in the perfect position to help here is Hotel Partners Africa (HPA). Founded after the coming together of three award-winning consultants; W Hospitality Group, Hotel Spec and Leisure Property Services; HPA has been driving development in the hotel industry in sub-Saharan Africa since 2013.
The company can provide a seamless service for all hoteliers and developers across Africa, making the most of over 100 years of hospitality experience. HPA looks after all needs related to hospitality real estate in Africa, from the initial appraisal of a potential development, to sourcing the money to develop the hotel, to building and opening the business, and finally to selling the asset.
In August, HPA announced that its Head of Design and Construction Mark Martinovic would take over as CEO following the resignation of Vernon Page who had held the role since the formation of the company.
Enterprise Africa spoke to Martinovic and asked whether the transition was a difficult one.
“It was very seamless,” he says. “We work very closely with each other. Naturally there’s more responsibility now with the company itself to look after but I’ve taken it in my stride.
“I was a little blind-sided in the last board meeting. It came up to a vote; I was thinking about it and before I knew it I had been proposed by David Harper and seconded by Trevor Ward and Vernon Page and the motion was passed unanimously. The guys have a lot of faith and trust in me and thought that I was the man to get the job done.
“We’re all good friends. We are professionals and we’ve been working together in our own fields for many years. It certainly helps that we are friends and we do see eye to eye on most if not all issues. The focus is more on getting the job done and client satisfaction than any internal wrangling.”
Page, who resigned due to personal reasons, said of his replacement: “I am passing on the baton of leadership of this ground-breaking partnership into the very safe hands of Mark. With over 27 years’ experience in African hospitality he will ensure that the core values of HPA – quality, integrity and client satisfaction – remain at the heart of everything the company does.”
HPA BUILDING FOR GROWTH
The tourism industry can be a driver of economic growth if it is invested in correctly. Research by the W Hospitality Group (a member of HPA) suggests that employment in the hotel sector in Africa is set to grow substantially in the coming years. It estimates 136,000 new jobs were created in 2014, 87,000 in 2015, 70,000 in 2016 and 27,000 thereafter based on current signed contracts from international brands plus regional brands and non-branded developments to come.
It is reported that there are almost 50,000 hotel rooms at 270 hotels in the pipeline for development in Africa and sub-Saharan Africa is home to some of the most exciting projects. It perhaps comes as no surprise then that HPA is going to focus its efforts here before expanding internationally.
“We’ve been invited a couple of times and we’ve discussed it at board level and certainly in the medium-term, we’re not looking at expanding out of the continent. With 48 countries in sub-Saharan Africa there is more than enough to keep us all busy at the moment,” explains Martinovic.
“To go and establish yourself in the Middle East, Europe, Asia-Pac or the Americas you need to have an understanding of the market. You need to understand the client culture, the expectations, the availability of resources and materials and many more things. We know Africa, we’ve worked and travelled in every single African country between us whereas we don’t have that experience in other territories. We don’t really want to go there and compete with 2000 other consultants when we already have a big established market that we know, where we are recognised and appreciated and that is our home,” he says.
Even in times when the economic climate in SA has not been conducive to growth, the reach of HPA and the demand for its services has resulted in a smooth flow of business.
“Because of our broad footprint in sub-Saharan Africa; we’re dealing with 48 different countries and that means many different cultures and languages; when one country slows down, another picks up and that counts in our favour.
“For us, West Africa slowed down this year because of the Ebola crisis, the elections in Nigeria and the oil price slump, but as that was happening East Africa had a boom – everywhere including Mozambique, Kenya, Rwanda, Ethiopia etc. so it’s been a balancing act running from one part of the continent to the other. Overall, I would say it’s been a relatively positive year. In general Africa has had a bit of a slump but the region is certainly bouncing back from the 2009 financial crisis,” explains Martinovic.
Earlier this year, it was reported in South Africa that construction companies were really starting to feel the challenges thrown up by a slow-economy. Stock prices for major JSE-listed construction companies plummeted between 42% and 72% but in the hotel sector, Martinovic suggests that there has been something of a revival with new deals being signed and plenty of activity coming off the back of a difficult few years.
