sub-saharan africa hospitality sector overview

Sub-Saharan Africa Hospitality Sector Overview

The World Bank Group

The World Bank Group December 2010

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Table of contents

1. Statement of assumptions and limiting conditions .................................................................................................................................................................................. 3 2. Abbreviations ......................................................................................................................................................................................................................................... 4 3. Scope of work completed ........................................................................................................................................................................................................................ 5 4. Summary of recommendations ............................................................................................................................................................................................................... 7 5. Hospitality sector overview ...................................................................................................................................................................................................................... 9

5.1 SSA ................................................................................................................................................................................................................................................ 9 5.2 Middle East/North Africa .............................................................................................................................................................................................................. 19 5.3 Asia .............................................................................................................................................................................................................................................. 20 5.4 United States/Western Europe ...................................................................................................................................................................................................... 21

6. Additional characterizations of SSA ...................................................................................................................................................................................................... 23 6.1 Francophone and Anglophone countries ........................................................................................................................................................................................ 23 6.2 Geographic region ......................................................................................................................................................................................................................... 24 6.3 Visitor characterization ................................................................................................................................................................................................................. 25

7. Assessment of SSA via “Anatomy of a hospitality deal” framework ......................................................................................................................................................... 26 7.1 Overview of framework .................................................................................................................................................................................................................. 26 7.2 Opportunity identification ............................................................................................................................................................................................................. 27 7.3 Identifying strategic partners ......................................................................................................................................................................................................... 34 7.4 Development ................................................................................................................................................................................................................................ 40 7.5 Operation ..................................................................................................................................................................................................................................... 47

Appendix A – Macroeconomic indicators ........................................................................................................................................................................................................... 52 Appendix B – Interview questionnaire ................................................................................................................................................................................................................ 68 Appendix C – Companies interviewed ................................................................................................................................................................................................................ 83


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1. Statement of assumptions and limiting conditions

These findings and recommendations have been prepared under the terms of our statement of work (“SOW”) dated 18 January 2011 between Ernst & Young LLP (“EY”) and The World Bank Group (“World Bank”) and are only intended for use by those parties to the SOW. The analyses contained in this report (“Report”) are based upon estimates, assumptions and other information developed from our research, knowledge of the industry and information obtained from World Bank and interview respondents. These sources of information are the basis for any recommendations that are stated in this Report. While we believe that the sources of information are reasonably reliable, EY has not, as part of its analyses, performed an audit or review of any of the information used and, therefore, does not express an opinion or any other form of assurance on the accuracy of such information. The terms of our engagement did not provide for reporting on events and transactions that occurred subsequent to the last day of our fieldwork 14 September 2010. Accordingly, we accept no responsibility to update or revise this Report for events and transactions that occur subsequent to this date. However, we are available to assist you with additional services that may be required relating to the analysis. This report is intended for use solely by members of World Bank management. Copies should not be made, nor should this report be distributed to others without our express permission.


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2. Abbreviations

In addition to the abbreviations defined in the previous section of this Report (see “Statement of assumptions and limiting conditions”), the following abbreviations are used throughout the remainder of this Report:

► “ADR” = Average daily rate – A measure of the average rate paid for rooms sold calculated by dividing room revenue by rooms sold

► “CFA” = Communauté financière d'Afrique in Western Africa and Coopération financière en Afrique central in Central Africa, related to the CFA-franc currency used in several countries in Africa (now tied to the euro)

► “DRC” = Democratic Republic of Congo

► “GDP” = Gross domestic product

► “GOP” = Gross operating profit

► “RevPAR” = Revenue per available room – The total guest room revenue divided by the total number of available rooms; differs from ADR because RevPAR is affected by the amount of unoccupied available rooms, while ADR shows only the average rate of rooms actually sold

► “SSA” = Sub-Saharan Africa

► “YTD” = Year-to-date


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3. Scope of work completed

Reviewed available prior research and refined scope of proposed study

► Conducted a conference call with you and your associates to commence the engagement and discuss logistics of the engagement, as well as to confirm our understanding of your objectives, and review any other pertinent information and research (including World Bank’s Phase 1 study as well as other research provided by you).

► Obtained and read any previously developed relevant third-party reports as identified by World Bank, including market studies and other relevant data, as applicable.

► Read macro-level economic and demographic data pertaining to the SSA region as relevant to present economic, political and business climate as well as future growth potential; also interviewed industry professionals to gain further insights to augment the desk-based research.

► Leveraged our extensive expertise in the hospitality and real estate industries, as well as our global network of relationships with C-suite executives, to help identify top investors, developers and operators internationally that may have existing businesses in the SSA region and/or have potential future interest. Some of the identified executives also have existing businesses in Asia and/or have potential future interest there.

► Conducted a conference call with you and your associates to discuss the scope, plan and structure of the proposed study, gain consensus on the specific framework of the engagement and confirm next steps.

► Co-developed a detailed questionnaire to help answer questions as identified under key objectives of the proposed study, as well as other relevant development, investment and operational considerations for the SSA accommodation sector.

► Prepared a short-list of potential interviewees, and co-developed with you a final list of investors, developers and operators selected as target interviewees for the study. The interview format was comprised of in-person meetings as priority (on a best effort basis) or telephone discussions. Ultimately, interviews were conducted with a total of 26 participants. The respondents, which included representatives of global and regional developers (i.e. USA, Europe and Africa) and operators, were comprised of three sub-groups as follows:

• 10 interviewees at the investment/development decision-making level to discuss potential of the sector and constraints to investment and development. • 13 interviewees at key operational decision-making level to address productivity and cost disparity at existing hotels in SSA, as well as to gauge interest and potential

for brand expansion. Brand operator discussions included multi-chain global brands, as well as boutique and eco-tourism lodging establishments that comprise international and regional brands.

• Three interviewees at the strategic advisory and government decision-making level to address overall hospitality trends and policies throughout SSA in general and in specific countries.

► Upon completion of items listed above, a draft plan of the work to be performed was provided, which included suggested methodology, alternative approaches and targeted contacts. This was discussed, refined and confirmed by you before undertaking the subsequent tasks.

Accommodation sector operation and investment overview

► Set up meetings/interviews and conducted interviews with selected representatives to assess current market conditions, trends and preferences. The interviews were conducted by senior and experienced EY professionals. The over-arching objective of these interviews was to gain insights about operational and financial considerations, relative positioning of SSA against other comparable/benchmark international markets, as well as the need, if any for policy reforms and investments in infrastructure, etc.

► The interview questions template, as reviewed and approved by you, focused the discussion on collecting information along the following key attributes, as available and as relevant for the SSA accommodation sector:


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• Current market conditions and trends • Types of hospitality products • Geographical concentration • Related facilities, services and amenities • Related positioning and marketing strategy • Ownership and operating structure • Investment criteria • Land acquisition and development costs • Construction and investment costs (including direct and indirect investment costs, as well as comparison vis-à-vis regions in North Africa and Asia) • Key operating characteristics • Major operating costs and productivity issues (including salaries and wages, number of employees versus number of rooms etc.) • Target market segments • Visitor/guest countries of origin • Expansion plans • Barriers to entry • Brands overview • Development and operational challenges • Competitive strengths and weaknesses • Assessment of the eight selected SSA countries • Opportunities in and comparison with key markets in North Africa • Opportunities in and comparison with key markets in Asia

Note – interview questions along all the attributes identified above were designed to provide for a benchmarking of the SSA region against regions in Asia and North Africa.

► Summarized, tabulated and compiled the insights shared by key executives and informed by secondary research. The synthesized information was designed to provide a quadrant analysis and an assessment of the current state of the accommodation sector in SSA region, as well as to highlight important strategic recommendations identified as necessary to promote growth of this sector in the future.

► Provided a high-level analysis of potential for hospitality development in selected countries in SSA in comparison with Asia and North Africa as well as critical success factors.

► Issued this draft Report, which includes a detailed overview of our analytical approaches; charts, tables and bullet point explanations of the findings from the analysis; and strengths/opportunities, constraints/challenges and quadrant analyses.


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4. Summary of recommendations

The quadrant analyses (detailed in Section 8 of this Report) yielded four categories of recommendations (or strategies for success) based on anticipated value created and level of effort to implement. Categories include:

► “Gems” – High value and less challenging to implement

► “Tackle” – High value but more challenging to implement

► “Quick Hits” – Low to moderate value but less challenging to implement

► “Avoid” – Low value and more challenging to implement The following summarizes the recommendations in each of the categories:

“Gems”

► Provide tax incentives, breaks and subsidies to developers, operators and investors (as applicable) to promote hospitality development throughout SSA

► Provide grants for job creation, to assist with land purchases and for developing hotels in marginalized areas

► Actively promote Eastern and Southern Africa as tourist destinations by focusing on nature (e.g., safaris and beaches)

► Ease visa restrictions on visitors

► Train lending institutions on the fundamentals and dynamics of real estate investment to establish appropriate underwriting criteria (i.e., attractive to both lenders and investors)

► Develop economic development initiatives to promote the advantages of SSA to international investors; provide road map for investment

► Work with international hotel companies and developers/investors to match them with experienced local partners

► Clarify laws related to local partnerships; ease restrictions as needed

► Lower duties on construction imports

► Provide vocational training related to hospitality management “Tackle”

► Enact political reform and promote political stability

► Eliminate corruption within the government and reward accountability

► Improve infrastructure (e.g., roads, utilities and communication)

► Reduce crime

► Increase airline capacity and reduce air fares


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► Improve negative international perceptions of SSA by creating marketing platform to promote countries as tourist destinations; build a strong Internet site for each country, partner with hotel companies/brands, etc.

► Improve transparency of government processes related to hospitality development (e.g., incentives, approvals, laws and regulations, etc.)

► Assist local banks in key markets in providing long-term financing

► Promote environment for master franchise agreements (i.e., transparent processes and informed and accountable local partners)

► Improve speed and efficiency of using public sector financing and structuring public-private partnerships

► Create, clarify and/or ease land title process to accelerate development and discourage counterfeit titles

► Initiate and enforce formal processes for obtaining permits

► Require and enforce contracts related to land transactions and development

► Improve internal communication between government departments and reduce bureaucracy related to the permit approval process

► Improve education system to provide strong platform for learning

► Work with governments to improve utility expenses

► Improve Internet access and reliability throughout the region “Quick Hits”

► Improve communication between the government and the private sector via better protocols and technology

► Improve visitor data and statistics by creating exit surveys

► Implement strategic market assessments for individual countries to determine optimal balance of lodging supply and demand

► Encourage development of projects with international brands

► Encourage the education and training of skilled development professionals (e.g., architects, contractors, etc.) in SSA

► Ease visa restrictions on skilled employees “Avoid”

► No recommendations fall into the “Avoid” category


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5. Hospitality sector overview

5.1 SSA Hotel performance

In 2008 and 2009, the Middle East/Africa region (which includes the Middle East and North Africa) outperformed most selected major worldwide markets in terms of increased tourism, with the absorption of a large number of new tourism and hospitality developments primarily in the Middle East; however, the region experienced a decrease in 2009 in RevPAR, a primary benchmark for the hotel industry based on occupancy and ADR, attributed to the global economic crisis. The table below shows RevPAR percentage changes for selected SSA countries (where data was available) as compared to other expanding or established economies worldwide:

Observations:

► South Africa experienced significant improvement in RevPAR during the first half of 2010 due to the World Cup in June and July 2010.

► Though Kenya and South Africa have experienced significant fluctuations in hotel performance over the past few years, on average the improvements in RevPAR for these two nations has been more significant than many other expanding economies (besides Brazil) and all other established economies.

2008 2009YTD July

2010

Average (2008-YTD June 2010)

Kenya -24.5% 41.6% 6.1% 7.7%Maurit ius -6.9% -20.6% 5.5% -7.3%South Africa -3.4% -10.4% 39.3% 8.5%Middle East / Af rica 17.0% -13.3% 3.9% 2.5%

Brazil 14.9% -8.4% 35.0% 13.8%Canada 0.8% -17.9% 19.4% 0.8%China -4.1% -25.2% 33.8% 1.5%France 10.8% -18.0% 2.2% -1.7%Germany 10.6% -14.4% 13.8% 3.3%India -3.9% -37.9% 15.5% -8.8%Japan 11.1% -3.6% 8.0% 5.2%Mexico 1.7% -31.3% 9.2% -6.8%Spain 1.0% -23.6% 1.7% -7.0%United Kingdom -8.3% -22.1% 6.1% -8.1%United States -1.9% -16.7% 3.3% -5.1%

Note: Percent changes based on currency in US dollars.Source: Smith Travel Research

RevPAR (% Change)


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SSA hospitality sector characteristics

Based on interviews with market participants and secondary research, the following outlines some key characteristics of the hospitality sector in SSA:

► According to respondents, a significant proportion of lodging facilities in SSA are small, unbranded guest houses or lodges.

► Prior to the 1990s, many of the large internationally branded hotels in SSA were government owned (due to lack of private capital) and managed by third-party operators or the brands themselves. The result of this government ownership is that these hotels are generally well-located, but are inefficiently designed.

► There is inconsistency between international standards for hotel rating systems (such as the Forbes Travel Guide star rating or AAA diamond rating) and star-rated hotels in SSA. In general, “star inflation” is common, with “5 Star” hotels in SSA more aligned with “4 Star” hotels elsewhere in the world.

► Guests staying in hotels in SSA (particularly branded hotels) consist primarily of visitors from outside Africa and younger domestic or inter-African travelers, while older domestic or inter-African travelers typically stay with friends or family when traveling. This trend is, however, slowly changing, as inter-African travelers are making up a greater percentage of hotel guests, resulting in increased demand for hotel rooms throughout SSA.

► The result of increasing inter-Africa travel and increasing visitation from outside Africa, coupled with limited to no significant new hotel supply additions, has resulted in an undersupply of hotel rooms in many markets. This limited supply has resulted in high ADRs in several SSA markets (e.g., Luanda, Angola), where rooms can be priced at upwards of US$400+ per night for a basic hotel room with limited amenities.

► Most large hotel chains and international developers have been focused over the past few years on hotel development in Asia and the Middle East. Market participants indicated that as hotel supply increases throughout Asia, development in Africa is anticipated to pick up as hotel companies and developers shift their focus to Africa as the next opportunistic hotel market.

► According to Smith Travel Research, the Middle East/Africa hotel development pipeline comprised 455 hotels and 126,310 hotel rooms as of June 2010 (71,993 of which are under construction). Nearly 50% of this pipeline was contained within the United Arab Emirates. With the total development pipelines for the United Arab Emirates, Saudi Arabia, Egypt and Morocco removed, 41,437 rooms (33% of the 126,310 hotel room total pipeline for the region) remained in the pipeline for the remainder of the Middle East/Africa region.

► Though data is limited, market participants indicated that RevPAR growth has been significant (upwards of 20% per year) for several markets in SSA over the past 10 years, due to the increased travel and lack of new supply. Furthermore, as previously indicated, the markets in SSA were significantly less affected by the global economic downturn than much of the developed world. Market participants indicated strong growth in hotel fundamentals throughout the region is anticipated to continue to occur over at least the next five years.

Global hotel brands located within SSA

Based on interviews with market participants and secondary research, the following global hotel companies (and their respective brands, as indicated) have properties located in SSA:

► Accor Hotels • Formule 1 – South Africa • Hotel Novotel – Benin, Chad, Ghana, Guinea, Ivory Coast, Nigeria, Reunion and Senegal • Hotel Sofitel – Equatorial Guinea, Mauritius and Nigeria • Ibis Hotels – Benin, Cameroon, Ivory Coast, Madagascar and Togo • Mercure Hotels – Burkina Faso, Reunion, South Africa and Togo • Pullman Hotels – Ivory Coast and Senegal


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► Banyan Tree Hotels & Resorts – Seychelles ► Best Western International – Ghana, Nigeria, Reunion and South Africa ► Club Med – Mauritius, Senegal ► Constance Hotels Experience – Madagascar, Mauritius and Seychelles ► Fairmont Raffles Hotels International

• Fairmont Hotels & Resorts – Kenya and South Africa • Raffles Hotels & Resorts – Seychelles (under development, anticipated to open in 2011)

► Four Seasons Hotels & Resorts – Mauritius and Seychelles ► Hilton Worldwide

• DoubleTree Hotels & Resorts – Tanzania • Hilton Hotels & Resorts – Cameroon, Ethiopia, Kenya, Mauritius, Nigeria, Seychelles and South Africa

► Hyatt Corporation – South Africa (Hyatt Regency) ► Iberostar Hotels & Resorts – Cape Verde Islands ► InterContinental Hotels Group

• Crowne Plaza Hotels & Resorts – Kenya, South Africa and Zimbabwe • Holiday Inn Express Hotels – South Africa and Zimbabwe • Holiday Inn Hotels – Ghana, South Africa and Zimbabwe • InterContinental Hotels & Resorts – Kenya, Mauritius, South Africa and Zambia; additional hotels are anticipated to open in Angola, Nigeria and Senegal (all in 2011)

► Kempinski Hotels – Chad, Djibouti, Namibia and Tanzania ► Legacy Hotels & Resorts – Ghana, Madagascar, Namibia, Nigeria and South Africa ► Mövenpick Hotels & Resorts – Mauritius and Tanzania ► Oberoi Hotels & Resorts – Mauritius ► One & Only Resorts – Mauritius and South Africa ► Orient Express Hotels – Botswana and South Africa ► Preferred Hotel Group

• Preferred Boutique – Rwanda and South Africa • Preferred Hotels & Resorts – Angola, Kenya and South Africa • Sterling Hotels – Ghana • Summit Hotels & Resorts – Kenya, Madagascar and South Africa

► Premier Hotels & Resorts – South Africa ► Red Carnation Hotel Collection – South Africa ► RIU Hotels & Resorts – Cape Verde Islands ► Starwood Hotels & Resorts Worldwide

• Four Points by Sheraton – Mauritius; an additional hotel is anticipated to open in Nigeria in 2010 • Le Meridien – Cameroon, Chad, Gabon, Mauritius, Nigeria, Senegal and Seychelles; an additional hotel is anticipated to open in Nigeria in 2012 • The Luxury Collection – Ethiopia, Mauritius and South Africa • Sheraton Hotels & Resorts – Djibouti, Gambia, Nigeria, South Africa and Uganda • St. Regis Hotels & Resorts – Mauritius (under development, anticipated to open in 2011) • Westin Hotels & Resorts – South Africa

► Taj Hotels, Resorts & Palaces – South Africa and Zambia ► The Rezidor Hotel Group


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• Park Inn – South Africa; additional hotels are anticipated to open in Mozambique in 2011 and Senegal in 2012 • Radisson Blu Hotels & Resorts – Mali, Senegal and South Africa; additional hotels are anticipated to open in Mozambique and Nigeria in 2010, Ethiopia in 2011 and

Angola and Kenya in 2012 ► Wyndham Worldwide

• Hawthorne Suites – Nigeria • Ramada Hotels & Resorts – Ghana

Marriott International does not have a presence in SSA, though they indicated a significant pipeline of projects in various stages of development throughout the region. Regional SSA hotel brands

Based on interviews with market participants and secondary research, the following regional African hotel brands have properties located in SSA:

► African Pride Hotels – South Africa ► Beachcomber Hotels – Mauritius and Seychelles ► The City Lodge Group of Hotels – South Africa ► Laico Hotels and Resorts – Burkina Faso, Congo, Gabon, Gambia, Guinea, Kenya, Mali, Rwanda, Tanzania, Uganda ► Protea Hotels – Kenya, Malawi, Namibia, Nigeria, South Africa, Tanzania, Uganda and Zambia ► Serena Hotels – Kenya, Mozambique, Rwanda, Tanzania, Uganda ► Southern Sun Hotels – Kenya, Mozambique, Nigeria, South Africa, Tanzania and Zambia ► Sun International – Botswana, Lesotho, Namibia, Nigeria, South Africa, Swaziland and Zambia ► Three Cities – Botswana, Mauritius, South Africa, Zambia and Zimbabwe

SSA hospitality sector by country

Based on interviews with market participants and secondary research, the following outlines the current status of the hospitality sector by country in SSA:

► Respondents were asked “What are the five most mature hospitality destinations in SSA?” – Responses indicated that the most mature hospitality markets in SSA currently include (in order of decreasing frequency of response): South Africa, Kenya, Tanzania, Ghana, Nigeria and Botswana. These six countries appeared in over 74% of total interviewee responses. Approximately 67% of respondents indicated that South Africa is the most mature hospitality market in SSA.

