South African hospitality outlook: 2013-2017 (featuring analysis of Nigeria and Mauritius) 3rd annual edition June 2013

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www.pwc.co.za/hospitality-and-leisure

The information contained in this publication is provided for general information purposes only, and does not constitute the provision of legal or professional advice in any way. Before making any decision or taking any action, a professional adviser should be consulted. No responsibility for loss to any person acting or refraining from action as a result of any material in this publication can be accepted by the author, copyright owner or publisher.

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South African hospitality outlook: 2013-2017

PwC

Third South African edition

PwC’s team of hospitality specialists provide an unbiased overview of how the hospitality industry in South Africa is expected to develop over the coming years. The publication focuses on the following major industry segments: hotels, guest houses and farms, caravan/ camping sites, bush lodges and other accommodation. It details the key trends observed and challenges facing these sectors as well as considering their future prospects.

South African hospitality outlook: 20132017 demonstrates deep knowledge of the local hospitality market and is a powerful tool for understanding critical business issues. To learn more about the challenges and opportunities that lie ahead for the hospitality industry in South Africa, please visit www.pwc.co.za/hospitality-and-leisure.

About PwC’s hospitality industry group
Every day, PricewaterhouseCoopers (PwC) plays a significant supporting role in hospitality businesses across the world. With our local knowledge of culture, laws and business needs, we help clients make the most of changing market scenarios. We understand how developments in the broader hospitality environment are affecting our clients and work with them as a trusted advisor to provide solutions to help improve organisational effectiveness and long-term success. More significantly, we focus on the issues and challenges that are of utmost importance to our clients. These include restructuring, talent management, changing revenue models, compliance, changing guest requirements and managing capital spend. We have made a substantial commitment to understanding the forces that are impacting these issues and continue to develop and deliver solutions to help our clients achieve their financial, operational and strategic objectives.

102 Destination Africa

Prepared and edited by:
PwC firms provide industryfocused assurance, tax and advisory services to enhance value for their clients. More than 180 000 people in 158 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information. PricewaterhouseCoopers Inc. 2 Eglin Road Sunninghill, 2157 +27 11 797 4000 www.pwc.com/za

Research methodology
Historical data was derived from our analysis of Smith Travel Research (STR) data and local country data combined with other information on industry trends. As some of the historical data was generated through surveys, yearto-year swings sometimes occurred because of entities of different sizes being sampled rather than because of underlying industry trends. Historical data from STR also differs from one year to the next, reflecting differences in the make-up of the participating sample of hotels. We applied a harmonising model to smooth out these swings in order to better reflect underlying market trends. We then developed forecasting models based on the historical performance for each category, economic prospects for each country and the rest of the world, and estimates of domestic and international overnight travel. We also took into account announced plans for expansion by hotel operators, as well as competition, pricing trends and the expected reaction of proprietors to changing occupancy rates. Quantitative research and analysis was provided by Wilkofsky Gruen Associates Inc., a provider of global research and analysis of the hospitality industry. See www. wilkofskygruen.com for more information.

Use of Outlook data
The information contained in this publication is provided for general information purposes only, and does not constitute the provision of legal or professional advice in any way. Before making any decision or taking any action, a professional advisor should be consulted. No responsibility for loss to any person acting or refraining from action as a result of any material in this publication can be accepted by the author, copyright owner or publisher. The information in this document is provided ‘as is’ with no assurance or guarantee of completeness, accuracy or timeliness of the information, and without warranty of any kind. In no event will PricewaterhouseCoopers be liable for any losses arising from any decision made or action taken in reliance on the information provided. Designations used by companies to distinguish their products are often claimed as trademarks. In all instances where PricewaterhouseCoopers is aware of a claim, the product names appear in initial capital letters or all capital letters. Readers, however, should contact those companies for more complete information regarding trademarks and registration.

Editorial team
• Nikki Forster, Southern Africa Hospitality Industry Leader • Pietro Calicchio, Partner • Sunet Liebenberg, Senior Manager • Yusuf Hassim, Senior Manager

Editing and design
• Grace Correia • Catherine Ensor Many other professionals within PwC reviewed the text and contributed local expertise to this publication and we thank them for their assistance.

Permission to cite
No part of this publication may be excerpted, reproduced, stored in a retrieval system or distributed or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording or scanning without the prior written permission of PricewaterhouseCoopers. Requests should be submitted in writing to Nikki Forster at nikki.forster@ za.pwc.com outlining the excerpts you wish to use along with a draft copy of the full report that excerpts will appear in. Provision of this information is necessary for every citation request to enable PricewaterhouseCoopers to assess the context in which the excerpts are being presented.

PwC

Johannesburg 13 June 2013

To our clients and friends both in and beyond the hospitality industry: Welcome to the 3rd edition of the South African hospitality outlook: 2013-2017. This publication focuses on segments within the hospitality industry with detailed forecasts and analysis. It discusses the key trends observed in each segment as well as critical challenges and future prospects. The global economy slowed in 2012 to 3.2% from 4.0% in 2011 and the local hospitality industry was fortunate that this did not have an adverse impact on visits to South Africa. Going forward, we expect global GDP to improve with projected growth at 4.1% compounded annually. South African real GDP moderated to 2.5% in 2012 from 3.5% in 2011, and we expect real GDP in South Africa to grow at somewhat faster rates, averaging 3.2% compounded annually during the next five years. Overall spending on rooms in all categories rose 13.4% in 2012 to R15.2 billion, reflecting an increase in stay unit nights and a 5.3% rise in the average

room rate. We project total room revenue in South Africa to grow at a compound annual rate of 9.2% by 2017. For the first time in this edition, we are very excited to feature information about hotel accommodation in Nigeria and Mauritius The hotel market in Nigeria grew 10.3% in 2012 and by a cumulative 45.7% since 2009. Growth has been fuelled by a surging economy, large increases in the number of rooms and growth in the number of foreign visitors. Hotel room revenue in Mauritius is expected to increase from R5.6 billion in 2012 to a projected R9.2 billion in 2017, growing at a 10.4% compound annual rate. Mauritius’ accommodation profile is at the other end of the spectrum from Nigeria. It is a resort market featuring a tropical climate, beaches, water sports and natural beauty. Because most of the business is generated by holiday travellers, the global economy plays a much more important role than the local economy. This contrasts with

Nigeria where domestic and business travellers account for most of the market. We at PwC continue to stay on top of trends and developments that may impact hospitality companies, now and in the future, and look forward to sharing our thoughts further with you. We appreciate your feedback and ask that you continue to tell us what we can do to make our publications more relevant and useful to you. If you would like clarification on any matters covered in this publication, or you believe we can be of service to your business in any way, please contact one of our hospitality specialists listed on page 61 of this report. Finally, we thank you for your support and wish you an exciting and rewarding year ahead. Sincerely,

Nikki Forster Director Leader – Hospitality PwC Southern Africa

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Contents

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The market Overview Travel and tourism in South Africa Hotel accommodation in South Africa Guest houses and guest farms in South Africa Caravan/camping sites, bush lodges and other accommodation in South Africa Looking back: 2012 Outlook: 2013-2017 Hotel accommodation in Nigeria Hotel accommodation in Mauritius Outlook: 2013-2017 Nigeria and Mauritius Conclusion The voice of the guest Corporate reporting in the hospitality sector Hospitality industry group contacts

1 2 5 14 20 22 24 26 32 38 47 52 53 56 61

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The market

South African hospitality outlook: 2013-2017
This report covers South Africa, Nigeria and Mauritius. The market consists of spending generated by renting rooms. Accommodation sectors in South Africa consist of hotels, guest houses and guest farms, game lodges, caravan sites, camping sites and other overnight accommodation. For Nigeria and Mauritius, we present information on hotels only. Figures for South Africa are expressed in rands; figures for Nigeria are shown in US dollars ($); and figures for Mauritius are expressed in euros (€). Tables showing comparisons between countries are in rands. We have used a constant exchange rate for the 2006-2017 period.

Currency conversion rates
• Rand: US$ • Naira: US$ • Rupee: € • Euro: US$ 9.2491 157.99624 12.07612 0.7659

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Overview
These differences are reflected in spending patterns. As a resort market, Mauritius is affected by international global economic conditions, while the local economy has relatively little impact. Over the past five years, despite a relatively healthy local economy, the weak global economy contributed to a decline in spending on hotel rooms. Hotel room revenue in Mauritius was 5% lower in 2012 than in 2008.

