OPINION: Why the Time is Now for Third-Party Hotel Management in Africa

Tuesday, 02 August 2016 By   Aleph Hospitality

In advance of appearances at two prominent industry conferences, Aleph Hospitality founder and managing director, Bani Haddad, shares his views:


The African hotel market is buoyant. Just a few months ago, Lagos-based hotel investment advisory firm W Hospitality Group reported that there were now some 64,000 rooms in the pipeline on the continent, up almost 30% on last year.  STR reported broadly similar numbers in their June 2016 Pipeline Report, with over 55,000 rooms in 289 hotels under contract. Despite the widely reported recent slowdown in GDP growth, investment in hotels across the region seems to continue unabated.

And it’s really no wonder. When considering the impact of the current economic turbulence on medium-term growth prospects for Sub-Saharan Africa (which accounts for almost 70% of the pipeline) the IMF concluded that the underlying growth factors that prevailed over the last decade are still largely in place. Slump in commodity prices aside, the general improvements in the business environment remain. With improved accessibility, infrastructure, liquidity and upward mobility, growth is almost inevitable.

Better access and connectivity

According to IATA, Africa is set to be one of the fastest-growing aviation regions over the next 20 years, with annual expansion in passenger numbers averaging nearly 5%. For Malawi, Rwanda, Sierra Leone, Central African Republic, Tanzania, Uganda and Ethiopia, which make up no fewer than seven of the top ten fastest-growing markets worldwide, growth is anticipated to be even higher, with each market predicted to double in size each decade.

While the development of Ethiopian Airlines’ long haul network, which has expanded in recent years to include routes such as Tokyo and Los Angeles, has been partially credited for the current growth, renewed commitment to the Yamoussoukro Decision and the potential resurrection of national carriers in countries including Uganda, Ghana, Senegal and Cameroon may also help drive increased connectivity both within and outside of the continent in the future.

Another factor that could contribute significantly is that of visas. The Africa Visa Openness Report 2016, penned by the African Development Bank, highlighted that the relatively strict travel regulations that still exist between many African nations currently hampers both intra-regional trade and tourism. However, it also noted recent progress, with Rwanda reportedly seeing a 22% increase in African travellers as a result of their open visa policy. What’s more, if the African Union get their way, the African Union e-passport, launched last month at a summit in Kigali, will make the free movement of people on the continent a true reality as early as 2018.

Improved availability of funding

Access to capital is one of the fundamental building blocks of our industry. While many African nations have been blighted by eye-wateringly high interest rates reducing the appeal of local borrowing, inward investment is growing rapidly. The World Economic Forum reported earlier this year that foreign direct investment on the continent reached $73 billion in 2014, up from $14 billion in 2004. In 2015, despite global foreign direct investment dropping by 5%, funding into Africa continued to rise, making the continent one of only two regions in the world to witness growth.

Just last month, the European Investment Bank agreed to match fund RWF 24 billion staked by the Bank of Kigali to support private sector investment in Rwanda. And that only represents just under a tenth of the European Investment Bank’s second East and Central Africa Private Finance Facility, a EUR 230 million regional lending scheme supporting investment in Rwanda, Burundi, Uganda, Tanzania, Kenya and the Democratic Republic of Congo.

An interesting dynamic alongside this is the growing investment of the continent’s own diaspora. Ethiopia’s Ministry of Culture and Tourism suggests that nationals living abroad have built more than 200 hotels in the country, perhaps in part incentivised by the Commercial Bank of Ethiopia’s preferential interest rates to those who attach up to 10,000 dollars in their saving accounts inside the country. The present devaluation of some local currencies only strengthens the case for other offshore workers with reserves of hard cash.

Increasingly favourable demographics

It is not new news that Africa’s population is growing – the United Nations has projected that of the additional 2.4 billion people to be added to the global population between 2015 and 2050, more than half (1.3 billion) will be added in Africa. In fact, by the end of that period, the population of Nigeria is expected to be greater than that of the United States. The populations of Angola, Burundi, Democratic Republic of Congo, Malawi, Mali, Niger, Somalia, Uganda, United Republic of Tanzania and Zambia are also projected to increase at least five-fold by 2100.

