African Hospitality Market Attracting New Investors
For many decades, the African hospitality market has been exclusively reserved to private investors, of which the majority are hotel chains and property companies. Looking at the market today, it appears that the Sub-Saharan African hospitality sector, excluding South Africa, is now rising as a key investment opportunity for both international hotel chains and institutional investors such as private equity firms.
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 fast 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 W Hospitality Group 2016 survey. At the end of 2016, hotel developments are 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. The offer covers all hotel’s segmentation, with an emphasis on 4-star hotels, mainly targeting business travelers and tourists with specific requirements when visiting Africa.
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 on top of priority, followed by Cote d’Ivoire and Ghana. Both countries are very attractive due to the rise of their business travelers, as their economies keep prospering.
Historic segment investors like international hotel groups are actively taking advantage of the market opportunities. They all plan several openings and hotel extensions, with some looking to increase their footprint on the continent through hotel acquisitions in main countries and local development offices to support their strategies:
- 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 USD 200 million, 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 active players on the field, the local groups are not in marge. Mangalis Hotel Group, the new African hotel chain is investing USD 340 million to build 15 hotels in west and central Africa through 3 brands (Noom, Yaas and Seen) with a total of 2,200 rooms and suites. Azalaï Hotels who has footprints in several west African countries, with a capacity of 1,000 rooms, intends to grow above 1,600 rooms in terms of capacity after this fundraising. At the beginning of this year, AfricInvest announced an injection of EUR 17.3 million in Azalaï Hotels capital, to support the hotel group 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 on 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 as 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 4-star and 5-star hotels with over 2,200 rooms through 2 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 USD 500 million 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 travelers 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.
The new dynamism on the African hospitality sector proves that investment opportunities on the continent are diverse for all types of investors. All it takes is to be more alert to rising opportunities and growing sectors.
Gaicha Saddy, Senior Associate at Infomineo.
Agence Ecofin, AfricInvest investira 17,3 millions d’euros pour soutenir le développement du groupe Azalaï Hotels (January 2017)
Jeune Afrique, Hôtellerie : Hilton entend doubler sa présence africaine (October 2016)
W Hospitality Group, Hotel Chain Development Pipelines in Africa 2016 (May 2016)
EY’s attractiveness survey, Africa 2015, Making choices (2015)
JLL, Hotel Investment Outlook 2015, Hotels & Hospitality Group (January 2015)
African Union, Invest In Africa 2015 (2015)
Bloomberg, Angola Sovereign Wealth Fund Starts Hotel, Infrastructure Pools (April 2014)
African Development Bank, Africa’s Quest for Development: Can Sovereign Wealth Funds help? (December 2011)