South Africa, Nigeria and Mauritius have very different markets. South Africa attracts a mix of business and holiday travellers and offers a wide range of hotel classes and accommodation. Nigeria is principally a business market with relatively little holiday tourism. Mauritius is primarily a resort market with most travellers coming on holiday. Here, five-star hotels constitute a significant component of available rooms and total spending.

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As business destinations, the economic climate is an important attraction in Nigeria and South Africa. Nigeria’s economy is booming, buoyed in large part by regional and international investment, and hotel room revenue rose 35% between 2008 and 2012. Although South Africa’s economic growth is not nearly as strong as Nigeria’s, it has outperformed the global economy. South Africa’s hotel and accommodation market, in terms of capacity and room revenue, expanded rapidly between 2006 and 2008, slowed in 2009 reflecting the global recession, and then picked up in 2010, boosted by visitors to the FIFA World Cup. Room revenue in South Africa (R millions)

Without the FIFA World Cup in 2011, the market declined. In 2012, however, hotel room revenue increased by 11.4%, helped by exposure related to the 2010 FIFA World Cup. Hotel room revenue in South Africa rose by 50% between 2006 and 2012 and total spending on all accommodation, including guest houses, game lodges, camping sites and other accommodation, increased 66% over the same period.

South Africa (Total) % change South Africa (Hotels only) % change

9 158 10 936 12 312 11 867 13 850 13 368 15 159 16 828 18 181 19 758 21 576 23 495 15.1 7 134 15.3 19.4 8 446 18.4 12.6 9 533 12.9 -3.6 16.7 -3.5 13.4 11.0 8.0 8.7 9.2 8.9 9.2

8 829 10 317 -7.4 16.9

9 594 10 688 12 104 13 020 14 138 15 402 16 827 -7.0 11.4 13.2 7.6 8.6 8.9 9.3 9.5

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

An indicator of differences in the market is epitomised by the profile of visitors from Europe. Europe’s weak economy in 2012 led to an 8% decline in visitors from that region to Mauritius. At the same time, visitors from Europe to South Africa increased by nearly 10%, in part coming for international conferences, exhibitions, business meetings and other events, as well as for holidays. In South Africa, there was a large increase in available hotel rooms between 2007 and 2010 with supply significantly exceeding the level of demand. We expect relatively little incremental growth in capacity during the next five years, as demand rises to fill the supply. South Africa will also benefit from improved growth in its local economy as well as a healthier global economy. We project room revenue for all accommodation in South Africa to increase at a 9.2% compound annual rate and hotel room spending, which accounts for 70% of the total market, to expand by 9.5% compounded annually.

Nigeria will be the fastest-growing market over the next five years, far outpacing growth in South Africa and Mauritius. Nigeria is currently handicapped by inadequate infrastructure and unreliable power supply. The government is taking steps to improve the situation and a number of international hotel operators, including Rezidor, Sheraton, Tsogo Sun, Protea Hotels Group, Sun International, Best Western, InterContinental and Golden Tulip, have hotels or have recently opened hotels in Nigeria. Many other hotels are either currently under construction or being planned. More than 40 hotels are currently being built in Nigeria with more than 7 000 rooms. We expect the number of available rooms to nearly triple over the next five years and room revenue to grow at a 31.9% compound annual rate.

2013-17 CAGR (%)
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2013

2014

2015

2016

2017

2006

2007

2008

2009

2010

2011

2012

Slow growth in Mauritius over the past five years was in part due to price discounting, particularly by five-star hotels, to sustain business. With global economic conditions improving, we expect foreign tourism to increase, prices to rise, and spending on hotel rooms to grow by 10.4% on a compound annual basis. Figure 1: Room revenue in South Africa, Nigeria and Mauritius

20 000 18 000 16 000 14 000 12 000 10 000 8 000 6 000 4 000 2 000 2008 2009 2010 2011 2012 2013 Nigeria 2014 2015 2016 2017 Mauritius

South Africa

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Room revenue in South Africa, Nigeria and Mauritius (R millions)
2013-17 CAGR (%)
9.2 9.5 31.9 10.4 14.5

2013

2014

2015

2016

South Africa (Total) % change South Africa (Hotels only) % change Nigeria* % change Mauritius* % change Total % change

12 312 12.6 9 533 12.9 3 006 27.5 5 929 2.7 21 247 11.4

11 867 -3.6 8 829 -7.4 2 793 -6.9 5 458 -7.9 20 118 -5.3

13 850 16.7 10 317 16.9 2 978 6.6 5 495 0.6 22 323 10.9

13 368 -3.5 9 594 -7.0 3 690 23.7 5 568 1.3 22 626 1.3

15 159 13.4 10 688 11.4 4 070 10.3 5 615 0.8 24 844 9.8

16 828 11.0 12 104 13.2 4 911 20.7 6 329 12.7 28 068 13.0

18 181 8.0 13 020 7.6 6 002 22.2 6 895 9.1 31 078 10.8

19 758 8.7 14 138 8.6 8 935 48.9 7 499 8.6 36 192 16.4

21 576 9.2 15 402 8.9 12 246 37.1 8 188 9.3 42 010 16.1

23 495 8.9 16 827 9.3 16 260 32.7 9 202 12.3 48 957 16.5

*Hotels only Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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2017

2008

2009

2010

2011

2012

Travel and tourism in South Africa
Spurred by a jump in foreign overnight visitors in 2012, stay unit nights rose 7.7%, the largest increase during the past five years. The number of foreign overnight visitors rose 10.2% in 2012 to 9.2 million, an all-time high, although the increase did not match the 15.1% rise in 2010, which reflected the impact of the FIFA World Cup. This increase was particularly impressive given that global economic conditions were generally weaker in 2012 than in 2011. Despite stagnating economies in most countries, there was a 9.7% increase in visitors to South Africa from Europe, while the number of North American visitors rose 13.9%. From Latin America and Asia-Pacific, where economic conditions were relatively healthy, travel to South Africa surged in 2012, rising by 37.0% from Latin America, albeit off a low base, and 28.7% from the Asia-Pacific region. Not surprisingly, most foreign visitors to South Africa, 72.4% in 2012, come from other countries in Africa and those visits rose 8.5%. The number of visitors from countries outside of Africa rose 15.0% in 2012.

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Source markets
Foreign overnight visitors by continent

North America
2011 2012 % Change

Europe

345 381 393 446 13.9

2011 2012 % Change

1 286 027 1 410 435 9.7

Middle East
2011 2012 % Change

37 136 40 715 9.6

Asia-Pacific
2011 2012 % Change

420 666 541 253 28.7

Latin America
2011 2012 % Change

Africa

87 506 119 913 37.0

2011 2012 % Change

6 136 835 6 656 458 8.5

Unspecified
2011 2012 % Change

25 800 26 148 1.3

Total

2011 2012 % Change

8 339 351 9 188 368 10.2

Sources: Statistics South Africa, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Of non-African countries, the United Kingdom is still the largest source of visitors to South Africa at 438 023 in 2012, up 4.2% from 2011. There were more than 325 000 visitors from the United States in 2012 and more than 260 000 from Germany. South Africa also received more than 100 000 visitors from France, the Netherlands, China, Australia and India. For a small country, the Netherlands is a major source of visitors to South Africa, reflecting the cultural ties and shared history between the two countries.

For the first time in 2012, South Africa attracted more than 200 000 visitors from China (132 327) and India (106 774). The number of visitors from China increased 55.9% and 18.2% from India. The jump in visits from China is especially lucrative since the average Chinese visitor spends R15 000 per trip, compared with the overall average spend per visitor of R9 000. There was also a 44.7% surge in visitors from Brazil to more than 78 000 in 2012.

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Destination Africa

Foreign overnight visitors to South Africa from leading non-African countries
2011
United Kingdom United States Germany China France Australia Netherlands India Brazil 420 483 287 614 235 774 84 862 105 420 103 506 113 846 90 367 54 183

2012
438 023 326 644 266 333 132 327 122 244 120 315 117 935 106 774 78 376

% change
4.2 13.6 13.0 55.9 16.0 16.2 3.6 18.2 44.7

Sources: Statistics South Africa, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Building on the large increases generated from China, India and Brazil, South African Tourism is looking to expand its presence in the BRIC (Brazil, Russia, India and China) countries. Its first office is opening in Brazil during the course of 2013. It is also looking to expand into Russia in 2014. Currently, visits from Russia are not yet significant, largely because there are no direct flights between the two countries. South African Tourism is developing relationships with travel agencies in Russia, which, if successful, could lead airlines to establish direct flights.

