Africa’s growing middle class makes it attractive to hospitality groups

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Many countries in Africa are beginning to realise the value of moving away from a single focus in their economies…

In recent years, the international business community has looked to the promise of growth through doing business in Africa, the world’s last frontier for the development of new business opportunities.

The previous focus on China as the place to be is now waning, and the new concentration on Africa is evident.

However, there are major risks for businesses in an emerging-market environment such as the countries in sub-Saharan Africa. Two of the most significant are the fluctuations in the value of local currencies against international currencies such as the dollar, and the dependency many states in Africa have traditionally had on commodities.

When commodity prices fall, currency volatility often also hits the country; this explains the instability of recent years in the currencies of countries such as SA, Zambia, Ghana, Angola and Nigeria. But, when a country pegs its currency to an international currency, as is the case in some Francophone states in West Africa, which are pegged against the euro, currency instability is less likely to arise.

Many countries in Africa are beginning to realise the value of moving away from a single focus in their economies. So, although it’s the region’s biggest oil exporter, Nigeria has significantly diversified its economy, with construction, film, services, transport and retail playing a big role in the country’s GDP.

As the International Monetary Fund indicated in 2016, “medium-term growth prospects remain favourable” in many parts of the continent, largely because the factors that facilitate growth, such as an improved business environment, remained in place.

Those more open to private-sector involvement — such as in Rwanda, Kenya and Nigeria — have seen the growth of a wealthier middle class, and these are people with the means and the need to travel.

The value of local businesses partnering with global corporations must also be highlighted: the local partner’s understanding of the business environment and legal issues in the country will certainly assist the corporation to establish itself in the country.

A significant issue for the hospitality sector is the huge size of the population on the continent, as well as in the growth of a middle class in some states.

So, while both currency fluctuations and a sustained low oil price are factors of concern, there are other signs that suggest economic growth potential, and consequently make countries attractive to international hospitality groups.

The Harvard Business Review has highlighted the resilience of an economy as a gauge for international business investors. A range of factors point to a resilient economy: strong human capital, stable democratic systems, low dependence on commodities as is the case in East Africa and the strength of regional currencies that are pegged to an international currency. In addition, the huge size of the population on the continent suggests great potential for future business.

Despite some challenges for the business environment in Africa, the future remains positive, and the hotel industry is certainly poised for growth on the continent.

• Bryer is the director of sales, marketing and revenue management at Protea Hotels by Marriott

 

(Businesslive)

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