“South Africa surprised me a few months back by startlingly reawakening,” he says. “The country has had a terrible slump since 2010 because of the oversupply thanks to the 2010 World Cup and the cancellations because of the financial crisis and South Africa took a number of years to come out of that oversupply situation where there were a number of distressed hotels. Operators and developers found it cheaper to buy a distressed hotel compared to going and building a new one at a premium rate. However, in this last year, we’ve seen a number of deals signed in Cape Town and Jo’burg primarily and there’s opportunities in Durban, on the East Coast, in obscure places like Nelspruit and this activity caught us by surprise as there is now quite a bit of activity happening in the hotel industry in SA.
“In the last six months I’ve seen some incredibly exciting news with hotel developments, refurbs and conversions in SA.”
SUB-SAHARAN GROWTH
Business travel in Africa, especially sub-Saharan Africa, is a booming sector. With markets like Ghana, Kenya and Nigeria enjoying a burgeoning travel industry following on from fantastic economic growth, the opportunities for development are vast compared to more developed markets such as Egypt, South Africa and Morocco.
“South Africa has a developed economy and industry. I don’t see that much opportunity in SA and I haven’t more many years now. For me, and for the company, sub-Saharan Africa is where the opportunities exist,” explains Martinovic.
“If you compare the two economic powerhouses of sub-Saharan Africa, Nigeria and SA, you can compare hotel statistics, there’s around 43 branded hotels in Nigeria but over 260 in SA. We have barely a third of the population of Nigeria yet we have four or five times the number of branded international quality hotels. From a contextual point of view, you can see the massive growth opportunities for not just Nigeria but any African country,” he says.
And the benefits are not only to be had for developers and consultants like HPA; there’s also huge opportunities for operators. A survey conducted earlier this year by hospitality research firm STR Global found that the Addis Ababa is the most expensive place in Africa for a night’s sleep, coming in at almost 60% more than a night in Nairobi. The reason for this – basic economics; a lack of supply and a high-level of demand.
“Specifically it’s because of the lack of quality hotel accommodation. If you look at Nigeria or Angola, you can go and stay in an unbranded barely two-star equivalent hotel room and you could pay around $400 per night – you could get a suite at the Waldorf in any western country at that price,” says Martinovic.
“The guys that have the foresight and the funding to go and put up a quality international product will charge what they want. Many western companies that work in Africa have very strict criteria as to what types of properties they will put their staff in so if you have the only branded international hotel in a particular location people will come to you. It’s simple supply and demand, there’s a lack of supply and a high demand and the guys who own quality properties charge what they like,” he adds.
PIPELINE CHALLENGES?
With the on-going success of the industry and the broad footprint that has allowed HPA to sidestep economic and political challenges somewhat, you might think that everything is almost perfect for this group of experienced, knowledgeable consultants but things do not always run smoothly and like any industry, the hotel business has its problems. In Africa, the pipeline of rooms under construction was recently under the spotlight.
Because of a number of issues including funding, politics and laws, projects in the pipeline sometimes never materialise and the worry is that the current 50,000 hotel rooms in the pipeline for Africa could be persistently stalled because of a slowdown in investment.
“When there’s a deal signed with an international operator, it goes into a pipeline. When there’s a deal signed, land available and designs done, there can then be a lack of funding. Western, Eastern and Middle Eastern investors have all been hit by a number of problems, mainly the oil price. Then there’s the African problems such as Ebola, Al Shabaab in the east and Boko Haram and Al Qaeda in the west, and all of this makes international investors a little bit sceptical and more risk-averse and this stops funding,” says Martinovic.
“Then there’s interest rates. Many African countries have rates north of 20% and when you add this to the premiums that are tacked on to account for political and commercial risk aversion factors, it makes it difficult and this is why people will look to borrow in Euros, Dollars or Pounds. But when the foreign capital starts to dry up, things slow down and that has been a major concern.
“Importation costs have also caused a problem. With the Dollar strength, people are paying more for steel and other construction materials that are imported,” he says.
Fortunately, it seems that these issues are temporary and the industry as a whole is expecting investment to continue and demand to remain.
“Africa continues to show great promise and opportunity,” President and CEO of Hilton Worldwide Chris Nassetta said recently.
Hassan Ahdab, Starwood Hotels & Resorts Vice-President and Regional Director of Operations for Africa and Indian Ocean region said in a World Bank report: “Africa is an important emerging growth market and despite political uncertainty in parts of the region, we continue to see demand for growth of all of our brands throughout the continent.”
With these two global players among many showing confidence in the region, the future looks bright for the African tourism sector and especially for HPA.