Foreign overnight visitors to South Africa from SADC (Southern African Development Community)
2011
Angola Botswana DRC Lesotho Madagascar Malawi Mauritius Mozambique Namibia Seychelles Swaziland Tanzania Zambia Zimbabwe Total SADC 39 217 477 937 32 582 1 526 597 2 962 135 577 16 545 1 076 753 197 835 3 182 700 119 28 645 160 302 1 553 008 5 951 261

2012
47 714 452 158 32 956 1 618 223 4 813 142 063 18 233 1 104 404 200 841 3 302 768 727 35 928 169 555 1 847 974 6 446 881

% change
21.7 -5.4 1.1 6.0 62.5 4.8 10.2 2.6 1.5 3.8 9.8 25.4 5.8 19.0 8.3

Sources: Statistics South Africa, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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Zimbabwe, at 1.8 million in 2012, Lesotho at 1.6 million and Mozambique at 1.1 million, followed by Swaziland at nearly 770 000 are the major sources of African foreign visitors to South Africa. Together, they comprised 58% of the total number of foreign visitors to South Africa in 2012. The SADC countries in total accounted for 70% of South Africa’s foreign visitors. Visits from SADC were up 8.3% in 2012 to 6.4 million.

From East and Central Africa, Kenya with nearly 63 000 and Uganda with more than 15 500 were the leading sources of visitors to South Africa in 2012. Overall, the number of visitors from East and Central Africa increased 7.9% to 81 271.

Foreign overnight visitors to South Africa from East and Central Africa
2011
Burundi Cameroon Central African Republic Chad Comoros Congo Djibouti Equatorial Guinea Eritrea Ethiopia Gabon Kenya Réunion Rwanda São Tomé and Principe Somalia Uganda Total East and Central Africa
Sources: Statistics South Africa, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

2012
1 472 6 234 191 414 276 3 868 92 406 904 7 863 7 168 62 992 0 3 429 234 206 15 522 81 271

% change
45.7 16.4 33.6 22.1 39.4 15.9 -5.2 27.3 35.7 -13.8 15.6 108.0 -100.0 20.7 95.0 -75.2 7.4 7.9

1 010 5 357 143 339 198 3 337 97 319 666 9 125 6 199 30 279 3 2 841 120 829 14 453 75 309

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Most visitors from West Africa come from Nigeria and Ghana. Visitors from Nigeria totalled more than 73 000 in 2012 and from Ghana, nearly 23 000. The two countries accounted for 84% of visitors from West Africa. West Africa also showed the largest increase among the African regions in 2012 with a 17.2% increase. The number of visitors from Nigeria rose 13.8% and 23.9% from Ghana.

North Africa is not a major source of visitors to South Africa. The number of visitors totalled only 14 277 in 2012, with Egypt at 7 308 the only country with more than 1 700 visitors.

Foreign overnight visitors to South Africa from West Africa
2011
Ascension Benin Burkina Faso Cape Verde Cote D’Ivoire Gambia Ghana Guinea Guinea-Bissau Liberia Mali Mauritania Niger Nigeria Saint Helena Senegal Sierra Leone Togo Total West Africa
Sources: Statistics South Africa, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

2012
1 1 553 816 635 2 415 1 142 22 963 2 990 212 708 1 268 241 369 73 282 52 3 600 991 800 114 028

% change
19.6 17.1 18.9 35.6 41.9 23.9 40.6 7.1 20.8 6.4 -10.4 24.7 13.8 -35.0 21.4 6.6 35.1 17.2

0 1 299 697 534 1 781 805 18 538 2 127 198 586 1 192 269 296 64 402 80 2 965 930 592 97 291

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Foreign and domestic visitors
The increase in foreign visitors has been led by an upswing in business travellers to South Africa for events, meetings, exhibitions and conferences. South Africa has become a popular destination for international conferences and there are more than 200 major conferences scheduled in the country over the next five years. Marketing Conference 2013, International Conference on Financial Services, and the Academy of World Finance, Banking, Management and Information Technology Conference are among the many conferences scheduled in South Africa in 2013. South Africa has also become a destination for trade shows. The Johannesburg International Motor Show, the Africa Health Exhibition and Congress 2013, and the IFE Africa, International Food, Drink and Hospitality Exhibition are among the trade shows to be held in South Africa in 2013. While business travel constitutes less than 10% of total foreign overnight visitors, it has been a rapidly growing component of the market. The number of non-holiday foreign visitors to South Africa more than doubled between 2009 and 2011 and nearly doubled again in 2012. Figure 2: Non-holiday foreign overnight visitors (thousands)
1 000 878 800
2 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Domestic travellers Foreign overnight visitors Total

We expect ongoing growth in business travel from abroad and increases from the other BRIC countries to sustain growth in the number of foreign visitors. While we do not expect double-digit annual increases to be sustainable over the long run, we do anticipate mid-single-digit advances averaging 5.0% compounded annually to 11.8 million in 2017. Domestic travel, by contrast, fell 8.5% in 2012, possibly reflecting a slower-growing economy. Nevertheless, domestic travel in 2012 was still higher than during the 2006-2009 period and some hotel groups have seen increases in the domestic corporate and leisure market. With economic conditions expected to rebound, we look for a recovery in domestic travel and project a 2.8% compound annual increase over the next five years, rising to 5.7 million from 5 million in 2012. Figure 3: Domestic and foreign visitors (millions)
20 18 16 14 12 10 8 6 4

600

522 471

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

400

200

209

0

2009

2010

2011

2012

The total number of travellers in South Africa will reach a projected 17.45 million by 2017, a 4.3% compound annual increase from 2012. Growth in travel and tourism will fuel growth in the accommodation industry during the next five years.

Sources: Statistics South Africa, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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Travel and tourism to South Africa (millions)
2013-17 CAGR (%)
2.8 5.0 4.3

2013

2014

2015

2016
5.50 3.8 11.20 5.2 16.70 4.7

Domestic travellers % change Foreign overnight visitors % change Total % change

4.32 104.7 5.91 13.2 10.23 39.6

4.45 3.0 6.39 8.1 10.84 6.0

4.42 -0.7 6.75 5.6 11.17 3.0

4.49 1.6 7.01 3.9 11.5 3.0

5.13 14.3 8.07 15.1 13.2 14.8

5.43 5.8 8.34 3.3 13.77 4.3

4.97 -8.5 9.19 10.2 14.16 2.8

5.00 0.6 9.65 5.0 14.65 3.5

5.15 3.0 10.15 5.2 15.30 4.4

5.30 2.9 10.65 4.9 15.95 4.2

11.75 4.9 17.45 4.5

Sources: Statistics South Africa, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

The growth in foreign visitors contributed to an increase in occupancy rates for hotels in 2012, the first gain since 2007, and prospects for continued growth in visitors suggest further gains in occupancy rates. We project the average hotel occupancy rate to increase to 68.7% in 2017 from 56.5% in 2012. Figure 4: Hotel occupancy rates in South Africa (%)
75

There has been continued investment in hotels in South Africa with Sun International opening the Boardwalk Hotel, Convention Centre & Spa in Port Elizabeth and upgrading the Boardwalk Casino & Entertainment World at a total cost of R1 billion. Sun International also spent R250 million to upgrade the Maslow Hotel, previously The Grayston, in Sandton. Tsogo Sun is spending R220 million to renovate and relaunch the Southern Sun Elangeni and the Southern Sun Maharani as a unified complex on Durban’s Golden Mile. The Rezidor Hotel Group, which currently operates six hotels in South Africa, is planning to open three more – the Radisson Blu in the Kruger National Park, the Park Inn in Cape Town (Radisson Cape Town Newlands), and another Radisson Blu in Cape Town.

70

65

60

55

50

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

2017

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

2017
5.70 3.6

2006

2007

2008

2009

2010

2011

2012

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Real GDP growth (%)
2013-17 CAGR (%)
3.2 4.1

2013

2014

2015

2016
3.3 4.5

South Africa Global

5.6 5.3

5.5 5.4

3.6 2.8

-1.5 -0.6

3.1 5.2

3.5 4.0

2.5 3.2

2.8 3.3

3.3 4.0

3.4 4.4

Sources: International Monetary Fund, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Figure 5: Real GDP growth (%)
6 5 4 3 2 1 0 -1 -2

Gross domestic product
After moderating to 2.5% in 2012 from 3.5% in 2011, the IMF expects real GDP in South Africa to grow at somewhat faster rates, averaging 3.2% compounded annually during the next five years. The global economy also slowed in 2012 to 3.2% from 4.0% in 2011, although this did not have an adverse impact on visits to South Africa. Over the next five years, the IMF expects global GDP to improve with projected growth at 4.1% compounded annually.

