April 28, 2021 /05:40 AM / By Proshare Research / Header
Image Credit: EcoGraphics
"True hospitality is when someone leaves your home feeling better about themselves. Not better about you." - Shauna Nacquist
Most sectors of the Nigerian economy struggled and recorded slow growth in 2020 because of the coronavirus. Nigeria's hospitality sector struggled in 2020 due to the imposition of lockdowns and social distancing rules. Service sectors and activities such as tourism, hotels, restaurants, event centers, clubs, etc, who host events and attend to several people simultaneously struggled with the limitation of the number of people that could gather, and the lockdown of non-essential services businesses at the peak of the pandemic. According to data from JLL, the percentage of hotel rooms closed in Lagos during the peak of the pandemic stood at 45% (see Chart 6).
Chart 6: Percentage of Rooms Closed as of 30th April 2020
Source: JLL, CDC
Despite the full re-opening of the economy, the services sector continues to struggle due to limits on gatherings, high administrative and maintenance costs, and low consumer confidence due to fear of contracting the virus (see Illustration 10).
Illustration 10: Hospitality: The Various Faces of a Decline
It is projected that the hospitality sector will record slow growth in 2021 due to the combination of various factors such as the restricted/limited capacity of airlines, the rising spread of the virus, delayed vaccine roll-out. Evidence from hotel companies listed on the Nigeria stock exchange reveals that the pandemic ate deep into their books as they recorded a significant decline in the profits and revenue in 2020. Furthermore, Nigeria airline firms were also adversely affected by the pandemic in 2020. To reduce the cost of operations, airline companies like Arik airlines, Air peace airline had to sack staff, while tourism agencies or companies had to temporarily shut operations, etc.
A breakdown of economic data reveals that most sectors connected with the hospitality sector contracted in 2020. At the heart of the pandemic in Q2 and Q3 2020, air transport contracted by -57.38% and -38.86% respectively. Furthermore, other sectors such as the trade and accommodation sector also recorded contractions in Q2 and Q3 2020. Trade contracted by -16.59% in Q2 2020 and -12.12% in Q3 2020 while the accommodation & food services contracted by -40.19% in Q2 2020 and -22.61% in Q3 2020 (see Chart 7).
Chart 7: Interconnected Sectors with the Hospitality Sector (%)
Source: NBS, Proshare Research
Analysts have predicted that the hospitality sector recovery in Nigeria would depend on so many factors such as the containment of the spread of the virus, recovery in confidence in travel and tourism, the broad domestic economic outlook, and global economic growth (see Illustration 11).
Illustration 11: Hockey Stick Roadmap to Recovery of the Hospitality Sector
Understanding the Dynamics of the Impact of the COVID-19 Pandemic on Hotel Investment
The coronavirus pandemic has changed investment dynamics in the hospitality sector in Nigeria. If the pandemic lingers further than expected it is projected that hotel investments will slow down as investors vote with their feet by pivoting cash to a more rewarding enterprise. Besides, during periods of sector uncertainty, it is expected that many distressed assets would be sold, and project development pipelines would shrink.
On the flip side, proper containment of the virus could lead to a recovery in hotel investment, a resurgence of institutional investors, a decline in distressed assets, and a growing interest in operational assets. Hoteliers are counting on effective government policy to contain the spread of the virus and a rise in government fiscal stimulus to bolster the local economy (see Table 5).
Table 5: COVID-19: Hospitalizing Hospitality
Downloadable Version of Proshare Confidential: Hospitality Post-COVID-19: Making the Future Count
1. Full Report: Hospitality Post-COVID-19: Making the Future Count - Apr 23, 2021
2. Executive Summary: Hospitality Post-COVID-19: Making the Future Count - Apr 23, 2021
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