Reasons to place your bet on Africa’s hospitality sector
Prior to COVID-19, the World Bank forecasted that sub-Saharan Africa’s tourism sector was set to spur significant economic growth for the continent, via the creation of more than 6.7 million jobs by 2021, mostly in the hospitality sector.
While the pandemic cast a pall over the possibilities, a number of global investors have refused to lose faith in the future potential of the promising market. In the below article, Bryan Turner, partner, Spear Capital and Mark Havercroft, regional director, Minor Hotels, share their 10 reasons to still invest in the continent’s vibrant hospitality sector.
Africa’s economic power and stability will align with the growth of its population, which is predicted to increase from its current 1.3 billion to 4.3 billion by 2100, advises Turner in his piece Emerging markets may be a bet worth taking. He writes that businesses catering to Africa’s burgeoning consumer base present a clear bet for investment, particularly when private equity provides the necessary cash injections.
Since 2017, investors into the African hospitality market have taken a no-limits approach to what they can achieve, with EY’s Africa Attractiveness Survey forecasting a growth rate of at least 17 percent. Prior to that date, between 2012 and 2016, the average yearly growth rate was 29 percent, reveals a W Hospitality Group survey; and hotel development was planned for 35 of 49 sub-Saharan African countries. According to Turner, private equity has indeed shown itself to be a solid diversifier for investors into such markets.
Leading the charge
While the bets are on as to which continent or region will lead the global travel, tourism and hospitality industries out of the recent pandemic, Mark Havercroft, regional director, Minor Hotels Africa, has stressed that Africa is the world’s “youngest and fastest-urbanising continent”. He refers to a McKinsey and Company report in which “the numbers alone offer the hospitality sector the greatest potential for attractive returns on investment in infrastructure”.
African hospitality attracted over US$1.8 million during 2019, upwards of 4.2 percent in 2018, revealing itself to be the continent most strongly positioned for development and expansion in the first six to 12 months post-pandemic. Predicted to have a larger working population by 2034 than either China or India, several new mega-cities will be needed to provide accommodation. Havercroft advised there will be a burgeoning business travel sector, together with a growing local market for leisure tourism. This unique traveller market could well equate to “above global average returns” for those who choose to invest.
In fact, over the past 20 years, the wealth of sub-Saharan African nations has been expanding much more rapidly than that of the global average. With rising population figures has arisen a fast-growing middle class, which the African Development Bank forecasts will have a level of spending power that could become “a vast source of potential for prosperity”.
Demand for affordable quality
The African continent’s 350-million strong middle class comprises individuals who travel for work and demand high-quality, yet affordable, leisure getaways. While investors of the past were keen on four- and five-star hotels to attract the US and European markets, the more astute investor of today is focusing on lower consumer price points to target this mid-market group as they represent a major expansion opportunity.
Presence in Africa
Experience has shown that to develop in Africa, you need to have a presence here, which has worked well for the Minor Hotels Group. In fact, all major hotel chains have now set up development offices in Africa, in order to focus on growing their local resource base and tap into the available market share. However, Havercroft’s determination for Minor Hotels, with its 12 hotels and resorts in eight countries and 16 safari lodges and camps, is to remain agile, flexible and open to change. Following this approach and with the unique and memorable experiences on offer at their many properties, they feel in a good position to outperform the competition.
On the global bucket list
The African continent offers a diverse range of unique things to do and see, giving it a strong pull for international and local travellers alike. Regional travel is opening up first following the COVID-19 lull, with the educated middle-class seeking majestic natural and heartfelt cultural experiences fairly close to home. Some of Africa’s finest offerings, according to Trafalgar, include: sunset over game reserve waterholes; the annual stampede of wildebeest to the Masai Mara; and interactions with indigenous tribes, to name just a few.
Hard hit by the hard lockdowns in 2020, the travel and tourism sector generally provides employment to around 19.7 million people in sub-Saharan Africa, reports the World Travel and Tourism Council. These individuals, many of whom are women and youth, will be on the hunt for jobs now that the market is opening up again – following a tough period of reduced income, retrenchment and the business closures. The good news is that the forward-thinking tourism brands now advertising for staff, both skilled and unskilled, will have a large pool of candidates from which to make their choice.
Ease of control
In opposition to the diverse partnerships in the hotelier game in other regions, Africa has seen a move away from such models – allowing local owners to make decisions, expand, reposition or reinvest with greater levels of ease and control. “Faced with the global shutdowns of their properties, dominant international hotel management brands have [had] everything to lose,” comments Havercroft, “while the smaller international brands with greater control could well become the true winners on the continent.” A look at the PwC Hospitality Outlook 2019-2023, and the predictions echo these sentiments.