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 South Africa Global

Source: International Monetary Fund

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2017
3.1 4.5

2006

2007

2008

2009

2010

2011

2012

Total accommodation market in South Africa
• Overall spending on rooms in all categories rose 13.4% in 2012 to R15.2 billion, reflecting an increase in stay unit nights and a 5.3% rise in the average room rate. • Stay unit nights were up 7.7% in 2012, the largest gain during the past five years. With room availability up 1.5%, the average occupancy rate increased to 50.2%, the highest average since 2008. • We project spending to rise an additional 11.0% in 2013, fuelled by a 5.7% increase in stay unit nights and a 5.2% escalation in the average room rate. We then expect high single-digit gains over the remainder of the forecast period, reflecting ongoing increases in tourism and business travel. • We project stay unit nights to grow by 3.5% compounded annually to 25.1 million in 2017 from 21.1 million in 2012. • The number of available rooms will grow at a 1.5% compound annual rate, matching the increase in 2012. As in 2012, demand for rooms will continue to grow faster than supply, and the overall occupancy rate will increase to a projected 55.6% by 2017. • We expect room rates to continue to grow at mid-single-digit rates, roughly in line with the overall rate of inflation. The average room will cost R936 in 2017, up 5.4% on a compound annual basis from R718 in 2012. • Total room revenue will reach R23.5 billion in 2017, a 9.2% compound annual increase from 2012. Total accommodation market in South Africa
2013-17 CAGR (%)
1.5 3.5 5.4 9.2

2013

2014

2015

2016
121.7 1.7 24.3 3.4 54.5 888 5.6

Available rooms (thousands) % change Stay unit nights (millions) % change Occupancy rates (%) Average room rates (R) % change Total room revenue (R millions) % change

101.9 3.1 19.4 3.7 52.2 472 11.1

104.6 2.6 20.4 5.2 53.4 536 13.6

106.2 1.5 20.2 -1.0 52.0 610 13.8

110.7 4.2 19.1 -5.4 47.3 621 1.8

113.4 2.4 19.8 3.7 47.8 699 12.6

113.2 -0.2 19.6 -1.0 47.4 682 -2.4

114.9 1.5 21.1 7.7 50.2 718 5.3

116.5 1.4 22.3 5.7 52.4 755 5.2

117.9 1.2 22.9 2.7 53.2 794 5.2

119.7 1.5 23.5 2.6 53.8 841 5.9

123.7 1.6 25.1 3.3 55.6 936 5.4

9 158 10 936 12 312 11 867 13 850 13 368 15 159 16 828 18 181 19 758 21 576 23 495 15.1 19.4 12.6 -3.6 16.7 -3.5 13.4 11.0 8.0 8.7 9.2 8.9

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

2017

2006

2007

2008

2009

2010

2011

2012

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Hotel accommodation in South Africa

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The number of available rooms dipped 0.2% in 2012, reflecting the drop in new construction in prior years following the plunge in occupancy rates between 2007 and 2010. Figure 6: Occupancy rates (%)

The average room rate increased 4.3% in 2012 and we expect a 4.5% compound annual increase to R1 065 in 2017. Figure 7: Average room rates (R)
1 200

75

70

1 000

65

800

60 600 55 400 50 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

With new hotels now opening and others being upgraded, we expect the number of rooms to increase by 1.2% in 2013 and to then grow at rates averaging just below 1% annually through to 2017. By 2017, there will be an estimated 63 000 hotel rooms available, up 0.8% on a compound annual basis from 60 400 in 2012. Stay unit nights rose 6.8% in 2012 and continued to be strong in the first quarter of 2013. We project an 8.8% increase for 2013 as a whole followed by more moderate gains as growth in foreign visitors moderates. We project growth in stay unit nights to average 4.8% compounded annually to reach 15.8 million in 2017 from 12.5 million in 2012.

Hotel room revenue is expected to expand to R16.8 billion in 2017, up 9.5% compounded annually from R10.7 billion in 2012. Figure 8: Total room revenue by category (2012)

20%

12%

33%
Three-star hotels Four-star hotels Five-star hotels

35%

Other

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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Hotels in South Africa
2013-17 CAGR (%)
0.8 4.8 4.5 9.5

2013

2014

2015

2016
62.5 0.8 15.1 4.1 66.0 1 020 4.6

Available rooms (thousands) % change Stay unit nights (millions) % change Occupancy rates (%) Average room rates (R) % change Total room revenue (R millions) % change

48.0 1.1 12.3 3.4 70.3 580 11.5 7 134 15.3

48.5 1.0 12.7 3.3 71.8 665 14.7 8 446 18.4

49.1 1.2 12.3 -3.1 68.4 775 16.5 9 533 12.9

53.7 9.4 10.9 -11.4 55.6 810 4.5

58.8 9.5 11.4 4.6 53.1 905 11.7

60.5 2.9 11.7 2.6 53.0 820 -9.4

60.4 -0.2 12.5 6.8 56.5 855 4.3

61.1 1.2 13.6 8.8 61.0 890 4.1

61.5 0.7 14.0 2.9 62.4 930 4.5

62.0 0.8 14.5 3.6 64.1 975 4.8

63.0 0.8 15.8 4.6 68.7 1 065 4.4

8 829 10 317 -7.4 16.9

9 594 10 688 12 104 13 020 14 138 15 402 16 827 -7.0 11.4 13.2 7.6 8.6 8.9 9.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

16

Destination Africa

2017

2006

2007

2008

2009

2010

2011

2012

Three-star hotels
We consider three-star hotels to be in the midscale and upper midscale classes. Three-star hotels accounted for 36% of all available hotel rooms in South Africa and 33% of total hotel room revenue. The room rate of R730 was 15% below the overall average of R855 for all hotels. Despite a decline in domestic travel in 2012, stay unit nights for three-star hotels were up 6.7% in 2012 and combined with a 5.8% increase in the average rate, revenue increased 12.9%. Figure 9: Three-star hotels: average room rates (R)
1 200

As with the hotel market as a whole, we expect moderating growth in stay unit nights, with increases averaging 4.2% compounded annually. This will raise the occupancy rate to 73.1% in 2017 from 60.7% in 2012, and be accompanied by a 6.3% compound annual increase in the average room rate to R990 in 2017. Room revenue in three-star hotels will expand at a projected 10.8% compound annual rate to R5.8 billion in 2017 from R3.5 billion in 2012.

Figure 10: Three-star hotels: occupancy rates (%)
80

1 000

70

800

60

600
50

400
40

200 0
30 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Three-star hotels in South Africa
2013-17 CAGR (%)
0.5 4.2 6.3 10.8

2013

2014

2015

2016
22.0 0.5 5.7 3.6 70.8 945 5.0 5 387 8.8

Available rooms (thousands) % change Stay unit nights (millions) % change Occupancy rates (%) Average room rates (R) % change Total room revenue (R millions) % change

16.2 3.2 4.1 5.1 69.3 465 9.4 1 907 15.0

16.5 1.9 4.2 2.4 69.7 535 15.1 2 247 17.8

16.9 2.4 4.2 0.0 67.9 625 16.8 2 625 16.8

18.4 8.9 3.9 -7.1 58.1 650 4.0 2 535 -3.4

20.4 10.9 4.3 10.3 57.7 720 10.8 3 096 22.1

21.6 5.9 4.5 4.7 57.1 690 -4.2 3 105 0.3

21.6 0.0 4.8 6.7 60.7 730 5.8 3 504 12.9

21.6 0.0 5.1 6.3 64.7 795 8.9 4 055 15.7

21.7 0.5 5.3 3.9 66.9 855 7.5 4 532 11.8

21.9 0.9 5.5 3.8 68.8 900 5.3 4 950 9.2

22.1 0.5 5.9 3.5 73.1 990 4.8 5 841 8.4

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

2017

2006

2007

2008

2009

2010

2011

2012

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Four-star hotels
Four-star hotels accounted for 27% of hotel rooms in South Africa and 35% of hotel room revenue in 2012, which is in line with previous year. The average room rate of R1 055 was 23% above the overall average hotel room rate. Revenue for four-star hotels rebounded in 2012 with an 11.7% increase, reversing the 9.6% decline in 2011.
60

Figure 11: Occupancy rates: three-, four-, and fivestar hotels (%)
80

70

We expect a 4.6% compound annual increase in stay unit nights, about half the increase of 2012, which will raise the occupancy rate from 59.3% in 2012 to a projected 70.0% in 2017. The average room rate will increase at a 4.7% compound annual growth rate to a projected R1 325 in 2017, about twice the 2012 increase, to boost revenue from R3.8 billion in 2012 to R6 billion in 2017, a 9.4% compound annual gain.

