The hospitality sector continues to outperform the rest of the economy in Nigeria.

The hospitality sector continues to outperform the rest of the economy in Nigeria.

Despite the economic problems the hotels and hospitality industry in Nigeria, especially in the capital city Lagos, is attracting investors both domestic and foreign.

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Background

An economic recession is currently looming large in Nigeria, with a number of key economic indicators predicting both negative growth and a rise in the inflation rate in 2016. The drop in the price of crude oil, the devaluation of the Naira as well as the global slowdown and struggling manufacturing sector, are considered by many to be the key factors that are principally responsible for the pending recession.

Whilst the news appears to be all bad in the wider economy, the hospitality industry is currently bucking the trend by delivering a significant increase in the number of hotel bookings, the industry is in fact currently predicted to grow by up to 5.4% in 2016.

In Q3 of 2015 the accommodation and food services industries performed really well and actually increased its GDP contributions by 5.24%. This has given a number of key investors reasons to be optimistic however the governor of the Central Bank of Nigeria reiterated at the end of 2015 that in spite of these positive numbers and further predictions of growth, the country must still prepare itself for some difficult economic times ahead because “the overall economic environment remains fragile. The economy further slowed in the second quarter of the year, making it the second consecutive quarterly less-than-expected performance.”

Investment and Construction

Over the last 3 years over $3 billion has been invested in Nigeria, in part driving a massive increase in the number of new hotels currently being built across Nigeria, largely in Lagos. These include well known large hotel chains as well as smaller luxury boutique hotels, all of whom believe that there is a huge customer demand and therefore a massive opportunity.

Nigeria currently has the largest number of planned hotels in the pipeline of any African country, as a result hotel construction can be seen everywhere across Lagos. A number of developers have however warned against complacency saying that there is likely to be a significant gap between what is currently planned and what is actually delivered, as funding can often be a major problem. Construction delays are very common in Nigeria, in fact a fairly standard delay on a new construction is 4 years.

Outlook

The managing director of Jovago, Africa’s No.1 hotel booking website recently said, “The hospitality industry has faced a lot of challenges this year but it is a tremendously resilient sector. Despite a number of regional incidents, the industry has still grown faster than the GDP by about 1 percent. With this in mind, we are optimistic about its ability to compete on the international stage, adapt and succeed. There are more investments being made in the deployment of ICT and e-commerce is playing a key support role so although the yields may not be as high it has the capacity to be, but we are still likely to see some improvements in the sector,”.

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