Wednesday, 25 February 2015

Forex, interest rate hunt hospitality sector in Nigeria



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.

Picture of an uncompleted five-star hotel in Nigeria

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