With 60% of the population across the continent 24 years old or under, the population is also young, dynamic and increasingly mobile. With job creation growing at a faster pace than the labour force and an ongoing migration to urban areas, the World Economic Forum suggests that consumption will increase dramatically, with Africa’s consumers spending $2 trillion by 2025. While the pace of change is not yet mirroring the previous expectation of some, there is a growing middle class and the African Development Bank forecast that it will represent as much as 42% of the population by 2060.

More investment in destination marketing

With this effective removal of state borders and increasing affluence, the potential knock on effect for tourism is huge. Destination marketing for the continent historically has seemingly centred on long haul safari and beach holidays. Kenya, Tanzania, South Africa for the former and Egypt, Seychelles and Mauritius being some of the obvious focal points for the latter. However, as more African nations look to diversify away from commodities and recognise the potential upside of tourism, the important business of marketing the offerings of a country has become more mainstream.

The Ethiopian Tourism Organization, established in 2013, expects arrivals to reach one million for the first time this year, doubling the number of visitors from just three years ago. More established tourist destinations such as South Africa and Kenya both recently announced new marketing investment plans, with the former also seeking to diversify into new segments, for example by positioning itself as an international wine and food tourism destination – a move which one industry representative estimates could contribute up to R15 billion by 2025.

The powerful appeal of a brand

Combining all of these factors with the growing proliferation of mobile phones, increasing Internet penetration and better political stability, significant opportunity exists – both now and for the future. More inbound tourism, more inbound business travel, more transcontinental and domestic travel – all of which raise both demand for accommodation and guest expectation.

Whilst authenticity and experience of local culture and heritage is ever-more important, the basics of safety, cleanliness and service standards also need to meet the levels international guests are accustomed to and increasingly wealthy domestic guests aspire towards. In many cases, having a brand above the door can be invaluable in providing this level of familiarity, reassurance and status.

By providing access to rich global loyalty programmes, brands can also sway purchase decisions and increase average spend. PWC found that the majority of business and leisure travellers questioned in its recent Hotel Brand Loyalty study were willing to pay between $10 and $50 more per stay at their preferred hotel brand.

This provides an obvious benefit to the hotel owner in addition to the access that international brands offer to global distribution systems, sales networks and purchasing efficiencies made possible by economies of scale on a global level.

The best is yet to come

So it’s clear that there is a need for more hotels in Africa and that international brands have a valuable role to play. But have we reached a ceiling in the speed to which this can be delivered? Is it possible to expedite this universally beneficial growth? At Aleph Hospitality, we strongly believe that it is.

While a 30% year-on-year increase in the pipeline is undoubtedly impressive, when compared with other emerging hospitality markets, the pipeline still seems relatively modest. For every 1 of the 158 hotels under construction in Africa in May this year, there was 1.1 under construction in Central and South America (179 hotels), and 3 under construction in China (485 hotels).

So with so many factors outside of our individual control, what can we, as an industry, do to facilitate this?

Stifled by the status quo

We believe the opportunity lies in the operating model. Across Africa today, hotels currently tend to fall into one of two categories of ownership:

  1. Owner operator – hotels that are owned and operated by the same party. Usually either individuals or local and regional hotel companies operating home-grown brands.
  1. Direct management – hotels which are operated by one party on behalf of another, where the owner signs a management agreement directly with their brand of choice. This could be either a native brand such as Marriott’s Protea, or Mangalis’ Noom, or an international brand, such as Radisson Blu, Hilton or Sheraton.

While in many developed hospitality markets owner-operators are also frequently franchisees of the major international hotel brands, in Africa, particularly Sub-Saharan Africa, this is far less common. In part, this seems to be down to what some would say is an understandable reluctance on the part of hotel companies to gift control of their brand equity to inexperienced hoteliers. In order to protect the integrity of their primary assets, the multinational brand companies have therefore historically favoured management agreements on the continent.

