Nigerian hospitality risks $507m revenue projection in 2020

While the Nigerian hospitality industry leads the West African region in the number of hotels in the pipeline across 15 international brands, the industry also risks delay of over 50 hotels under construction due to funding issues and poor economic outlook of the country that now discourage willing investors, especially foreign direct investment (FDI).

The delay is expected to be a big setback on the delivery of 5,000 additional rooms to the current 9,000 rooms on offer in the Nigerian market, and may also hinder the industry from realising the projected $507 million revenue in 2020.

While Nigeria has by far the greatest number of rooms in the pipeline in West Africa, W Hospitality Group, a vital strategic advisor to the Africa Hotel Investment Forum (AHIF), fears that the current economic crunch experienced in Nigeria will impact of the realisation of the projects in the pipeline as delays and cancellations are imminent.

Going by the country’s economic outlook, some hospitality experts think investments in the industry are shrinking or at standstill now because most investors are discouraged by the economic outlook, as the failure of the present government to give them economic direction earlier in the administration made most of them to hold on further investment in the country.

“Top five Nigerian banks are major partners with foreign firms in over 10 hotels (between 5-3 star) across the country. But the economic crunch coupled with the fight against corruption has made most banks to rather stay clear of government searchlight because of the heavy penalties involved. A few banks are managing to support investments in the sector, but at 23 percent interest rate. That is huge risk for any businessman,” Biodun Olujimi, a hospitality expert, said.

For him, the 2020-growth projection may not be realised even if the economy revives now because some strategic investments have left to other climes where the economic outlook is positive and counterpart funding agreement is respected.

“Beyond Marriot in Ikeka GRA that is nearing completion, the two Hilton hotels at Airport Road and Ikoyi in Lagos are still at the groundbreaking level, construction at Marriot on Ozumba Mbadiwe is still skeletal, about three five-star hotels expected at Eko Atlantic are yet to take off, Starwood luxury brand at Ikoyi is resting for now, among many hotel projects that have not taken off in Abuja, Port Harcourt and Kaduna.

“So, the economic outlook needs to improve for more investments to flow in with needed funding for the completion of these seemingly abandoned hotel projects,” Martins Wood, an expatriate general manager of a Lagos-based four-star hotel, said.

However, going by PwC’s sixth edition Hotels Outlook 2016 – 2020, revenue from hotel room accommodation in South Africa rose 8.1 percent in 2015 to R14.2 billion, reflecting an increase in stay unit nights and a 6.5 percent rise in the average room rate.

In the line with the development, Wood noted that South Africa’s hotel industry was growing amid the country’s weak economy occasioned by the devaluation of the rand, but argued that Nigerian naira was also devalued, yet foreign investors had failed to take advantage of their high purchasing power to invest in the sector as obtainable in South African hospitality industry.

Going by PwC’s sixth edition Hotels Outlook 2016 – 2020, which reported that room revenue in South Africa, Nigeria, Mauritius, Kenya and Tanzania rose 6.7 percent in 2015, the largest gain since 2011, the general manager said potential investors might be pushing their investments to Mauritius, Kenya, and Tanzania where the economy was not too big, but stable instead of Nigeria with all the big names and bigger risks as well.

Nkereuwem Onug, president, Nigeria Association of Tour Operators (NATOP), said the feat was even more difficult to actualise now that the country was formally in recession. To encourage investments in the hospitality sector, Onug urged the present government to leave politics and face the economy as the economic crunch was killing businesses.

It is also pertinent to note that hotel groups such as Tsogo Sun, Sun International and Swiss International have formulated partnership models that ease hotel investment funding, but the impact is not much as many other brands watch and wait until their partners deliver their hotel projects in the pipeline.

The fact remains that as the economic crunch persists, more hotels projects in the pipeline are likely going to be abandoned making the actualisation of the 51 hotels in pipeline, 5000 rooms and ultimately $507 million revenue projection in 2020 more difficult.