50

40

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Three-star hotels Four-star hotels Five-star hotels

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Four-star hotels in South Africa
2013-17 CAGR (%)
1.2 4.6 4.7 9.4

2013

2014

2015

2016
17.5 0.6 4.4

Available rooms (thousands) % change Stay unit nights (millions) % change Occupancy rates (%) Average room rates (R) % change Total room revenue (R millions) % change

13.6 1.5 3.8

13.9 2.2 3.8

14.1 1.4 3.6

15.1 7.1 3.2

16.1 6.6 3.2

16.7 3.7 3.3

16.6 -0.6 3.6

17.1 3.0 4.0

17.3 1.2 4.2

17.4 0.6 4.3

17.6 0.6 4.5

5.6 76.6

0.0 74.9

-5.3 69.8

-11.1 58.1

0.0 54.5

3.1 54.1

9.1 59.3

11.1 64.1

5.0 66.5

2.4 67.7

2.3 68.7

70.0

745 12.9 2 831 19.1

850 14.1 3 230 14.1

1 015 19.4 3 654 13.1

1 050 3.4 3 360 -8.0

1 175 11.9 3 760 11.9

1 030 -12.3 3 399 -9.6

1 055 2.4 3 798 11.7

1 140 8.1 4 560 20.1

1 180 3.5 4 956 8.7

1 225 3.8 5 268 6.3

1 275 4.1 5 610 6.5

1 325 3.9 5 963 6.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

18

Destination Africa

2017
2.3

2006

2007

2008

2009

2010

2011

2012

Five-star hotels
Five-star hotels accounted for only 5% of available hotel rooms, but generated 12% of total hotel room revenue in 2012, a 1% increase on 2011. The average room rate of R1 780 was more than twice the overall average. The increase in foreign overnight visitors in 2012 benefitted five-star hotels more than any other sector with room revenue rising by 18.7% to R1.2 billion. We expect five-star hotels to continue to benefit more than three- and four-star hotels from the increase in tourism during the next five years, the result of continued growth in business travel and an increase in tourism from other BRIC countries. We expect a 7.4% compound annual increase in stay unit nights. The occupancy rate for five-star hotels will rise to a projected 76.1% in 2017 from 59.8% in 2012. We look for average room rate growth to be comparable to other categories, with a projected 5.3% compound annual increase to R2 300 in 2017. Room revenue will expand at a 13% compound annual rate to R2.3 billion in 2017 from R1.2 billion in 2012. As in 2012, we expect five-star hotels to continue to be the fastest-growing hotel category. Figure 12: Three-, four- and five-star hotels: stay unit nights (millions)
7 6 5 4 3 2 1

0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Three-star hotels Four-star hotels Five-star hotels

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Five-star hotels in South Africa
2013-17 CAGR (%)
2.4 7.4 5.3 13.0

2013

2014

2015

2016
3.5 2.9 0.9 0.0 70.3 2 190 4.8

Available rooms (thousands) % change Stay unit nights (millions) % change Occupancy rates (%)

2.7 0.0 0.5 0.0 50.7

2.5 -7.4 0.6 20.0 65.8 1 505 16.7

2.4 -4.0 0.5 -16.7 56.9 1 875 24.6

2.5 4.2 0.5 0.0 54.8 1 920 2.4

3.1 24.0 0.6 20.0 53.0 2 115 10.2

3.2 3.2 0.6 0.0 51.4 1 750 -17.3

3.2 0.0 0.7 16.7 59.8 1 780 1.7

3.2 0.0 0.8 14.3 68.5 1 890 6.2

3.3 3.1 0.8 0.0 66.4 1 990 5.3

3.4 3.0 0.9 12.5 72.5 2 090 5.0

11.1 76.1 2 300 5.0

Average room 1 290 rates (R) % change Total room revenue (R millions) % change 8.4

645 8.4

903 40.0

938 3.9

960 2.3

1 269 32.2

1 050 -17.3

1 246 18.7

1 512 21.3

1 592 5.3

1 881 18.2

1 971 4.8

2 300 16.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

2017
3.6 2.9 1.0

2006

2007

2008

2009

2010

2011

2012

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19

Guest houses and guest farms in South Africa
Room revenue for guest houses and guest farms rose 17.8% in 2012, the third consecutive double-digit increase. A 3.6% drop in the average room rate in 2012 was offset by a 22.2% jump in stay unit nights. With stay unit nights growing since 2009, more rooms were put on the market and the three-year decline in available rooms was reversed in 2012 with a 1.1% increase. We expect that the general improvement in the overall accommodation market will lead to continued growth in room availability with increases averaging 3.6% compounded annually to 11 000 in 2017 from 9 200 in 2012. The average room rate for guest houses was R665 in 2012, R65 lower than the average rate for a three-star hotel as this sector offers a better value alternative to hotels. We expect that price growth will be the principal driver of room revenue over the next five years, reversing the pattern in 2012.

20

Destination Africa

We forecast stay unit nights to increase by 1.8% compounded annually, while the average room rate will trend up at a 3.2% compound annual rate. With rates rising more slowly for guest houses than hotels, the average room rate for guest houses in 2017 will be 21% lower than for the average three-star hotel. Figure 13: Average room rates (R)
900 800 700 600 500 400 300 200 100 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Overall room revenue will rise from R1.5 billion in 2012 to R1.9 billion in 2017, a 5.1% gain compounded annually. Figure 14: Stay unit nights and total room revenue
3.0

2.5

2.0

1.5

1.0

0.5

0.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Stay unit nights (millions) Total room revenue (R billions)

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Guest houses/farms in South Africa
2013-17 CAGR (%)
3.6 1.8 3.2 5.1

2013

2014

2015

2016
10.6 5.0 2.4 4.3 61.9 745 4.9

Available rooms (thousands) % change Stay unit nights (millions) % change Occupancy rates (%) Average room rates (R) % change Total room revenue (R millions) % change

8.5 1.2 1.4 0.0 45.2 550 7.8

9.6 12.9 1.5 7.1 42.9 585 6.4

10.4 8.3 1.6 6.7 42.0 595 1.7

10.1 -2.9 1.6 0.0 43.4 579 -2.7

9.8 -3.0 1.7 6.3 47.5 620 7.1

9.1 -7.1 1.8 5.9 54.2 690 11.3

9.2 1.1 2.2 22.2 65.3 665 -3.6

9.4 2.2 2.2 0.0 64.1 670 0.8

9.7 3.2 2.3 4.5 65.0 680 1.5

10.1 4.1 2.3 0.0 62.3 710 4.4

11.0 3.8 2.4 0.0 59.7 780 4.7

770 7.8

878 14.0

952 8.4

926 -2.7

1 054 13.8

1 242 17.8

1 463 17.8

1 474 0.8

1 564 6.1

1 633 4.4

1 788 9.5

1 872 4.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

2017

2006

2007

2008

2009

2010

2011

2012

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Caravan/camping sites, bush lodges and other accommodation in South Africa

22

Destination Africa

The caravan/camping site, bush lodges and other accommodation market participated in the overall expansion in 2012, posting an 18.8% increase in room revenue, its largest gain during the past five years. This sector clearly appeals to cost conscious travellers. After falling by 9.0% in 2011, hurt by poor summer weather, stay unit nights rose 4.9% in 2012, helped by a good summer and a 3.9% increase in available rooms. Available rooms are much more flexible in this category and providers sometimes adjust the number of rooms they offer depending on demand. Without predicting weather patterns, we expect steady gains in stay unit nights during the next five years, averaging 1.5% compounded annually. This category has the lowest average room rate at R470 per night, 45% lower than the average hotel room rate. The average rate, however, has risen by double-digits over the past five years, including a 13.3% increase in 2012. We expect more modest increases in the future, with rate hikes averaging 8.1% compounded annually.