► Respondents were asked “Which emerging markets within SSA show the greatest potential as a travel/hospitality destination?” – Responses indicated that the emerging destinations with the most potential currently include (in order of decreasing frequency of response): Angola, Ghana, Mozambique, Nigeria and Tanzania. These five countries appeared in over 60% of total interviewee responses. Angola was the most frequently provided response, with over 20% of respondents indicating that Angola was in the top five emerging SSA destinations, and was the most frequent response as showing the greatest potential as a travel/hospitality destination in SSA.

► Based primarily on the responses from interviewees, and supplemented by limited secondary research, the following table categorizes the hospitality sector in each of the countries in SSA as follows:

• Established – Countries with hospitality sectors characterized by: several international and regional hotel brands, with hotels that report operating data (i.e., occupancy and ADR) to Smith Travel Research and at least 10 interviewees indicated that the country is one of the most mature destinations in SSA or the destination is an established global travel destination.

• Maturing – Countries with hospitality sectors characterized by: several international and regional hotel brands, with hotels that report operating data (i.e., occupancy and ADR) to Smith Travel Research and between one and nine interviewees indicated that the country is one of the most mature destinations in SSA.


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• Emerging – Countries that were indicated by interviewees as emerging destinations and may contain a limited number of internationally- or regionally-branded hotels, but do not contain hotels reporting data to Smith Travel Research; these countries represent some of the most significant potential from a hospitality investment/development/operation perspective given limited hotel supply and significant demand.

• Infancy – Countries that were not mentioned by interviewees as mature or emerging destinations and for which limited or no relevant published data was available.

Country International and regional brands currently represented

Kenya Crowne Plaza Hotels & Resorts, Fairmont Hotels & Resorts, Hilton Hotels & Resorts, Holiday Inn, InterCont inental Hotels & Resorts, Laico Hotels and Resorts, Preferred Hotels & Resorts, Protea Hotels, Serena Hotels, Southern Sun Hotels, Summit Hotels & Resorts

Maurit ius Beachcomber Hotels, Club Med, Constance Hotels Experience, Four Points by Sheraton, Four Seasons Hotels & Resorts, Hilton Hotels & Resorts, Hotel Sof itel, InterCont inental Hotels & Resorts, Le Meridien, The Luxury Collect ion (Starwood), Mövenpick Hotels & Resorts, Oberoi Hotels & Resorts, One & Only Resorts, Three Cit ies

Seychelles Banyan Tree Hotels & Resorts, Beachcomber Hotels, Constance Hotels Experience, Four Seasons Hotels & Resorts, Hilton Hotels & Resorts, Le Meridien

South Africa African Pride Hotels, Best Western, The City Lodge Group of Hotels, Crowne Plaza Hotels & Resorts, Fairmont Hotels & Resorts, Formule 1, Hilton Hotels & Resorts, Holiday Inn Express Hotels, Holiday Inn Hotels, Hyat t Regency, InterCont inental Hotels & Resorts, Legacy Hotels & Resorts, The Luxury Collect ion (Starwood), Mercure Hotels, One & Only Resorts, Orient Express Hotels, Park Inn, Preferred Bout ique, Preferred Hotels & Resorts, Premier Hotels & Resorts, Protea Hotels, Radisson Blu Hotels & Resorts, The Red Carnat ion Hotel Collect ion, Sheraton Hotels & Resorts, Southern Sun Hotels, Summit Hotels & Resorts, Sun Internat ional, Taj Hotels Resorts & Palaces, Three Cit ies, West in Hotels & Resorts

ESTABLISHED


Nigeria Best Western, Hawthorne Suites (Wyndham), Hilton Hotels & Resorts, Hotel Novotel, Hotel Sof itel, Le Meridien, Legacy Hotels & Resorts, Protea Hotels, Sheraton Hotels & Resorts, Southern Sun Hotels, Sun Internat ional

Senegal Club Med, Hotel Novotel, Le Meridien, Pullman Hotels, Radisson Blu Hotels & ResortsTanzania DoubleTree Hotels & Resorts, Kempinski Hotels, Laico Hotels and Resorts, Mövenpick Hotels & Resorts, Protea Hotels, Serena Hotels,

Southern Sun HotelsZambia InterCont inental Hotels & Resorts, Protea Hotels, Southern Sun Hotels, Sun Internat ional, Taj Hotels Resorts & Palaces, Three Cit ies

MATURING


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Angola Preferred Hotels & ResortsCameroon Hilton Hotels & Resorts, Ibis Hotels, Le MeridienCape Verde Iberostar Hotels & Resorts, RIU Hotels & ResortsDRC NoneEthiopia Hilton Hotels & Resorts, The Luxury Collect ion (Starwood)Ghana Best Western, Holiday Inn Hotels, Hotel Novotel, Legacy Hotels & Resorts, Ramada Hotels & Resorts, Sterling HotelsIvory Coast Hotel Novotel, Ibis Hotels, Pullman HotelsMadagascar Constance Hotels Experience, Ibis Hotels, Legacy Hotels & Resorts, Summit Hotels & ResortsMalawi Protea HotelsMozambique Serena Hotels, Southern Sun HotelsNamibia Kempinski Hotels, Legacy Hotels & Resorts, Protea Hotels, Sun Internat ionalRwanda Laico Hotels and Resorts, Preferred Bout ique, Serena HotelsSierra Leone NoneUganda Laico Hotels and Resorts, Protea Hotels, Serena Hotels, Sheraton Hotels & ResortsZimbabwe Crowne Plaza Hotels & Resorts, Holiday Inn Express Hotels, Holiday Inn Hotels, Three Cit ies

EMERGING


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Established markets hotel inventory overview

The four established hotel markets in SSA include Kenya, Mauritius, Seychelles and South Africa. The following charts summarize the number of hotel rooms in Smith Travel Research’s respondent sample in each market, as well as the ratio of hotel rooms in each country to the total number of hotel rooms in these four markets:


Benin Hotel Novotel, Ibis HotelsBotswana Orient Express Hotels, Sun Internat ional, Three Cit iesBurkina Faso Laico Hotels and Resorts, Mercure HotelsBurundi NoneCentral African Rep NoneChad Hotel Novotel, Kempinski Hotels, Le MeridienCongo Laico Hotels and ResortsDjibout i Kempinski Hotels, Sheraton Hotels & ResortsEquatorial Guinea Hotel Sof itelErit rea NoneGabon Laico Hotels and Resorts, Le MeridienGambia Laico Hotels and Resorts, Sheraton Hotels & ResortsGuinea Hotel Novotel, Laico Hotels and ResortsGuinea Bissau NoneLesotho Sun Internat ionalLiberia NoneMali Laico Hotels and Resorts, Radisson Blu Hotels & ResortsMauritania NoneNiger NoneReunion Best Western, Hotel Novotel, Mercure HotelsSão Tomé and Principe NoneSomalia NoneSudan NoneSwaziland Sun Internat ionalTogo Ibis Hotels, Mercure Hotels

INFANCY


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Source: Smith Travel Research Additionally, the following chart outlines the average hotel size (i.e., number of rooms) for hotels in each of the established countries (based on data reported by Smith Travel Research):

Source: Smith Travel Research Observations:

36,427

2,679 1,798 4640

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

South Africa Maurit ius Kenya Seychelles

Established hotel markets by number of hotel rooms

88.1%

6.5%

4.3% 1.1%

Ratio of hotel rooms by market to total established markets hotel rooms

South Africa

Maurit ius

Kenya

Seychelles

180

149

124

77

0

20

40

60

80

100

120

140

160

180

200

Kenya Maurit ius South Africa Seychelles

Room

s

Average hotel size in established markets


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► South Africa contains the greatest proportion of hotel rooms of the established countries, with over 36,000 hotel rooms (or over 88% of total rooms in the four established countries) in 293 hotels.

► Though Kenya contains only 10 hotels and nearly 1,800 hotel rooms, the country generally contains the largest hotels within the established countries at an average of 180 rooms per hotel.

Maturing markets hotel inventory overview

The four maturing hotel markets in SSA include Botswana, Nigeria, Tanzania and Zambia. The following charts summarize the number of hotel rooms in Smith Travel Research’s respondent sample in each market, as well as the ratio of hotel rooms in each country to the total number of hotel rooms in these four markets:

Source: Smith Travel Research Additionally, the following chart outlines the average hotel size (i.e., number of rooms) for hotels in each of the maturing countries (based on data reported by Smith Travel Research):

2,049

1,243 1,218

796

0

500

1,000

1,500

2,000

2,500

Nigeria Tanzania Zambia Botswana

Maturing hotel markets by number of hotel rooms

38.6%

23.4%

23.0%

15.0%

Ratio of hotel rooms by market to total maturing markets hotel rooms

Nigeria

Tanzania

Zambia

Botswana


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Source: Smith Travel Research Observations:

► Nigeria contains the greatest proportion of hotel rooms of the maturing countries, with over 2,000 hotel rooms (or over 38% of total rooms in the four maturing countries) in seven hotels.

► Nigeria also contains the largest hotels within the maturing countries at an average of 293 rooms per hotel. ADR comparison of global hotel markets

The following presents the ADRs for full-service hotels in various key global markets in the US, Europe, Asia and SSA:

293

138

114 111

0

50

100

150

200

250

300

350

Nigeria Tanzania Botswana Zambia

Room

sAverage hotel size in maturing markets


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Source: Individual Companies

5.2 Middle East/North Africa The hospitality sector in the Middle East and North Africa is characterized by the following:

► 2009 was a challenging year for the Middle East and North Africa region, which registered an average decline in RevPAR of approximately 15% to 20% compared with 2008. Individual markets were affected differently and there were also some exceptions. Beirut, for example, achieved an increase in RevPAR of over 90% due to the renewed political stability in Lebanon, while Jeddah witnessed growth in RevPAR of approximately 7%, driven by strong increases in corporate demand coupled with limited supply.

► According to the World Tourism Organization, Egypt is currently among the top 25 destinations worldwide, accounting for approximately 1% of the global market. Revenues in 2007-08 reached EUR 7.5 billion, contributing around 3.4% of GDP and a primary source of foreign exchange. The government’s target is to improve Egypt’s reputation as a business destination and to increase its share of global tourism to 2.2%. This should boost annual revenue in the sector to EUR 9.4 billion. Meanwhile, operators are looking to grow hotel capacity to 300,000 rooms — enough to meet the goal of hosting 18 million visitors by 2015, up from 10.7 million in 2008, and generating some 1.2 million new job opportunities in the sector.

► Egypt has recently become an attractive investment option due to the hospitality-friendly policies adopted by the government and the improvement of the general investment environment. Several tourism mega-projects are under way around Marsa Alam and on the north coast, and the Al-Futtaim group has properties in the pipeline at the Cairo Festival City project. The Ministry of Tourism has also set an integrated “Tourism Sustainable Development Plan” that will continue with improvements to the tourism sector up to 2020. The Ministry of Tourism and General Authority for Investment identified 205 companies investing in hospitality and leisure in 2008; for YTD November 2009, 167 companies were participating in the sector. There are currently 624 new tourism projects throughout the country.

► Morocco’s tourism sector accounts for approximately 8% of GDP and is one of the largest foreign-exchange earners. Travel costs to the country were significantly reduced in 1995 following cuts in prices by the national airline. The country is becoming an increasingly competitive destination for European travel. Meanwhile, tourism sector in Tunisia accounts for 10% of the country’s GDP and is one of the country’s highest export earners. Since 1992, the country’s plans to develop the tourist sector have been

Hotel Location 2009 ADR (USD)United StatesSheraton New York Hotel & Towers New York, NY, USA $218

EuropeSheraton Frankfurt Congress Hotel Frankfurt , Germany $125

AsiaThe Great Wall Sheraton Hotel Beijing Beijing, China $108

SSASheraton Abuja Hotel Abuja, Nigeria $179Sheraton Kampala Hotel Kampala, Uganda $109


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ambitious, including developing a tourist complex in Tabarka and a casino near Sousse. Many golf courses and leisure parks were also developed. Meanwhile, the private sector developed several four-star hotels and resorts, two automobile race tracks and other recreational facilities, primarily on the north coast of the country.

► Tourism in Libya is an industry still in its infancy but one that is gradually growing. According to HVS International, international visitation to Libya has historically been primarily made up of same-day travelers, comprising between 82% and 85% of total visits. This is primarily due to the lack of overnight (i.e., hotel) facilities. According to the World Travel and Tourism Council, visitation to Libya increased significantly beginning in 1999 to approximately 965,000, increasing further to approximately 1.2 million in 2007 (a majority are day trips). There are currently about 13,000 hotel rooms in Libya, a figure the government hopes to increase to 50,000. Hotel brands currently in Libya include Rezidor, Mövenpick, Radisson and Sheraton.

► According to the US Library of Congress, tourism in Algeria historically contributed approximately 1% of the country’s GDP, lagging behind sector contributions in neighboring Morocco and Tunisia and receiving only approximately 200,000 visitors in 2005. Similar to Libya, this is primarily due to a combination of a lack of overnight (i.e., hotel) facilities and the threat of terrorism. The Algerian government, however, adopted a plan in 2005 to address the lack of infrastructure to support tourism in the nation, encouraging hotel development and encompassing plans to increase the number of foreign visitors to 1.2 million by 2010.

► Although the Gulf Cooperation Council markets of Oman, Bahrain, Kuwait and Riyadh witnessed declines in occupancy in 2009, all were able to maintain their rate integrity or in some cases achieve significant increases in ADR. It is anticipated that these markets will have the distinct advantage of a relatively quick recovery once demand recovers, although some markets will face pressures from new supply.

► Dubai experienced the most significant decline in performance across the region, marked by a 35% reduction in RevPAR. Decreases in corporate spending coupled with leisure travelers seeking discounted packages and booking at the last minute placed significant downward pressure on occupancy and ADR. Furthermore, new supply additions are further exacerbating the declines in performance and will most likely postpone the recovery in Dubai.

► A key concern for Dubai is the emirate’s proposed supply pipeline which is anticipated to substantially increase by 26% in 2010 and further increase by 19% in 2011. Even after taking into account the hotel projects which have been announced as cancelled or put on hold, it is anticipated that Dubai will still have an additional 37,500 rooms by 2013, which represents an increase of 74% from its current inventory today. Although the Dubai government has been successful in further developing its infrastructure in order to accommodate additional tourists, many private developers have faced liquidity problems and their tourism projects for Dubai have been either significantly delayed or put on hold for an unspecified time frame. The delay in developing these tourism generators coupled with the plethora of hotel rooms presently under construction in Dubai, is likely to lead to significant oversupply in Dubai’s lodging sector and delay the speed of recovery.

► The effects of the financial crisis have been less severe on Abu Dhabi’s lodging market compared to Dubai, mainly due to a shortage of hotel rooms in Abu Dhabi. Abu Dhabi is moving close on the heels of Dubai’s strategic positioning as a tourism destination through its cultural and entertainment tourism projects along with an expansion of its airport. This is anticipated to create a shift in demand from corporate traffic to a more balanced mix of corporate and leisure visitors. However, an additional 21,000 rooms across the city by 2013, which represents an increase of 165% from its current inventory today, may prove to be challenging for Abu Dhabi hoteliers.

► Overall, Saudi Arabia, Libya and Iraq still offer significant development opportunities due to strong underlying fundamentals in each country and limited product. In Dubai, there may be potential opportunities for investors to acquire under-construction or operating assets at attractive rates in the coming year. For hoteliers across the region, cost containment initiatives coupled with maintaining (and in some cases rebuilding) rate, while still offering value for money, will be the key focus in 2010.

5.3 Asia The hospitality sector in Asia is characterized by the following:

► According to Smith Travel Research, the Asia Pacific region experienced a RevPAR decrease of 19.4% in 2009 versus 2008.


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► According to Smith Travel Research, the Asia Pacific region accounts for approximately 2.2 million hotel rooms in nearly 16,000 hotels throughout the region, 61% of which are not affiliated with a major brand or management group. Only 6% of all hotel rooms are in the luxury segment and 4% are economy hotels. As of April 2010, over 310,000 hotel rooms in nearly 1,300 hotels were in the development pipeline, with the greatest majority in the upscale chain scale (e.g., Courtyard by Marriott, Hilton Garden Inn, Crowne Plaza, Four Points by Sheraton, Hyatt Place, etc.), followed by unaffiliated, upper upscale (e.g., Marriott, Sheraton, Hilton, Hyatt, etc.), luxury (e.g., Four Seasons, Ritz-Carlton, St. Regis, Fairmont, Conrad, etc.) and midscale (e.g., Best Western, Holiday Inn, Ramada, Fairfield Inn, Hampton Inn, etc.), and finally economy (e.g., Days Inn, Econo Lodge, Motel 6, Red Roof Inn, etc.). This total pipeline represents a 14.5% supply increase over existing supply in the next four to five years. Approximately 64% of the total pipeline in Asia Pacific is contained within China and India.

► The Indian hotel industry witnessed unprecedented growth during the Indian Financial Years 2003 through 2008 due to significant economic growth, resulting in an increase in business and leisure travel and visible growth in inbound tourism. The increase in business travel in the country during this phase can be attributed to rising trade flows and the entry of an increasing number of international players into the country. According to the Ministry of Tourism, during this period foreign tourist arrivals to India grew at an annual rate of 14.5% as the country emerged as an attractive tourist destination. Attracted by India’s rapidly growing hospitality industry, several international hotel chains, including Hilton, Marriott, Starwood, Shangri-La, Carlson, InterContinental, Accor and Hyatt strengthened their market presence in the country. This led to a significant increment in revenue (room rentals and food and beverages receipts), with the industry turnover tripling from EUR 949 million in 2003 to EUR 2.73 billion in 2008 (per annual review of the hotel industry, CRIS INFAC, September 2009). Smith Travel Research estimates that, based on the current development pipeline, India will add over 62,000 hotel rooms to its market over the next four to five years, representing an increase of 51%.

► According to Jones Lang LaSalle Hotels, Japan’s tourism and hotel market experienced one of the most challenging periods in history in 2009 due to decreasing visitation. Domestic corporate demand decreased as a result of substantial reductions in business activity and the imposition of tight corporate cost saving measures, while domestic leisure demand decreased due to weak consumer confidence. International visitation decreased for the first time since 2003, reflecting the general economic slowdown and strengthening of the Japanese Yen. Thanks to the recent recovery of the stock market and Asian economy, Japan’s hotel and tourism market began to experience signs of recovery in early 2010.

5.4 United States/Western Europe The hospitality sector in the United States and Western Europe is characterized by the following:

► The US lodging industry experienced a sharp decline in RevPAR in 2009 as a result of the continued economic recession exacerbated by the financial crisis in the fall of 2008. According to Smith Travel Research, RevPAR in the US was down 16.7% in 2009, the most significant drop in more than two decades. These declines were driven by sharp declines in demand coupled with continued supply increases. YTD July 2010 RevPAR in the US is reflective of improved lodging performance and is up 3.3%, primarily as a result of gains in occupancy, which increased 2.7 percentage points over the same period in 2009. ADR continued to decline by 1.4% over the same period the prior year.

