In 1919, American businessman Conrad Hilton saved up $5,000 to buy a bank in a small town called Cisco in Texas. Texas was experiencing an oil boom at the time, and it was having a ripple effect on the banks in the area. However, when he arrived, the bank had been sold to another buyer. He was disappointed until he noticed a hotel across the street from the bank. The hotel was full of oil field workers and travellers. Hilton approached the owner, Henry Mobley, to buy the hotel. He purchased the hotel for $40,000 and rented out the rooms in eight-hour shifts, profiting from the high demand for accommodation.
When Hilton realized he had made a wise decision, he invested in more hotels in Texas and other oil-rich states. He became the first coast-to-coast hotel chain in the United States. At the time of his death in 1979, he had built a global empire of over 250 hotels in 50 countries, an empire that still stands today.
In Africa, a similar playbook might be unfolding. Hotel chains have signed deals in 42 African countries in the last two years. In a comprehensive report by the W-Hospitality Group titled Hotel Chain Development Pipeline Africa, data from 45 regional and international hotel chains were analyzed using their operations and expansion plans across Africa and globally. The result showed that the hotel chains reported 67 new signings in 2023, representing 11,000 rooms, a 27% increase from 2022. These hotel investments are driven by growing tourism, rising incomes, and an attractive investment ecosystem.
A key driver of economic growth.
Hospitality in Africa has always been a big part of the economy. Travel and tourism contributed 8.5 per cent of Africa’s GDP in 2018, equivalent to $194.2 billion. According to Jumia Hospitality Report Africa, this growth record placed the continent as the second-fastest growing region in the world. The overall room revenue in South Africa, Nigeria, Mauritius, Kenya, and Tanzania rose 7.4% in 2018, up from the 1.9% increase in 2017. Meetings, incentives, conferences, and exhibitions were the top niches that drove the demand for hotel services in Africa.
But in 2020, when the COVID-19 pandemic hit, everyone had to stay home. This had a significant impact on the global tourism industry. The international tourist arrivals declined by 74%, which resulted in a loss of $1.3 trillion in export revenues globally. During that time, Radisson Hotel Group, which has over 80 hotels in Africa, had to delay some of its new developments by six to 12 months due to shortages of inputs and low demand.
Africa is the next big thing in travel.
After the pandemic, several industries transformed, including fintech, which received more investments, and African entertainment, which became a global phenomenon. These changes shifted the global tourism market, with more people wanting to visit Africa. According to the UN World Tourism Organization, international tourist arrivals across Africa have shown a 51 per cent year-on-year increase post-pandemic. The global tourism market influenced increased activity in the hotel development pipeline. According to the W-Hospitality report, Lagos, the entertainment capital of Africa, signed 11 new hotel deals in 2022.
Eygpt, the country with the most number of hotel deals, improved its tourism sector using more intentional methods. The country entered new markets through diplomatic efforts and trade agreements with more countries. This resulted in a notable increase in visitors from countries such as China, India, Saudi Arabia, Germany, France, Italy, Spain, Poland, the Czech Republic, and Hungary. In the first half of 2023, Egypt welcomed over seven million tourists and increased its revenue from $2.7 billion in the first half of 2022 to $4.6 billion in the first half of 2023.
Interestingly, both countries have grappled with economic challenges since last year. The World Bank insists that the economic growth in Africa dropped to 2.5% in 2023 from 3.6% in 2022. In spite, Nigeria received the second-highest hotel investment, with 6,772 rooms in 42 hotels, and Egypt accounted for a significant 30% of the total hotel development pipeline in Africa. Similarly, Central Africa, which has faced economic hardship and political instability recently, has seen increased activity with hotel deals extending to five of the eight countries in the sub-region.
A smart bet for the future
The positive hotel investment in Africa presents an opportunity for B2B hotel tech. For example, there are opportunities to create innovation around energy management systems, revenue management systems, or security systems. These solutions help hotels optimize operations, reduce costs, and increase revenue. Though still in its early stages, Africa’s tourism tech sector has shown potential, with three startups raising over $100 million in funding in 2022.
Africa’s positive hotel investment pipeline may also indicate that Africans’ disposable income is increasing, and they are spending on leisure. Statista estimates that the number of hotel users will amount to 111.50m users, and revenue will show an annual growth rate of 8.69%, resulting in a projected market volume of US$13.80 billion by 2027. Africa’s largest market, Nigeria, is expected to be the fastest-growing hospitality market with a projected 12 per cent compound annual increase till 2023. Tourists, investors, policy-makers, and business travellers will always need somewhere to sleep. With 482 hotels and an impressive 84,427 rooms currently in the pipeline for Africa’s expanding hotel network, the continent remains a strategic territory for growth in the hotel industry.