Why Rwanda is a buyer's market for small hotels

According to the World Bank, Rwanda’s visitor numbers rose steadily between 2011 to 2013. But over the last two years, an estimated 100 hotels in the country have been put up for auction, after guest numbers declined for a significant segment of the market, leaving hotel owners without revenues to pay back the "hasty bank loans" they had taken out to build hotels in Kigali and other parts of the country.

According to Quartz Africa, starting in 2007, the hoteliers and investors had "heeded a government call" to build more hotels in response to its own forecast of a tourism boom, after it revamped and diversified the sector. Opportunists took out loans to build new hotels, expecting to fill the existing gap in bed numbers, as well as positioning themselves for the projected demand to be created by conferences. In 2009, the country had 188 hotels. By 2013, the number had grown to 431.

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Today, some industry insiders argue that Rwanda’s banks failed to offer solid long-term market advice needed by hoteliers to limit the incessant investment in hotels even at a time the market had more than enough. “By 2013, we had added 6,500 rooms, from the 300 available in 2007, but we are now trapped,” Sylvester Mupenda—president of Rwanda hotel group, whose own Eldorado Hotel was also auctioned—told the site. “Many of us took bank loans. After we built the hotels, we didn’t find enough people to host. Our hotels are now being auctioned by banks at very low prices.” 

The government, meanwhile, has indicated that there is still a gap in the hospitality industry, and has focused on making Kigali “the conference tourism hub of East Africa.” In recent weeks, it has hosted events like Transform Africa and Interpol General Assembly and next year will host the World Economic Forum Africa. The Kigali Convention Centre, three years behind schedule, is expected to be ready in time for the World Economic Forum next May. The new conference center is expected to be another driver of demand for business guests, which will promote development of high-end hotels for corporate visitors rather than lodgings for budget-conscious tourists. To serve the business visitor demand, ground has broken for new top hotels from global chains (including Marriott, Radisson Blu, Sheraton, Golden Tulip, Kempinski and Zinc) as well as refurbishments and upgrades of existing four- to five-star hotels. 

While auctioning the smaller hotels seems to be the quick market solution for banks to recover their investment, it doesn’t solve the fundamental problem of oversupply at the wrong end of the market. It seems like even those who buy the auctioned hotels will be stuck with them, if the issues in the hotel supply chain are not addressed.