However, in order for a management agreement to be commercially viable for a large brand company and adequately compensate for the expense, resource and legal complexity required to set up a local management operation, the project needs to generate returns that are often realistically achievable only by large, upscale, centre-city developments. Midscale and economy projects, hotels with fewer than 150 keys and those in secondary locations rarely meet the threshold.

This has led to something of a stalemate. On the one hand there are an increasing number of locals and diaspora ready to invest in hotel real estate, savvy to the upside of a brand but without the experience, time or inclination to operate their asset. On the other hand the large hotel companies are keen to capitalise on the continent’s burgeoning growth, while prudently managing their balance sheet and brands. Where the market need and owner’s ambition is for a flagship property, direct management is an option. For all else, an internationally branded hotel is often off the cards.

Opening the door to growth

In such cases, the ideal solution is third party management. Ubiquitous in the United States, where in 2014 the top ten third-party hotel management companies alone accounted for more than 260,000 rooms, this proven operating model could offer a new beginning for the African continent.

As the name suggests, rather than the two-party model where the brand operates directly on behalf of the owner, with third party management the owner takes a franchise with the brand and a management contract with an independent hotel management company.

By the hotel owner partnering with a specialist, professional operator, hotel companies are given the peace of mind that brand integrity will be maintained, opening the door to the lucrative franchise model. This offers the large multinationals accelerated growth with minimal investment.

In turn, the owner is able to profit from the myriad benefits of a brand even in cases where the opportunity is for a midscale, economy or small-scale hotel or the project is situated in a tertiary market. They also still have access to management expertise removing the barrier of inexperience or the need to otherwise commit personal time and resource to managing the hotel alongside other business ventures.

Ultimately, the model opens the door for a far greater number of projects to come to fruition.

In addition, whereas direct management partners ultimately work for their brands, a third-party management company works for the owner, usually offering greater flexibility in contract terms and delivering higher profits due to a lower cost structure and more focused management method. Independent by nature, third-party management companies that do not have their own brands can also offer unbiased advice on branding decisions and provide assistance where required in negotiating optimal franchise terms.

Costs can be further controlled for investors who have or wish to develop a broad portfolio of hotels, by cost-effectively clustering resources across properties without being restricted to the brand portfolio of just one hotel company.

The best of both worlds

At Aleph Hospitality, we are truly excited about the prospect of leveraging our services to accelerate the growth of the industry in this way. With an executive leadership team who have all worked for major multinational hotel companies, we understand brands and have seen first hand how they have developed in different parts of the world. We also have a deep working knowledge of the continent of Africa. Not least how diverse, complex and incredibly nuanced it is.

It is this balance of understanding and visionary thinking that we believe will see us succeed in further opening up the market.

Conquering the final frontier

As the World Economic Forum noted, in an ageing world, there are diminishing numbers of vibrant new markets where entrepreneurs and businesses with an appetite for risk can bring value and find long-term growth. The continent of Africa is one of the final frontiers. The future is bright. The market is changing and there are new ways of operating that could yet accelerate growth.

The most recent STR hotel performance metrics provide a very quick reminder that there are significant challenges still to overcome. However, employ the right blend of local knowledge and international expertise and the potential for our fantastic industry is definitely there to unlock.



Aleph Hospitality was founded by hospitality industry veteran Bani Haddad in 2015 after a significant gap in the market was identified to enable brands to expand more rapidly across the Middle East and Africa through third party management.

Haddad is a panellist at the upcoming inaugural Tourism, Hotel Investment & Networking Conference (THINC) Africa, being held on 6 and 7 September 2016 in Cape Town, South Africa, as well as at the African Hotel Investment Forum (AHIF), taking place in Kigali, Rwanda, from 4 to 6 October 2016.