Business

East Africa’s high set-up costs worry hotel chains

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The Sankara, a 5-star hotel in Westlands, Nairobi. Photo/FILE

The Sankara, a 5-star hotel in Westlands, Nairobi. Photo/FILE  Nation Media Group

By Christine Mungai The EastAfrican

Posted  Saturday, September 29  2012 at  14:58

In Summary

  • At the Africa Hotel and Investment Forum held in Nairobi last week, executives of six leading hotel brands — Best Western, Radisson Blu, Park Inn, Three Cities, Kempinski and Lansmore — announced that they are finalising their entry into the Kenyan market.
  • The executives attending the two-day conference said the costs of obtaining permits and registering property could unsettle their plans.
  • According to the IFC’s Doing Business in the East African Community 2012 report, entrepreneurs in the EAC must go through an average of eight procedures, wait 61 days, and pay up to 4.7 per cent of the value of the property in order to register it.
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Yet Rwanda’s cost of registration is considerably higher, averaging 6.3 per cent of the property value — more than twice the price in Uganda, which is the least expensive in the EAC. Registering property is slowest in Burundi, where it takes 94 days.

“Burundi’s land registry has to perform due diligence for the transfer of property to the buyer’s name, and might do a field inspection of the land,” the report states. “The due diligence alone could take one or two months.”

The demand for hotel space is being pushed up by the increasing number of expatriates working for businesses seeking regional expansion.

Rwanda reportedly needs about 6,000 hotel rooms by the end of the year to accommodate the rising number of tourists, but supply is estimated at just 4,260. In 2010, Rwanda received about 666,000 tourists who contributed $200 million to the economy.

Expansion plans

Recently, much of the focus has been on Marriott’s new $55 million 250-room, 5-star hotel in Kigali. But this is only one of several new developments planned for East Africa.

Hilton Hotels, already a well-established brand in the region, is looking to extend its footprint. “We want to convert existing hotels to bring them under the Hilton brand,” said Patrick Fitzgibbon, the company’s senior vice president for development in Europe and Africa.

“It’s a strategy that has worked in Dar es Salaam and Zanzibar. In Kenya, we’re looking to do the same in Mombasa and Malindi, and probably build another hotel in Nairobi. We also want to expand into Uganda,” he said.

Hilton is planning an additional 19 hotels across sub-Saharan Africa, to add to its existing 33.

The Intercontinental Hotel Group is expanding into Kampala, seeking to cash in on the growing demand for accommodation and conference facilities. The group has partnered with Kingdom Kampala, a company owned by Dubai-based Azure Holdings Ltd, to run the hotel.

The $80million investment, with 303 rooms and 34 suites, is under construction. It joins other international brands already in the city such as Sheraton, Serena, Protea and Hilton.

Kenya’s hotel capacity is estimated at 50,000 rooms, but the growing number of international visitors could strain the supply — meaning that the country must remove the bottlenecks that hold up hotel development.

“Kenya’s strategy is to bring in these big brands who will either set up shop afresh, or buy into existing facilities, ” said Marianne Ndegwa Jordan, the managing director of the Kenya Tourism Development Corporation.

The upcoming hotels are expected to create a bed capacity of at least 4,000 in the next five years. Big hotel chains are said to be interested in buying eight hotels in which Kenya’s government wants to sell its stake.

The government’s stake in another three hotels — Hilton, Intercontinental and Mountain Lodge — is also up for grabs, although priority will be given to the existing shareholders.

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