Transformaciones neoliberales

This section seeks to outline some of the key strengths, opportunities, constraints and challenges as they relate to developing (e.g., obtaining land and permits and actual construction of) hospitality products in SSA.

Strengths/Opportunities Constraints/Challenges

• Relative to other real estate asset classes, more government incentives for hospitality products – Though few examples were provided by respondents, some indicated that there are typically more government incentives available for hospitality developments versus other real estate asset classes as hospitality developments are viewed as contributing more to society than other types of real estate developments. One respondent indicated that Zimbabwe, for example, offers lower duties for importing construction materials for hospitality

developments, while another indicated that Tanzania provides waivers of duty fees, but the waivers are difficult to obtain due to government bureaucracy.

• International brands may facilitate permit process – Some respondents indicated that, though obtaining a permit is one of the most difficult steps in the development process due to government corruption, having an international brand associated with a development may facilitate the permit process as the project may be more appealing to local governments.

• In general, land costs are less expensive than other parts of the world –

Notwithstanding obtaining significant parcels of land in large urban centers in SSA, where land can be expensive, most respondents indicated that land (particularly land outside of large cities) in SSA is less expensive than many other parts of the world. Respondents indicated that land in the major cities in India, for example, can cost millions of dollars per acre, if such space is available. Other respondents indicated that land prices in Asia are beginning to become prohibitively expensive.

• Lower construction labor costs than in other areas of the world – Though most respondents indicated that the cost of construction materials in SSA can be higher than other parts of the world (due to the need to import a significant amount of construction materials and hotel finishes), the labor associated with developing a hotel in SSA is significantly lower than in many other markets around the world (primarily as compared to more established hotel markets, such as the US or Western Europe). The result is that total development costs in SSA for hotels are relatively comparable to the development costs in the United States. Some respondents indicated that developers are increasingly turning to construction companies from China for even more inexpensive labor and less expensive materials and equipment.

• Weak or lack of process for obtaining permits – Some respondents indicated that a key challenge related to developing real estate in SSA is the lack of a defined process for obtaining permits, often resulting in corruption to speed the process.

• Corruption at several government levels – All respondents indicated that corruption at several government levels in most countries is a significant barrier to hospitality development. In general, most of the discussions surrounding corruption involved obtaining permits for development, and primarily focused on the speed at which such permits can be obtained. Though obtaining permits in many locations throughout the world is a challenge, in some cases in SSA, permits can take as long as two years (though sometimes shorter) to obtain (with some respondents indicating that construction often commences prior to obtaining the appropriate permits); in response to the lengthy timeframe for obtaining permits, many developers resort to bribery to obtain the permits faster (which can add 10% to 15% onto the total development cost; other times corruption can be tied to sharing the returns earned on a project with top government officials). One respondent indicated “The (permit approval) process is horrible…but if you know the right people, it can be very quick.” The primary reason for the long timeframe for obtaining permits, according to respondents, is the lack of internal communication between governmental departments and the layers of bureaucracy and signatures required to obtain the permits. As several (particularly international) players refuse to perpetuate the corruption, some respondents re-emphasized the need to identify local partners or advisors who may have the contacts and knowledge to speed up the permit process;

other respondents indicated that if a developer or investor is willing to be patient, corruption can be avoided. Angola, Kenya and Nigeria were cited by respondents as having significant corruption issues.

• Lack of development execution and project management expertise – Approximately 25% of respondents indicated that lack of development execution and project management expertise in SSA is one of the top five constraints of hospitality development in the region. Some respondents indicated that, in general, the region lacks skilled project managers, architects, interior designers and contractors, requiring developers to hire experts from

Strengths/Opportunities Constraints/Challenges other global regions, often resulting in increased expenses.

• Lack of clarity around land ownership in Zimbabwe – The Indigenization Law went into effect in March 2010 requiring all foreign-owned businesses to sell 51% of their shares to Zimbabweans. Some respondents and news sources have indicated that this law is likely to do further damage to Zimbabwe’s economy, which is already characterized by rising inflation and political uncertainty. There is also a lack of clarity around how this affects land ownership in Zimbabwe by foreign investors and is anticipated to inhibit future foreign investment.

