Insecurity: Threat to hospitality investment
April 1, 2013 | 9:57 am| | | Start Conversation
Bill Clinton, former president of United States of America, made a list of 10 most important countries in the world before the 21st century and Nigeria was one of them. The nation was on the list then due to anticipated growth in investment across various sectors of the economy.
Sadly, on his recent visit to the country last February, the former US President did not see Nigeria with huge expectation as projected due to growing insecurity across the country.
Whilst the nation currently witnessed less kidnapping of oil workers in the South, the spate of insecurity in the North has left Nigerians worried with kidnappers currently focusing on prominent personalities especially in the Eastern part of the country.
The scenario is a big threat to investment in the country especially the hospitality sector that thrives on peaceful environment and free movement of people. Today, most investors in the hospitality industry are shying away from the North and Abuja despite its being the seat of power, due to insecurity. The development negates the dream of tourism and hospitality becoming a sustainable alternative to crude oil earnings.
Hospitality industry is estimated to contribute over N50 billion annually to the nation’s economy if well developed and administered. It is almost two decades since the somewhat proliferation of hotels in Abuja that saw the opening of the few five and four star hotels in the capital city.
Since then, more hotels have opened their doors to guests but they are mere 50-120 room hotels that are indigenously owned or managed by one of the regional hotel chains such as Protea and African Sun. Credible investors that have enough funds to build five-star hotels are scared of investing now that security is a serious issue.
Of the over 2,000 hotels in Abuja, only two are five-star while the rest fall between three-star to mere guest house categories.
“The bombing of UN House in Abuja in 2011 made us lose a major partner that was coming with Marriot Hotel in Abuja. We had already signed the agreement and I was to resign my appointment in my present hotel to supervise the up-coming hotel, but the Swiss investor pulled out,” Andre Sachem, an Abuja based three-star hotel consultant said.
The impact of the militancy in Niger Delta region is still felt by the hospitality sector in the region. Most investors feel the area is prone to attacks because of likely resurgence of militancy in the region hence prefer safer and more secured environments.
Oil cities of Port Harcourt, Warri and Yanegoa still feature medium range hotel properties with no single five-star hotel in a big city like Port Harcourt due to none assurance of return on investment.
Mike Amachree, managing director, Broklyn Hotel Group, an indigenous hotel chain based in Port Harcourt, noted that government has done less in building back investors’ confidence on the economy, and unless they are sure of security of their investments, they would rather look elsewhere.
When an investor wanted to partner Hilton Worldwide to build a second hotel in Abuja, the investor almost backed out at the last minute due to advice from his embassy against investing in an unsafe business environment. It took extra effort to get the investor back but now at the Murtala Mohammed Airport Ikeja, Lagos, a Transcorp Hilton Abuja Hotel staff said.
Stakeholders in the hospitality business believe that while it is still too soon to tell what impact continued insecurity would have on plans for hotel development in Abuja and other parts of the country, delays can be expected.
West Africa is the new frontier for international hotel chains, as home to over half the region’s population, Nigeria is right at the centre of this trend. As the industry has long been dominated by a small number of large business hotels, the past few years have seen a significant increase in international hotel brands, particularly in Lagos, Nigeria’s commercial centre.
Some examples of recent openings include Southern Sun, Ikoyi, Four Points by Sheraton, Radisson Biu, Ibis and Legacy. Other brands that have signed deals include Le Meriden, Holiday Inn and Crowne Plaza, while newcomers hoping to get their foot at the door include Kempinski, Mantis, and Wyndham.
Aside these new projects, a number of incumbents are renovating or expanding. Eko hotel, Lagos’ oldest hotel is bringing another 180 rooms into the market while the more recently, Oriental Hotel is expanding with 200 rooms, according to Oxford Business Group.
Global hotel chains like Starwood’s Sheraton, Le Meridein, Intercontinental, Marriot, Hilton, Four Points, are only expanding their brands in Lagos while regional and unbranded hotels are taking over Abuja, Port Harcourt, Calabar, Benin and other parts of the country.