We expect room revenue to increase at a 9.8% compound annual rate to reach R4.8 billion in 2017 from R3 billion in 2012. Figure 15: Stay unit nights vs available rooms (millions)
8

6

4

2

0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Available rooms (millions) Stay unit nights (millions)

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Caravan/camping sites, bush lodges and other accommodation
2013-17 CAGR (%)
1.9 1.5 8.1 9.8

2013

2014

2015

2016
48.6 2.1

Available rooms (thousands) % change Stay unit nights (millions) % change Occupancy rates (%) Average room rates (R) % change Total room revenue (R millions) % change

45.4 5.8

46.5 2.4

46.7 0.4

46.9 0.4

44.8 -4.5

43.6 -2.7

45.3 3.9

46.0 1.5

46.7 1.5

47.6 1.9

5.7 5.6 34.4 220 12.8

6.2 8.8 36.5 260 18.2

6.3 1.6 36.9 290 11.5

6.6 4.8 38.6 320 10.3

6.7 1.5 41.0 370 15.6

6.1 -9.0 38.3 415 12.2

6.4 4.9 38.6 470 13.3

6.5 1.6 38.7 500 6.4

6.6 1.5 38.7 545 9.0

6.7 1.5 38.6 595 9.2

6.8 1.5 38.2 645 8.4

1 254 19.1

1 612 28.5

1 827 13.3

2 112 15.6

2 479 17.4

2 532 2.1

3 008 18.8

3 250 8.0

3 597 10.7

3 987 10.8

4 386 10.0

4 796 9.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen AssociatesFig

2017
49.7 2.3 6.9 1.5 38.0 695 7.8

2006

2007

2008

2009

2010

2011

2012

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Looking back: 2012

24

Destination Africa

In our previous Hospitality Outlook, released in July 2012, we forecast an occupancy rate of 51.3% for all accommodation sectors in 2012. However, given that the actual number of foreign and domestic travellers in 2012 (14.2 million) was marginally less than our forecast number of visitors (14.3 million), the industry achieved an occupancy rate slightly below this of 50.2%.

The decreased occupancy translated into 21.1 million stay unit nights for 2012 versus our forecast of 21.2 million stay unit nights. There was no difference in the occupancy rate forecast of 56.5% for the hotel sector. Total room revenue for the industry was R15.2 billion, compared to our forecast of R14.9 billion. This slight improvement is due to the actual average room rate being R718 as opposed to our forecast room rate of R701.

Figure 16: Actual vs forecast results for 2012
60

50

40

30

20

10

0

Occupancy (%) – all sectors

Occupancy (%) – hotels

Stay unit nights (millions)

Revenue (R billions)

Foreign & domestic visitors (millions)

Actual

Forecast

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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25

Outlook: 2013-2017

South Africa
Available rooms
The overall number of available rooms rose 1.5% in 2012 as the decline in hotels was offset by gains in the other categories. Beginning in 2012, we expect guest houses to be the fastest-growing category, averaging 3.6% compounded annually.

26

Destination Africa

We expect more modest increases in the other categories as rising occupancy rates spur cautious expansion. Overall, room availability is projected to increase at a 1.5% compound annual rate to 123 700 in 2017 from 114 900 in 2012. Figure 17: Available rooms (thousands)
70 60 50 40 30 20 10 0

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Guest houses and guest farms Caravan/camping sites, bush lodges and other accommodation Hotels

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Available rooms in South Africa (thousands)
2013-17 CAGR (%)
0.8 3.6 1.9 1.5

2013

2014

2015

2016
62.5 0.8 10.6 5.0

Hotels % change Guest houses/ guest farms % change Caravan/ camping sites, bush lodges and other accommodation % change Total % change

48.0 1.1 8.5 1.2

48.5 1.0 9.6 12.9

49.1 1.2 10.4 8.3

53.7 9.4 10.1 -2.9

58.8 9.5 9.8 -3.0

60.5 2.9 9.1 -7.1

60.4 -0.2 9.2 1.1

61.1 1.2 9.4 2.2

61.5 0.7 9.7 3.2

62.0 0.8 10.1 4.1

63.0 0.8 11.0 3.8

45.4 5.8 101.9 3.1

46.5 2.4 104.6 2.6

46.7 0.4 106.2 1.5

46.9 0.4 110.7 4.2

44.8 -4.5 113.4 2.4

43.6 -2.7 113.2 -0.2

45.3 3.9 114.9 1.5

46.0 1.5 116.5 1.4

46.7 1.5 117.9 1.2

47.6 1.9 119.7 1.5

48.6 2.1 121.7 1.7

49.7 2.3 123.7 1.6

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

2017

2006

2007

2008

2009

2010

2011

2012

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27

Stay unit nights
Stay unit nights rose in each category in 2012 and we expect continued gains over the next five years. However, we do not anticipate the rate of increase to match 2012, in line with a slower growth rate in foreign visitors. We project hotels to be the fastest-growing category over the next five years with a 4.8% compound annual increase. We predict increases in the other categories to average less than 2% annually.

Figure 18: Stay unit nights (millions)
18 16 14 12 10 8 6 4 2 0

2006 Hotels

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Guest houses and guest farms

Caravan/camping sites, bush lodges and other accommodation

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Stay unit nights in South Africa (millions)
2013-17 CAGR (%)
4.8 1.8 1.5 3.5

2013

2014

2015

2016
15.1 4.1 2.4 4.3

Hotels % change Guest houses/ guest farms % change Caravan/ camping sites, bush lodges and other accommodation % change Total % change

12.3 3.4 1.4 0.0

12.7 3.3 1.5 7.1

12.3 -3.1 1.6 6.7

10.9 -11.4 1.6 0.0

11.4 4.6 1.7 6.3

11.7 2.6 1.8 5.9

12.5 6.8 2.2 22.2

13.6 8.8 2.2 0.0

14.0 2.9 2.3 4.5

14.5 3.6 2.3 0.0

15.8 4.6 2.4 0.0

5.7 5.6 19.4 3.7

6.2 8.8 20.4 5.2

6.3 1.6 20.2 -1.0

6.6 4.8 19.1 -5.4

6.7 1.5 19.8 3.7

6.1 -9.0 19.6 -1.0

6.4 4.9 21.1 7.7

6.5 1.6 22.3 5.7

6.6 1.5 22.9 2.7

6.7 1.5 23.5 2.6

6.8 1.5 24.3 3.4

25.1 3.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

28

Destination Africa

2017
6.9 1.5

2006

2007

2008

2009

2010

2011

2012

Occupancy rates
Occupancy rates increased in each category in 2012, reflecting the increase in stay unit nights. We expect occupancy rates to continue to increase for hotels, rising to 68.7% by 2017. Hotels historically had the highest occupancy rates among the three categories, but because of the decrease in available guest house rooms, the occupancy rate for guest houses exceeded that of hotels in 2011 and will remain higher through to 2014. Beginning in 2015, we expect hotels once again to attain the highest occupancy rates. For guest houses, we project occupancy rates to edge downward from 2013 although they will remain higher than they were during 2008-2010. We expect occupancy rates for caravan/camping sites, bush lodges and other accommodation to be relatively steady over the next five years. Occupancy rates in South Africa (%)
2006
Hotels Guest houses/ guest farms Caravan/ camping sites, bush lodges and other accommodation Total 70.3 45.2

Figure 19: Occupancy rates (%)
80 70 60 50 40 30 20 10 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Hotels Guest houses and guest farms

Caravan/camping sites, bush lodges and other accommodation

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

2007
71.8 42.9

2008
68.4 42.0

2009
55.6 43.4

2010
53.1 47.5

2011
53.0 54.2

2012
56.5 65.3

2013
61.0 64.1

2014
62.4 65.0

2015
64.1 62.3

2016
66.0 61.9

2017
68.7 59.7

34.4 52.2

36.5 53.4

36.9 52.0

38.6 47.3

41.0 47.8

38.3 47.4

38.6 50.2

38.7 52.4

38.7 53.2

38.6 53.8

38.2 54.5

38.0 55.6

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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29

Average room rates
There is a large disparity in average room rates between the three categories of accommodation, as each component occupies a niche and targets different visitors. Hotels appeal to business travellers and the high-end vacation market. Guest houses and guest farms target consumers looking for comfortable accommodation and local flavour. They also attract many budget conscious business travellers. Caravan and camping sites market to people looking for inexpensive accommodation, while game/bush lodges appeal to visitors interested in outdoor activities. Caravan/camping sites, bush lodges and other accommodation will continue to be the fastest-growing category, averaging 8.1% compounded annually, but this growth will represent a slower increase compared with the double-digit annual gains seen during the past five years. Average rates for hotels are expected to rise at a 4.5% compound annual rate, while guest houses will be the slowest-growing category, with a projected 3.2% compound annual increase. Figure 20: Average room rates (R)
1 200

