Macro challenges weigh upon a budding sector

Proshare

Wednesday, January 28, 2015 10:34 AM / FBN Capital Research

 

This week the National Bureau of Statistics (NBS) released a report on the accommodation and food services sector.

 

This is a useful addition to its series of detailed sectoral studies. The sector primarily engages in hosting services such as restaurants, hotels, bars and related businesses.

 

Prior to the rebasing exercise, it was classified as hotels and restaurants. In the past 16 years, the sector has expanded significantly, with growth concentrated in fast food restaurant chains, hotels and nightlife segments.

 

As at 2012, there were over 70 different indigenous fast food franchises across the country. Despite this healthy growth to date, the sector contributes less than 1% to GDP. It grew by 18% y/y in Q3 2014.

The sector employed 370,000 people in 2012. Based on job creation and employment surveys by the NBS, a further 13,000 were jobs were generated in 2013, representing a 4% y/y increase.

The sector’s gross earnings are dominated by income from accommodation, which stood at N390bn in 2012. Earnings generated from bars and restaurant services also contributed significantly. 


The hospitality industry is a prime beneficiary of domestic and foreign investment. Based on industry reports, Nigeria has the largest number of hotel rooms in the pipeline in Africa: 6,600 rooms in 40 hotels.

However, it fares less well in terms of new rooms under construction, particularly when compared with the North African countries. This reflects the slow pace of project delivery, For instance, as at April last year, only 38% of hotel rooms slated to open in 2015 were under construction.

The sector faces several familiar challenges like power shortages. Generator fuel is its highest intermediate input cost, accounting for 76% of such costs in 2012. Security and poor global publicity also pose as roadblocks.

Based on the current macro uncertainties, business and consumer confidence is liable to wane somewhat. We note the NBS observation, however, that the hotel industry was “not significantly affected” by the 2008/09 global economic crisis. For Nigeria, the cost of this period of turmoil, similar to today’s, was sliding oil prices and pressures on the exchange rate.

 

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