• Land can be expensive in certain markets – Though respondents indicated, in general, land is less expensive in SSA than in other parts of the world, prices fluctuate widely and can be expensive in certain markets. Respondents indicated that land prices can vary from US$100,000 per acre outside of major cities to over $1 million per acre in major cities, with Angola and Ghana cited as two of the most expensive countries for obtaining land. Kenya was also cited by a respondent as experiencing significant increases in land prices over the past few years. Most respondents indicated that land prices in Angola are significant and, somewhat, prohibitive. In general, respondents indicated that the total cost of land should be approximately 10% to 15% of the total development budget for a project to be financially successful.

• Concern over enforceable contracts – Some respondents indicated that, due to lack of enforcing laws in some locations, even obtaining a contract to purchase land or develop a project may not be enforceable.

• Difficulty securing land titles – Approximately 35% of respondents indicated that land title issues and successfully securing a marketable title on land is one of the top five constraints to developing hospitality products in SSA. Some respondents indicated that it is difficult to accurately prove land/title ownership and that counterfeit land permits are common throughout many countries in SSA. These situations, according to respondents, are most frequent in countries where land is owned by tribes or is communal. The situation is slightly better in countries where the government controls the land, such as Botswana,

Mozambique, Zambia, Malawi and Uganda where the government owns the land and grants 99 year leases to developers, though obtaining the proper titles and approvals remains difficult. Given the widespread use of counterfeit titles, one respondent indicated that in Lagos, land owners will post signs on the land indicating that it is not for sale for fear of an unauthorized sale occurring.

• Difficulty in altering zoning – As in much of the world, altering zoning can be difficult in SSA, furthering the use of corruption to speed up the process. One

Strengths/Opportunities Constraints/Challenges

zoned and it can take up to two years to change the zoning; the length of time can be significantly shortened through bribery.

• Infrastructure challenges increase development costs – Lack of adequate infrastructure was the third most frequently indicated risk factor for developing hospitality products in SSA (behind political unrest and security risks). In general, all respondents indicated that infrastructure was a challenge in most areas of SSA. Developers are often required to install power stations, generators, water/sewer systems, etc., as well as develop roads to the

development. The cost of infrastructure development typically adds 10% to 15%

to the total development cost, according to respondents. Respondents did, however, indicate that infrastructure improvements are being made in some countries. South Africa, Zimbabwe and Namibia were cited as examples.

• Developers are often required to import construction materials and finishes – Given the lack of construction materials and hotel finishes (e.g., case goods, soft goods, etc.) in SSA, most developers must import a majority of products, which can add significant costs and time to a project. One respondent indicated that even when products arrive in the country where the development is taking place, the materials can be tied up in customs for several months, and once the materials clear customs, the challenge is lack of roads and other infrastructure to quickly move the materials to the construction site. Approximately 20% of respondents indicated the need to import materials is one of the top five constraints to hospitality development in SSA.

• Longer development timeline than in other parts of the world – Given the struggles related to obtaining financing, obtaining permits, finding experienced local partners, importing materials and finding adequate skilled project management and experts, most respondents indicated that the hotel

development process takes longer in SSA than in other parts of the world. One respondent indicated that the total timeline to develop a mid-market hotel in Ghana was five years, while another indicated a timeframe of nine years to develop a standalone hotel in an undisclosed location.

• High hotel development costs in some countries – In general, respondents indicated that the cost to develop a hotel in SSA is greater than in other parts of the world (see data on the following pages comparing development costs in SSA to other parts of the world). Additionally, respondents indicated that

development costs in Nigeria (upwards of US$400,000 per room for a mid-market hotel), Angola (greater than US$400,000 per room for a mid-mid-market hotel) and Ghana (upwards of US$250,000 per room for a mid-market hotel) can be more significant than in other parts of SSA due to corruption, the

Strengths/Opportunities Constraints/Challenges increased need to develop infrastructure and import duties.

