Rising tourism numbers sustain hotel investment in Tanzania

While some hotels in Tanzania have been affected by taxes on tourism activities and slowing foreign investment in 2017, the outlook for growth is nonetheless promising. Rising visitor numbers and the diversification of the tourism sector are encouraging major chains to move into the country with a view to the long term.

Demand Growth

Hotel occupancy and average daily rates (ADR) are set to continue to climb over the next five years even as supply increases, thanks to rising tourist arrivals, according to a June 2017 “African insights: Hotels outlook 2017-21” report by professional services company PwC. The report forecasts a dip in demand in 2017 as the effects of the government’s imposition of 18% value-added tax (VAT) on tourism activities in mid-2016 feed through, but a rapid recovery in 2018 and beyond. PwC expects the number of guest nights to fall to 1.5m in 2017 from 1.6m in 2016, dragging total room revenues down to $216m from $224m, even as ADR inches up from $140 to $144; it rose from $130 in 2015 largely thanks to the VAT hike. Occupancy rates are expected to drop from 56.8% to 52%, also influenced by a 2.9% increase in the number of available hotel rooms from 7700 to 7900.

However, the recovery should be swift, with PwC projecting a 6.7% increase in guest nights in 2018, pushing occupancy to 54.1% and total room revenue beyond 2015 levels to $240m, up 11.1%, while the number of available rooms will rise to 8100. The report forecasts a compound annual growth rate (CAGR) of available hotel rooms of 2% between 2017 and 2021, when there should be a total of 8500. Rising demand will see guest nights reach 1.8m, with a CAGR of 2.4%, pushing total room revenue to $313m – recording a CAGR of 6.9% over the period – on an ADR of $174.

Slower Year

However, for many sector players 2017 has been a difficult year. The government’s fiscal consolidation programme and tightening of regulation on investors has caused a temporary slowdown. “Companies have been reluctant to invest, and some smaller ones have closed down, so there is less spending by business,” Haninder Sachdeva, former general manager of the Golden Tulip Hotel Coco Beach in Dar es Salaam, told OBG. Sachdeva estimates that some hotels have lost 10-15 percentage points from occupancy rates, which were at 55% for four-star hotels in mid-2017, though stronger brands were still topping 70%.

Sachdeva adds that top-end hotels have also been affected by the government’s move to reduce its own hospitality and conference budget, leading players such as the Golden Tulip to seek business from other long-term clients, including international construction and hydrocarbons contractors. “In 2018 things should be more settled, and we will see more growth,” he said.

New Supply

New hotel openings show that investors and international hotel brands are still confident about Tanzania’s tourism outlook. Upcoming launches include UAE-based brand Rotana, with a five-star hotel offering 191 rooms and 63 serviced apartments in Dar es Salaam, due to open by the end of 2017; and a 100-room, 50-villa resort in Zanzibar being developed by Thailand-based Anantara, expected to be completed by 2020. Meanwhile, in July 2016 Sheraton announced that it would be converting two existing hotels in Arusha and Dar es Salaam for its business-oriented Four Points brand, with 108 and 126 rooms, respectively.

Both the authorities and the private sector believe further investment will be needed to meet growing demand and the diversification of the tourism sector into segments such as ecotourism and meetings, incentives, conferences and events. “The sector will desperately need more accommodation space, including beach-front five-star hotels and lodges, but also to support large 3000-5000 visitor forums like exhibitions and conferences,” Jumanne Maghembe, then-minister of natural resources and tourism, told OBG in early 2017.

Hotel executives expect greater geographical diversification in hotel development as well, particularly with government offices expected to shift to Dodoma.