Over the past two years, the eyes of the world have been fixed squarely on North Africa and the statue-toppling revolutionaries of the Arab Spring. Unless, that is, you are a hotel chain. While it has been impossible to ignore governmental upheaval in the likes of Egypt, Libya and Tunisia, the story playing out elsewhere in the continent is poles apart. While revolution has gripped the north, sub- Saharan Africa finds itself in a boom period of growth and stability. And, when there is growth and stability, there is opportunity.

In the 12 months leading up to March 2012, sub-Saharan Africa saw a whopping 42% increase in pipeline hotel rooms. As of March, in Nigeria alone there were 43 hotels and 7,000 rooms under contract, up 2,000 on last year; in Ghana, 11 hotels and 1,800 rooms; in Gabon eight hotels and 1,300 rooms, and so the list goes on.

African entrepreneurship

Driving this hotel boom is a combination of two factors – a push from the industry and a pull from the economy, says Trevor Ward, managing director of Lagos-based hotel investment consultancy W Hospitality Group. "Economic growth in Africa is between 5-7%, depending on which country you look at, compared to around 0.5% in many Western countries. Combine that with a recognition that Africa is under-developed in many infrastructural senses – including hotels – and you are starting to see a lot of people jumping on the bandwagon, which is not a bad thing at all."

When it comes to underrepresentation, the figures speak for themselves. In North Africa there is an average of 8,900 hotel rooms per country but in sub-Saharan Africa this average drops to 1,100 rooms. "Finance for projects in North Africa used to be more easily sourced, with investors perceiving less risk there than in the more volatile sub-Saharan Africa. But times have definitely changed," says Ward.

"There are serious discussions going on in Europe-based companies about raising equity funds, specifically for African hotels."

An increase in political stability has helped a period of economic growth. And, while oil and gas have a big part to play in this, it is not just about mineral wealth, says Taras Ettl, vice-president development, Middle East & Africa for InterContinental Hotels Group: "Maybe in the past there was that perception that it was all mineral, but in West and East Africa now there are lots on entrepreneurs, people who perhaps started a bakery before going on to open factories."

Middle management

This rise in entrepreneurs has helped swell an emerging middle class. A 2010 report by the African Development Bank put the size of the middle class in sub-Saharan Africa at 355 million (34% of its population) and expected it to grow to 1.1 billion (42%) in 2060. With this increasingly wealthy population has come increasing domestic tourism.

"Another misconception is that hotels in Africa are for foreign tourists," says Ettl, whose hotel group currently operates nine hotels in Sub- Saharan Africa and aims to open six more in the coming five years. "However, there is a huge amount of inter-regional travel."

It’s not just businessmen on the move, but those visiting friends and family, says Uzomo Nwankwo, CEO and managing director of AiQ Capital Management, whose company is raising funds to open mid-market hotels across West Africa. "Domestic tourism is gathering pace. Take a look at Nigeria – there is regular movement between Lagos and the regions for weddings, ceremonies and so on, much more so than ever before."

"Economic growth in Africa is between 5–7%, compared to around 0.5% in many Western countries."

In certain countries, leisure tourism is on the up as well, with countries such as Tanzania seeing displacement from Kenya’s traditional market, says Ward. In fact, Tanzania is very much a country on the move: "It’s been widely said by experts that Angola, Ethiopia, Ghana, Kenya and Nigeria are the ones to watch, and its no coincidence that they all have oil and gas," says Ward. "However, I would add Tanzania to the list because there is a lot of focus on it – there is stability, growth, leisure tourism potential and it is also starting to benefit from recent oil and gas discoveries."

Nigeria is the emerging force on the continent. Already Africa’s largest country by population, it is tipped to overtake South Africa this decade as the largest economy. Recent openings in capital city Lagos have included Radisson Blu, Four Points by Sheraton, Ibis and Legacy, while the likes of Accor, Hilton and IHG all have hotels under construction. At present, much of the funding from these projects comes from the domestic market: "A lot of this investment comes from people with historic ties but who perhaps emigrated, made their money abroad and have now returned and are looking for investment opportunities to bring their money back," says Ettl. Yet a number of foreign markets are starting to sniff around, especially Europe and the Middle East. "There are serious discussions going on in Europebased companies about raising equity funds, specifically for African hotels," says Ward, while Nwankwo cites China as a potentially big player in future investment projects.

East and West Africa: regional accents

Although many spectators might categorise Africa as north, south and the bit in between – it is very important to recognise regional differences, says Ettl. "Lagos and Nairobi are the two bridgeheads for investment but elsewhere it is a different picture.

Although in East Africa the growth is relatively structured, this is not so much the case in West Africa, where infrastructure – roads, hospitals and so on – is not keeping pace with growth, although Ghana and the Ivory Coast are exceptions to this. As a result there is a lot more investment in the East and better returns – if you want returns over a stable five, ten, or 20-year period, you are more likely to achieve this in the east."

"Nigeria is the emerging force on the continent."

The risk of investment is also different between East and West. "Proving land titles, corruption, lack of professional skills – these are all potential challenges," says Ward. "And more so in West Africa than East." It is these risks that mean the vast majority of international chain hotels end up as management contracts rather than franchises. Nwankwo, who aims to open several 100-room, three-star hotels across West Africa, starting in Lagos, says that these will all be under management contracts: "We want our investors to be comfortable with the risk so will have international groups managing them."

While it is in his company’s interest to downplay risk, Nwankwo has a salient point on the subject when arguing that perceived risk is often higher than in practice: "People still see southern Africa as a risky place. The kind of news that comes out of it is only ever bad – very few good news stories get international coverage. Hopefully though, this perception is going down gradually."

Huge opportunities for investors

When one considers the potential returns, it is easy to see why Nwankwo’s company AiQ Capital Management aims to raise funds for several mid-market hotels, aimed at filling the gap between the high numbers of four to five-star hotels, which can charge between $300-600 per night, and the growing number of boutique hotels that are popular with returning visitors but deter first-timers. Charging around $175 per night, Nwankwo expects to see returns of 20-25% for investors on these projects. This example is just the tip of the iceberg. Across sub-Saharan Africa, hotel developers are rubbing their hands at the potential. "There is a recognition that there are huge opportunities compared to Europe," says Ward. "It is hard to find opportunities when an economy is growing at 0.5% but sub-Saharan Africa is growing at upwards of 5% and returns are very high."

"Sub-Saharan Africa has become the darling of investors as they look at ways of exploiting its swift economic growth."

For many years overlooked, distrusted and avoided, sub-Saharan Africa has become the darling of investors as they look at ways of exploiting its swift economic growth. In W Hospitality’s 2012 report on pipeline African hotel rooms, Ward puts this best: "George Kimble, an early 20th-century geographer said, ‘the darkest thing about Africa has always been our ignorance of it’. The activities of international and regional hotel chains show that, in 2012-13, they are far from ignorant when it comes to opportunities."