► According to Lodging Econometrics, US hotel construction starts for projects already in the development pipeline were at the lowest in over 10 years. As of the second quarter of 2010, 3,325 projects were in the pipeline (under construction, starting in the next 12 months or in the early planning stages), a 43.5% decline as compared to the peak in the second quarter of 2008. In this downturn, larger (150 rooms or more), high-end projects were affected the most, as institutional-sized lenders halted real estate lending. Only a few new projects are being started, due to depressed levels of hotel profitability, a lack of development financing and the ability to acquire hotels at discounts to replacement cost as an alternative.

► After significant declines in RevPAR in 2009 in the US, there have been signs of improvement during the first seven months of 2010. Overall US occupancy levels increased by 4.8% as of YTD July 2010 versus the prior year. The most significant increase in occupancy was in the luxury segment. As a result, RevPAR for the luxury segment was up 9.1% as of YTD July 2010 versus the same period last year. However, all segments experienced decreases in ADR compared to the prior year.


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► Peak US RevPAR was achieved in 2007 when it reached approximately US$66. Based on market participants and analysts, RevPAR is not anticipated to reach this level until at least 2013 on a nominal dollar basis. This represents a six year period to return to prior peak levels. The estimated compound annual growth rate for RevPAR from 2009 to 2013 is anticipated to range from 4.0% to 6.0%.

► The global economic downturn has had a significant effect on the German hotel sector. According to the Federal Statistics Authority, in the first half of 2009, overnight stays were down by 1.6% compared with the same period in 2008. Foreign visitor overnight stays fell by 7.1% to 23.4 million and domestic overnight stays fell by 0.6% to 139.1 million over the same time frame. Germany is, however, a prime target for acquisitions, particularly the cities of Munich and Hamburg. These two cities are, alongside London, Paris and Rome, among the most desired investment locations in Europe, confirming the appetite of investors to remain in the traditional European hotel markets.

► Spanish households saw their economic power fall through 2009, although their discretionary income increased, mainly due to the fall in inflation caused by reduced economic activity and the fall in interest rates. The Euro Interbank Offered Rate, fixed by the European Central Bank, has experienced its lowest levels ever in recent months and over 95% of Spanish mortgages have variable interest rates. This increase in discretionary income resulted in the highest level of savings in recent years rather than greater consumption. Meanwhile, the unemployment rate has increased over the last 12 months to over 19%. The main tourist feeder markets of Germany, the UK and France have also suffered, meaning that foreign demand has continued to fall, accentuated by competition from lower-priced Eastern Mediterranean countries.

► The UK has seen a significantly sharper drop in GDP than in previous economic downturns, with a consensual view that GDP will not return to pre-recession levels until 2012. Although the hospitality sector tends to lag the onset of a recession, UK hotel consumption has historically tracked GDP, suggesting that there is a way to go until a recovery. Corporate travel accounts for around 60% of UK hotel demand, and has driven a UK RevPAR decrease of 22.1% in 2009 (in US dollars, according to Smith Travel Research). This was originally occupancy-driven as hoteliers sought to maintain rates, but strong price competition in the early part of the year resulted in a 19.6% room rate decline in 2009, with occupancy down 3.1%. The three- to four-star field continues to be the key battleground as operators flex their rates to compete with the budget offerings. While corporate rates are low and business was lost to the budget segment due to reduced expense budgets, many three- to four-star hotels, led by the brands, have benefited from a refocus on leisure business and the successful packaging of rate offers. As a result, and with the current stay-at-home attitude of British travelers and a weak sterling, the three- to four-star hotels have outdone the budget operators on quality and value for money.


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6. Additional characterizations of SSA

Nearly all respondents indicated that the most appropriate way to look at hospitality development in SSA is on a country-by-country basis. The most frequent response when asked what differences exist was that no matter what country you are considering developing in, it is essential to develop relationships with the key decision makers in those individual countries, partner with individuals who know how to do business in those countries and have patience and tenacity. Based on interviews, however, the countries in SSA are able to be categorized based on language (e.g., Francophone or Anglophone), geographic region (e.g., West, East, South or Central) and visitor characterization (e.g., commercial or leisure destinations), in addition to the country-by-country characterization indicated in the previous section of this Report based on level of hospitality development.

6.1 Francophone and Anglophone countries Though numerous languages and dialects are spoken throughout SSA (even the official language of a country is sometimes not the most widely spoken language in that country), the two most frequent official languages are French and English. The countries where French is spoken as an official language or an otherwise primary language include (primarily in Western and Central Africa):

► Benin* ► Chad* ► Gabon* ► Mali* ► Burkina Faso* ► Congo* ► Guinea* ► Niger* ► Burundi ► Djibouti ► Ivory Coast* ► Senegal* ► Central African Republic* ► DRC ► Madagascar (with English) ► Togo* *Uses the CFA franc as a primary means of currency The countries where English is spoken as an official language or an otherwise primary language include (primarily in Southern and Eastern Africa):

► Botswana ► Kenya ► Nigeria ► Swaziland ► Cameroon ► Lesotho ► Seychelles ► Tanzania ► Ethiopia ► Liberia ► Sierra Leone ► Uganda ► Gambia ► Madagascar (with French) ► South Africa ► Zambia ► Ghana ► Namibia ► Sudan ► Zimbabwe In addition, Arabic (throughout SSA, but primarily in Mauritania and Sudan), Creole (in Mauritius and Seychelles), Spanish (in Equatorial Guinea) and Portuguese (in Angola, Cape Verde, Guinea Bissau, Mozambique and Sao Tome and Principe) are common languages, as are several African dialects (e.g., Chichewa in Malawi, Somali in Somalia and Swahili in Tanzania). Given the predominance of English and French as languages, respondents were asked to comment primarily on the differences (if any) between Francophone and Anglophone countries. Overall sentiment from respondents indicated that doing business in Anglophone countries is more favorable than Francophone countries due to more savvy investors and industry players. Key characteristics of hospitality development in Francophone countries include:


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► A more stable currency – 13 of the Francophone countries (Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Congo, Equatorial Guinea, Gabon, Ivory Coast, Mali, Niger, Senegal and Togo) use the CFA franc as their primary currency. Respondents indicated that the CFA franc, which is tied to the euro, is a more stable currency with less inflation risk, a benefit to doing business in Francophone countries.

► Slightly greater ease of obtaining financing – Respondents indicated that, in general, and particularly for European companies developing or operating in SSA, financing for developments in Francophone SSA is slightly more readily available than in Anglophone SSA, primarily due to the currency tie to the euro. Additionally, some respondents indicated that local financing in Francophone countries is significantly less expensive (i.e., lower interest rates) than in Anglophone regions (e.g., 7% to 10% interest rates in a Francophone country versus 15% to 20% in an Anglophone country), as the inflation risk associated with the euro is significantly less than local African currencies.

► No significant language barrier – In general, respondents indicated that doing business in Francophone countries did not present a language barrier.

► Corruption and bureaucracy are significant challenges – As is the case generally across SSA, corruption at several levels of government is a significant barrier to doing business in Francophone SSA.

► Significant political risk and security concerns – Many countries in Francophone SSA (e.g., Congo) are either immersed in or recently coming out of conflict and/or civil wars. Though conflict exists in some Anglophone SSA countries, respondents indicated it is more prevalent in Francophone nations, increasing the political risk and security concerns in those countries. Additionally, laws are often loosely enforced in some of these countries, resulting in significant risk to developers seeking to enter these nations.

Key characteristics of hospitality development in Anglophone countries include:

► More opportunities than Francophone countries – Respondents indicated that, in general, more opportunities were prevalent in Anglophone countries, as these countries are not only mineral-rich (showing economic opportunities), but also exhibit significant potential in terms of tourism-related travel (due to the natural beauty of the region).

► Corruption and bureaucracy are significant challenges – As is the case generally across SSA, corruption at several levels government is a significant barrier to doing business in Anglophone SSA.

► Easier to do business – Though corruption remains a concern in Anglophone SSA, most respondents indicated that it was easier to do business in Anglophone countries as investors, governments and developers are slightly more sophisticated and pragmatic than those in Francophone nations.

6.2 Geographic region SSA can also be characterized by geographic region (i.e., Western, Eastern, Southern and Central). As most Francophone countries are located in Western and Central Africa, the same characteristics as discussed above for Francophone countries are applicable when discussing attributes based on geographic region for Western and Central Africa. Similarly, countries in Eastern and Southern Africa generally have similar attributes as the Anglophone nations. Additional details on the four geographic regions of SSA follow:

► According to the United Nations, Western Africa is defined as those countries west of and including Niger and Nigeria. As many of these countries are Francophone countries, similar characteristics as mentioned above are applicable. In addition, though all regions in SSA have potential for increased tourism and hospitality demand, respondents indicated that Western African countries have the potential primarily for business or corporate related hospitality demand. According to respondents, conflicted countries in Western Africa include (but are not limited to) Nigeria, where political conflict is a concern.

► According to the United Nations, Eastern Africa is defined as those countries on the eastern coast of Africa (i.e., Tanzania, Kenya, Uganda, Rwanda, Burundi, Djibouti, Eritrea, Ethiopia, Somalia, Mozambique, Madagascar, Malawi, Zambia, Zimbabwe, Comoros, Mauritius, Seychelles, Reunion and Mayotte). As many of these countries are Anglophone countries, similar characteristics as mentioned above are applicable. In addition, though all regions in SSA have potential for increased tourism and hospitality demand, respondents indicated that Eastern African countries have significant potential as a well-rounded destination. The region benefits from significant potential for tourism or leisure related hospitality demand, given the mix of landscapes and tourism offerings (e.g., safaris as well as beaches), as well as corporate demand due to more


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stable economies and vibrant cities. In addition, respondents indicated that Eastern Africa benefits from more significant airlift than Western Africa, aiding in the growth of the region as a destination. Respondents also indicated that, for the most part, the business environment in many of these countries (specifically Uganda, Tanzania and Kenya) is similar. According to respondents, conflicted countries, however, also exist in Eastern Africa, namely Somalia and Zimbabwe.

► According to the United Nations, Central Africa is defined as Angola, Cameroon, Central African Republic, Chad, Congo, DRC, Equatorial Guinea, Gabon and Sao Tome and Principe. As many of these countries are Francophone countries, similar characteristics as mentioned above are applicable. In addition, though all regions in SSA have potential for increased tourism and hospitality demand, respondents indicated that Central African countries have the most significant number of countries characterized by conflict, which is hindering the potential of these countries as tourist and corporate travel destinations. Conflicted countries, according to respondents, include (but are not limited to) DRC and Rwanda. The landlocked Central African countries do not benefit from the beaches of Eastern Africa (leisure demand generator) or the corporate demand of Western Africa, even though they have significant natural resources (e.g., oil).

► According to the United Nations, Southern Africa is defined as Botswana, Lesotho, Namibia, Swaziland and South Africa. As many of these countries are Anglophone countries, similar characteristics as mentioned above are applicable. In addition, though all regions in SSA have potential for increased tourism and hospitality demand, respondents overwhelmingly indicated that Southern Africa is the most mature region in SSA as a hospitality destination. Significant hospitality product currently exists in Southern Africa (primarily in South Africa), though much of it is dated and would benefit from increased international brand presence and refreshed product offering.

Respondents were asked, “What are the perceptions of the following regions of Sub-Saharan Africa from an investor’s point of view?” Over 75% of respondents indicated that Southern Africa was the region with the highest perceptions from an investor’s perspective, followed by Western and Eastern with roughly equivalent responses. Over 75% of respondents indicated that Central Africa represented the region with the lowest perceptions from an investor’s perspective. Respondents were also asked, “What are the perceptions of the following regions of Sub-Saharan Africa from a visitor’s point of view?” Nearly 80% of respondents indicated that Southern Africa was the region with the highest perceptions from a visitor’s perspective, followed by Eastern and Western Africa (in that order). 100% of respondents indicated that Central Africa represented the region with the lowest perceptions from a visitor’s perspective.

6.3 Visitor characterization Respondents indicated that countries that are oil- and mineral-rich, such as Algeria, Angola, Cameroon, Chad, DRC, Kenya, Nigeria (the most significant producer of oil in SSA) and Sudan, have a greater opportunity than other countries in SSA for corporate-related hospitality demand. These countries are located primarily in Central and Western Africa (with the exception of Kenya in Eastern Africa). Countries in SSA that have multiple leisure-oriented offerings (such as Southern and Eastern Africa) offer the greatest potential for tourism-related leisure hospitality demand.


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7. Assessment of SSA via “Anatomy of a hospitality deal” framework

7.1 Overview of framework The hotel development process typically incorporates several key phases, including (1) conceptualizing, planning, opportunity identification and market analysis; (2) commitment, including identifying strategic partners; (3) design and development; and, once built (4) operation. This development process presents a logical framework for analyzing the opportunities and constraints of hospitality development within SSA and summarizing the feedback received from interviewees. Each of these four steps is described in more detail as follows:

Within each of these steps, a section titled “Comparison to other markets” has been included that compares certain characteristics of each step as it applies to SSA versus Middle East/North Africa, Asia (particularly China and India) and mature markets (i.e., the US and Western Europe). A “Strategies for success” section has also been included providing a quadrant analysis and proposed action items to improve the environment for hospitality development and investment in SSA.

1-Opportunity identification Incorporates reasons for choosing SSA and (as applicable) specific countries for hospitality developments, as well as reasons for choosing particular types of hospitality developments (e.g., limited-service, mid-market or luxury hotels). This section incorporates feedback from respondents relative to why or why not SSA is a desirable market for hospitality development from a macro-perspective.

2-Identifying strategic partners Summarizes responses from interviewees related to obtaining financing (debt and equity), partnering with local players, investment constraints, obtaining an operator and brand, and exiting an investment, as well as return requirements based on the risk profile of SSA.

3-Development Summarizes responses from interviewees related to obtaining permits and land, and executing construction (e.g., project management, obtaining construction materials, etc.).

4-Operation Summarizes responses from interviewees related to operating costs, labor costs and productivity, and operating margins.


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7.2 Opportunity identification This section seeks to outline some of the key strengths, opportunities, constraints and challenges as they relate to why SSA may be chosen as a place to invest, develop or operate a hospitality product.

Strengths/Opportunities Constraints/Challenges • Expanding economies – As indicated in the “Macroeconomic indicators” section of

this Report, most of the economies in SSA are considered expanding economies, as evidenced by above average GDP and population growth rates, due to strong oil, mining and other natural resources industries and, increasingly, consumer goods. Discussions indicated that many interview respondents see a rising middle class and a view that this growth is sustainable.

• Improving image of SSA – With the recent increased international investment in SSA, the region’s global image is improving. India and Africa have several business partnerships, resulting in significant travel from India to the region; the US continues to be focused on oil-rich countries; and China is investing heavily in the region, sourcing materials from SSA for expansion in China. The result of this increased focus on SSA is that the region is increasingly characterized as a key market for global growth.

• Expanding domestic / inter-Africa travel – Respondents indicated that an increasing number of travelers in Africa are coming from within the continent, leading to further demand for hotel rooms throughout SSA (though not all inter-Africa travelers choose to stay at hotels).

• Eastern Africa represents significant potential for tourism – Respondents indicated that Eastern Africa represents a significant opportunity as a tourism destination. The region is characterized by offering more significant air lift than Western or Central Africa, more stable economies, and a mix of cities, safaris and beaches appealing to multiple sectors of travelers (i.e., corporate and leisure).

• Undeveloped markets – Respondents indicated that growth in the global real estate sector is anticipated to come from emerging markets. Given its vast natural resources and beauty, key drivers for commercial and leisure travel, respondents indicated that SSA provides significant opportunity for development in the hospitality sector, particularly given the lack of competition currently in the market relative to other rapidly expanding economies (e.g., Brazil, India and China). Africa is seen by some as the continent with the most long-term potential for this reason.

• Significant gap between hotel supply and demand – Though SSA as a region represents significant economic growth opportunities and countries with expanding economies (resulting in expanding lodging demand), most countries have limited to no supply of lodging options. Respondents indicated that the capital cities in most

• Significant hurdles related to basic necessities of life – Many governments may not be highly focused on hotel development or promoting their nation as a tourist destination because there may be overriding health, education and poverty issues to prioritize.

• Security and political risk – Much of the continent is characterized as having significant security issues and political instability and risk, resulting in lack of international (particularly institutional) investor willingness to enter the market. Some respondents indicated a desire but a lack of willingness to develop in several countries in SSA due to significant risk, such as DRC, Somalia, Chad and Central African Republic. Respondents were asked, “Please rank the following risk factors based on how they impact your decision to invest in Sub-Saharan Africa.” The highest ranked response was political unrest, followed by security risk.

• Corruption and bureaucracy – All respondents indicated a major barrier to development is corruption (particularly around obtaining permits, which will be discussed in Section 8.4 of this Report). Though some governments offer incentives for inducing hotel development, many governments also inhibit the development process by creating layers of bureaucracy and an atmosphere for corruption, thereby increasing the cost and timeline of development. Also, limited transparency exists on what government incentives are actually offered. Furthermore, respondents indicated that ministries (e.g., trade, investment, tourism, finance, etc.) are disjointed and often do not communicate with each other, adding to the time and expense associated with development.

• High barriers to entry – Given the corruption, bureaucracy and risk levels (and, in some cases, prohibitive land costs), high barriers to entry exist relative to hotel development in SSA. Some respondents indicated that there are higher barriers to entry in SSA than in India or China today.

• Unproven hotel markets – Though all respondents indicated significant potential for the hospitality sector in SSA, most of the markets (except, to a certain extent, South Africa) are unproven hotel markets with significant risk related to development, financing and operations.

• Lack of infrastructure – Lack of infrastructure significantly inhibits hotel development in SSA. Nearly 35% of respondents indicated that a weak


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Strengths/Opportunities Constraints/Challenges countries need new hotels, with the ideal hotel being 200 to 300 rooms with meeting space, or significant renovations of existing hotels (most of which are dated and were poorly designed when built).

• Generally positive sentiment toward hotel development – For the most part, there is generally positive public sentiment toward hotel development as it creates highly sought-after jobs and promotes the area as a tourist destination.

• Opportunity for mid-market / upscale hotels – Respondents indicated that nearly 70% of hotels in SSA are in the two- to three-star segments. Respondents indicated that the most significant positioning potential for hotels in SSA is in the mid-market or upscale hotel segment (three- to four-star hotels). One respondent indicated, “Midmarket is the future.” These mid-market hotels would meet the demands of international travelers (who are more familiar with and demand this type of product when traveling for business or leisure), as well as the younger African traveler. Demand in SSA is, for the most part, limited (and construction costs prohibitive) for luxury hotels and respondents indicated that limited-service or budget hotels are feasible only after a full-service product offering has been established in a destination. Travelers seeking hotel accommodations in SSA are seeking clean, predictable hotel offerings with some level of food and beverage service and Internet access. Further supporting the opportunity for mid-market hotels is the fact that, given limited existing hotel supply, the opportunity exists to charge high rates (on par with rates charged by luxury hotels in other parts of the developing or developed world) with lower development costs than luxury hotels.

• Opportunity for select-service hotels in major/developed markets – Most respondents indicated that a hotel, no matter what service level, requires at least minimal food and beverage offerings given the relative lack of international-quality restaurants in even the largest of cities. There is, thus, limited opportunity for limited-service hotels (i.e., hotels with no food and beverage outlets). However, select-service hotels (i.e., those that combine the operating model of a limited-service hotel with select additional service, such as offering food and beverages) represent an opportunity for sensibly priced accommodation either in or just outside of major cities.

