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The staggering walks of the hospitality sector

The staggering walks of the hospitality sector

David Desta is an Associate of JLL, a financial and professional services firm specializing in real estate services and investment management. Closely watching Ethiopia’s hospitality sector and beyond, David previously worked as an assistant director of Operations and Business Analytics with Kuriftu Resort. The Reporter converses with him as he reflects on the current status of the tourism sector and what the future holds for the hospitality industry.

How do you assess the current performance of Ethiopia’s hospitality industry? Do you think it is recovering from the impacts of COVID-19?

The hospitality industry is still struggling to cope with the sharp decline in tourist arrivals and lost business as a result of the pandemic. Once tourist arrivals data is released by the MoCT, it would not be shocking to see arrivals drop below 200,000. 

When comparing the first half of 2019 versus 2020, arrivals decreased by 65% showcasing how detrimental the pandemic has been to Ethiopia and the rest of the world.

The wider Addis Ababa hotel market is still operating at low levels of occupancy – probably in the low 20 percentile range – and I believe that this will continue well into 2021 until business and leisure travel picks up again.

How long will it take for the hospitality sector to fully recover? What should hotels and other hospitality market players do to minimize the impacts of COVID-19?

It is still not clear when travel will return but once the vaccine is widely distributed and travelers have the confidence to fly, you can expect to see some recovery. As you have seen, many nations are undergoing lockdowns and travel restrictions are still in effect due to the new strains that are being identified.

Hotels should revisit their operations and find ways to ensure they continue to generate revenue from various services. We have seen several hotels joining food delivery platforms to offer their food and beverage services to potential clients staying at home, promoting their lobby spaces as coworking spaces, and even providing extended stay guests with discounted room deals to maintain some sort of revenue and cash flow.

A trend that has proven popular in Europe is the increase in “staycations” – a holiday spent inside the country rather than abroad. Travelers have decided to spend their holidays near their home or drive to their destination, rather than flying abroad.

As we stated in our recent JLL Spotlight on Ethiopia on the hotel sector, domestic holidays can be a key driver for hospitality businesses located outside of Addis Ababa. But it is important that properties invest in promoting and offering new experiences to guests. The whole concept of catering only to international travelers needs to change. 

The domestic market will be the key for the recovery, but properties need to be realistic with their product pricing and marketing initiatives.

The key is to ensure that properties can be creative and attract clients back into their properties either by offering their property services to Addis Ababa residents or by highlighting their safety protocols.

What policy and administrative measures are expected from the government to mitigate the impacts of COVID-19 on the hospitality sector?

Despite the financial assistance that was provided by the NBE earlier in 2020, it is not clear what other measures have been provided by the government to help support the hospitality sector including tour and travel operators, restaurants, bars, and hotels. The brief tax holidays proved to be helpful in the short-term but are not viable moving forward.

It is important to note that the wider business community beyond the hospitality industry is feeling the effects of the pandemic, but I am sure the government is doing its utmost best to support the key drivers of the economy. Hopefully, they will provide some insight on plans to support the industry which supports thousands of jobs throughout the country.

Do you think COVID-19 will have an impact on pending agreements between chained hotels and developers in Ethiopia?

There is no doubt that hotel developers and brands have been in contact throughout the pandemic to see what the status of these new properties are. Nonetheless, this might be a blessing in disguise for some developers who have been struggling to secure financing for the completion of their properties.

Keep in mind that Ethiopia currently has upwards of 21 internationally branded hotels under development which in theory could add around 4,300 rooms. Despite this impressive pipeline, it is highly unlikely that all these properties will open. We can expect to see many brands and operators looking at the opportunity to clean up their portfolio and focus on specific key assets in the market.

While we have noted several upside drivers for demand, there is unlikely to be the required demand to sustainably absorb all these rooms. This was highlighted by the reasonably high impact (400bps) on occupancy in 2019 following the entry of 561 new rooms in the Ethiopian Skylight Hotel and Hyatt Regency.

What do you think of the security situation in Ethiopia and its impact on the sector?

Based on our observations, the security situation and political uncertainty in Ethiopia have impacted leisure travelers that were expected to visit during the months of November, December, and January – the peak season for Ethiopian tourism. Several hotels and tour operators have stated that cancellations increased after the military engagement announced at the beginning of November.

With situations of civil unrest occurring throughout Ethiopia nearby major tourist destinations, ensuring peace and security will be vital to restarting tourism.

How do you see the recent attempts made by the federal government to construct parks and resorts in different areas? Some say that this should have been left to the private sector, while the government should have focused on building key infrastructure and utilities along tourist attraction sites?

I don’t believe that this is entirely true. Regarding the Entoto Natural Park, the government built the infrastructure and utility aspects of the project such as roads, electricity, water lines, and telecommunications, whereas the tenants of the park built their own facilities. This Public-Private Partnership, even though the details of the arrangement are not yet clear, has proven key in developing new attractions for visitors. I believe that the tenants in return will begin paying leases to use the land in which they built their properties.

For the upcoming Koysha, Wenchi, and Gorgora projects, I think the same approach is being considered with the government providing the infrastructure and private developers constructing the hospitality assets. 

I don’t think it is the primary focus of the government to build and manage hospitality assets but rather provide the building blocks for private investors to add value to these areas through their products and services.

Tourism Ethiopia just recently earmarked several tourist destinations nearby national parks and other attractions for the investment of hotels or resorts by private investors. It should be the responsibility of the regional governments to build the necessary infrastructure, whereas interested investors will build the lodging and hospitality components. 

In return, the government will be able to benefit from long term land leases and tax revenues generated from the operations.

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