There is increasing fear over the delay
in the growth of the hospitality sector due to the combinations of factors
including devaluation of Naira and high interest rate from financial institutions
in the country. OREDOLA ADEOLA, in this report examines the impact on the
sector.
The hospitality industry is another
major sector in the country’s that has been negatively impacted due to recent
devaluation of Naira by the Central Bank of Nigeria, CBN, which fixed dollar at
N199. This has also been made worse by the tightening of the interest rate for
long term lending by financial institution for private firms.
While investors in the sector have continued
to lament due to fear of losing their investments as a result of inability to
access finance to bankroll their projects, analysts have also speculated that the
sector may witness a delay in the 2000 hotel rooms projected for 2015 and 2017.
According to them, if the issues are not urgently addressed, investors in the
sector may lose confidence in expanding their business which may further lead
to retrenchment and capital flight.
According
to Ms. Damilola Adepoju, a hospitality industry consultant for W Hospitality
Group, a tourism consultancy firm, only thirty-eight per cent of the hotel
rooms that are reported to open in 2015 are under construction. She said that,
what the situation portends for the sector is that most of the hotels planned
for 2015 will not open on schedule and will be delayed by one or more years.
She further stated that Nigeria with
6,614 rooms in 40 hotels, being the highest number of hotel rooms in the
pipeline in Sub-Saharan Africa, will face crisis because of the present
economical realities leading to delay in delivering of the projects.
In her analysis of the hotel deals
by region and by construction status, she revealed that North Africa has
commenced 75 percent construction deals signed deals while against the 63
percent in Sub-Saharan Africa, where Nigeria leads. she further revealed that no work is ongoing in the various sites of
over ten hotel projects in Lagos alone, adding that with this kind of
situation, most of the hotels planned for 2015 will not
open on schedule and will be delayed by one or more years. She noted that the delay in expansion of the
various hotels work in the pipeline across the country could lead to over-pricing
of the available rooms, especially when the demand is high.
Hallmark gathered that the 2016
target for the completion of the 250-room Hilton Lagos Airport hotel and the Starwood’s
Luxury hotel at Ikoyi which started in 2012 may be delayed due to funds. The Four Points by Sheraton Ikeja has also been abandoned, while the
proposed Starwood hotel located in Victoria Island has been released to a real
estate developer to convert to luxury apartments.
It was revealed that, the Movenpick in Abuja, has
been abandoned because the developer is having challenges with the bank, which
insisted on reviewing the contract because of the economic realities and new
Central Bank polices, while an attempt to kick-start a mid market Starwood
brand in Port Harcourt is stalled by funding.
Now under Marriot, many Protea hotels in the
pipeline are still facing funding issues, as well the Golden Tulip brand that
devised to review its franchise and branding deal if project developments
linger unnecessarily.
The report said “Although these hotel deals have
been signed by the hotel chains, this does not always mean that the hotels are
actively being built, or are even on site. In deed one cannot be certain that
the hotel deal will actually be open by the indicated completion date, or even
at all. This is unfortunately the norm in the African business environment,
where development programmes tend to have much longer durations than are
originally planned.”
According to a financial expert, Dr. Boniface
Chizea, 25 per cent interest rate is not sustainable and inimical
to the prospects of the hospitality sector. He said “Recently Nigeria have
concentrated attention on stopping the hemorrhaging of the reserves that
in response to the reverse capital flow as result of the cascading oil price
and general election related uncertainties. The country hiked the Monetary
Policy Rate by 100 basis points from 12 to 13 per cent with expectation that
confidence will soon return to the economy as the oil market stabilizes
and as the general elections are successfully concluded.
It is critical for policy makers, to look into the various
decisions taken in panic mode and do the right things. The Monetary Policy Rate-MPR
must be revised downwards before long which will signal movement of cost
of borrowing in the desired direction. The inflation rate at about eight
per cent would imply that we have considerable headroom for the
reduction of interest rates, but we must not expect that this desired
reduction in interest would happen overnight.” He said.
He further suggested that for any meaningful result to be achieved
over the medium to long-term the government must remain focused. According to
him, the financial sector must be responsive for interest rate to be reduced in
the economy despite the high cost operating environment coupled with the desire
for competitive profitability.
In his reaction, Mr Akingbogun Tomi, President, Federation of
Tourism Association of Nigeria, FTAN, said that the issue with high interest
rate has been a major factor affecting the growth of the hospitality sector. He
said that the situation has further discouraged investors in the sector. He
alleged that CBN and most of the commercial banks are not willing to provide
finance for various work in the sector.
“Other countries including United Arab Emirates, UAE, Ghana and
South Africa are doing lower interest rate for investors while Nigeria banks
have deliberately continued to kill the industry. Most Nigerian investors have
taken advantage of cheaper funds available in these countries to establish
hotels at the expense of their own country.
“How do we develop the industry when the government is not
interested in the plight and challenges of the investors in the country?
Everyday hotels are shutting down while others have retrenched their staff in
order to cut cost. The devaluation of naira has affected the psyche of
investors as most of them prefer spending in dollars without respect for the
country’s currency” he said.
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Picture of an uncompleted five-star hotel in Nigeria |
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