• Desire from international hotel brands to expand in the region – SSA represents an attractive region from a development perspective as most international hotel brands (e.g., Hilton, Marriott, Starwood, etc.) view the region as an untapped market and, thus, have a strong desire to expand their presence in the region. As respondents from hotel operating companies indicated they believe the economies in SSA will continue to expand throughout at least the next five years (with some indicating they anticipate the region to experience a similar growth phase as Asia),

infrastructure is one of the top five constraints to developing hospitality projects in SSA. The added cost of infrastructure (adding 10% to 15% to the total development budget) can make stand-alone hotels not financially feasible.

• Air capacity – In general, air capacity is low to much of SSA, including some major markets (e.g., only approximately 300 air seats arrive in Zimbabwe each day though there are 2,000 hotel beds; only one flight travels from France to Madagascar each week), limiting the potential for destinations within SSA from a hospitality perspective. Air safety is also a constraint, with international visitors viewing some local African airlines as unsafe.

• Weak communication / technology infrastructure – The weak communication infrastructure in many countries in SSA is a challenge to doing business. Respondents indicated that when contacting ministers or government officials to obtain permits, discuss potential developments in early stages, etc., e-mail addresses and telephone numbers often do not function and when messages are left, responses are frequently not made. Respondents indicated that this can be viewed as demonstrating a lack of interest.

• Delicate balance of hotel supply and demand – Though respondents indicated that there is a need for additional well-designed and operated hotels throughout SSA, the addition of one new hotel in many markets (given the limited supply of hotel rooms currently in existence) may be enough to absorb the current demand, resulting in a delicate balance of supply and demand throughout the region. Respondents indicated that there needs to be careful evaluation of how many more hotel rooms are needed in each location. As an example, one respondent referenced South Africa’s over-development of hotel rooms leading up to the World Cup and subsequent inability to meet the visitation goals, resulting in low occupancy levels for hotel rooms throughout the region. Another respondent indicated that though Luanda in Angola (for example) benefits from very high room rates due to a lack of supply, the market may only be able to support only a few more hotels before it is oversupplied.

• Lack of sophistication – Many banks, government officials, developers, investors and operators lack the sophistication to understand real estate and, particularly, hospitality as an investment or asset class, according to respondents. In addition, respondents indicated that local operators are relatively weak in hotel operating knowledge and standards. Property values are often not supported by the underlying cash flows of the real estate, but instead can be ego-driven.

• Lack of market data and transparency – SSA lacks hospitality and tourism transparency and market data. Several respondents indicated that it would be


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Strengths/Opportunities Constraints/Challenges most international hotel companies (with exceptions being those primarily in the luxury hotel segment) have a strong desire to further penetrate SSA within the next few years. These international brands are seeking primarily management and/or franchise agreements, though some indicated they may be willing to put in sliver equity, working capital contributions or key money if in highly-desirable locations (i.e., within the “Established”, “Maturing” or “Emerging” markets indicated in Section 6.1 of this Report, particularly Angola, which was cited as an example). Some brands indicated the desire to add five to 10 new SSA hotels each year to their system, while others indicated the desire to have 25 to 30 new hotels in SSA within the next five to eight years. Other brands indicated a desire to have a hotel in every capital city with a core upscale branded hotel in the urban center and clusters of midscale hotels at a distance from the main city center.

• Opportunity for new hotel brands to enter SSA – Companies like Accor, Hilton and InterContinental have been in SSA for several decades, but, respondents indicated, a significant portion of their current product is dated. Though these brand families provide the most significant brand recognition in the market (providing them the opportunity for further expansion), the opportunity exists for additional companies and new brands to enter SSA given the relatively untapped nature of the region from an international hotel brand perspective. Some global hotel company respondents indicated the willingness to develop in any country in SSA if the project was financially feasible. Furthermore, respondents indicated that increasing interest from international operators and brands may spark increased interest from international developers, providing the opportunity for further expansion of the hospitality sector in SSA. Though most brands are focused primarily on expansion in Asia currently, respondents indicated that Africa is becoming increasingly important in the expansion plans of some global hotel companies. It is important for these brands to establish more than one hotel in each country or region to benefit from economies of scale (some operators indicated that they are not interested in entering a market where the opportunity exists to develop only one hotel, given inefficiencies).

• Key markets for development – Though “Established”, “Maturing” and “Emerging” markets are outlined in Section 6.1 of this Report, several respondents indicated that some of the more promising locations for hotel development include Zimbabwe, Nigeria (especially Lagos), Mozambique, Ghana and Rwanda due to progressive policies toward hotel development and rapidly expanding economies.

• Other government incentives – Respondents indicated that several governments offer tax breaks and waivers of import duties on construction materials and finishes to incentivize hotel development. Respondents indicated that some of the countries

beneficial to improve exit surveys and statistics surrounding passenger arrivals, market segmentation, average length of stay, average spend, demographics of visitors, etc. Approximately 15% of respondents indicated that lack of market data and transparency was one of the top five constraints to hospitality development in SSA.

• Potential for initial negative sentiment toward international operators/investors – Though there is, in general, positive public sentiment toward hotel development, there can occasionally be somewhat negative sentiment toward international operators or investors (particularly from the US) initially as these players can be seen as capitalizing on the region. This sentiment is usually only temporarily, respondents indicated, as development generally benefits the location in the long-term.

• Negative view of tourism – Though there is generally positive public sentiment toward hotel development, there is also the view that tourism is for wealthy individuals. Respondents indicated that public sentiment can often be that tourism is for “outsiders”.

• Culture and arrogance – Respondents indicated that the arrogance and superior attitude of individuals in some SSA countries is sometimes a detriment to development. South Africa was cited as an example. Respondents indicated that there is a relative lack of response to complaints in SSA, a key cultural difference between SSA and other parts of the world (e.g., the Caribbean, Mexico or Central America).

• Lack of clarity around legal and regulatory framework – Some respondents indicated that lack of clarity around the legal and regulatory frameworks (specifically related to hotel development and profit repatriation) is a constraint to hospitality development in SSA. Approximately 20% of respondents indicated this lack of clarity was one of the top five constraints to development in SSA.

• Lack of destination marketing and tourism strategy – Nearly 15% of respondents indicated that a general lack of destination marketing and a cohesive regional or country-specific tourism strategy was one of the top five constraints to hospitality development in SSA. Respondents were asked, “What are the perceptions of the following regions from a visitor’s point of view?” Over 80% of respondents indicated that SSA represented the region with the lowest perceptions from a visitor’s perspective, with Asia and established markets (such as North America and Western Europe) as the regions with the highest perceptions from a visitor’s standpoint.


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Strengths/Opportunities Constraints/Challenges with the most significant government incentives include Ethiopia, Kenya, Rwanda, Mozambique and Zimbabwe. In Zimbabwe, for instance, if the development is in an export processing zone where 70% of guests will be international, the project will receive a significant tax break.

Comparison to other markets The following table indicates (based on interviews and EY’s experience in and knowledge of the regions) several key characteristics related to this stage of hospitality development, as well as a rating for each characteristic in each geographic region (i.e., SSA, Middle East/North Africa, Asia and mature markets, such as the US and Western Europe) from 1 to 5, with 1 representing qualities of the region that are most unfavorable relative to hospitality development and 5 representing qualities of the region that are most favorable relative to hospitality development.

Category Sub-Saharan Africa Middle East/North Africa Asia Mature markets Opportunity identification Economic/demographic fundamentals

4 3 5 3

Level of risk (political, investment, security, etc.)

1 3 4 5

Image of region from global investor’s perspective

1 3 5 4

Image of region from visitor’s perspective

2 3 4 5

Promising hospitality supply and demand fundamentals

4 4 5 3

Air lift 1 4 4 5 Positive government policy toward development

1 3 4 5

Public sentiment towards hospitality projects

3 3 3 3

Observations and gaps:

► Most operators indicated that their primary focus for expansion is in Asia (particularly China and India), but that SSA is quickly increasing in terms of its attractiveness. SSA is characterized by having some of the most positive economic and demographic fundamentals in the world (e.g., increasing population and rapidly expanding economies); however, the region is perhaps the riskiest in the world in relation to political, investment and security risks, leading to a relatively unfavorable image of the region from global investors’ and visitors’ perspectives.


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► Notwithstanding the risks associated with investment, development and operation in SSA, the region is characterized by promising hospitality supply and demand fundamentals, with significant demand and limited hotel supply resulting in high room rates in several markets.

► Several respondents indicated that SSA’s hospitality sector is anticipated to follow the path of Asia’s (particularly India’s) hospitality sector cycle, though SSA is perhaps 10 to 20 years behind in the cycle. Parallels could be drawn between Asia in the late 1980s and SSA today, including an expanding private sector, the opening of financial markets, decreasing war, increasing democracy, decreasing inflation, increasing ease of doing business and increasing foreign investment.

► Key inhibitors to hospitality development include weak air lift and the relative lack of proactive government policy toward development.

► Respondents indicated that the hotel segment with the most opportunity in SSA is mid-market branded full-service hotels. In contrast, markets in Asia (particularly China and India) are currently focusing on branded select- or limited-service hotels, having, in many markets, already developed a critical mass of full-service hotels. Additionally, while luxury is not a primary focus for the SSA due to significant construction costs and a lack of demand for large-scale luxury hotels, it is a focus for international developers and investors in Asia and the Middle East and, to a degree, North Africa.


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Strategies for success

The following chart categorizes strategies for success relative to the concept of “Opportunity identification” based on anticipated value created and level of effort to implement. Categories range from “Gems” (i.e., high value with relatively easy implementation) to “Avoid” (i.e., low value and relatively difficult to implement). Following this chart is a more detailed description of each recommendation:

Low

Va

lue

Hi

gh

5

4 3

2 1

1 2 3 4 5

Low Level of Effort High

Avoid

Quick Hits

1-M – Create exit surveys

Gems

Tackle

1-B – Eliminate corruption/reward

accountability 1-C – Improve infrastructure

1-G – Provide tax incentives

1-H – Government transparency 1-I – Provide grants

1-K – Ease visa restrictions on visitors

1-L – Improve public-private communication

1-A – Political reform and stability

1-D – Reduce crime 1-E – Increase air capacity

1-F – Create marketing platform

1-J – Promote Eastern and Southern Africa as nature

destinations

1-N – Strategic market assessments


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Reference Strategy for success Value Effort 1-A Enact political reform and promote political stability ●●●●● ●●●●● 1-B Eliminate corruption within the government and reward accountability ●●●●● ●●●●● 1-C Improve infrastructure (e.g., roads, utilities and communication) ●●●●● ●●●●○ 1-D Reduce crime ●●●●● ●●●●○ 1-E Increase airline capacity and reduce air fares ●●●●● ●●●●○ 1-F Improve negative international perceptions of SSA by creating marketing platform to promote countries as tourist

destinations; build a strong Internet site for each country, partner with hotel companies/brands, etc. ●●●●● ●●●●○

1-G Provide tax incentives, breaks and subsidies to developers, operators and investors (as applicable) to promote hospitality development throughout SSA

●●●●● ●●○○○

1-H Improve transparency of government processes related to hospitality development (e.g., incentives, approvals, laws and regulations, etc.)

●●●●○ ●●●●○

1-I Provide grants for job creation, to assist with land purchases and for developing hotels in marginalized areas ●●●●○ ●●●○○ 1-J Actively promote Eastern and Southern Africa as tourist destinations by focusing on nature (e.g., safaris and beaches) ●●●●○ ●●●○○ 1-K Ease visa restrictions on visitors ●●●●○ ●●○○○ 1-L Improve communication between the government and the private sector via better protocols and technology ●●●○○ ●●●○○ 1-M Improve visitor data and statistics by creating exit surveys ●●●○○ ●●○○○ 1-N Implement strategic market assessments for individual countries to determine optimal balance of lodging supply and

demand ●●●○○ ●●○○○


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7.3 Identifying strategic partners This section seeks to outline some of the key strengths, opportunities, constraints and challenges as they relate to identifying strategic partners (e.g., investors, lenders, developers and operators) in SSA as it relates to investing, developing or operating a hospitality product.

Strengths/Opportunities Constraints/Challenges • Some international investors have the desire to expand their presence within or into

SSA – Several respondents, particularly international investors who have already been exposed to the region, indicated a desire to expand their presence within SSA, while investors with limited or no exposure to SSA indicated they tend to approach the region with “caution”. One local investor indicated they are looking to expand their presence in the hospitality sector in SSA by providing equity to experienced local hotel developers who perform significant due diligence around new developments, but have had limited opportunity thus far. Another investor indicated they are looking at countries where an investor can build a platform of hotels, as they have found a platform of hotels is easier to exit than a standalone hotel given economies of scale.

• South African developers and operators are beginning to expand to other regions of SSA – Developers and operators (such as Southern Sun) who have headquarters in South Africa are beginning to expand their presence to other countries within SSA.

• The strength of international brands to assist in obtaining financing – As mentioned, SSA represents an attractive region from a development perspective as most international hotel brands (e.g., Hilton, Marriott, Starwood, etc.) view the region as an untapped market and, thus, have a strong desire to expand their presence in the region. Some respondents indicated that, as financing from local banks is often one of the most significant constraints to development in SSA, local banks are hesitant to lend to small hotel owners without international brand affiliations. To that end, some respondents indicated that banks are more willing to lend to projects associated with an international brand as opposed to projects with a local brand or no brand at all.

• Experienced developers may be able to obtain more attractive financing than inexperienced – Though financing from local banks is often one of the most significant constraints to development in SSA, respondents indicated that loan terms somewhat more aligned with terms in other established destinations (e.g., term lengths of 10 years, 80% loan-to-value ratios, interest rates in the single digits, etc.) are typically only available in the most mature SSA markets to the most experienced developers, emphasizing the importance of identifying the right local partner.

• Lack of long-term, affordable financing – One of the most significant constraints to hospitality development in SSA is the lack of long-term, affordable financing from local banks, with nearly 75% of respondents indicating that lack of financing was one of the top five constraints to developing in the region. Long-term (i.e., longer than one to five years) financing is limited or not available from local banks, resulting in high equity contributions (near 50% in many cases with significant, i.e., 1.5 to 2.0 times, collateral to back the loan) required, or obtaining financing from offshore or South African banks (respondents indicated this was not preferable, as local banks understand the markets better). These equity contributions are significantly higher than required equity contributions in established markets such as the US or Western Europe (where contributions are typically 20% to 30%). In addition, typical lending terms from local banks may include interest rates of 20% or higher. Such high interest rates, respondents indicated, are because local banks often do not hold local deposits, so some African banks need to borrow themselves from other banks. Some indicate, however, that local banks are becoming more active in financing, including some South African banks that are becoming more actively interested in Africa, though the ability of these banks to structure large construction loans, respondents indicated, may be limited. Also, some respondents indicated that local and international banks are beginning to work together to create packages to give international players the ability to enter the market and leverage the local bank knowledge (though specific examples were not provided); however, the challenge has been to get an international bank to assume the senior debt position, which has historically been a struggle due to global banks’ risk aversion and lack of knowledge of the market.

• Lack of trust between local developers and banks – Some respondents indicated that, though some local banks are becoming more active in financing, some local developers do not believe local banks to be trustworthy.

• Investors must have long-term investment horizon – �Given the profile of typical developments in Africa (i.e., significant start-up costs and long payback periods), a long-term (longer than five years) holding period is typically required to generate an adequate return on investment, which is misaligned with the appetite of many investors willing to invest in SSA (who are often requiring high


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Strengths/Opportunities Constraints/Challenges • International brands are becoming increasingly attractive – Respondents indicated

that local developers are more frequently seeking international brands to attract international travelers. In addition, having an international brand may provide travelers a certain level of comfort and a sense of security when traveling to an unfamiliar location. In turn, though international brands have historically been relatively reactive in SSA, they are becoming increasingly proactive in seeking expansion opportunities in the region. Some brands with limited or no existing product in SSA currently have dedicated local teams actively sourcing opportunities. Operator respondents indicated that, though in some cases they may be willing to provide sliver equity or reduce management fees to get into some highly desirable markets (e.g., Angola), in general, international operators are seeking primarily management and/or franchise agreements.

• Increasingly positive image of SSA from an investor’s standpoint – Respondents were asked, “What are the perceptions of the following regions from an investor’s point of view?” Each respondent indicated that either Asia or SSA represented the region with the highest perceptions from an investor’s perspective (though the respondents were primarily either already focused on or actively pursuing investments in SSA), followed by North Africa and, lastly, established markets (such as North America or Western Europe). Over 35% of respondents indicated that SSA represented the global region with the highest perceptions from an investor’s perspective (with the remaining indicating Asia).

• International brands are being somewhat flexible – Some respondents indicated that some international brands are willing to offer relatively short management and/or franchise agreements (e.g., three to five years, as opposed to typical agreements of five years or longer) to establish an initial presence in a country or key gateway city.

returns and relatively short holding periods). Though holding periods of five years or longer are generally aligned with holding periods in other regions of the world (e.g., Asia and established markets), loan terms are frequently shorter than five years in SSA.

• Global financial institutions are slow and challenging – Some respondents indicated that an alternative to obtaining financing from local banks is to work with a global or government-sponsored financial institution; however, these respondents also indicated that these institutions are often slow and have challenging lending processes, and lack the speed of commercial banks and the speed needed for developers and investors to be competitive in the marketplace.

• Challenge to find experienced local partners – Nearly all respondents indicated that it was beneficial (and most indicated essential) to have an experienced local partner when an international firm is seeking a hospitality development or investment. Respondents indicated that experienced local partners can assist with the permit process, land acquisition and overall development process. Most respondents indicated that finding the right local partner (i.e., with experience in hospitality development and knowledge and network to complete the development successfully) to work with is one of the top five constraints to hospitality development in SSA. Once an investor or developer becomes more experienced in SSA, having a local partner becomes less important, according to some respondents.

• Lack of experience in real estate as an investment – Given the relatively immature nature of the real estate and hospitality sectors in SSA, exiting an investment is uncertain in terms of both timing and price. Respondents indicated that the capital markets for real estate are in their infancy stage, with limited or no market data on transactions. Given the uncertain exit, respondents indicated that investors must typically be willing to focus on operating cash flow and payback period, leading to a long-term holding period; however, most international funds are not willing to look at longer than a five year holding period.

• High risk and high required returns – Given the inherent risk associated with investing in SSA, required returns are high relative to other global markets. Typical required investor returns range from 15% to 30%, but most respondents indicated required returns of approximately 20% to 25%. Some respondents indicated that investors often look for deals that can generate returns equal to two times their investment or a 25% internal rate of return over a few years. These returns are relatively aligned with returns required in the expanding


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Strengths/Opportunities Constraints/Challenges countries in Asia (e.g., China and India), but are significantly higher than returns required in the US and Western Europe (which are typically approximately 10% to 15%).

• Lack of interest from international institutional investors – Due to the high risk associated with the SSA region, and the overall lack of familiarity with investing in the region, several international institutional investors indicated a relative lack of interest in the region. One respondent indicated that SSA usually does not fit within the global strategy of many international funds or firms; as a result, there is limited foreign direct investment in the region.


