Industrial Development Corporation to Invest in Africa's Hotel Business

The Industrial Development Corporation (IDC) is looking to partner with local entities as it seeks to capitalise from investments into Africa’s business hotel industries.

The entity expects to partner in the development of six to eight new hotels outside SA within five years, the head of the IDC’s tourism business unit, Christine Engelbrecht, told Moneyweb following the release of an IDC report on Africa’s business hotel industry on Tuesday.

“We believe that there is a lot of opportunity in the rest of Africa and we are taking a more proactive approach in finding partners to capitalise on those opportunities,” said Engelbrecht.

Such partners will include entities from both South African and the host countries, she said, with the IDC seeking to take minority equity positions as part of its funding strategy for the investments.

Rural and niche markets

On the local front, the IDC’s focus for investments in tourism over the next few years will be geared more towards rural and niche tourism markets.

“SA is currently seeing an oversupply of hotel space, especially in the established nodes of Johannesburg, Cape town and Durban,” said Engelbrecht. “We are changing our focus a bit in terms of looking at the more niche sub-sectors of the industry that we believe are underdeveloped.”

Such sub-sectors will include medical tourism, backpackers, adventure tourism, arts and crafts tourism and tourism focused around natural attractions, according to Engelbrecht.

Report: key opportunities

The IDC’s intentions to invest in East and West Africa are based on its tourism report which lays “the foundation” for identifying opportunities in the industry.

The report highlights key opportunities for the business hotel industry in 12 East and West African countries focusing on business nodes which have shown “rapid” economic expansion.

“Such rapidly growing business nodes are likely to continue attracting both domestic and foreign investment and trading activity that will, in turn, create a need for the establishment or refurbishment of supporting infrastructure, particularly in the business hotel segment,” reads the report.

With many of the countries examined suffering from an undersupply of hotel rooms, particularly at affordable rates with acceptable levels of quality, it is believed that there are “gaps” in the industry that might be capitalised on.

On the other hand, the African hotel industry suffers from investment and operating costs which are generally very high from a global perspective, as well a shortage of requisite skills, presenting a challenge for investors seeking profitability in these countries.

By Malcolm Rees
MoneyWeb
09-May-2012