Cultural, historical and commercial ties have long lent themselves favourably to Middle Eastern investors seeking to diversify their portfolios and channel funds into North Africa. Egypt’s economy has been one of the biggest beneficiaries; according to Finance Minister Hany Kadry Dimian, Cairo received $16.6 billion from Gulf States in 2014 alone. In February this year, Saudi Arabia, the United Arab Emirates and Kuwait agreed to invest a further $10 billion into infrastructure projects throughout the country.

Qatari investors too have channelled significant funds into the region. Since 2007, it’s estimated to have delivered $10 billion into Libya, including $2 billion for the construction of a beach resort near Tripoli. In Tunisia, numerous agreements designed to facilitate economic growth have been signed, and a $500-million loan has been made to expand the country’s oil-refining capacity.

The political instability so prevalent across much of the region sits in stark contrast to events south of the Sahara. Increasing affluence and urbanisation, a rapidly rising middle class and exponential economic growth mean that sub-Saharan Africa is set to become the latest playground for Middle Eastern investors. More and more sovereign wealth funds, venture capitalists and family-run investment companies are scouring the region for opportunities. With business and leisure-traveller numbers rising, the under-supplied hotel sector is proving a lucrative investment.

Bless the gains down in Africa

For a long time, South Africa possessed one of the safest hospitality sectors to invest in across the region. According to a PwC report, it had 60,900 rooms in 2013, with overall spending reaching $1.42 billion; it’s expected this will rise to 63,600 rooms by 2018, generating over $2.36 billion in revenue. Even the country’s economic slowdown isn’t impeding hotel construction, but this story now extends well beyond the region’s traditional economic powerhouse.

"Historically, the South African market has been quite diverse and mature as an economy, across a range of sectors and participants," says Andre Pottas, corporate finance advisory leader for Africa at Deloitte. "But six of the ten fastest-growing economies in the world in the past five years are in Africa, and I think increased democracy and stability, as well as the commercial progress underpinning it, makes for a hugely attractive market. The hotel sector comes off the back of that."

The IMF predicts that sub-Saharan Africa’s average economic growth for 2015 will hit 5.8%. Jurisdictions such as Chad, the Democratic Republic of Congo and Ethiopia are forecast to grow by more than 8%.

As inter-regional trade agreements and activity continue, and with more international businesses looking to enter the market, the demand for quality hotels will intensify. With Middle Eastern investors having already helped develop Northern Africa’s sector, their money and expertise could prove invaluable to sub-Saharan hospitality.

"There are huge opportunities for investors looking for growing markets that aren’t saturated and under-serviced," says Pottas. "Certainly, from my own travels, I know that until recently certain parts of Africa were exceptionally limited in terms of the number of hotels available. If you went to Kampala, you would probably stay in the Sheraton, or the Southern Sun if you went to Nairobi. Tanzania, Nigeria and Angola were very limited. We’ve started to see a lot of growth in the sector in the past three or four years, and a lot of new players are coming in."

Many hotels across the region have already attracted Middle Eastern money. Dubai-based property investors, International Financial Advisors (IFA), have bought a 50% stake in South Africa’s Zimbali Coastal Resort and plans to invest $100 million more into the project over the next decade. The deal followed its recent acquisition of Tanzania’s Zanzibar Beach Hotel for $50 million.

"Six of the ten fastest-growing economies in the world in the last five years are in Africa, and increased democracy and stability, as well as the commercial progress underpinning it, makes for a hugely attractive market."

Leisure visitors are on the rise across the continent: an SRI International report suggests sub-Saharan Africa is the world’s fastest-growing region for wellness tourism. In 2013, 4.2 million trips of this nature were made to the region, generating $3.2 billion, a year-on-year increase of 57%, which is indicative of the breadth of opportunities available for investors.

"I think it’s really a good white space for many hotel investors," says Pottas. "The sector hasn’t had a lot of interest in the past, but there’s clearly demand now. The Middle East has the necessary cash resources, understands many of the markets there and has long trading relationships with others, so it’s not a totally foreign environment."

Gulf of advantages

Accessing local investment in gateway cities such as Lilongwe, Malawi, is hugely competitive; financial institutions are comparatively small and possess limits to the level exposures to which they can subject themselves. The high liquidity associated with many Middle Eastern investors enables them to bypass the need for domestic funding, putting them at a distinct advantage.

"Hotel markets are still primarily development markets, so many investors must play an early role on the development side," says Xander Nijnens, Jones Lang Lasalle’s head of hotels and hospitality, sub-Saharan Africa. "There’s an opportunity to get into the gateway cities now, and build a large portfolio within the region over time."

It’s a simple enough formula to follow, but securing the necessary land tenure can be problematic. Though some jurisdictions are trying to attract international investment by removing restrictions on foreign land ownership, barriers remain in others. Navigating the regions’ varying legislative and tax frameworks can be an arduous task, and finding domestic partners is often an educative, as much as a legal, necessity.

"It’s important to align yourself with good advisers who have a presence on the ground, and can assist in finding insights and introductions to the right partners," says Nijnens. "If you look at the capital stack for new developments and investments in the region you’ll find that the local partner will often provide the land and, potentially, some further equity. It’s relatively competitive considering there’s a lot of international capital looking to get in."

The long game

The influx of investors from the Middle East into sub-Saharan Africa represents a shift in mentality. Investment from Gulf States into the European markets has flowed in recent years, with real estate consultancy HVS London accounting for a record-breaking 30% of the continent’s hotel transactions in 2013.

Plenty of deals went ahead despite the 2014 slowdown. Qatari investors laid out $330 million to purchase Paris Le Grand hotel from InterContinental, for example, as well as acquiring a 50% stake of London’s legendary Savoy in December. Many of these acquisitions have been interpreted as a desire to acquire trophy assets, to establish prestige, rather than profits. The draw to Africa’s market isn’t reputational, it’s financial.

"The Middle Eastern preference has generally been to invest in existing assets, rather than taking on development risks," says Nijnens. "Finding the right partner and assets, getting the experience and then building on that to get an investment portfolio with scale all require patience. Investors with long-term views can expect very strong returns in the region, however."

Many Middle Eastern investors are also now exploring opportunities outside of the flagship luxury market. Fuelled by the increasing number of business travellers, the need for mid-market accommodation is likely to be one of the region’s more profitable areas.

"Traditionally, Middle Eastern investors focused more on the upper-upscale and upscale segments," says Nijnens. "But as the hotel markets mature, more potential is coming from the mid-scale and budget sectors."

With enviable economic growth across sub-Saharan Africa expected to continue for the foreseeable future, the need to service the regions burgeoning demand for hotels, across all scales, will only increase. With Middle Eastern investors leading the pack, they’re well poised to capitalise.