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Category Sub-Saharan Africa Middle East/North Africa Asia Mature markets Identifying strategic partners Availability of financing 1 2 3 3 Ease for international players to develop or invest

1 2 3 4

Desire from international brands to enter market

4 5 5 5

Willingness of brands to grant concessions for hotels

3 3 4 3

Return potential 5 4 5 2 Experience in real estate as an investment

1 3 3 5

Established real estate market 1 3 4 5 Observations and gaps:

► Relative to the comparative regions listed, SSA presents the most difficult environment relative to availability of financing for and ease for international players to develop or invest in hospitality developments. In general, most respondents indicated that it is easier to obtain financing in North Africa, Asia and established markets than in SSA.

► Equity contributions in SSA and Middle East/North Africa are typically 40% to 50% of total costs, compared to 30% to 50% in Asia and 20% to 30% in mature markets (i.e., the US and Western Europe).

► Most international brands indicated a significant desire to expand their presence into or within SSA.

► Though SSA presents significant return potential (relatively aligned with potential returns in key expanding markets in Asia, e.g., China and India, and significantly greater returns than in more established markets), local investors remain relatively unfamiliar with real estate as an investment, as the real estate capital markets in the region are in their infancy stage. In addition, investors are wary of investing in real estate in SSA due to a lack of experience and efficiency in exiting real estate investments, leading to difficulty in underwriting investments.

► Brands or management companies in other regions (particularly Asia) have adopted a model of partnering with a few key local developers and consultants to expand their presence in key markets via master franchise agreements.


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The following chart categorizes strategies for success relative to the concept of “Identifying strategic partners” based on anticipated value created and level of effort to implement. Categories range from “Gems” (i.e., high value with relatively easy implementation) to “Avoid” (i.e., low value and relatively difficult to implement). Following this chart is a more detailed description of each recommendation:

Low

Va

lue

Hi

gh

5

4 3

2 1

1 2 3 4 5


Avoid

Quick Hits

2-H – Encourage developments with international brands

Gems

Tackle

2-A – Assist banks to provide financing 2-C – Train lending institutions on

real estate

2-E – Improve public sector financing speed and efficiency

2-F – Clarify and ease local partnership laws

2-G – Economic initiatives to promote SSA to international investors

2-B – Promote environment for master franchise agreements

2-D – Match international and local developers


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Reference Strategy for success Value Effort 2-A Assist local banks in key markets in providing long-term financing ●●●●● ●●●●○ 2-B Promote environment for master franchise agreements (i.e., transparent processes and informed and accountable local

partners) ●●●●● ●●●●○

2-C Train lending institutions on the fundamentals and dynamics of real estate investment to establish appropriate underwriting criteria (i.e., attractive to both lenders and investors)

●●●●● ●●●○○

2-D Work with international hotel companies and developers/investors to match them with experienced local partners ●●●●● ●●●○○ 2-E Improve speed and efficiency of using public sector financing and structuring public-private partnerships ●●●●○ ●●●●○ 2-F Clarify laws related to local partnerships; ease restrictions as needed ●●●●○ ●●●○○ 2-G Develop economic development initiatives to promote the advantages of SSA to international investors; provide road

map for investment ●●●○○ ●●●○○

2-H Encourage development of projects with international brands ●●●○○ ●●○○○


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7.4 Development This section seeks to outline some of the key strengths, opportunities, constraints and challenges as they relate to developing (e.g., obtaining land and permits and actual construction of) hospitality products in SSA.

Strengths/Opportunities Constraints/Challenges • Relative to other real estate asset classes, more government incentives for

hospitality products – Though few examples were provided by respondents, some indicated that there are typically more government incentives available for hospitality developments versus other real estate asset classes as hospitality developments are viewed as contributing more to society than other types of real estate developments. One respondent indicated that Zimbabwe, for example, offers lower duties for importing construction materials for hospitality developments, while another indicated that Tanzania provides waivers of duty fees, but the waivers are difficult to obtain due to government bureaucracy.

• International brands may facilitate permit process – Some respondents indicated that, though obtaining a permit is one of the most difficult steps in the development process due to government corruption, having an international brand associated with a development may facilitate the permit process as the project may be more appealing to local governments.

• In general, land costs are less expensive than other parts of the world – Notwithstanding obtaining significant parcels of land in large urban centers in SSA, where land can be expensive, most respondents indicated that land (particularly land outside of large cities) in SSA is less expensive than many other parts of the world. Respondents indicated that land in the major cities in India, for example, can cost millions of dollars per acre, if such space is available. Other respondents indicated that land prices in Asia are beginning to become prohibitively expensive.

• Lower construction labor costs than in other areas of the world – Though most respondents indicated that the cost of construction materials in SSA can be higher than other parts of the world (due to the need to import a significant amount of construction materials and hotel finishes), the labor associated with developing a hotel in SSA is significantly lower than in many other markets around the world (primarily as compared to more established hotel markets, such as the US or Western Europe). The result is that total development costs in SSA for hotels are relatively comparable to the development costs in the United States. Some respondents indicated that developers are increasingly turning to construction companies from China for even more inexpensive labor and less expensive materials and equipment.

• Weak or lack of process for obtaining permits – Some respondents indicated that a key challenge related to developing real estate in SSA is the lack of a defined process for obtaining permits, often resulting in corruption to speed the process.

• Corruption at several government levels – All respondents indicated that corruption at several government levels in most countries is a significant barrier to hospitality development. In general, most of the discussions surrounding corruption involved obtaining permits for development, and primarily focused on the speed at which such permits can be obtained. Though obtaining permits in many locations throughout the world is a challenge, in some cases in SSA, permits can take as long as two years (though sometimes shorter) to obtain (with some respondents indicating that construction often commences prior to obtaining the appropriate permits); in response to the lengthy timeframe for obtaining permits, many developers resort to bribery to obtain the permits faster (which can add 10% to 15% onto the total development cost; other times corruption can be tied to sharing the returns earned on a project with top government officials). One respondent indicated “The (permit approval) process is horrible…but if you know the right people, it can be very quick.” The primary reason for the long timeframe for obtaining permits, according to respondents, is the lack of internal communication between governmental departments and the layers of bureaucracy and signatures required to obtain the permits. As several (particularly international) players refuse to perpetuate the corruption, some respondents re-emphasized the need to identify local partners or advisors who may have the contacts and knowledge to speed up the permit process; other respondents indicated that if a developer or investor is willing to be patient, corruption can be avoided. Angola, Kenya and Nigeria were cited by respondents as having significant corruption issues.

• Lack of development execution and project management expertise – Approximately 25% of respondents indicated that lack of development execution and project management expertise in SSA is one of the top five constraints of hospitality development in the region. Some respondents indicated that, in general, the region lacks skilled project managers, architects, interior designers and contractors, requiring developers to hire experts from


ERNST & YOUNG | 41

Strengths/Opportunities Constraints/Challenges other global regions, often resulting in increased expenses.

• Lack of clarity around land ownership in Zimbabwe – The Indigenization Law went into effect in March 2010 requiring all foreign-owned businesses to sell 51% of their shares to Zimbabweans. Some respondents and news sources have indicated that this law is likely to do further damage to Zimbabwe’s economy, which is already characterized by rising inflation and political uncertainty. There is also a lack of clarity around how this affects land ownership in Zimbabwe by foreign investors and is anticipated to inhibit future foreign investment.

• Land can be expensive in certain markets – Though respondents indicated, in general, land is less expensive in SSA than in other parts of the world, prices fluctuate widely and can be expensive in certain markets. Respondents indicated that land prices can vary from US$100,000 per acre outside of major cities to over $1 million per acre in major cities, with Angola and Ghana cited as two of the most expensive countries for obtaining land. Kenya was also cited by a respondent as experiencing significant increases in land prices over the past few years. Most respondents indicated that land prices in Angola are significant and, somewhat, prohibitive. In general, respondents indicated that the total cost of land should be approximately 10% to 15% of the total development budget for a project to be financially successful.

• Concern over enforceable contracts – Some respondents indicated that, due to lack of enforcing laws in some locations, even obtaining a contract to purchase land or develop a project may not be enforceable.

• Difficulty securing land titles – Approximately 35% of respondents indicated that land title issues and successfully securing a marketable title on land is one of the top five constraints to developing hospitality products in SSA. Some respondents indicated that it is difficult to accurately prove land/title ownership and that counterfeit land permits are common throughout many countries in SSA. These situations, according to respondents, are most frequent in countries where land is owned by tribes or is communal. The situation is slightly better in countries where the government controls the land, such as Botswana, Mozambique, Zambia, Malawi and Uganda where the government owns the land and grants 99 year leases to developers, though obtaining the proper titles and approvals remains difficult. Given the widespread use of counterfeit titles, one respondent indicated that in Lagos, land owners will post signs on the land indicating that it is not for sale for fear of an unauthorized sale occurring.

• Difficulty in altering zoning – As in much of the world, altering zoning can be difficult in SSA, furthering the use of corruption to speed up the process. One respondent indicated that most of the land in Zimbabwe, for example, is pre-


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Strengths/Opportunities Constraints/Challenges zoned and it can take up to two years to change the zoning; the length of time can be significantly shortened through bribery.

• Infrastructure challenges increase development costs – Lack of adequate infrastructure was the third most frequently indicated risk factor for developing hospitality products in SSA (behind political unrest and security risks). In general, all respondents indicated that infrastructure was a challenge in most areas of SSA. Developers are often required to install power stations, generators, water/sewer systems, etc., as well as develop roads to the development. The cost of infrastructure development typically adds 10% to 15% to the total development cost, according to respondents. Respondents did, however, indicate that infrastructure improvements are being made in some countries. South Africa, Zimbabwe and Namibia were cited as examples.

• Developers are often required to import construction materials and finishes – Given the lack of construction materials and hotel finishes (e.g., case goods, soft goods, etc.) in SSA, most developers must import a majority of products, which can add significant costs and time to a project. One respondent indicated that even when products arrive in the country where the development is taking place, the materials can be tied up in customs for several months, and once the materials clear customs, the challenge is lack of roads and other infrastructure to quickly move the materials to the construction site. Approximately 20% of respondents indicated the need to import materials is one of the top five constraints to hospitality development in SSA.

• Longer development timeline than in other parts of the world – Given the struggles related to obtaining financing, obtaining permits, finding experienced local partners, importing materials and finding adequate skilled project management and experts, most respondents indicated that the hotel development process takes longer in SSA than in other parts of the world. One respondent indicated that the total timeline to develop a mid-market hotel in Ghana was five years, while another indicated a timeframe of nine years to develop a standalone hotel in an undisclosed location.

• High hotel development costs in some countries – In general, respondents indicated that the cost to develop a hotel in SSA is greater than in other parts of the world (see data on the following pages comparing development costs in SSA to other parts of the world). Additionally, respondents indicated that development costs in Nigeria (upwards of US$400,000 per room for a mid-market hotel), Angola (greater than US$400,000 per room for a mid-market hotel) and Ghana (upwards of US$250,000 per room for a mid-market hotel) can be more significant than in other parts of SSA due to corruption, the


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Strengths/Opportunities Constraints/Challenges increased need to develop infrastructure and import duties.

Comparison to other markets

The following table indicates (based on interviews and EY’s experience in and knowledge of the regions) several key characteristics related to this stage of hospitality development, as well as a rating for each characteristic in each geographic region (i.e., SSA, Middle East/North Africa, Asia and mature markets, such as the US and Western Europe) from 1 to 5, with 1 representing qualities of the region that are most unfavorable relative to hospitality development and 5 representing qualities of the region that are most favorable relative to hospitality development.

Category Sub-Saharan Africa Middle East/North Africa Asia Mature markets Development Obtaining permits and approvals (costs and process)

1 3 2 3

Land acquisition (cost and ease) 3 3 2 2 Securing land title 1 3 1 5 Alteration of zoning 1 2 1 2 Infrastructure development 1 2 3 4 Hotel development costs 2 2 2 2 Development timeline 2 2 3 3 Observations and gaps:

► Though land acquisition prices are somewhat lower in SSA than in other parts of the world, the overall development process in SSA is more challenging.

► Key challenges related to developing hotels in SSA include obtaining permits and approvals, securing land titles, changing zoning and the overall length of the development timeline. In addition, as opposed to other global markets, a significant amount of infrastructure is typically required to develop hotels in SSA, which is typically funded by the developer.

► Some respondents indicated that though corruption is relatively widespread in SSA, it is also prevalent in other parts of the world (India was cited as an example, where obtaining a permit can be equally as challenging).

► Some respondents indicated that the permit approval process in the US and Western Europe is easier and quicker than in SSA.

► Most respondents indicated that infrastructure development is not as frequently required in other parts of the world outside of SSA, with the exception of North Africa (Egypt and Algeria were cited as examples).

► Respondents indicated that the typical cost of developing hotels in SSA is as follows (compared with the cost of developing a similar hotel in the Middle East, Asia and the US):

Sub-Saharan Africa Middle East Asia (China and India) United States


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Median hotel development costs (including land)

Limited-Service: US$110,000 per room Full-Service: US$210,000 per room Luxury: US$475,000 per room Source: Respondents and Davis Langdon Africa

Limited-Service: US$115,000 per room Full-Service: US$200,000 per room Luxury: US$575,000 per room Source: Respondents and EY Internal Database

Limited-Service: US$65,000 per room Full-Service: US$150,000 per room Luxury: US$350,000 per room Source: Respondents and EY Internal Database

Limited-Service: US$80,000 per room Full-Service: US$155,000 per room Luxury: US$525,000 per room Source: HVS International and EY Internal Database


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The following chart categorizes strategies for success relative to the concept of “Development” based on anticipated value created and level of effort to implement. Categories range from “Gems” (i.e., high value with relatively easy implementation) to “Avoid” (i.e., low value and relatively difficult to implement). Following this chart is a more detailed description of each recommendation:

Low

Va

lue

Hi

gh

5

4 3

2 1

1 2 3 4 5


Avoid

Quick Hits

Gems

Tackle

3-B – Formal permit process

3-A – Land title process improvement

3-D – Improve communication and reduce bureaucracy

3-E – Lower duties on construction imports

3-F – Encourage education and training of skilled development professionals

3-C – Enforceable contracts


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Reference Strategy for success Value Effort 3-A Create, clarify and/or ease land title process to accelerate development and discourage counterfeit titles ●●●●● ●●●●● 3-B Initiate and enforce formal processes for obtaining permits ●●●●● ●●●●○ 3-C Require and enforce contracts related to land transactions and development ●●●●● ●●●●○ 3-D Improve internal communication between government departments and reduce bureaucracy related to the permit

approval process ●●●●○ ●●●○○

3-E Lower duties on construction imports ●●●●○ ●●○○○ 3-F Encourage the education and training of skilled development professionals (e.g., architects, contractors, etc.) in SSA ●●●○○ ●●○○○


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7.5 Operation This section seeks to outline some of the key strengths, opportunities, constraints and challenges as they relate to operating hospitality products in SSA.

Strengths/Opportunities Constraints/Challenges • In general, SSA benefits from lower labor costs than other regions of the world –

When asked about labor costs (including staff housing), all respondents indicated that labor in SSA is less expensive than in more developed regions of the world. Respondents indicated a wide range of labor costs as a percentage of total hotel revenues, from 10% to 40% (with luxury products trending toward the higher end), but in general, most indicated that labor costs are typically 10% to 20% of total revenue for a hotel. One respondent indicated that salaries and wages for hotels in SSA are half of what they are in North America (where labor expenses can be upwards of 40% of total revenue). One respondent indicated that salaries are lower in SSA than in China, while another indicated that most entry-level hotel employees in SSA earn between US$100 and US$300 per month (a significant advantage for SSA relative to keeping costs low). The only region that respondents indicated had lower wages than SSA is Egypt, where total labor was indicated to be approximately 12% of total hotel revenue (labor costs are partially offset by a service fee charged to guests in addition to the room rate).

• Higher hotel margins relative to other regions of the world – Due primarily to lower labor costs and high room rates (due to limited supply), profitability margins in hotels in SSA are typically higher than in other parts of the world. Respondents, in general, indicated that GOP margins for hotels in SSA are upwards of 50% of total revenue (some indicated higher, up to 65%, for large hotels). These margins can vary by country, with one respondent indicating that GOP margins in South Africa are more aligned with those in the US (approximately 30% of total revenue), but GOP margins in DRC are significantly higher (i.e., 65% of total revenue). GOP margins in the US for full-service hotels are typically approximately 25% to 35% of total hotel revenues.

• Increasingly global visitors to SSA – Respondents indicated that, though historically international travelers to SSA were primarily from Europe, travelers are increasingly becoming global, with significant visitation cited from Japan, India and China.

• Employment at hotels is highly coveted – Some respondents indicated that jobs at hotels are highly coveted among locals as some of the highest-paying jobs with the best benefits and treatment of employees. Potential employees are most drawn to internationally-branded hotels, as one respondent indicated internationally branded hotels typically pay higher wages than local brands or independent hotels.

• Developers are increasingly relying on brands and third-party operators – Some

• The use of expatriates can increase labor costs toward the upper end of the SSA market range – Most respondents indicated that it is often necessary to use expatriates to fill the role of managerial positions, at least initially, as expatriates have the necessary training to maintain brand standards and service levels. Luxury hotel products typically require a greater number of expatriates, which can substantially increase labor costs toward the upper end of the market range (upwards of 25% to 40% of total hotel revenue). Typical hotels employ one to six expatriates (most indicated two to three in a typical full-service hotel).

• Employee productivity is low – Though respondents indicated a significant advantage of operating a hotel in SSA is low labor costs, respondents also indicated that more staff are required in hotels in SSA due to low productivity. One respondent indicated that hotels need three times the staff in SSA than in developed countries (Australia was cited as an example). Another respondent indicated that housekeepers in SSA clean approximately eight to 14 rooms per eight hour shift, while a housekeeper in Europe would clean 18 to 22 rooms during an eight hour shift. Another respondent indicated that in SSA, the total number of employees required at a hotel is one to two employees per room (in Europe, total employees would amount to 0.6 to 0.8 per hotel room). The low productivity of employees is primarily due to lack of education, as well as some cultural differences and health issues (requiring employees to be absent from work more frequently than in many other parts of the world).

• Lack of skilled and experienced local labor – Approximately 40% of respondents indicated that a lack of local skilled labor is one of the top five constraints of developing a hotel in SSA. Though employees can undergo training, general lack of education and the skills required to learn were cited as the primary reasons for the lack of skilled labor. Additionally, given the relative immaturity of the hotel sector in SSA, few local potential employees have similar work experience.

• Lack of local property management and maintenance expertise – Nearly 15% of respondents indicated that a lack of local property management and maintenance expertise is one of the top five constraints to developing a hotel in SSA. Some respondents indicated that developers of hotels sometimes want to be involved in the day-to-day operations of the hotel but, given the relative immaturity of the hotel market in SSA, owners do not necessarily have the


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Strengths/Opportunities Constraints/Challenges respondents indicated that, given the relative local lack of knowledge of hotel operations in SSA, developers are increasingly relying on brands and third-party operators for operation and maintenance expertise (e.g., revenue management, channel distribution, etc.).

operating knowledge necessary. • Higher non-labor operating costs than other parts of the world – Some

respondents indicated that the lack of infrastructure development in SSA results in higher non-labor operating costs (primarily utilities and maintenance) relative to other parts of the world. Additionally, cost of goods sold and amenities in hotels can cost more than other parts of the world due to the necessity to import materials and products.

• Effective marketing within SSA can be challenging – Some respondents indicated that, though inter-Africa travel is increasing, it is often difficult to effectively market to travelers in SSA due to limited access to the Internet throughout the region.

• Unions – Responses were mixed relative to unions. Some respondents indicated that there are few unions, with governments controlling labor in some markets (i.e., wage rates and work rules are stipulated by governments). Another respondent indicated that established hotels (particularly those that were formerly owned by governments) do have unions with labor that is inefficient. Other respondents indicated that South Africa has a stronger labor union presence than other parts of SSA, and that there is a trend in Kenya and other established and maturing countries toward unionization.