Comparison to other markets

The following table indicates (based on interviews and EY’s experience in and knowledge of the regions) several key characteristics related to this stage of hospitality development, as well as a rating for each characteristic in each geographic region (i.e., SSA, Middle East/North Africa, Asia and mature markets, such as the US and Western Europe) from 1 to 5, with 1 representing qualities of the region that are most unfavorable relative to hospitality development and 5 representing qualities of the region that are most favorable relative to hospitality development.

Category Sub-Saharan Africa Middle East/North Africa Asia Mature markets

Development

Obtaining permits and approvals (costs and process)

1 3 2 3

Land acquisition (cost and ease) 3 3 2 2

Securing land title 1 3 1 5

Alteration of zoning 1 2 1 2

Infrastructure development 1 2 3 4

Hotel development costs 2 2 2 2

Development timeline 2 2 3 3

Observations and gaps:

► Though land acquisition prices are somewhat lower in SSA than in other parts of the world, the overall development process in SSA is more challenging.

► Key challenges related to developing hotels in SSA include obtaining permits and approvals, securing land titles, changing zoning and the overall length of the development timeline. In addition, as opposed to other global markets, a significant amount of infrastructure is typically required to develop hotels in SSA, which is typically funded by the developer.

► Some respondents indicated that though corruption is relatively widespread in SSA, it is also prevalent in other parts of the world (India was cited as an example, where obtaining a permit can be equally as challenging).

► Some respondents indicated that the permit approval process in the US and Western Europe is easier and quicker than in SSA.

► Most respondents indicated that infrastructure development is not as frequently required in other parts of the world outside of SSA, with the exception of North Africa (Egypt and Algeria were cited as examples).

► Respondents indicated that the typical cost of developing hotels in SSA is as follows (compared with the cost of developing a similar hotel in the Middle East, Asia and the US):

Median hotel development costs (including land)

Limited-Service: US$110,000 per room

Full-Service: US$210,000 per room

Luxury: US$475,000 per room

Source: Respondents and Davis Langdon Africa

Limited-Service: US$115,000 per room

Full-Service: US$200,000 per room

Luxury: US$575,000 per room

Source: Respondents and EY Internal Database

Limited-Service: US$65,000 per room

Full-Service: US$150,000 per room

Luxury: US$350,000 per room

Source: Respondents and EY Internal Database

Limited-Service: US$80,000 per room

Full-Service: US$155,000 per room

Luxury: US$525,000 per room

Source: HVS International and EY Internal Database

Strategies for success

The following chart categorizes strategies for success relative to the concept of “Development” based on anticipated value created and level of effort to implement. Categories range from “Gems” (i.e., high value with relatively easy implementation) to “Avoid” (i.e., low value and relatively difficult to implement). Following this chart is a more detailed description of each recommendation:

Low Value High 5 4 3 2 1

1 2 3 4 5

Low Level of Effort High

Avoid Quick Hits

Gems Tackle

3-B – Formal permit process

3-A – Land title process improvement

3-D – Improve communication and reduce bureaucracy 3-E – Lower duties on construction

imports

3-F – Encourage education and training of skilled development professionals

3-C – Enforceable contracts

Reference Strategy for success Value Effort 3-A Create, clarify and/or ease land title process to accelerate development and discourage counterfeit titles ●●●●● ●●●●●

3-B Initiate and enforce formal processes for obtaining permits ●●●●● ●●●●○

3-C Require and enforce contracts related to land transactions and development ●●●●● ●●●●○

3-D Improve internal communication between government departments and reduce bureaucracy related to the permit approval process

●●●●○ ●●●○○

3-E Lower duties on construction imports ●●●●○ ●●○○○

3-F Encourage the education and training of skilled development professionals (e.g., architects, contractors, etc.) in SSA ●●●○○ ●●○○○