Nigeria may have the largest economy on the African continent, with a population of 195m, but the country has not been an easy market for many SA retailers, developers and real estate funds that have tried to cash in on its seemingly unlimited expansion potential.
Often those who entered Nigeria in recent years were forced to exit or reassess their business strategies.
But the experience of SA hospitality group Bon Hotels, which was founded in 2012 by Cape Town-based hotelier and entrepreneur Guy Stehlik, has been different.
The company expanded its SA interests to Nigeria two years ago, when it acquired a 28-room hotel, which was extended and rebranded Bon Hotel Abuja. Its portfolio of Nigerian-managed hotels has since grown to 26 across 14 cities, most of which are sized at between 40 and 120 rooms. Other hotels are still under construction.
Stehlik decided to enter Nigeria at the end of 2015 — a time when SA’s hospitality industry was struggling.
"Back then, SA hotel occupancies and revenues were under pressure on the back of the tourist visa debacle, the Ebola crisis and negative investor sentiment. So we didn’t see strong growth opportunities for our brand in SA at the time," says Stehlik.
He identified a gap in Nigeria’s midmarket hotel sector. "Existing products were either pricey, huge, five-star international hotels or basic, unbranded establishments. We saw a gap for our model, which is an affordable, full-service offering, typically a three-or four-star product."
However, the timing of Bon Hotels’ entry into Nigeria in 2015-2016 coincided with a shift in the country’s growth outlook on the back of the oil and commodity price slump. That was followed by wild swings in the local exchange rate, which increased Nigeria’s currency risk for foreign investors.
Stehlik pushed on regardless. The strategy has paid off handsomely, as it allowed Bon Hotels to become a dominant player in a short time. Stehlik says Nigeria’s economic downturn benefited Bon Hotels because there was less competition, making it easier for the group to sign management contracts.
Stehlik’s experience as a rescue and turnaround specialist also stood him in good stead, as some inexperienced developers who had entered Nigeria before the downturn ran out of money and were left with half-completed or struggling hotels. "That gave us the opportunity to reposition a number of existing hotels," says Stehlik.
The hotels have occupancies well above 70%, which Stehlik says compares with an average of 50%-60% in SA. The company targets domestic corporate travellers (80%), and international and inter-regional business travellers make up the rest.
Stehlik says Nigeria’s recovery is now well under way on the back of a stronger oil price, which has supported greater demand. Stehlik refers to latest figures from hospitality research group HTI Consulting, which places Lagos in Nigeria as the top city in Africa in terms of hotel occupancy growth in the year to date at 14.8%. "Abuja is not far behind," he says.
Stehlik concedes that Nigeria is still not risk free — corruption and political uncertainty remain issues, with the latter likely to increase in the run-up to elections next year.
"But the long-term investment case for Nigeria is [positive] if one considers its strong outlook for economic and population growth," he says.
Stehlik says he chose Nigeria for the group’s African expansion trail by tapping into the knowledge of his father, Otto Stehlik, a Bon Hotel board member and the founder and former chair of Protea Hotels, who pioneered its expansion into Nigeria back in the 1990s before it became fashionable for SA companies to move into the rest of Africa.
Figures released last week by London-based research consultancy Capital Economics confirm that Nigeria’s economy is on the rebound. The country’s GDP growth rate has accelerated from a contraction of -2% in late 2016 to 2% in the first quarter (year on year). Though that is still way below the 6% achieved in 2015 and lower than Bloomberg’s 2.6% consensus forecast for the first quarter,
Capital Economics economist John Ashbourne believes growth will strengthen later this year.
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