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Category Sub-Saharan Africa Middle East/North Africa Asia Mature markets Operations Visitor profile (economic/demographic attributes)

2 3 3 4

Market has adequate skilled labor

1 3 3 4

Labor costs 5 4 4 2 Productivity 1 2 3 3 Unions / labor laws 3 5 3 2 Market segmentation (diversity) 2 3 3 5 Non-labor operating costs 2 4 3 3 Profitability 5 4 4 3 Observations and gaps:

► Low labor costs and high profitability are the key strengths of operating hotels in SSA, while lack of skilled labor, low productivity and non-labor operating costs are the key constraints.

► GOP margins in SSA and Middle East/North Africa are typically 50% to 60% of total full-service hotel revenues, compared to 40% to 60% in Asia and 25% to 35% in mature markets. According to respondents, net operating income margins are typically 10% to 15% less than GOP margins for SSA hotels.


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The following chart categorizes strategies for success relative to the concept of “Operation” based on anticipated value created and level of effort to implement. Categories range from “Gems” (i.e., high value with relatively easy implementation) to “Avoid” (i.e., low value and relatively difficult to implement). Following this table is a detailed description of each recommendation:

Low

Va

lue

Hi

gh

5

4 3

2 1

1 2 3 4 5


Avoid

Quick Hits

Gems

Tackle

4-A – Improve education system

4-B – Provide hospitality vocational training

4-C – Subsidize utility expenses

4-E – Ease visa restrictions on skilled employees

4-D – Improve Internet access and reliability throughout SSA


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Reference Strategy for success Value Effort 4-A Improve education system to provide strong platform for learning ●●●●● ●●●●● 4-B Provide vocational training related to hospitality management ●●●●● ●●○○○ 4-C Work with governments to improve utility expenses ●●●●○ ●●●●○ 4-D Improve Internet access and reliability throughout the region ●●●○○ ●●●●○ 4-E Ease visa restrictions on skilled employees ●●●○○ ●●○○○


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Appendix A – Macroeconomic indicators

SSA The following map defined the region referred to throughout this Report as SSA:


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The following section contains observations and comments on the economic and market conditions in SSA. It also highlights certain data points (e.g., population and GDP) and general economic overviews of several of the largest economies within the region, as well as those economies that interviewees indicated were either the most established or emerging markets for hospitality development, notably Angola, DRC, Ghana, Kenya, Mozambique, Nigeria, South Africa and Tanzania, based on published data and reports from Global Insight (an international economics and research firm) and other global research firms, as well as interviews with market participants. Population growth

Population growth for SSA averaged 2.2% per year between 2002 and 2009, significantly higher than the comparative non-SSA nations listed below. The table below compares population growth for SSA and the selected countries within SSA relative to selected expanding or established economies:

Observation:

► Besides South Africa (SSA’s most established economy) and Tanzania, the selected SSA countries and SSA as a whole have higher historical and expected future population growth rates as compared to selected expanding or established economies elsewhere throughout the world. Expanding populations are typically commensurate with hospitality demand growth.

Economic overview

SSA’s economic landscape is currently characterized by the following key aspects:

2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E

Average (2002-2009)

Average (2010E-2014E)

Angola 2.8% 2.8% 2.7% 2.7% 2.6% 2.6% 2.6% 2.5% 2.5% 2.5% 2.4% 2.4% 2.3% 2.7% 2.4%DRC 3.1% 3.2% 3.1% 3.0% -1.7% 2.9% 2.9% 2.9% 2.8% 2.8% 2.8% 2.8% 2.7% 2.4% 2.8%Ghana 1.7% 0.8% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.6% 1.6% 1.6% 1.6% 1.4% 1.6%Kenya 2.2% 2.2% 2.2% 2.4% 2.2% 2.1% 2.0% 1.9% 1.8% 1.8% 1.7% 1.6% 1.5% 2.1% 1.7%Mozambique 2.7% 2.7% 2.7% 2.6% 2.5% 2.4% 2.4% 2.3% 2.2% 2.2% 2.1% 2.1% 2.0% 2.5% 2.1%Nigeria 2.3% 2.3% 2.2% 2.4% 2.4% 2.3% 2.3% 2.2% 2.2% 2.1% 2.1% 2.1% 2.0% 2.3% 2.1%South Africa 1.4% 1.3% 1.2% 1.1% 1.1% 1.1% 1.1% 1.1% 0.6% 0.6% 0.6% 0.6% 0.6% 1.2% 0.6%Tanzania 2.0% 2.0% 1.9% 1.9% 1.6% 1.3% 1.1% 0.9% 0.8% 0.6% 0.5% 0.4% 0.4% 1.6% 0.5%Sub-Saharan Africa 2.4% 2.3% 2.3% 2.4% 1.9% 2.3% 2.2% 2.2% 2.1% 2.1% 2.0% 2.0% 2.0% 2.2% 2.0%

Brazil 1.4% 1.4% 1.4% 1.4% 1.5% 1.5% 1.5% 1.5% 1.4% 1.5% 1.3% 1.4% 1.4% 1.4% 1.4%Canada 1.1% 0.9% 1.0% 1.0% 1.0% 1.1% 1.2% 1.2% 1.2% 0.9% 0.7% 1.0% 0.9% 1.1% 0.9%China 0.7% 0.6% 0.6% 0.6% 0.5% 0.5% 0.5% 0.5% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6%France 0.7% 0.7% 0.7% 0.7% 0.7% 0.6% 0.5% 0.5% 0.5% 0.4% 0.4% 0.4% 0.4% 0.6% 0.4%Germany 0.2% 0.1% 0.0% 0.0% -0.1% -0.1% -0.2% -0.3% -0.3% -0.2% -0.2% -0.2% -0.2% -0.1% -0.2%India 1.7% 1.6% 1.6% 1.6% 1.5% 1.5% 1.4% 1.4% 1.4% 1.3% 1.3% 1.3% 1.2% 1.5% 1.3%Japan 0.2% 0.2% 0.1% 0.0% 0.0% 0.0% -0.1% -0.1% -0.1% 0.0% -0.1% -0.2% -0.2% 0.0% -0.1%Mexico 1.2% 1.1% 1.1% 1.0% 1.0% 1.0% 1.0% 1.0% 0.9% 0.9% 0.9% 0.9% 0.8% 1.0% 0.9%Spain 1.8% 2.1% 1.1% 2.1% 1.4% 1.1% 2.1% 1.3% 1.0% 0.9% 0.7% 0.5% 0.4% 1.6% 0.7%United Kingdom 0.4% 0.4% 0.5% 0.6% 0.6% 0.6% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.6% 0.7%United States 1.0% 0.9% 0.9% 0.9% 1.0% 1.0% 0.9% 0.9% 1.0% 1.0% 1.0% 1.0% 1.0% 0.9% 1.0%

Source: Global Insight (10 August 2010)

Populat ion (% Change)


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► Strong economic growth prospects throughout the region – SSA experienced significant export and import growth over the past decade driven by the major net oil exporters in the region, strong import demand from China and India, and government actions to end political conflicts, improve macroeconomic conditions and create better business climates. SSA is anticipated to experience accelerated growth momentum in 2010 with signs of economic recovery occurring, including increases in exports and industrial production. The region showed some signs of recovery through the first quarter of 2010. Keys to the region’s growth include global demand recovery, rising commodity prices and external finance, as well as trade with Asia (a relatively new source of growth). GDP growth (see following table) peaked in 2007 and Global Insight anticipates these growth rates to return in the medium- to long-term. According to a report published in June 2010 by McKinsey Global Institute, Africa’s collective GDP in 2008 was approximately $1.6 trillion (equivalent to Brazil’s or Russia’s GDP). This GDP is anticipated to increase to $2.6 trillion by 2020.

► Easing inflationary pressures in many countries – Inflationary pressures have lessened for most of the SSA countries, particularly those in the CFA-zone, primarily due to expansionary fiscal and monetary policies. Global Insight anticipates the regional average inflation rate to remain in the single digits in 2010. However, some countries (e.g., Nigeria, DRC, Ghana and Angola) continue to experience high public spending and currency depreciation.

► Regional dependence on global commodity prices – Commodities continue to dominate trade in and dictate the macroeconomic outlook for SSA, primarily the exporting of oil, gold, metals and metal products. Exports of primary commodities in SSA average more than 90% of total exports across the region, resulting in high risk due to lack of diversification. A major cyclical downturn in the world economy would weaken tourism and demand for oil and non-oil commodities; similarly, a political crisis in the region could further increase the risk of slow economic growth. Management of mineral resources will be key to diversification of the economic base and poverty reduction, according to Global Insight.

The selected SSA countries’ economic landscapes are currently characterized by the following key aspects:

► Angola’s strong anticipated economic growth as an emerging tourism destination – Angola’s economic growth is anticipated to continue to be driven by the hydrocarbon sector (85% of Angola’s export revenues are driven by crude oil demand). Agriculture and aid from China, however, should provide additional economic stimulus. Additionally, the tourism sector exhibits expansion potential; however, significant investment by the government will be necessary to improve safety and the infrastructure to support tourism, as well as training local personnel for the industry’s needs. Though real GDP growth for 2010 through 2014 is not anticipated to be as significant as between 2004 and 2009, Angola remains one of the strongest economic growth markets in SSA.

► DRC’s recent debt relief and hopes for increasing commodity prices – A significant number of obstacles exist relative to DRC’s economy, including overcoming past border tensions with Angola and Uganda, public finance reform, simplification of regulations and procedures, restructuring financial bodies, introducing more efficient control procedures and enforcing local mining processing laws. In addition, though investors remain interested in DRC’s natural resources, the country significantly lacks in infrastructure. However, with significant recent debt forgiveness by the International Monetary Fund and an anticipated increase in commodity prices, Global Insight anticipates foreign investment in DRC to increase in the coming years.

► Ghana’s moderate economic recovery – Given Ghana’s recent significant economic expansion, growth in the coming years is not anticipated to be quite as robust. Ghana consistently ranks among the top African economies by the International Finance Corporation, and government authorities are anticipated to continue to improve the environment for business in the country by introducing a fiscal responsibility law, limiting tax exemptions, broadening the value-added tax and income tax base, and boosting expenditure management, all primarily aimed at being a further catalyst for foreign investment.

► Recovery in Kenya’s agricultural sector and exports – Recent economic structural changes, including a new consumer price index measurement, a development-driven budget and stronger monetary and fiscal policy, are anticipated to result in strong foreign investment going forward. The nation is anticipated to continue to focus on infrastructure improvement, and the real estate, horticulture and agriculture industries remain strong. In addition, a positive outlook remains for tourism in 2010. Threats to Kenya’s economic growth include the struggle to pass a new constitution, disagreements among officials over the structure of a new government, and the overall depth of social and political unrest.


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► Mozambique’s capital intensive mega-projects driving growth – Capital-intensive export sectors, such as major coal, mining and steel projects, are anticipated to drive growth in Mozambique in 2010. However, over the medium term, Mozambique is anticipated to shift away from foreign dependence to a higher reliance on domestic revenue, which could result in a downscale in foreign donor assistance and a widening of the budget deficit. In an effort to curb this deficit, the government is being proactive with policy changes, phasing out tax exemptions and improving tax administration and tax policies.

► Nigeria’s economic growth prospects and emerging industries – Global Insight anticipates Nigeria’s economy to exhibit strong improvement in the medium-term, primarily due to increasing oil prices (from $43 per barrel in early 2009 to $75 per barrel in early 2010) and an anticipated global economic recovery. Furthermore, several industries have begun emerging (e.g., construction, telecommunications, transportation, retail and wholesale, structural metal products and general industrial machinery) that should provide more support for economic activity.

► South Africa’s moderate economic growth and increasing import demand – An anticipated global recovery, combined with South Africa’s relaxing of its monetary policy and a supportive fiscal policy (including investment in infrastructure), should accelerate the country’s economic growth in the long-term. The strength of the currency is anticipated to result in an increase in imports, while high levels of consumer debt, job losses and increasing energy costs are likely to result in a slow recovery in consumption spending (somewhat accelerated in the second half of 2010 due to the World Cup).

► Tanzania’s weak domestic demand for goods in the short-term – Traditional and manufacturing exports decreased during the first five months of 2010 compared to the previous year due to weak domestic demand. As imports increase, Tanzania’s current-account deficit is likely to widen in 2010. A glimmer of hope has been tourism exports, which held up through the global downturn. Though Tanzania remains one of the most politically stable countries in SSA, corruption has become a significant problem for the nation. In an attempt to combat the problem, measures have been introduced to further empower state anti-corruption agencies.

For Sub-Saharan Africa as a whole, GDP growth in 2010 is estimated to be approximately 4.5%, with some of the most significant growth occurring in Mozambique (9.0%), Angola (8.5%) and Nigeria (6.5%). The table below compares GDP percentage changes for SSA and the selected SSA countries relative to selected expanding and established economies:


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Observations on GDP changes:

► There has been a limited effect from the global recession on the SSA markets relative to industrialized markets, with the exception of South Africa and to some extent Angola.

► Growth in SSA as a whole is expected to remain relatively stable for 2010 through 2014 relative to 2004 through 2009.

► The mid-term growth potential (through 2014) for selected SSA countries and SSA as a whole is significantly stronger than established economies.

► For most of the selected SSA countries, GDP growth is anticipated to accelerate over the coming years on par with other global expanding economies. South Africa, the region’s most established economy, is anticipated to experience average GDP growth of 3.7% between 2010 and 2014, a higher average rate than each of the established economies listed above.

Political landscape

Political instability and corruption continue to be a significant constraint on SSA’s development potential, resulting in high poverty levels (upwards of 70% in Nigeria, for example).

2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E

Average (2004-2009)


Angola 11.2% 20.6% 18.6% 19.7% 14.5% 0.2% 8.5% 8.0% 6.3% 6.4% 6.0% 14.1% 7.0%DRC 6.6% 7.9% 5.6% 6.3% 6.0% 2.8% 5.0% 6.4% 6.6% 7.1% 6.3% 5.9% 6.3%Ghana 5.6% 5.9% 6.4% 5.7% 7.3% 3.1% 4.3% 18.0% 9.2% 9.0% 8.8% 5.7% 9.9%Kenya 4.6% 5.9% 6.4% 7.0% 1.5% 2.1% 3.8% 5.5% 5.9% 6.0% 5.6% 4.6% 5.4%Mozambique 7.9% 8.4% 8.7% 7.4% 7.0% 6.3% 9.0% 7.0% 6.7% 6.0% 6.0% 7.6% 6.9%Nigeria 6.6% 6.2% 5.3% 6.2% 6.0% 5.4% 6.5% 7.5% 6.5% 6.3% 6.5% 6.0% 6.7%South Africa 4.6% 5.3% 5.6% 5.5% 3.7% -1.8% 3.1% 3.5% 3.9% 3.8% 4.2% 3.8% 3.7%Tanzania 7.8% 7.4% 6.7% 7.1% 7.4% 5.4% 5.9% 6.3% 7.4% 6.8% 6.6% 7.0% 6.6%Sub-Saharan Africa 5.5% 5.9% 5.9% 6.5% 5.4% 1.5% 4.5% 5.3% 5.1% 5.1% 5.2% 5.1% 5.0%

Expanding economiesBrazil 5.7% 3.2% 4.0% 6.1% 5.1% -0.2% 6.8% 4.8% 5.2% 5.1% 5.4% 4.0% 5.5%China 10.1% 10.4% 11.6% 13.0% 9.6% 8.7% 10.8% 8.6% 8.2% 8.6% 8.8% 10.6% 9.0%India 8.3% 9.3% 9.7% 9.1% 6.1% 7.6% 8.1% 8.2% 8.0% 7.9% 7.9% 8.4% 8.0%Mexico 4.0% 3.2% 4.9% 3.3% 1.5% -6.5% 4.8% 4.2% 3.7% 3.9% 3.9% 1.7% 4.1%

Established economiesCanada 3.1% 3.0% 2.8% 2.2% 0.5% -2.5% 3.4% 3.1% 3.2% 2.8% 2.6% 1.5% 3.0%France 2.3% 2.0% 2.4% 2.3% 0.1% -2.5% 1.3% 1.4% 1.8% 2.2% 2.4% 1.1% 1.8%Germany 0.7% 0.9% 3.4% 2.6% 1.0% -4.9% 2.0% 1.7% 1.8% 1.8% 1.9% 0.6% 1.8%Japan 2.7% 1.9% 2.0% 2.3% -1.2% -5.3% 3.2% 1.6% 1.5% 1.5% 1.8% 0.4% 1.9%Spain 3.3% 3.6% 4.0% 3.6% 0.9% -3.6% -0.6% 0.4% 1.1% 1.3% 1.4% 2.0% 0.7%United Kingdom 3.0% 2.2% 2.8% 2.7% -0.1% -4.9% 1.1% 1.7% 2.3% 2.5% 2.6% 1.0% 2.0%United States 3.6% 3.1% 2.7% 2.1% 0.4% -2.4% 3.1% 2.7% 3.0% 2.7% 3.0% 1.6% 2.9%


Real GDP growth


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Continued political stagnation and corruption, which has resulted in poor infrastructure, overdependence on the oil sector and, otherwise, general instability, could result in below-potential economic growth. As many of the countries in SSA represent democracies in their early stages, continued emphasis on political reform is necessary for economic growth. The least political risk of the selected SSA countries occurs in South Africa, Ghana and Tanzania, with the greatest risk in DRC, Nigeria and Kenya. Additional detail on these high political risk countries is as follows:

► Security problems remain a threat in DRC – The continued security problems in many parts of the country, due to the continued presence of a number of local militia groups and unwanted foreign groups, remain a major concern, as well as new outbreaks of violence in historically peaceful regions. Additionally, proposed amendments to DRC’s three year old constitution (including an extension of the presidential term from five years to seven) worry many that the president is attempting to extend his power. Glimmers of hope include recent alliances between DRC and neighbors Uganda and Rwanda.

► Future of leadership in Nigeria is uncertain – Incumbent present (following the death of former president Umaru Yar-Adua) Goodluck Jonathan remains unclear on his intentions to run for president next year in an election that could occur as early as January 2011. According to Global Insight, if Jonathan were to depart, serious ramifications for the cohesion of the ruling party would likely occur.

► Kenya’s new constitution and significant government overhaul – A new constitution for Kenya, the first since the colonial era, was adopted in early August 2010, and will significantly change the way Kenya is governed, including reducing some of the president’s excessive executive powers in favor of the legislature, the introduction of a bicameral parliament and the decentralization of government by introducing regional and county governments. However, key government officials have a history of standing in the way of implementation of key political reforms, resulting in sanctions imposed upon them by the US.

