How is the current oil price affecting hospitality markets in African oil economies?
Between 2011 and 2012 the annual basket price for oil (as indicated by OPEC) was at its highest levels at approximately US$ 107 and US$ 109 respectively. By the end of 2014 an oversupply of oil (driven by a number of factors) saw the price drop below US$ 100 per barrel. In 2015 prices reached US$ 49 and year to date January 2016, prices were approximately US$ 30 per barrel.
“The impact of current oil prices on hospitality in African economies will be dependent on various factors” said Wayne Troughton, CEO of HTI Consulting, who has recently issued a market snapshot on the aforementioned topic. “The level of economic diversity, the future pipeline for new hotel development and the length of time oil prices remain depressed all have a role to play in driving hospitality trends.”
HTI Consulting’s study focused on the capital cities of Accra, Lagos and Luanda. “Of the three, Luanda has been the most affected” says Troughton. “Oil drives 90% of Angola’s exports and 80% of its tax revenue and the significant cut in both Government and oil related corporate spend has resulted in an annual occupancy decline of 20 percentage points and a reduction in Revenue Per Available Room of almost 52% between 2014 and 2015.” Whilst this reduces investment opportunities in the short term, Troughton stated that properties offering quality international standards were likely to maintain stronger performances than those with a “low quality to value ratio”. He further highlighted that the majority of supply in cities like Luanda remains below international standards and developers who commit to providing quality hotels, with international standards and increasingly, international branding, can realise good returns.
On the subject of Nigeria, the CEO highlighted that oil prices alone were not responsible for the dip in performance in the Lagos market. “New, quality, internationally branded supply, Ebola and the failure of Government to appoint a cabinet immediately after the elections in 2015 saw occupancies decrease by 15 percentage points over a two year period. Occupancy growth in the short term is possible” said Troughton “the removal of the Ebola threat and increased Government spend, due to cabinet appointments, should drive a rebound in demand in 2016.” However, without a parallel rebound in oil prices, Troughton emphasized that the markets ability to absorb new supply planned was questionable.
“Accra represents the greatest short term investment amongst oil economies” says Troughton. “Despite its recent economic challenges, a doubling in quality supply in the last five years and the impact of Ebola both occupancy and ADR have remained strong.” Troughton further highlighted that the strong dollar ADR performance was significant given the depreciation of the Cedi against the dollar and emphasised the “resilience” of this market.
Although Accra is weathering the oil crisis better than other oil markets, largely due to the greater diversity of its economy and its limited reliance on oil, Troughton is insistent that opportunities in Luanda and Lagos should not be discounted. “Quality international standards and internationally branded supply, particularly in Luanda is lacking. Within Lagos, a healthy development pipeline does exist however given the trend for projects to be delayed or cancelled in the City, not all projects planned will be realised, creating opportunities for committed investors.”
The HTI Consulting market snapshot on the hospitality sector in oil economics can be downloaded here