Challenges of building hotels in ‘frontier’ markets

In the developing world, there are still hotel companies willing to take risks and reap the rewards, according to sources.

Speaking at last week’s Gulf & Indian Ocean Hotel Investors’ Summit, Aboudi Asali, CEO of Hospitality Management Holding, said developing a hotel in Sudan at first seemed challenging, but the work has paid off.

“We’re now developing hotels in (Sudan’s capital) Khartoum,” Asali said. “Many operations could not or would not touch it. We will take a risk and try it out, and in some destinations we were successful. We are now coming to our fourth hotel in Khartoum. (Such developments have) challenges. There were economic sanctions when we went there in 2010. For example, it was very challenging to get spare parts, many of which were American-made.”

Panel moderator Trevor Ward, managing director at W Hospitality Group, said the U.S. eased sanctions on Sudan last October.

Ward estimated there are approximately 100 markets worldwide that can be considered “frontiers.”

For CityBlue Hotels, a local African chain with funding from the United Arab Emirates, that applies to Kigali, Rwanda, said the company’s founder and CEO Jameel Verjee.

“Our first foray was into Kigali, Rwanda … considered to be the least-corrupt country in sub-Saharan Africa, but there are those who remain wary of even this country,” Verjee said. “To create a pan-African hospitality brand, we saw Rwanda as a perfect place to start. Ease of business is good, and we invested by taking out leases, as opposed to management contracts.”

Also on the panel, Patrick Smith, COO of IFA Real Estate Services, and Musleh Ahmed, chairman at Dhaka Regency Hotel & Resort, recently invested in Zanzibar and Bangladesh, respectively.

“First-mover advantage is key,” Smith said. “We were early into Dubai, too, and it derives from gut instinct from the top.”

Development risks often yield mistakes, he said.

“We have been on the other side, too, as well as on the right side and with phenomenal rewards,” Smith said. “As the saying goes, ‘Time spent on reconnaissance is seldom wasted,’ especially in understanding local characteristics, demand and players.”

Ahmed, a British-Bangladeshi, saw development opportunities in Bangladesh, which only had three 5-star hotels, all government owned, when his company moved in.

“Bangladesh is a new market, but since our arrival, Westin, (InterContinental Hotels Group) and Méridien have all come in,” he said. “That’s changed the market, as government hotels had no focus on profit. Together, the market is on the map, and visitors now come with expectations.”

Asali said one property in Iraq didn’t pan out like his company hoped it would.

“We had a property in Baghdad, which we operated for two years, but it became too risky, and we could not see ourselves adding value,” he said. “Unfortunately, we had to pull out.”