By Prof. Mthuli Ncube, Managing Director, Head of Research, Quantum Global Group
According to a United Nations population report, it is anticipated that by 2050, more than half of the world’s population growth will be in Africa. The African Development Bank (AfDB) anticipates that Africa’s middle class will reach 1.1 billion by 2060. This rise of a substantial middle class across Africa brings at the same time an insatiable taste for modern infrastructure and consumption. The increase in consumer spending power from the younger, modern and more middle class consumer, means a broad appetite for services from the entertainment, leisure and hospitality industry. With it will come the demand for the types of hotels that you may expect to find only in more developed economies such as the United States, Europe or Asia. Whether it is exquisite room, spa facilities, excellent cuisines – or meetings, wedding venues and other special events, Africa’s growing urban populations are pursuing places to entertain, work and socialise. But how are Africa’s Private Equity hotel investors benefitting from the continent’s growing and evolving demographic?
Strong local demand
As the commodity price downturn continues to claim casualties across the continent, countries such as Zambia are benefitting from a combination of a growing tourism sector and rising urban population. According to the United Nations World Populations Prospects, Zambia’s population is estimated to be over 17 million with an annual growth rate of 3.3%. Much of Zambia’s population is concentrated around Lusaka in the south and the Copperbelt Province in the northwest. With 44% of the population concentrated in a few urban areas, this marks Zambia one of the most urbanised countries in sub-Saharan Africa. The country offers competitive operational costs as well as a motivated English speaking labour force making it an attractive investment destination, particularly for private equity investors such as Quantum Global Group. Through its 500 million USD investment vehicle which capitalises on emerging opportunities and prime assets in Africa’s hospitality sector, Quantum Global acquired the city landmark InterContinental Hotel Lusaka, which is situated at a prime location in Zambia’s capital. In view of both international tourism as well as the rising local demand, the hotel boasts various facilities and offers significant repositioning and expansion potential, as well being centrally located in the country’s largest urban centre.
Despite the decline in commodity prices, Ghana’s hotel sector has also remained resilient. The country has a population of around 29 million people, 53.9 % of which is urban. The World Travel and Tourism Council (WTTC) expects the hotel industry in the country to maintain an annual growth rate of 5.1% from 2017 to 2027. Located in the central business district, the Mövenpick Ambassador Hotel Accra is one of the largest hotel and mixed used properties complemented with retail, extensive office and conference facilities. Ghana’s hospitality sector is poised for further growth, from the growing impact of the country’s growing and urban population.
A strong Africa has a strong and growing international consumer base and an even stronger domestic market becomes even more promising in Africa’s most populated country, Nigeria, (population of over 190 million). Since the mid-eighties, Nigeria has maintained an annual population growth rate of around 2.6% and by 2050, it is projected to be the third most populated country in the world. Lagos is the biggest city and counts 9 million residents. According to Jumia Travel Hospitality report on Nigeria, not only does 1 out of 5 Africans live in Nigeria, but the local hotel and tourism industry contributes 4.8% to Nigeria’s Gross Domestic Product in 2016. A majority of this income derived from domestic spending as opposed to foreign income spending. In addition, the hotel and tourism sector employed about 1.6% of Nigerians in the year 2016 – indicating a strong correlation between population, urbanisation and the hospitality sector.
Africa’s demographic dividend
This conjecture is supported in Allianz’s report on Demography as an Investment Opportunity, which sees the rise in the global population, and particularly in emerging economies, as characteristic for “dynamic economies” and an opportunity for investment. According to the report “Demography is a global trend with long-term implications. Countries in Africa or countries such as India are expected to benefit from a demographic dividend due to their population growth and their young demographic structures.” In addition to the size of a population influencing economic performance, population age can also play a huge role as it affects economic behaviour. Africa should benefit from both factors having a very young population (the Allianz report categorises this as 15-65 year olds) which means that in working and savings age and thus more likely to add value and strength to their respective economies.
The trends surrounding African investment drivers are increasingly discussed. Africa’s demographic profile is in particular continuing to offer opportunities for Private Equity investments, particularly in the hospitality sector. A recently launched tool called the Africa Investment Index (AII) piloted by Quantum Global Group uses the demographic factor (size of population) in addition to growth, liquidity, risk, business environment and social capital factors to guide investors on the most attractive investment destinations. The AII enables hospitality investors who recognise the growing influence of demographics on hotel investments, to determine how the size of a population will affect their choices when it comes to hotel investments (among other sectors). Ghana, Zambia and Nigeria are all countries listed high up in AII’s demographic factor ranking, validating them as ideal investment destinations for investors.
By 2050 the global population is expected to increase by a further 30%, although Europe, Russia and Japan’s populations will continue to decline. This demonstrates a clear opportunity for investors, specifically where Africa’s growing and urban population are concerned. While most scenarios forecast Africa’s population growth to have a negative effect on the continent’s GDP, investors could well face a “perfect storm” in the positive sense for hotel investments in Africa’s growing urban centres.
With the evidence which suggests that demography is an important component of an economy’s growth and investment potential (as the AII’s demographic factor demonstrates), in combination with the potential that Africa’s hospitality sector has for creating jobs and meeting cultural demands, hospitality investors for one should certainly celebrate Africa’s growing population.
Source: Africa Global Funds