Euromonitor: Sub-Saharan Africa, the new frontier

A new frontier for growth in Sub-Saharan Africa’s hotels
Focusing on Sub-Saharan Africa remains in the pipeline for many international hotel groups, as economic growth and rising middle classes are boosting both business and leisure travel to the region. In an undersupplied market, the continent is full of opportunities. For example, in January 2014, Marriott International acquired South African hotel chain Protea Hospitality Group, making it the largest hotel chain in Africa. However, regional obstacles need to be overcome in order to fully unlock the potential in the hotels category, with governments and businesses working together to ensure an optimum level and pace of tourism development.

New focus on international hotel expansion
Sub-Saharan Africa is one of the fastest growing tourism regions in the world, with international arrivals doubling between 1999 and 2013. Arrivals to Sub-Saharan Africa reached over 36 million trips in 2013. An improved tourism infrastructure, increased flight capacity and growing business travel have all aided this growth.

A growing oil-led economy and rapid urbanisation have also helped create strong demand in an undersupplied hotels category, with many international hotel chains strengthening their presence in order to cater to the needs of new domestic and regional travellers looking for quality accommodation.

The supply of luxury hotels in Sub-Saharan Africa is thus increasing as both local and international chains seek to capitalise on demand. As of the beginning of 2013, international and regional chains had more than 200 hotel projects totalling about 40,000 rooms in the development pipeline, according to W Hospitality Group’s 2013 Africa Pipeline Study.

Marriott International overtakes competitors
Following the R2 billion buyout of South African chain Protea Hospitality Group in January 2014, Marriott International is now the largest hotels company in Africa, with 125 hotels and 14,000 rooms present in 10 countries across the African continent. The US-listed company plans to open 30 new hotels in South Africa by 2020 and aims to triple revenue and rooms to 75,000 across Africa and the Middle East within the next six years. The company has already confirmed the opening of five hotels by Q1 of 2015 including properties in South Africa, Nigeria, Ghana and Rwanda.

Gaps in the African market
Budget and mid-scale properties are also looking to increase their supply throughout the region, boosted by new domestic travellers, as well as intra-regional business visitors on lower disposable incomes. Accor has an aggressive expansion development plan for all of its brands, principally through its economy ibis brand and the Mercure and Novotel mid-scale brands in major cities, such as Lagos, Cape Town, Nairobi, Addis Ababa, Accra and Luanda. Accor already has 56 properties in 14 countries in Sub-Saharan Africa, and 20 hotels are currently under development in the region totalling 3,600 rooms.

Meanwhile, Carlson Rezidor is currently focused on expanding in the region with Radisson Blu in capital cities and financial hubs, whilst Park Inn will grow in high-potential primary and secondary destinations in Africa, covering all market segments. The group has the most ambitious hotel plans in the pipeline in Africa, with a total of 29 hotels and 6,300 rooms currently under development.
Investment opportunities also exist in the hotel serviced apartments category, addressing a gap in the market for long-stay business travel, which will be driven by the continued growth of natural resources and emerging sectors, such as the financial and telecommunications sectors.

Overcoming hurdles
But, although the hotels category in Sub-Saharan Africa presents a great investment opportunity with higher operating profits in an underserved market, hotel development in the region continues to face problems that need to be overcome, including the recruitment and training of staff, safety and security, energy costs, poor infrastructure and bureaucratic delays.

However, there is a strong desire from many governments who are playing a greater role in offering a friendlier environment to businesses and investors, with less restrictive regulations, lower tourism taxes, improving visa facilitation and assurance that development takes place responsibly, helping the region establish itself strongly in the global market as its economy continues to grow.

Paz Casal, Travel and Tourism Analyst at Euromonitor