Outside of Lagos, developments are unfolding. International chains such as Hilton, Sheraton and Protea have an established presence in Abuja, the nation’s capital, boasting over 2,300 rooms in the business category.
Most of the investments in the hospitality sector in the country is concentrated in Lagos because of it’s relatively peaceful environment. As a result, total room supply in Lagos is expected to be over 11,335 by the end of 2013, according W Hospitality Group report.
According to hospitality industry report, released by W Hospitality Group, international brand still control 56 percent of the growth in the industry, regional brands control about 37 percent while unbranded hotels (mostly indigenous), control 7 percent. The irony is that the presence of most of the 56 percent of international brands is more felt in Lagos than anywhere else in the country.
Mark Loxley, general manager, Southern Sun Ikoyi Hotel, thinks beyond the security, hotels are concentrating more in Lagos because of more business, social life and infrastructure the city offers more than any other part of the country.
By the end of the year, additional 1,358 rooms will be added to the total room supply in Lagos. But these rooms would have been added in cities like Abuja, Kano, Kaduna and Port Harcourt if not for the fear of losing out on investments.
Impact of insecurity
While peaceful cities like Calabar, Benin, Enugu and Ibadan are not attracted to most investors due to the low convergence of business they offer, Nigeria is losing to some other African countries especially Ghana, which most foreign investors now see as an alternative.
The Swiss owned Movenpick hotel in Accra was supposed to be built in Nigeria, but the franchise owner of the brand in Africa favoured Accra. The reason, according to Stuart Chase, general manager of the hotel, is that Ghana is more stable politically; offers more business-friendly environment and the people are more hospitable. So, the hotel is using Ghana as a launching pad for its West Africa operation and so are other hotel chains doing.
As the hotels concentrate in Lagos and some move away to Ghana due to insecurity, infrastructure is improving, more jobs created as well as population explosion as Lagos is experiencing at the moment.
It also affects hospitality skills development as most skilled personnel in the industry are moving to places where their skills are better rewarded. That explains the reason most trained hospitality workers across the world are thronging Dubai where their skills are better remunerated.
Nigeria is also losing manpower in the sector due to the uneven development in the sector. There is virtually no hospitality training school apart from the epileptic ones owned by government and a few run by private firms with narrow scope.
Running a business hotel is a potentially profitable business in Lagos. According to estimates by the W Hospitality Group, hotel investments can be recouped, on average, in seven to eight years, compared to up to 10 years in advanced economies whilst operations break even at around 25 percent occupancy.
At present, most international hotels in Lagos run at about 75 percent while the number of international arrivals continue to grow, according to Oxford Business Group (OBG) report on tourism. Besides the competition on the rates, services and comfort levels are rapidly becoming a determining factor.
“As the rates are among the highest on the continent, hotels have to make sure services and comfort levels are above par. Given the constraints in supply of skilled hospitality staff, this is a real challenge,” the report said.
International chains regularly bring in foreign consultants to upgrade the skill-set of locally hired labour force and provide staff with lengthy training periods.
“Despite the many misconceptions that exist outside the country, Nigerians are very accommodating and cheerful, which is essential for working in hotels. But it is up to the hotels themselves to nurture the hospitable mentality into skills applicable to the high-end hospitality industry. As more and more international brands continue to try and outdo each other, established hotels that lag in service will be the first to feel the pinch,” the report added.
As Clinton suggested during his last visit to Nigeria, if the country wants to woo back investors, it should redeem its image and make more frantic efforts at tackling insecurity.
Government, according to Amachree, should not just spend money on security but on the right strategy and equipment, sincere personnel, reaching out to the people more through dialogue and fulfilling their political promises to encourage even development.
A sure way of tackling the issue is to reduce poverty through education especially vocational education thatwould encourage people to be self-reliant
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