Infrastructure

Weak infrastructure remains a key limitation to SSA’s growth potential. Only limited areas of SSA benefit from adequate utility, transportation and communication networks to support the growth potential the region exhibits. Much of Africa’s potential (particularly agricultural) is inaccessible due to lack of infrastructure to transport goods. The lack of capacity to support an economic upturn is likely to again impose a ceiling on growth and expansion prospects throughout the region. Risk profiles

Global Insight assigns a risk rating to every country based on a set of criteria for each of the following six risk categories: political (25%), economic (25%), legal (15%), tax (15%), operational (10%) and security (10%). The overall risk rating is then calculated with the following formula:


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The resulting rating is then assigned to one of the following descriptions:

The following chart compares the risk ratings for the selected countries in the SSA region to selected developed and expanding markets around the world:

Observations:

► Of the selected SSA countries, Global Insight has assigned the highest risk rating to DRC and Nigeria, with DRC scoring “Extreme” in each of the six risk categories besides political (“Very high”) and Nigeria scoring “Very high” in each of the six risk categories besides economic (a “High” rating). DRC’s current rating of 4.46 represents a slight increase over the January 2009 rating of 4.40 (still “Very High”) due to increased economic risk. Nigeria’s current rating of 4.03 represents a slight increase over the October

Overall Risk Rating Risk Description1.0 - 1.24 Insignif icant1.25 - 1.74 Negligible1.75 - 1.99 Low2.0 - 2.49 Moderate2.50 - 2.99 Medium3.0 - 3.49 Signif icant3.50 - 3.99 High4.0 - 4.49 Very high4.5 - 5.0 Extreme

Angola 3.50 HighDRC 4.46 Very highGhana 2.78 MediumKenya 3.42 Signif icantMozambique 3.27 Signif icantNigeria 4.03 Very highSouth Africa 2.37 ModerateTanzania 3.36 Signif icant

Brazil 2.66 MediumCanada 1.40 NegligibleChina 2.87 MediumFrance 1.71 NegligibleGermany 1.59 NegligibleIndia 2.73 MediumJapan 1.76 LowMexico 2.88 MediumSpain 2.31 ModerateUnited Kingdom 1.80 LowUnited States 1.57 Negligible


Risk Ratings


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2009 rating of 3.97 (“High”) due to increased political risk due to the death of the former president in May 2010 and the ongoing threat of political corruption. Other key risk factors for these countries include falling commodity prices, mine closures, attacks targeting the oil sector, a dilapidated power sector, threats from militant groups and necessary political reform.

► South Africa’s relatively stable risk rating represents the lowest of the selected SSA countries and is lower than many of the other developing economies throughout the world, including Brazil, China, India and Mexico, and relatively aligned with Spain’s current risk rating. The country has one of the most sophisticated and regulated capital markets in the world, as well as a well-developed infrastructure and an established political system, making it attractive to foreign investors. Key risks include significant crime (arguably the most significant threat to the country) and the HIV/AIDS pandemic, as well as an increasingly unreliable energy supply.

North Africa The following section contains observations and comments on the economic and market conditions in North Africa. It also highlights certain data points (e.g., population and GDP) and general economic overviews of the key countries in the region, notably Algeria, Egypt, Libya, Morocco and Tunisia, based on published data and reports from Global Insight (an international economics and research firm) and other global research firms, as well as interviews with market participants. Population growth

Population growth for the countries in North Africa ranged from 0.9% in Tunisia to 2.1% in Libya per year between 2002 and 2009, slightly less than SSA’s population growth of 2.2% over the same time period, but relatively stronger than a majority of other global countries listed below. The table below compares population growth for the North African countries relative to SSA and selected expanding or established economies:

2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E

Average (2002-2009)


Algeria 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.4% 1.5% 1.5%Egypt 1.9% 1.9% 1.9% 1.9% 1.9% 1.9% 1.8% 1.8% 1.8% 1.7% 1.7% 1.7% 1.6% 1.9% 1.7%Libya 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 2.0% 2.0% 2.0% 1.9% 1.9% 1.8% 1.7% 2.1% 1.9%Morocco 1.1% 1.1% 1.1% 1.1% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2%Tunisia 0.9% 0.9% 0.9% 0.9% 0.9% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 0.9% 1.0%

Sub-Saharan Africa 2.4% 2.3% 2.3% 2.4% 1.9% 2.3% 2.2% 2.2% 2.1% 2.1% 2.0% 2.0% 2.0% 2.2% 2.0%

Brazil 1.4% 1.4% 1.4% 1.4% 1.5% 1.5% 1.5% 1.5% 1.4% 1.5% 1.3% 1.4% 1.4% 1.4% 1.4%Canada 1.1% 0.9% 1.0% 1.0% 1.0% 1.1% 1.2% 1.2% 1.2% 0.9% 0.7% 1.0% 0.9% 1.1% 0.9%China 0.7% 0.6% 0.6% 0.6% 0.5% 0.5% 0.5% 0.5% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6%France 0.7% 0.7% 0.7% 0.7% 0.7% 0.6% 0.5% 0.5% 0.5% 0.4% 0.4% 0.4% 0.4% 0.6% 0.4%Germany 0.2% 0.1% 0.0% 0.0% -0.1% -0.1% -0.2% -0.3% -0.3% -0.2% -0.2% -0.2% -0.2% -0.1% -0.2%India 1.7% 1.6% 1.6% 1.6% 1.5% 1.5% 1.4% 1.4% 1.4% 1.3% 1.3% 1.3% 1.2% 1.5% 1.3%Japan 0.2% 0.2% 0.1% 0.0% 0.0% 0.0% -0.1% -0.1% -0.1% 0.0% -0.1% -0.2% -0.2% 0.0% -0.1%Mexico 1.2% 1.1% 1.1% 1.0% 1.0% 1.0% 1.0% 1.0% 0.9% 0.9% 0.9% 0.9% 0.8% 1.0% 0.9%Spain 1.8% 2.1% 1.1% 2.1% 1.4% 1.1% 2.1% 1.3% 1.0% 0.9% 0.7% 0.5% 0.4% 1.6% 0.7%United Kingdom 0.4% 0.4% 0.5% 0.6% 0.6% 0.6% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.6% 0.7%United States 1.0% 0.9% 0.9% 0.9% 1.0% 1.0% 0.9% 0.9% 1.0% 1.0% 1.0% 1.0% 1.0% 0.9% 1.0%


Populat ion (% Change)


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Observation:

► Several North African countries have higher historical and expected future population growth rates as compared to selected expanding or established economies elsewhere throughout the world; however, the populations of the countries in North Africa have more moderate growth expectations than those of SSA.

Economic overview

North Africa’s economic landscape is currently characterized by the following key aspects:

► Algeria’s improving economic outlook – Driven primarily by the pickup in global oil prices, the economic outlook for Algeria is improving, despite tighter rules on governing foreign investment and a recent ban on consumer loans other than for housing. Global Insight expects inflationary pressures to ease in the coming years, with the Algerian dinar depreciating against the US dollar in 2010 before strengthening in 2011.

► Egypt’s robust anticipated recovery and easing inflation – Aligned with the improving international economic outlook, Egypt’s economy is anticipated to expand in 2010 and 2011 as a result of reductions in interest rates in 2009, continued implementation of reforms (privatization and liberalization of the economy) and an improvement in the world economy. Sectors anticipated to benefit include merchandise exports, tourism, Suez Canal revenues and foreign direct investment inflows. Additionally, due to trade reforms, the rate of consumer price inflation in urban areas is anticipated to ease over the coming year. However, key challenges remain for the nation, including low savings, high unemployment and significant poverty rates.

► Libya’s growth from the hydrocarbon sector but with increasing inflation – The rapid decline in international oil prices over the past couple of years led to a slowdown in economic growth in 2009 for Libya, which is anticipated to turn around in the coming years. However, the rate of consumer price inflation is anticipated to increase in the coming year as the government continues to eliminate the state subsidy system and moves ahead with its liberalization program. The nation continues its reliance on oil.

► Morocco’s reliance on agriculture may result in weakening economic performance – The government has strongly supported the tourism and agriculture industries; however, the agriculture sector is anticipated to contract in 2010 before improving again in 2011. In the short-term, Global Insight anticipates Morocco to continue to face risks associated with its dependence on agriculture, though the government hopes to lessen its dependence on agriculture by upgrading and diversifying the farming sector over the next eight to 10 years.

► Tunisia’s robust growth in industrial exports – The Tunisian economy was relatively unaffected by the recent economic recession and Global Insight expects the economy to robustly expand in 2010 and 2011 primarily due to expansionary fiscal policy. However, as the country remains relatively dependent on oil, if oil prices surge, inflation could accelerate. In the mid-term, increased economic integration with the European Union should ensure increased competitiveness in all sectors.

Similar to other expanding economies, the countries of North Africa are anticipated to experience relatively significant GDP growth over the next few years, ranging from 3.7% in Algeria to 5.1% in Libya and Tunisia between 2010 and 2014. The table below compares GDP percentage changes for the North African countries relative to SSA and selected expanding and established economies:


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► There has been a limited effect from the global recession on the North African markets relative to industrialized markets or even SSA.

► Growth in North Africa as a whole is expected to remain relatively stable or decrease slightly for 2010 through 2014 relative to 2004 through 2009.

► Similar to SSA, the mid-term growth potential (through 2014) for the North African countries is significantly stronger than established economies.

► For two of the five North African countries, GDP growth is anticipated to accelerate over the coming years. Algeria, the region’s most established economy, is anticipated to experience average GDP growth of 3.7% between 2010 and 2014, a higher average rate than each of the established economies listed above.

Political landscape

North Africa’s political landscape is currently characterized by the following key aspects:

► Algerian continuity in leadership – Algerians recently voted to remove restrictions on the number of terms a president can serve, voting in favor of stability and continuity in a country with a tumultuous history and reappointing President Bouteflika to a third five-year term and re-affirming his commitment to ending Islamist violence in the nation.

2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E

Average (2004-2009)


Algeria 5.2% 5.1% 1.8% 3.0% 3.0% 2.0% 4.0% 3.5% 3.6% 3.6% 3.6% 3.4% 3.7%Egypt 4.1% 4.5% 6.8% 7.1% 7.2% 4.7% 5.2% 5.8% 5.0% 4.2% 4.0% 5.7% 4.8%Libya 4.4% 10.3% 6.7% 7.5% 3.4% 1.8% 5.3% 5.2% 5.1% 5.0% 5.0% 5.7% 5.1%Morocco 4.8% 3.0% 7.8% 2.7% 5.5% 4.9% 3.8% 4.8% 5.2% 5.1% 5.0% 4.8% 4.8%Tunisia 6.0% 4.0% 5.5% 6.3% 4.6% 3.1% 4.2% 4.6% 5.2% 5.9% 5.5% 4.9% 5.1%

Sub-Saharan Africa 5.5% 5.9% 5.9% 6.5% 5.4% 1.5% 4.5% 5.3% 5.1% 5.1% 5.2% 5.1% 5.0%

Expanding economiesBrazil 5.7% 3.2% 4.0% 6.1% 5.1% -0.2% 6.8% 4.8% 5.2% 5.1% 5.4% 4.0% 5.5%China 10.1% 10.4% 11.6% 13.0% 9.6% 8.7% 10.8% 8.6% 8.2% 8.6% 8.8% 10.6% 9.0%India 8.3% 9.3% 9.7% 9.1% 6.1% 7.6% 8.1% 8.2% 8.0% 7.9% 7.9% 8.4% 8.0%Mexico 4.0% 3.2% 4.9% 3.3% 1.5% -6.5% 4.8% 4.2% 3.7% 3.9% 3.9% 1.7% 4.1%

Established economiesCanada 3.1% 3.0% 2.8% 2.2% 0.5% -2.5% 3.4% 3.1% 3.2% 2.8% 2.6% 1.5% 3.0%France 2.3% 2.0% 2.4% 2.3% 0.1% -2.5% 1.3% 1.4% 1.8% 2.2% 2.4% 1.1% 1.8%Germany 0.7% 0.9% 3.4% 2.6% 1.0% -4.9% 2.0% 1.7% 1.8% 1.8% 1.9% 0.6% 1.8%Japan 2.7% 1.9% 2.0% 2.3% -1.2% -5.3% 3.2% 1.6% 1.5% 1.5% 1.8% 0.4% 1.9%Spain 3.3% 3.6% 4.0% 3.6% 0.9% -3.6% -0.6% 0.4% 1.1% 1.3% 1.4% 2.0% 0.7%United Kingdom 3.0% 2.2% 2.8% 2.7% -0.1% -4.9% 1.1% 1.7% 2.3% 2.5% 2.6% 1.0% 2.0%United States 3.6% 3.1% 2.7% 2.1% 0.4% -2.4% 3.1% 2.7% 3.0% 2.7% 3.0% 1.6% 2.9%


Real GDP growth


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► Egypt’s ongoing threat of political unrest – Efforts to constrain the influence of Egypt’s political Islamist extremists is anticipated to continue, while Egyptian leadership is stressing peace ties with the US. Meanwhile, preparations are underway for the 2011 presidential election, with high speculation that President Mubarak’s son will be his successor. Other signs of improvement include a recent pay increase for public sector employees.

► Libya’s strengthening relations with the US and European Union and reduced threat of terror – Since 2007, Libya has been strengthening its relations with the US and the European Union. Furthermore, the threat of a major terrorist attack is low in Libya, especially relative to its North African neighbors. However, there continues to be instances where the regime’s old guard has shown its willingness to exert influence over decision-making processes, resulting in many questioning the progress of reform in the nation.

► Morocco’s continued struggle with sporadic discontent – In 2007 and 2008, protests of demonstrators occurred over feelings that the government had not addressed their needs relative to rising juvenile crime rates, illegal immigration and Islamic militancy. However, Morocco has been praised as an important ally with the US-led campaign against militant Islamic groups. Furthermore, Morocco’s alliances with both the European Union and the US have enabled leadership to withstand pressure over the Western Sahara dispute (a barrier to political and economic integration in the region).

► Tunisia’s stable economic policies via the president’s hold on power – In 2009, President Ben Ali secured a fifth term in office, signifying that he will continue on his path, staying close to the country’s established economic principles and foreign policies. The unemployment rate continues to remain high with no signs of decline, while poverty rates are improving due to social transfers from government. The nation continues to battle Islamic extremism while strengthening relations with Europe.

Infrastructure

The infrastructure in North Africa is significantly more advanced than in SSA, with several international airports, major railway networks and significant development of paved roadways. Risk profiles

The following chart compares the risk ratings for the countries in North Africa to selected developed and expanding markets around the world:


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Observation:

► Of the North African countries, Global Insight has assigned the highest risk rating to Algeria, Egypt and Libya; however, the risk ratings for these countries are on par with the ratings for Mexico, India, China and Brazil, the global expanding economies. The risk ratings for the North African countries remain significantly below those of SSA nations (with Ghana and South Africa as exceptions).

Algeria 2.98 MediumEgypt 2.82 MediumLibya 2.96 MediumMorocco 2.44 ModerateTunisia 2.23 Moderate

Brazil 2.66 MediumCanada 1.40 NegligibleChina 2.87 MediumFrance 1.71 NegligibleGermany 1.59 NegligibleIndia 2.73 MediumJapan 1.76 LowMexico 2.88 MediumSpain 2.31 ModerateUnited Kingdom 1.80 LowUnited States 1.57 Negligible


Risk Ratings


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Asia The following section contains observations and comments on the economic and market conditions in Asia. It also highlights certain data points (e.g., population and GDP) and general economic overviews of three of the key countries in the region (China, India and Japan), based on published data and reports from Global Insight (an international economics and research firm) and other global research firms, as well as interviews with market participants. Population growth

Population growth for the selected countries in Asia ranged from 0.0% in Japan to 1.5% in India per year between 2002 and 2009, significantly less than SSA’s population growth of 2.2% over the same time period. The table below compares population growth for the Asian countries relative to SSA and selected expanding or established economies:

Observation: ► The selected countries in Asia are anticipated to have consistent or decreasing population growth as compared to historical rates; furthermore, the countries in Asia have

more moderate population growth expectations than those of SSA.

Economic overview

Asia’s economic landscape is currently characterized by the following key aspects:

► Leading the global economic recovery – Due to improving global trade, strong external demand, improving domestic conditions and a powerful inventory cycle, Asia is leading the global economic recovery, with significant growth anticipated in 2010. As of July 2010, real GDP growth for 2010 for the region was estimated at 6.5%, which would be the strongest growth since 1990 for the region.

► Well-contained inflation – Though several Asian countries experienced deflation during the summer of 2009 (due to a collapse in commodity prices), inflation returned to the region by the end of 2009 and early 2010 (except in Japan). According to Global Insight, though inflation will come back into focus for policymakers in late-2010, it is not anticipated to be a key driver for monetary tightening. Inflation for the region is estimated at 2.8% in 2010 and 2.6% in 2011, up from 0.9% in 2009.

2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E

Average (2002-2009)


China 0.7% 0.6% 0.6% 0.6% 0.5% 0.5% 0.5% 0.5% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6%India 1.7% 1.6% 1.6% 1.6% 1.5% 1.5% 1.4% 1.4% 1.4% 1.3% 1.3% 1.3% 1.2% 1.5% 1.3%Japan 0.2% 0.2% 0.1% 0.0% 0.0% 0.0% -0.1% -0.1% -0.1% 0.0% -0.1% -0.2% -0.2% 0.0% -0.1%

Sub-Saharan Africa 2.4% 2.3% 2.3% 2.4% 1.9% 2.3% 2.2% 2.2% 2.1% 2.1% 2.0% 2.0% 2.0% 2.2% 2.0%

Brazil 1.4% 1.4% 1.4% 1.4% 1.5% 1.5% 1.5% 1.5% 1.4% 1.5% 1.3% 1.4% 1.4% 1.4% 1.4%Canada 1.1% 0.9% 1.0% 1.0% 1.0% 1.1% 1.2% 1.2% 1.2% 0.9% 0.7% 1.0% 0.9% 1.1% 0.9%France 0.7% 0.7% 0.7% 0.7% 0.7% 0.6% 0.5% 0.5% 0.5% 0.4% 0.4% 0.4% 0.4% 0.6% 0.4%Germany 0.2% 0.1% 0.0% 0.0% -0.1% -0.1% -0.2% -0.3% -0.3% -0.2% -0.2% -0.2% -0.2% -0.1% -0.2%Mexico 1.2% 1.1% 1.1% 1.0% 1.0% 1.0% 1.0% 1.0% 0.9% 0.9% 0.9% 0.9% 0.8% 1.0% 0.9%Spain 1.8% 2.1% 1.1% 2.1% 1.4% 1.1% 2.1% 1.3% 1.0% 0.9% 0.7% 0.5% 0.4% 1.6% 0.7%United Kingdom 0.4% 0.4% 0.5% 0.6% 0.6% 0.6% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.6% 0.7%United States 1.0% 0.9% 0.9% 0.9% 1.0% 1.0% 0.9% 0.9% 1.0% 1.0% 1.0% 1.0% 1.0% 0.9% 1.0%



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► Increasing private consumption and improving labor markets – Unemployment rates in the region peaked at lower levels than anticipated, with several markets experiencing improving labor markets; this growth is anticipated to result in increased consumer spending in the coming quarters.

The selected Asian countries’ economic landscapes are currently characterized by the following key aspects:

► An anticipated “W”-shaped recovery for China – Given the strong momentum of investment growth and rebound in exports, 2010 growth for China appears supported; however, as other, developed global countries begin to recover from the recession, China’s growth may decelerate beyond 2010. Global Insight estimates China’s real GDP growth at 10.8% in 2010 and 8.6% in 2011, potentially the highest growth rates in 2010 and 2011 in the world.

► India’s strong anticipated recovery and prudent monetary policy – Coming off strong growth in 2009, real GDP growth is estimated by Global Insight to be approximately 8.1% in fiscal year 2010/11 and 8.2% in fiscal year 2011/12, driven significantly by India’s information technology industry and a new wave of economic reform. Furthermore, the Reserve Bank of India has begun tightening monetary policy, increasing reserve requirements and policy interest rates and successfully keeping the exchange rate competitive. Economic expansion is anticipated to continue for the foreseeable future.

► Japan’s sustainable growth but weak overseas demand – Japan’s real GDP increased nearly 5% in the first quarter of 2010 (according to Global Insight), growth driven by exports and domestic spending. Growth is anticipated to slow throughout 2010, but recover again beginning in late-2010. However, the main concern for Japan remains relatively weak levels of overseas demand for exports.

