HICA 2013 – the 7th Hotel Investment Conference Africa – gets underway in less than two months. What are investors looking for in destinations? And how does the quality of statistics supplied by governments influence their decisions?
Mmatšatši Marobe, CEO of the Tourism Business Council of South Africa (TBCSA), summed up the proceedings of HICA 2012 by saying that, “The overwhelming sentiments emanating from speakers and delegates alike are of hope, confidence and positivity about the future of the region.”
But what inspires hope, confidence and positivity in investors? What influence them to spend millions – billions, even – in a destination? And which destinations in Africa currently have what it takes to attract new investments?
International trade and development consultant Zachary Rozga, a USA-based competitiveness and market access expert who has years of experience in tourism, and who now focuses on utilising technology to increase economic development, said that almost any international investor looking at almost any emerging market would want to know four basic things about that market – regardless of the industry in which they’re involved.
“I think they’re looking for economic diversity: most businesses that are looking to enter into new markets don’t want to rely only on foreign buyers – they need to know that there is a diversified market that will purchase their products or services. So in the case of a hotel, they’d want to know that there’d be a domestic market that could smooth out the bumps between peak seasons.
“Then they’re looking for a clear rule of law. One of the main barriers for new entrants into markets is not being able to assess the political risk of making an investment. No one wants to drop a chunk of change only to see property rights revoked, taxes sky rocket, or unforeseen fees suddenly arise.
“They also need a dynamic value chain.
“Often times ‘setting up shop’ is the easy part of entering a new market: the difficulty begins when one has to run the business and one finds that supply chains are unclear, staff proves difficult to train and manage, and distribution channels are muddy.
“And fourthly they need currency clarity. This is related to the rule of law, but somewhat separate, too,
“They need to know that foreign exchange controls are straightforward, and how profits can be repatriated to the source country of the investment.”
Director of strategic solutions at Grant Thornton Cape, Martin Jansen van Vuuren, says that his company’s clients usually begin by looking at the economy of the destination.
“Is there growth, and at what percentage?” he said.
“Presently in Africa, growth is happening in countries that are rich in resources like Angola and the DRC, which have oil and minerals.
“Politics is a consideration, too – but if there’s money to be made, it’s usually only a major problem if the country’s just above a state of civil war.”
Clifford Ross, CEO of Johannesburg-based City Lodge Hotels Limited, said that investing in a new hotel is a long-term – 20 years and more – affair.
“It’s very costly, and you get no returns on your investment in the first year or two that it takes to complete the hotel or resort, nor in the one to two years it takes to become established in a market -so the decision can’t be taken lightly.
“Sustainable funding is a very important criteria, as is location, location, and location.
“Before embarking on any project, you need to do your research so that you understand the long-term viability of the area; market forces like seasonality; and the level of infrastructural development.”
He said, too, that you needed a plan-B for your investment. “Most hotels and resorts are specialist buildings that can’t easily (if ever) be successfully recycled – unless they’re initially designed for recyclability in the event they aren’t successful.”
Mr. Ross stressed that City Lodge prefers not to rely on local statistics when considering an investment destination. (See ‘The great tourism statistics debate’)
“They’re usually sketchy and unreliable.
“We do all our own market research and studies, and prepare our own feasibilities on the knowledge we gather first-hand.
“Broad economic stats which are available for each country are used only as guidelines for our research.
“We have not yet found a single country which publishes reliable stats for the hotel industry” – although he stressed that this isn’t always the fault of the governments concerned.
“Hotels are notoriously secretive about their statistics and they don’t share this information.”
Mr. Ross said that City Lodge is currently looking at expansion in the SADC region, and in East and West Africa, too.
“Our first hotel in Botswana will be open by the end of February.
“We’re also considering Zambia, Namibia, and Mozambique – and we’re starting to investigate Zimbabwe, too.
“In East Africa our expansion is in Kenya – where we already have two hotels – as well as in Tanzania, Rwanda and Uganda, and we’re planning to start investigating Ethiopia soon, too.
“In West Africa, we’re looking at Ghana.
“But any venture into Africa comes with immense risk and nothing happens overnight. It is a long, expensive and tedious process with lots of bureaucratic red tape and frustration – just as it is in South Africa – and any project takes many years to come to fruition.”
Mr. Jansen van Vuuren said investors are bullish on Africa at the moment: “Yes, capital costs are higher, but once you have a hotel on the ground, you usually get better returns than from traditional destinations like Europe.”
He noted that the sub-Saharan African Countries are generally performing well for Grant Thornton’s clients – “Although some of them are more sure about place like Kenya, Namibia, and Botswana, which have established tourism infrastructure, stable political and economic environments, and favourable exchange rates.”
South Africa, he said, “Is still happening as an investment destination, and it’s picking up slowly – but it’s nowhere near the levels we saw before 2008.”
HICA – the 7th Hotel Investment Conference Africa – will focus on showcasing the entire Southern African region as an exciting destination for investors in the hotels and hospitality sectors. It will take place in Durban, in South Africa’s KwaZulu-Natal province, on the 9th and 10th of May this year.
Publisher: This Tourism Week