Ghana’s Hotel Investment Outlook 2013: Threatening Opportunities

28th August, 2013

Ghana’s Hotel Investment Outlook 2013: Threatening Opportunities

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Among the many areas of Ghana’s prognosticated economic boom is the Hospitality, Leisure and Tourism sector that has already cashed in on some of the top international hotel chains and their sub-brands such as Novotel, Golden Tulip, Holiday Inn, Best Western, Movenpick, Kempinski, Hilton, Marriot, Protea, Amber and upcoming Swiss International Hotels and Resorts.

Since 2012, economic forecasters have predicted Ghana to be among the top five emerging economic giants in Sub-Saharan Africa (SSA) in spite of the political fragility spurred by the contested presidential and parliamentary elections that has subjected the most resilient country’s democracy to the acid test.

One would logically think that political fragility would be inimical to hotel real estate investments but history has not been on this side of the sensationalism in spite of its accused retrospective determinism. Investors’ herd mentality of following secure investments over higher-yielding opportunities in the midst of uncertainty seem to take a topsy-turvy position when it comes to SubSaharan Africa simply because the excessive demand over supply for quality rooms make Return on Investments (ROI) unreasonably faster and higher compared to the so-called secure hotel real estate investment destinations. For over three years in a row Ghana can boast of constant average of about 85% occupancy for three to five star hotels most of which are Branded International Hotel Chains and with investment recovery days of below one thousand.

Risk has become a key element of strategic investments and the hospitality sector has not fallen out of favour in this regard. In fact, strategic risk is what gives rise to scenario planning and the need for investors to be resilient to risky environments by consciously making the effort of outweighing the opportunities against the threats. Hotel Mille Collines in Rwanda is a memory of a resilient edifice in the midst of civil war and other countries bear analogous testimonies to this fact. Even in war-torn Syria as we speak, Hotel Omayad, a partner of Swiss International Hotels, is busily operating in Damascus …hitchless.

Financiers often require feasibility studies in order to justify investment decisions but in an OTUS report, findings indicate that it is just a bureaucratic effort and prime locations are more of a practical justification for upscale hotels than what the paperwork makes us believe. Of course, high liquidity, transparency and secure markets present a good case for an attractive hotel investment destination but investors’ aversion to risk exposure or overexposure in SSA has already given way to resilience to risk exposure and overexposure. Some real estate experts recommend targeting high traffic zones with ageing buildings, a typical description of the Central Business District (CBD) of Accra. It takes a keen investor eye to identify a precinct and site a hotel there based on a number of parameters. So the Airport City in Accra, already loaded with Branded International Chain Hotels gives way to the CBD that is slowly absorbing luxury brands and presently abounds with ageing buildings. Opportunity abounds while hotel lease formulas and short-term development lifecycles are out of the hotel investment question in Ghana. Kumasi, the second capital city is taking its share while Takoradi has now been rechristened the Oil Capital of Ghana. Page | 3

In a 2012 buy, build, hold or sell scenario of the Jones Lang LaSalle Hotels’ Hotel Investor Sentiments Survey, only Cairo appeared in the sell scenario in the face of political fragility but SSA remains the only region forecast to have rising Revenue per Available Room (RevPAR). Building new hotels is highly recommended if branded international chain hotels are serious about standards and identity whether Greenfield or by partnership. In their 2013 Hotel Investment Outlook, Jones Lang LaSalle reiterates the need for greater flexibility for investors and their ability to react to change as the new success indicator embedded in a business model with high strategic agility. Risks by high impact are well-known to be major global systemic financial failures and diffusion of weapons of mass destruction that do not emanate from SSA.

In a recent interview with one of STR Global’s researchers and contributor to ‘Hotel News Now’, David Grossniklaus, the author hinted on the cultural factor as the greatest risk in Branded International Hotel Investments in Ghana, a point well-corroborated by Patrick Fares, owner of Holiday Inn, Airport City-Accra. Some chains keep coming and disappearing off the radar in Ghana for their disrespect for the cultural risk element and the need to develop high and strong partner relationships, liaisons and alliances with local hospitality industry consultants and developers. “Glocalization,” or the combination of globalization and localization for international hotel companies striving to succeed in new markets and compete with local, domestic brands has also reared its ugly head in the hotel investment arena in emerging markets such as Ghana, a tried and tested approach employed by a few Branded International Hotel Chains, according to an Ernst and Young 2013 Global Hospitality Insights report.

In short, SSA now happens to be in the windward side of the fallout from the BRICS and the government of Ghana needs more than just PR and adverts by the Ghana Investment Promotion Centre (GIPC) in magazines seeking to attract hotel investors with ill-advised zonings purported to attract foreign capital and with incentivized Legislative Instruments (L.I.) that have been illegally withdrawn by same. If Africa has attracted approximately US$3.2 billion in hospitality real estate transactions in the last six years, this investment in hotel superstructure can be marred by lack of political will in overcoming the infrastructure challenge if our governments do not sit up.

This Article is an excerpt from ‘Ghana: Hospitality, Leisure and Tourism Outlook 2013’ a report by Jean Lukaz Consulting (JLC)

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