1000

800

600

400

200

0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Caravan/camping sites, bush lodges and other accommodation Guest houses and guest farms Hotels

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Average room rates in South Africa (R)
2013-17 CAGR (%)
4.5 3.2 8.1 5.4

2013

2014

2015

2016
1 020 4.6 745 4.9

Hotels % change Guest houses/ guest farms % change Caravan/ camping sites, bush lodges and other accommodation % change Total % change

580 11.5 550 7.8

665 14.7 585 6.4

775 16.5 595 1.7

810 4.5 579 -2.7

905 11.7 620 7.1

820 -9.4 690 11.3

855 4.3 665 -3.6

890 4.1 670 0.8

930 4.5 680 1.5

975 4.8 710 4.4

1 065 4.4 780 4.7

220 12.8 472 11.1

260 18.2 536 13.6

290 11.5 610 13.8

320 10.3 621 1.8

370 15.6 699 12.6

415 12.2 682 -2.4

470 13.3 718 5.3

500 6.4 755 5.2

545 9.0 794 5.2

595 9.2 841 5.9

645 8.4 888 5.6

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

30

Destination Africa

2017
695 7.8 936 5.4

2006

2007

2008

2009

2010

2011

2012

Total room revenue
Hotels will continue to generate the majority of accommodation revenue during the next five years. Growth will average 9.5% compounded annually. It is estimated that hotels will comprise 71.6% of spending in 2017. Caravan/camping sites, bush lodges and other accommodation is projected to grow at a somewhat faster 9.8% compound annual rate, and will be the fastest-growing category, raising its share of the market from 19.8% in 2012 to 20.4% in 2017. Guest houses and guest farms is projected to be the slowest-growing component of the overall accommodation market with a 5.1% compound annual increase, dropping its share of total spending to 8.0% in 2017 from 9.7% in 2012. Figure 21: Total room revenue (R millions)
18 000 16 000 14 000 12 000 10 000 8 000 6 000 4 000 2 000 0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Hotels Guest houses and guest farms

Caravan/camping sites, bush lodges and other accommodation

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Total room revenue in South Africa (R millions)
2013-17 CAGR (%)
9.5 5.1 9.8 9.2

2013

2014

2015

2016
8.9 1 788 9.5

Hotels % change Guest houses/guest farms % change Caravan/ camping sites, bush lodges and other accommodation % change Total % change

7 134 15.3 770 7.8

8 446 18.4 878 14.0

9 533 12.9 952 8.4

8 829 10 317 -7.4 926 -2.7 16.9 1 054 13.8

9 594 10 688 12 104 13 020 14 138 15 402 16 827 -7.0 1 242 17.8 11.4 1 463 17.8 13.2 1 474 0.8 7.6 1 564 6.1 8.6 1 633 4.4 9.3 1 872 4.7

1 254 19.1 15.1

1 612 28.5 19.4

1 827 13.3 12.6

2 112 15.6 -3.6

2 479 17.4 16.7

2 532 2.1 -3.5

3 008 18.8 13.4

3 250 8.0 11.0

3 597 10.7 8.0

3 987 10.8 8.7

4 386 10.0 9.2

4 796 9.3 8.9

9 158 10 936 12 312 11 867 13 850 13 368 15 159 16 828 18 181 19 758 21 576 23 495

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

2017

2006

2007

2008

2009

2010

2011

2012

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Hotel accommodation in Nigeria

The hotel market in Nigeria grew 10.3% in 2012 and by a cumulative 45.7% since 2009. Growth has been fuelled by a surging economy and large increases in the number of rooms to accommodate foreign corporate visitors. Nigeria has an energy-based economy – oil and natural gas production – that has grown rapidly in real terms. Real GDP increased 6.3% in 2012 and by a cumulative 39.8% over the past five years, making Nigeria one of the fastest-growing economies in the world. The hotel market in Nigeria is almost entirely corporate driven, as companies around the world seek to do business in Nigeria, Africa’s most populous country.

32

Destination Africa

Recent hotel openings in Nigeria include the Radisson Blu Anchorage (Rezidor), Starwood’s Four Points (Sheraton), Best Western, InterContinental, Ibis, Legacy and Golden Tulip. Several hotel chains currently have hotels under construction or in the planning stage, including Accor, Hilton, IHG, Kempinski, Mantis, Marriott and Wyndham. The Protea Hotels Group currently manages 11 hotels in Nigeria and is planning to increase this to 16 in the next three years. Tsogo Sun entered into an agreement to acquire 75% of Ikoyi Hotels Limited, the holding company of the Southern Sun Ikoyi, which it has managed since 2009. Over the past three years, the number of available hotel rooms in Nigeria has risen by 27%. Even with the increase in capacity, occupancy rates edged up as stay unit nights over the same period increased by a third. Despite these gains, the hotel market in Nigeria is operating well below its potential. The infrastructure in Nigeria is inadequate, which raises costs and makes Nigeria a very expensive market, limiting business travel. There is also political instability, which creates security concerns and discourages tourists from visiting Nigeria. Real GDP growth (%)

With respect to the infrastructure, uncertainty regarding electricity is a major concern. While outages are common voltage fluctuations can be even more damaging as surges and brownouts can damage expensive equipment. Consequently, hotels have to have their own generators and approximately 30% of revenue is used for alternative power supplies. Other problems include a limited supply of skilled labour and delays in getting government permits, which also adds to costs. The government is taking steps to address this problem by improving the power supply and establishing an US$2 billion fund to raise the hospitality sector to international standards. Private equity funds also are being established to invest in mid-priced business hotels. Increased funding, more reliable power and improved quality will benefit the hotel market in Nigeria. Improvements in infrastructure and continued economic growth are attracting investors. The IMF projects real GDP in Nigeria to increase at a 7.1% compound annual rate, well above the global average. Nigeria’s strong economy makes it an attractive market for business travellers and for hotel operators.

Nigeria Global

6.0 2.8

7.0 -0.6

8.0 5.2

7.4 4.0

6.3 3.2

7.2 3.3

7.0 4.0

7.0 4.4

7.0 4.5

7.1 4.5

Sources: International Monetary Fund, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Figure 22: Real GDP growth (%)
9 8 7 6 5 4 3 2 1 0 -1 -2 2008 Nigeria 2009 2010 2011 2012 2013 Global 2014 2015 2016 2017

Source: International Monetary Fund

PwC

2013-17 CAGR (%)
7.1 4.1

2013

2014

2015

2016

2017

2008

2009

2010

2011

2012

33

The average room rate in Nigeria was US$275 (R2 544) in 2012, three times the average rate for all hotels in South Africa and 43% higher than the average rate for a five-star hotel in South Africa. Hotel operators are flocking to Nigeria. Hawthorne Suites is in the process of building 49 hotels in Nigeria with a total of nearly 7 500 rooms. Marriott is building the Lagos Marriott Hotel with 150 rooms, which is scheduled to open in 2016. Starwood is planning to open three new hotels, which will raise its total in Nigeria to nine. One of Starwood’s new hotels is a 7-star hotel planned for Lagos at a cost of US$350 million. Currently, Dubai has the only 7-star hotel in the world, the Burj Al Arab, although another one, Bahia Fenicia, is being built in Spain. International financing will also spur hotel investment. The International Finance Corporation (IFC), a member of the World Bank Group, is understood to be lending approximately US$12 million in investment funding to build two three-star hotels, one in Lagos and the other in Benin City, which are expected to be managed by the Protea Hotels Group. Over the past few years, stay unit nights have more than kept pace with the growth in room numbers and we expect this pattern to continue with stay unit nights rising at a 26.6% compound annual rate to 5.2 million in 2017 from 1.6 million in 2012. We expect improvements in Nigeria’s infrastructure to ease cost pressures and lead to slower growth in average room rates during the latter part of the forecast period. However, room rates in early 2013 were already showing a jump compared with 2012. The average hotel room in 2017 is projected to cost US$338 (R3 126), a 4.2% compound annual increase from 2012. These and other investments will lead to explosive growth in room availability in Nigeria. We project the number of hotel rooms to nearly triple during the next five years, growing from 8 000 in 2012 to 21 000 in 2017, a 21.3% compound annual increase.

