PwC report optimistic for sub-Saharan Africa's hotel industry

A new report from PwC predicts good things for South Africa’s hotel industry.

The hospitality scene across the country (and region at large) is set for steady growth in the next five years, driven by an increase in the number of foreign visitors.

“Although the South African economy has weakened considerably, the overall outlook for hotels in South Africa is expected to remain positive,” Pietro Calicchio, industry leader of hospitality and gambling at PwC Southern Africa, said in a statement. 

According to PwC’s sixth edition Hotels Outlook 2016 – 2020, revenue from hotel room accommodation in South Africa rose 8.1 percent in 2015 to R14.2 billion, reflecting an increase in stay unit nights and a 6.5-percent rise in the average room rate. Overall, hotel room revenue is projected to expand at a 7.8-percent compound annual rate to R20.6 billion in 2020. PwC’s report also includes information about hotel accommodation in South Africa, Nigeria, Mauritius, Kenya, and Tanzania.

“The devaluation of the rand and the relaxation of certain visa regulations has had a positive impact on the tourism industry in South Africa, making the country a more attractive tourism destination. This has also had a positive impact on the number of foreign visitors to South Africa over the past six months,” Calicchio said.

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The new visa regulations had a sharp impact on the South African tourism industry. After growing at an 8-percent compound annual rate between 2009 and 2013, the number of foreign overnight visitors rose only 0.2 percent in 2014 before falling 6.8 percent in 2015--the biggest decline in six years, according to official statistics. China had the largest decrease of 46 percent in 2014, while the decrease from India was 23.5 percent. Visits from China edged up 2.2 percent in 2015, but remained 45 percent lower than the peak in 2013, while visits from India fell an additional 8.5 percent in 2015 for a cumulative 30-percent decline over the past two years.

A key factor cited as contributing to the decline was the requirement that foreign travelers appear in person at South African embassies to have their biometric information taken. However, some countries--including India, Russia and China--have very few South African visa processing centers.

In October 2015, some of these regulations were eased, and the Department of Home Affairs is considering introducing further amendments.

Overall, 2015 saw a decline in the number of foreign travelers to South Africa from every region except the Middle East and North Africa. Of non-African countries, the UK is still the largest source of visitors to South Africa. It was one of the few countries from where visitors increased in 2015, but that gain did not offset the overall 6.8-percent decline from 2014. Visits from the U.S. dipped below 300,000 in 2015, down 3.9 percent from 2014. Germany was down 6.5 percent in 2015, while Australia fell 10.8 percent.

Of African countries, the largest numbers of foreign visitors to South Africa in 2015 came from Zimbabwe (2.1 million), followed by Lesotho (1.5 million) and Mozambique (1.3 million) but all were lower than in 2014.

On a more positive note, the number of monthly overnight tourist visitors to South Africa started picking up towards the end of 2015 and rose above the one million mark for the first time in January 2016, with international visitor numbers up by 16.8 percent for the months of January to April 2016 when compared to the same period in 2015. Visitor numbers from Europe have increased by 13.6 percent, China 38.0 percent and North America 16.4 oercent through to April 2016 when compared to the first four months of 2015. For 2016 as a whole, a 12.4-percent increase in foreign visitors is anticipated.

Development

The number of hotel rooms planned in Africa has increased from previous years in the wake of a number of developments across the continent.

Overall, room revenue in South Africa, Nigeria, Mauritius, Kenya and Tanzania rose 6.7 percent in 2015, the largest gain since 2011. Tanzania had the largest increase with a 14.4-percent gain, the result of a large increase in the average room rate that offset a drop in stay unit nights.

“It is promising to see a growing number of new hotels that are planned for the South African market over the next five years. We are forecasting an additional 2,600 hotel rooms to be added over the next five years,” Calicchio said. “We forecast that hotel room revenue will grow by 11.9 percent in 2016 to R15.8 billion.” The interest in new hotel developments in Cape Town reflects its strong growth rates and its appeal as a tourist attraction.

Five-star hotels had the highest occupancy rates in the market at 79.5 percent in 2015, up from 70.7 percent in 2014 as stay unit nights increased by 12.5 percent.

The hotel sector in Mauritius experienced an increase in stay unit nights in 2015, but a drop in the average room rate that resulted in a 6.7-percent increase in room revenue. Nigeria’s long-term prospects for the hospitality sector remain positive, though the impact of its current weaker economy is likely to reflect in near-term hotel performance. Kenya’s economic growth has been strong and a number of initiatives have contributed to a recent increase in the tourism industry.

South Africa's Future

With occupancy rates and visitor numbers on the rise, South Africa is seeing renewed activity in its hotel sector. There are a number of major hotels expected to open in the next five years and several others are in the planning stage. The number of available hotel rooms are projected to rise at a 0.8-percent compound annual rate to 63,700 in 2020 from 61,100 in 2015.

Stay unit nights are expected to increase at a 1.9-percent compound annual rate to 14.6 million in 2020 from 13.3 million in 2015. With demand growing faster than room supply, the occupancy rate for hotels is expected to rise from 59.6 percent in 2015 to 62.6 percent in 2020.

Nigeria, Mauritius, Kenya and Tanzania

The hotel market in Nigeria has not fared as well as South Africa with stay unit nights dropping 12 percent and room revenue down by 3.6 percent over the past two years. There are a number of new hotels planned or under construction and we forecast an additional 4,700 rooms to be added in Nigeria during the next five years. Hotel room revenue is expected to grow to $507 million in 2020 from the $321 million achieved in 2015, due to increases in both stay unit nights and average room rates. The number of tourist arrivals to Mauritius increased by 10.9 percent in 2015, the largest increase during the past five years. The number of available hotel rooms is expected to increase at a 2.8-percent compound annual rate, rising to 15,600 in 2020 with hotel room revenue forecast to grow at a 10.6-percent compound annual rate to €920 million in 2020.

Kenya’s hotel market is recovering, with growth being achieved for the first time in four years due to an increase in the average room rate even though stay units fell 2.8 percent in 2015. Revenue is projected to grow at 6.1 percent compounded annually to 2020. Tanzania’s hotel room revenue amounted to $222 million in 2015 and is expected to grow by 10.8 percent compounded annually to $371 million in 2020.

“The hotel market in each country is affected by both the local and global economy, with some countries being more dependent on foreign visitors than others. The growth forecast is therefore dependent on how well both the local and global economy performs and grows over the next five years.”

“The tourism industry continues to be one of the fastest growing sectors of Africa’s economy. In spite of recent challenges, including the change in visa regulations in South Africa and the contraction of the global economy, the sector has significant potential to create jobs and uplift inclusive economic growth across the continent,” Calicchio said.