Why Nigeria is struggling to attract five-star hotels

In early 2010, when the Nigerian hospitality industry hit approximately N562 billion investment (about $3bn) and was still growing, stakeholders in the industry were glad with the projection that the total standard room supply in the industry then would grow from about 7,229 in 2010 to about 11,335 in 2013, and to over 15,000 rooms by 2020.

Currently, the country’s hotel market boasts of about 12,000 standard rooms and 3,000 short of the anticipated 15,000 rooms by 2020 due to the outbreak of coronavirus and its devastating impact on the economy.

Sadly, less than 5 percent of the room supplies is five-star hotels, while 1 in 20 Nigerian hotel pipeline projects is a proposed five-star hotel.

The unimpressive growth of five-star hotel is against the backdrop of the country’s growing investment in other hotel categories.

Going by the high standard of offerings, services, facilities and highly skilled manpower in an average five-star hotel, it is almost difficult to point at a five-star hotel in Nigeria apart from the likes of Transcorp Hilton Abuja, Sheraton Abuja, Eko Hotel and Suites, Oriental Hotel, while Lagos Continental lost its five-star rating when InterContinental brand left.

According to Africa Hotel Pipeline Report 2020 by W Hospitality Group, Nigeria ranked second among the Top 10 countries by the number of rooms with 7,809 planned rooms across 48 hotels, after Egypt, which led by 17,163 rooms across 54 hotels.

Though the 2020 figure represents a 2-percent decline in the 2019 pipeline, some hotel experts decry that almost all the proposed hotels are three and four-star, leaving five-star hotels out of it.

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Comparing Nigeria with three other African countries in terms of five-star offerings, South Africa leads by over 80 five-star hotels, with majority of them in Cape Town; Egypt follows with over 50 five-star hotels, especially in its Sharm el-Sheikh city, which ranks top among global cities with most five star-hotels, while Kenya leads the East African region with over 25, including safari resorts.

However, the likes of Hilton, Marriott and Radisson Blu Group all have proposed five-star hotel projects in Nigeria, but are abandoned, some cancelled, while others have not gone beyond the ground-breaking ceremony due to lack of funds to complete them.

“Transcorp plc is yet to commence work at its planned Transcorp Hilton Ikoyi, and nothing has happened to the planned Hilton at Murtala Mohammed International Airport Lagos beyond the ground-breaking ceremony over seven years ago, while many properties by top brands like Marriott, Radisson Blu, Accor, among others, are waiting to take off or for more funding to complete,” Emmanuel Ele, CEO, Seven Regions Hotels, explains.

According to the CEO of the indigenous hotel management company, most foreign investors have lost confidence in the Nigerian hotel market because of the economic realities occasioned by two recessions in less than five years, devaluation and the impact of the pandemic; hence the huge dwindle in Foreign Direct Investment (FDI) in the hospitality industry.

“There is no money anywhere. It really cost much to build a five-star hotel, and it will take many years for local investors to build it without foreign partnerships,” Ele states.

Olubunmi Balogun, a Lagos-based hotelier, who is struggling to finish a three-star hotel with Radisson Hotel Group, notes that with between 25 percent and 30 percent interest rate, bank loans are no longer good for building hotels as the economy is unpredictable and defaulting is obvious, it is only hoteliers with strong financial background or notable foreign partners can attempt five-star projects now.

He also notes that the taste and market have shifted to lesser categories, as people now prefer affordable comfort. “I intend to build a five-star hotel in Abuja, but my hotel and financial experts advised me to go for a lesser category because guests are looking for safety and cheaper rates. I did because it is true, do we Nigerians sleep in hotels?” he asks.

But the poor treatment by Nigerian hoteliers is also discouraging international brands from signing five-star hotel deals with owners. Till date, the InterContinental Hotel Group has not recovered from the treatment by Milan Group that led to their exit from Nigeria, same also Marriott International with the Akwa Ibom State government over the exit of the brand at its Ibom Hotel and Golf Resort, Marriott at Renaissance Ikeja, now branded Radisson Blu, among others.

Moreover, W Hospitality Report 2019 revealed that some hotel brands are now targeting regional markets and secondary cities as purchasing power of many Nigerians keeps declining due to the economic realities of the time.

Emeka Onunka, an economist and university lecturer, notes that the fewer five-star hotels in Nigeria is simply in line with the law of demand and supply, as guests demand less of the luxury offerings because they cannot afford them.

“In a time of economic hardship, we expect decline in the purchasing power and that affects people’s ability to pay for luxury offerings, including five-star accommodation, cruise ship, first-class tickets, among others,” Onunka says.

In the same vein, Peter Idoko, general manager, Legend Hotel Lagos Airport, Curio Collection by Hilton, decries that the inability of Nigerian hoteliers to build more five-star hotels is due to the huge investment required to pull-off one as five-star offerings are world-class by all standards.

He explains that guests are willing to experience five-star offerings, but their pocket will determine how much they can go to actualise that, hence five-stars are often regarded as a luxury for those who can afford it.

Marcel Brekelmans, general manager, Lagos Continental Hotel, insists that five-star offerings are for a target market that will always come after it. He notes that the hotel’s Female Executive Floor, an all-female offering, which was launched recently, is going to be a sell-out because of the growing number of female executives who require extra amenities during their stay.

Proffering solution, Ele discloses that hotel project is no longer a family affair or one-man show, but a pull of fund by many interested parties to actualise the project.

“Like projects in other sectors, the promoters now use crowd-funding to raise the needed fund as the scarcity of funds is obvious with the many recessions, unstable bank policies, high-interest rate, and outrageous foreign exchange, you need to share the risks through crowdfunding,” Ele says.

The economist and university lecturer also advises Nigerian hoteliers to adopt crowd-funding as it has worked in East Africa and other places, saying, “Instead of building 20-room hotels everywhere, 10 investors can pull their resources together to build 200 rooms, and a five-star for that matter.”