Similar to other expanding economies, China and India are anticipated to experience some of the most significant GDP growth rates over the next few years (8.0% in India and 9.0% in China per year between 2010 and 2014). The table below compares GDP percentage changes for the three Asian countries relative to SSA and selected expanding and established economies:

2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E

Average (2004-2009)


China 10.1% 10.4% 11.6% 13.0% 9.6% 8.7% 10.8% 8.6% 8.2% 8.6% 8.8% 10.6% 9.0%India 8.3% 9.3% 9.7% 9.1% 6.1% 7.6% 8.1% 8.2% 8.0% 7.9% 7.9% 8.4% 8.0%Japan 2.7% 1.9% 2.0% 2.3% -1.2% -5.3% 3.2% 1.6% 1.5% 1.5% 1.8% 0.4% 1.9%

Sub-Saharan Africa 5.5% 5.9% 5.9% 6.5% 5.4% 1.5% 4.5% 5.3% 5.1% 5.1% 5.2% 5.1% 5.0%

Expanding economiesBrazil 5.7% 3.2% 4.0% 6.1% 5.1% -0.2% 6.8% 4.8% 5.2% 5.1% 5.4% 4.0% 5.5%Mexico 4.0% 3.2% 4.9% 3.3% 1.5% -6.5% 4.8% 4.2% 3.7% 3.9% 3.9% 1.7% 4.1%

Established economiesCanada 3.1% 3.0% 2.8% 2.2% 0.5% -2.5% 3.4% 3.1% 3.2% 2.8% 2.6% 1.5% 3.0%France 2.3% 2.0% 2.4% 2.3% 0.1% -2.5% 1.3% 1.4% 1.8% 2.2% 2.4% 1.1% 1.8%Germany 0.7% 0.9% 3.4% 2.6% 1.0% -4.9% 2.0% 1.7% 1.8% 1.8% 1.9% 0.6% 1.8%Spain 3.3% 3.6% 4.0% 3.6% 0.9% -3.6% -0.6% 0.4% 1.1% 1.3% 1.4% 2.0% 0.7%United Kingdom 3.0% 2.2% 2.8% 2.7% -0.1% -4.9% 1.1% 1.7% 2.3% 2.5% 2.6% 1.0% 2.0%United States 3.6% 3.1% 2.7% 2.1% 0.4% -2.4% 3.1% 2.7% 3.0% 2.7% 3.0% 1.6% 2.9%


Real GDP growth


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► While China and India are two of the most rapidly expanding economies in the world, Japan is an established economy that was significantly affected by the global recession.

► Growth in China and India is anticipated to decelerate slightly over the next few years; however, the anticipated growth for these two nations far exceeds the growth expectations of most other global economies.

Political landscape

The political landscapes for the three selected countries in Asia are currently characterized by the following key aspects:

► Political leadership continues populist reform in China, with potential leadership transition – Though President Hu Jintao currently has a strong hold on leadership of China, there is a leadership transition anticipated to occur during the 18th Party Congress in 2012. Even so, the president and Premier Wen Jiabao are continuing to push their reform agenda calling for the “Creation of a harmonious society and a well-off society”.

► India’s new state and shaky peace process with Pakistan – In December 2009, India’s government announced intentions to initiate the process for carving out a separate Telangana state from the central Indian state of Andhra Pradesh, raising hopes and fears among ethnic, religious and cultural minorities in the country. Additionally, due to Pakistan’s slow progress in bringing to justice those that India holds accountable for the November 2008 Mumbai attacks, the progress toward peace between the two nations remains slow.

► Japan’s increasing political instability – With recent Upper House elections on 11 July 2010, the Democratic Party of Japan lost its narrow majority to the Liberal Democratic Party, suggesting increasing political stability as the Democratic Party of Japan struggles to pass legislation and establish new coalition partners. The shift in parties is due to the public’s disappointment with the Democratic Party of Japan, which won a general election victory in August 2009.

Infrastructure

The infrastructure in Asia is generally more advanced than in SSA, with several international airports, major railway networks and significant development of paved roadways, though areas of India and China require significant improvements. Risk profiles

The following chart compares the risk ratings for the three selected countries in Asia to selected developed and expanding markets around the world:


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Observation:

► Of the selected Asian countries, Global Insight has assigned the highest risk rating to China and India, both of which are global expanding economies.

China 2.87 MediumIndia 2.73 MediumJapan 1.76 Low

Brazil 2.66 MediumCanada 1.40 NegligibleFrance 1.71 NegligibleGermany 1.59 NegligibleMexico 2.88 MediumSpain 2.31 ModerateUnited Kingdom 1.80 LowUnited States 1.57 Negligible


Risk Ratings


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Appendix B – Interview questionnaire

Though each interviewee was not able to answer all of the following questions, the following was used as a framework for guiding discussions with respondents:

Company overview

1. Please describe your company’s current portfolio: ► How many properties are included? ► What is their location? Geographic distribution? ► What is the mix between owned and operated versus operated only? ► What brands are included and what is their service-level?

2. Please describe the history of your brand/company in Africa (for new entrants, what is the reason for interest in Africa). ► How has it changed in the last two years? ► How do you foresee it changing in the next five to 10 years?

3. Please describe some of your most recent projects?

► How were the positioning and facility/amenity programs determined? ► Discuss process challenges and lessons learned/opportunities.

4. Please describe your company’s expansion plans for the next five to 10 years.

► Which region(s) is (are) highest priority? ► Have your plans/priorities changed recently?

5. Is your company interested in expanding its presence in Sub-Saharan Africa (developing, operating, investing)? If so, why? (i.e. under what conditions/circumstances)?

If not, why?

6. What are your company’s primary reasons for hospitality investment in Sub-Saharan Africa?

7. Where does developing in Sub-Saharan Africa fit into your company’s global strategy?

8. What is your company’s time horizon for investing in Sub-Saharan Africa? Why? ► 0 – 3 years ► 4 – 6 years

► 7 – 10 years ► More than 10 years

9. From an investor’s perspective, how do you compare English versus French speaking Sub-Saharan Africa?

10. From an operator’s perspective, how do you compare English versus French speaking Sub-Saharan Africa?


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Current market trends and conditions

11. What are the five most mature hospitality destinations in Sub-Saharan Africa? ► What lessons can be learned from these destinations?

12. Which emerging markets within Sub-Saharan Africa show the greatest potential as a travel/hospitality destination? ► Why? ► What steps can be taken to ensure their success?

13. Please describe Sub-Saharan Africa’s key lodging industry trends. ► How do you perceive tourism in Sub-Saharan Africa will evolve in the next five to 10 years? ► How has the current condition of the economy affected the hospitality market?

14. From your perspective, what are the top five constraints relative to hospitality investment in Sub-Saharan Africa vis-à-vis regions in North Africa/Middle East, Asia

(particularly China and India) and established markets (i.e., North America and Western Europe)? Comparison of Sub-Saharan Africa with key markets

15. How do hospitality development and investment opportunities differ between Sub-Saharan Africa and the following regions, along the mentioned attributes:

Sub-Saharan Africa North Africa Asia

Established markets (i.e. North America, Western Europe)

Permits and related costs Are the costs in certain regions X% higher than others; government levies that make costs prohibitive; etc.

Permit approval process Is there less clarity in one region compared to another; the process is much longer/more difficult in one region than another; etc.

Land acquisition cost Are the costs in certain regions X% higher than others; are there much higher government taxes or levies in one region compared to others; is foreign ownership permitted; etc.


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Land development cost (infrastructure) Do developers have to bear the cost of infrastructure in some regions; do certain local governments provide attractive subsidies for development; etc.

Hotel development cost per room What are the typical costs for different service levels/standards of hotels; how do they compare (less by X%) with other regions; etc.

Financing What are the typical financing structures, costs and terms for hospitality projects; how easy is it to acquire financing; what is the availability of local equity partners; etc.

Profitability/ROI What is the typical ROI for hospitality projects; how does this compare to other regions (X% higher or lower); describe recent trends in ROI expectations; how have the ROI expectations changed recently; etc.

Risks (political, investment, security, etc) What are perceived to be the highest risks for each region; how do the risks compare between regions; how do the risks impact the decision to operate/invest in the regions; etc.

Government incentives Are there any special government subsidies that encourage hospitality investment; how do the government policies compare between the regions; etc.


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Public sentiment towards hospitality projects What is the public sentiment towards tourism/foreign investment; is there any local resistance; how does the local public sentiment impact the decision to invest/operate; etc.

Best practices (specific examples by country, as applicable) What specific factors have you identified that encourage and support hospitality investment; what conditions are necessary to promote hospitality investment; etc.

Strengths What are the strengths for each region; how do they compare to one another; how do these impact hospitality-oriented investments/operations; etc.

Weaknesses What are the weaknesses for each region; how do they compare to one another; how do these impact hospitality-oriented investments/operations; etc.

Threats What are potential threats for each region; how do they compare to one another; how do these impact hospitality-oriented investments/operations; what steps may be taken to minimize these; etc.


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Opportunities What are potential opportunities for each region; how do they compare to one another; how do these impact hospitality-oriented investments/operations; what steps may be taken to capitalize on these; etc.

16. How do lodging operations differ between Sub-Saharan Africa and the following regions, along the mentioned attributes:



Salaries and wages Are the salaries and wages in certain regions X% higher than others; is the marketplace competitive (how competitive is it to attract management personnel); etc.

Productivity/number of employees per room Is productivity in certain regions X% higher than others; are there issues of staffing inefficiencies/efficiencies (i.e. employee level of motivation); etc.

Unions and labor laws Describe the labor pool; expectations of optimal labor pool; how is labor organized (unions); are the labor laws supportive/prohibitive (visas, employee housing); is there a qualified local labor pool; how do these factors compare among selected regions; etc.


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Market segmentation What are typical segment percentages - international/domestic; leisure/business/groups – by region; how are the segments different/similar for the select regions; have these market segments been changing or likely to change; etc.

Operating costs What are typical operating costs by line item as a percentage; how are they similar/different among regions; etc.

NOI/profit margins (from operations) What are typical margins; how are they similar/different among regions; etc.

Strengths What are the strengths for each region; how do they compare to one another; how do these impact hospitality operations; etc.

Weaknesses What are the weaknesses for each region; how do they compare to one another; how do these impact hospitality operations; etc.

Threats What are potential threats for each region; how do they compare to one another; how do these impact hospitality operations; what steps may be taken to minimize these; etc.


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Opportunities What are potential opportunities for each region; how do they compare to one another; how do these impact hospitality operations; what steps may be taken to capitalize on these; etc.

Assessment of Sub-Saharan Africa regional categories

17. How do hospitality development and investment opportunities differ between the following countries along the mentioned attributes:

Mature countries (I.e. Mauritius, Kenya, Namibia, Cape Verde)

Emerging countries (I.e. Nigeria, Uganda, Senegal, Ghana)

Borderline-conflicted countries (I.e. Mozambique, Mauritania, Togo)

Conflicted countries (I.e. Zimbabwe, Malawi, Sudan, Lesotho)

Permits and related costs Are the costs in certain regions X% higher than others; government levies that make costs prohibitive; etc.

Permit approval process Is there less clarity in one region compared to others; the process is much longer/more difficult in one region than others; is foreign ownership permitted; etc.

Land acquisition cost Are the costs in certain regions X% higher than others; are there much higher government taxes or levies in one region compared to others; is foreign ownership permitted; etc.


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Land development cost (infrastructure) Do developers have to bear the cost of infrastructure in some regions; do certain local governments provide attractive subsidies for development; etc.

Hotel development cost per room What are the typical costs for different service levels/standards of hotels; how do they compare (less by X%) with other regions; etc.

Financing What are the typical financing structures, costs and terms for hospitality projects; how easy is it to acquire financing; what is the availability of local equity partners; etc.

Profitability/ROI What is the typical ROI for hospitality projects; how does this compare to other regions (X% higher or lower); describe recent trends in ROI expectations; how have the ROI expectations changed recently; etc.

Risks (political, investment, security, etc) What are perceived to be the highest risks for each region; how do the risks compare between regions; how do the risks impact the decision to operate/invest in the regions; etc.


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Government incentives Are there any special government subsidies that encourage hospitality operations; how do the government policies compare among the regions; etc.

Public sentiment towards hospitality projects What is the public sentiment towards tourism/foreign investment; is there any local resistance; how does the local public sentiment impact the decision to invest/operate; etc.

Best practices (specific examples by country, as applicable) What specific factors have you identified that encourage and support hospitality investment; what conditions are necessary to promote hospitality investment; etc.

Strengths What are the strengths for each region; how do they compare to one another; how do these impact hospitality-oriented investments/operations; etc.

Weaknesses What are the weaknesses for each region; how do they compare to one another; how do these impact hospitality-oriented investments/operations; etc.

Threats What are potential threats for each region; how do they compare to one another; how do these impact hospitality-oriented investments/operations; what steps may be taken to minimize these; etc.


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Opportunities What are potential opportunities for each region; how do they compare to one another; how do these impact hospitality-oriented investments/operations; what steps may be taken to capitalize on these; etc.

18. How do hospitality operations differ between the following countries, along the mentioned attributes:

Mature countries Emerging countries

Borderline-conflicted countries

Conflicted countries

Salaries and wages Are the salaries and wages in certain regions X% higher than others; is the marketplace competitive (how competitive is it to attract management personnel); etc.

Productivity/number of employees per room Is productivity in certain regions X% higher than others; are there issues of staffing inefficiencies/efficiencies (i.e. employee level of motivation); etc.

Unions and labor laws Describe the labor pool; expectations of optimal labor pool; how is labor organized (unions); are the labor laws supportive/prohibitive (visas, employee housing); is there a qualified local labor pool; how do these factors compare among selected regions; etc.

Market segmentation What are typical segment percentages - international/domestic; leisure/business/groups – by region; how are the segments different/similar for


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Mature countries Emerging countries

Borderline-conflicted countries

Conflicted countries

the select regions; have these market segments been changing or likely to change; etc. Operating costs What are typical operating costs by line item as a percentage; how are they similar/different among regions; etc.

NOI/profit margins (from operations) What are typical margins; how are they similar/different among regions; etc.

Strengths What are the strengths for each region; how do they compare to one another; how do these impact hospitality operations; etc.

Weaknesses What are the weaknesses for each region; how do they compare to one another; how do these impact hospitality operations; etc.

Threats What are potential threats for each region; how do they compare to one another; how do these impact hospitality operations; what steps may be taken to minimize these; etc.

Opportunities What are potential opportunities for each region; how do they compare to one another; how do these impact hospitality operations; what steps may be taken to capitalize on these; etc.

Types of hospitality products

The following questions pertain to service standards and chain scale of hotels; where one-star stands for budget/economy, such as youth hostels and motels and five-star stands for luxury hotels/resorts, such as Ritz Carlton, St. Regis and Four Seasons.

19. What lodging chain scale (one-star to five-star) currently performs the strongest in Sub-Saharan Africa?


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► Why?

20. Which chain scale has the potential to perform the strongest in Sub-Saharan Africa over the next ten years? ► Why?

21. Please provide the percentage distribution of the current supply of lodging properties in Sub-Saharan Africa (total should add to 100%). ► One star ► Two stars ► Three stars ► Four stars ► Five stars

Geographical concentration

22. Please describe the opportunities along the following attributes within Sub-Saharan Africa:

Budget (i.e. economy, youth hostel)

Eco-tourism lodge Resort Business/group hotel

Potential to develop What are development trends by property type; is one type in more demand versus another; etc.

Performance (current and future) What are performance trends by property type (ADR, occupancy, RevPAR); does one type perform better/worse than others – why; how are the performance trends likely to change in future; etc.

Brands What are successful brands for each property type; why are they popular; what international brands (currently not in Sub-Saharan Africa) are likely to be a good fit and why; etc.

Profitability (current and future) What are typical NOI/profit margins by property type; how do these compare to each other (X% higher or lower); describe


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Budget (i.e. economy, youth hostel)

Eco-tourism lodge Resort Business/group hotel

recent trends in NOI/profit margins; how are they likely to change in the future; etc. Most important amenities, facilities and service offerings (current and future) Are offerings different in one region of Sub-Saharan Africa compared to more established hospitality regions; are offerings likely to change in the future; etc.

Strengths What are the strengths for each property type; how do they compare to one another; etc.

Weaknesses What are the weaknesses for each property type; how do they compare to one another; etc.

Threats What are potential threats for each property type; how do they compare to one another; what steps may be taken to minimize these; etc.

Opportunities What are potential opportunities for each property type; how do they compare to one another; what steps may be taken to capitalize on these; etc.

Ownership and operating structure

23. What is the more prevalent ownership structure for lodging products across Sub-Saharan Africa? Which is more preferable? ► Wholly owned property


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► Joint venture 24. What is the more prevalent operating/management structure for lodging products across Sub-Saharan Africa? Which is more preferable?

► Owner operated ► Third-party management

Investment criteria

25. What are your company’s top five investment criteria for investing in Sub-Saharan Africa (i.e. - ROI, availability of workforce, government incentives, stability, development costs; etc.)?

26. What steps could governments take to incentivize hospitality investment in Sub-Saharan Africa?

Rating questions

27. What are the perceptions of the following regions from an investor’s point of view? Please rate 1 to 4 (1 = high; 4 = low). ► Sub-Saharan Africa ► North Africa ► Asia ► Established markets (i.e. North America, Western Europe)

28. What are the perceptions of the following regions from a visitor’s point of view? Please rate 1 to 4 (1 = high; 4 = low). ► Sub-Saharan Africa ► North Africa ► Asia ► Established markets (i.e. North America, Western Europe)

29. What are the perceptions of the following regions of Sub-Saharan Africa from an investor’s point of view? Please rate 1 to 4 (1 = high; 4 = low). ► Central ► South ► East ► West

30. What are the perceptions of the following regions of Sub-Saharan Africa from a visitor’s point of view? Please rate 1 to 4 (1 = high; 4 = low). ► Central ► South ► East ► West

Barriers to entry

31. Please rank the following risk factors based on how they affect your decision to invest in Sub-Saharan Africa. (Ranking is relative, with 1 = highest risk; 7 = lowest risk).


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► Political unrest ► Security ► Lack of well established travel infrastructure ► Lack of available financing/equity partners ► Lack of an established destination/limited awareness ► Lack of a qualified workforce ► Lack of local demand generators

32. Please rank the following benefits based on how they affect your decision to invest in Sub-Saharan Africa.

(Ranking is relative, with 1 = most beneficial; 7 = least beneficial). ► Government incentives ► Political stability ► Profitability/ROI ► Ease of financing/availability of equity partners ► Existing/potential demand generators ► Security ► Existing/proposed travel infrastructure


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Appendix C – Companies interviewed

The following 10 investors and developers were interviewed:

► Actis Real Estate ► Albus Capital Holdings ► AREA Property Partners ► Camden Hospitality Group ► Dawn Properties Limited ► Greenhill Investments Limited ► Hyprop Investments Limited ► Kingdom Hotel Investments ► Lonrho Hotels ► Nova Capital Partners The following 13 operators and hotel companies were interviewed:

► Accor Hotels ► &Beyond ► Best Western International ► Fairmont Raffles Hotels International ► Four Seasons Hotels & Resorts ► Golden Tulip West Africa Limited ► Hilton Worldwide ► Hyatt Corporation ► Marriott International ► Protea Hotels ► Rezidor Hotel Group ► Southern Sun ► Starwood Hotels & Resorts Worldwide The following three strategic advisory and government entities were interviewed:

► Namibia Ministry of Environment and Tourism ► Trade and Investment KZN ► W Hospitality Group

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