Overall hotel room revenue is expected to expand at a 31.9% compound annual rate to US$1.8 billion (R16.3 billion) in 2017 from US$440 million (R4.1 billion) in 2012. Figure 23: Available rooms (thousands)

25

20

15

10

5

0

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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Destination Africa

Occupancy rates are expected to rise from 54.6% in 2012 to an estimated 67.8% in 2017. Figure 24: Occupancy rates (%)

70

65

60

55

50

45

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Hotels in Nigeria
2013-17 CAGR (%)
21.3 26.6 4.2 31.9

2013

2014

2015

2016

Available rooms (thousands) % change Stay unit nights (millions) % change Occupancy rates (%) Average room rates (US$) % change Total room revenue (US$ millions) % change

6.1 5.2 1.4 7.7 62.7 232 18.4

6.3 3.3 1.2 -14.3 52.2 252 8.6

7.1 12.7 1.3 8.3 50.2 248 -1.6

7.9 11.3 1.5 15.4 52.0 266 7.3

8.0 1.3 1.6 6.7 54.6 275 3.4

8.1 1.3 1.8 12.5 60.9 295 7.3

9.0 11.1 2.1 16.7 63.9 309 4.7

12.5 38.9 3.0 42.9 65.8 322 4.2

16.5 32.0 4.0 33.3 66.2 331 2.8

325 27.5

302 -6.9

322 6.6

399 23.7

440 10.3

531 20.7

649 22.2

966 48.9

1 324 37.1

1 758 32.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

2017
21.0 27.3 5.2 30.0 67.8 338 2.1

2008

2009

2010

2011

2012

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We have combined the data for three and four-star hotels in Nigeria. These hotels accounted for 54% of total available rooms and 56% of stay unit nights in 2012. The average room rate was $297 (R2 747) in 2012, 8% higher than the overall average and comparable to the average rate for a five-star hotel in Mauritius. Figure 25: Stay unit nights (millions)
6

We expect the three and four-star market to mirror trends in the overall market. Available rooms will increase at a 19.1% compound annual rate to 10 300 from 4 300 in 2012. Stay unit nights is expected to triple from 900 000 in 2012 to 2.7 million by 2017. This is a 24.6% compound annual increase, which is expected to raise the average occupancy rate to 71.8% in 2017 from 57.2% in 2012. Figure 26: Occupancy rates: three-, and four-star hotels (%)
75

5 70 4 65

3

2

60

1

55

0

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

50

Three/four-star hotels

Other hotels

Total hotels

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Three and four-star hotels in Nigeria
2013-17 CAGR (%)
19.1 24.6 4.0 29.6

2013

2014

2015

2016

Available rooms (thousands) % change Stay unit nights (millions) % change Occupancy rates (%) Average room rates (US$) % change Total room revenue (US$ millions) % change

3.7 2.8 0.8 0.0 59.1 232 17.2

3.7 0.0 0.7 -12.5 51.8 264 13.8

3.8 2.7 0.8 14.3 57.7 271 2.7

4.2 10.5 0.9 12.5 58.7 292 7.7

4.3 2.4 0.9 0.0 57.2 297 1.7

4.3 0.0 1.0 11.1 63.7 315 6.1

4.6 7.0 1.1 10.0 65.5 330 4.8

6.3 37.0 1.6 45.5 69.6 343 3.9

8.2 30.2 2.1 31.3 70.0 354 3.2

10.3 25.6 2.7 28.6 71.8 361 2.0

186 17.7

185 -0.5

217 17.3

263 21.2

267 1.5

315 18.0

363 15.2

549 51.2

743 35.3

975 31.2

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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Destination Africa

2017

2008

2009

2010

2011

2012

The average room rate is projected to increase by 4.0% compounded annually to $361 (R3 339), boosting total room revenue to $975 million (R9 billion) from $267 million (R2.5 billion) in 2012, a 29.6% gain compounded annually. Figure 27: Average room rates (US$)

400 350 300 250 200 150 100 50 0

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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Hotel accommodation in Mauritius
Mauritius is a resort destination and most of its hospitality business is generated by holiday travellers. Consequently, the state of the global economy plays a much more important role than the local economy in the industry’s success. Tourism is a key element in the Mauritian economy and it provides a major source of foreign exchange for the country. While hotel infrastructure is well developed, hotels are facing growing competition from bungalows and guest houses that currently attract 30% of the tourist market.

38

Destination Africa

The cost of air travel and the distance between Mauritius and the markets of Europe, the Americas and the Asia-Pacific region is becoming an increasing challenge. The situation was exacerbated in 2012 by Air Mauritius’ decision to discontinue some routes as a costsaving measure. The decrease in flights hurt tourism and contributed to a drop in stay unit nights.

Mauritius is also facing increased competition from resort destinations in the Maldives, Sri Lanka and the Seychelles. In recent years, tourist arrivals to those three countries have grown much faster than those to Mauritius. Flights from Europe to Mauritius are generally more expensive per air mile than flights to the Seychelles and the Maldives. Taxes and fees account for a large proportion of the ticket cost to Mauritius, contributing to the higher prices.

In 2012, tourist arrivals remained essentially flat and the 0.1% gain was the weakest growth over the past five years, except for the downturn in 2009. The slowdown in 2012 was caused by a sharp decline in arrivals from Europe, which was offset by double-digit gains from Africa, Asia-Pacific and the Americas.

Figure 28: Tourist arrivals (thousands)

1 200

1 000

800

600

400

200

0

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Tourist arrivals to Mauritius (thousands)
2013-17 CAGR (%)
2.2

2013

2014

2015

2016

2008

2009

2010

2011

Tourist arrivals % change

930.5 2.6

871.4 -6.4

934.8 7.3

964.6 3.2

965.4 0.1

2012

970.0 0.5

980.0 1.0

1 000.0 2.0

1 030.0 3.0

1 075.0 4.4

Note: Figures include arrivals from non-specified countries Sources: Ministry of Finance and Economic Development, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

2017

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The majority of tourists to Mauritius come from Europe with more visitors coming from France than from any other country, reflecting the historical ties between the two countries. France alone accounted for 27% of all tourist arrivals in 2012, but this was down from 31% in 2011. Double-digit decreases in arrivals in 2012 were also recorded from Italy and the Netherlands, while visitors from Austria and Belgium declined at high single-digit rates. The glaring exception was Russia, which, boosted by a strengthening economy, generated 59% more visitors in 2012 than in 2011, albeit off a low base. Tourist arrivals to Mauritius from Europe
2011
Austria Belgium France Germany Italy Netherlands Spain Sweden Switzerland United Kingdom Russia Other Total Europe 8 822 12 029 302 004 56 331 52 747 5 179 9 801 4 325 24 362 88 182 12 224 33 642 609 648

After Europe, the next-largest source of tourists was from Africa, led by nearby Réunion with more than 139 000 visitors and South Africa with more than 89 000. Overall, tourist arrivals from Africa increased 14.7% in 2012. Tourist arrivals to Mauritius from Africa
2011
Comoros Kenya Madagascar Réunion Seychelles South Africa Zimbabwe Other Total 969 1 914 11 449 113 000 8 485 86 232 1 495 7 630 231 174

2012
1 076 2 705 13 563 139 169 6 779 89 058 1 568 11 297 265 215

% change
11.0 41.3 18.5 23.2 -20.1 3.3 4.9 48.1 14.7

2012
8 151 10 967 262 100 55 186 40 009 4 434 9 473 4 295 26 002 87 648 19 429 33 005 560 699

% change
-7.6 -8.8 -13.2 -2.0 -24.1 -14.4 -3.3 -0.7 6.7 -0.6 58.9 -1.9 -8.0

Source: Ministry of Finance and Economic Development

There was a 13.3% increase in tourist arrivals from the Asia-Pacific region in 2012, with India, China and Australia being the leading countries. While growth from India was only 2.3%, the number of tourists from China rose 38.0%, a 5 752 increase. Visitors from Australia grew by 8.2% while more than 5 000 tourists came from the United Arab Emirates in 2012, a 42.9% increase. Tourist Arrivals to Mauritius from Asia-Pacific
2011
Australia Hong Kong India Japan Malaysia China Singapore United Arab Emirates Other Total 15 726 593 53 955 1 545 1 989 15 133 2 461 3 780 12 636 107 818

Source: Ministry of Finance and Economic Development

2012
17 009 1 269 55 197 1 641 1 967 20 885 2 078 5 403 16 750 122 199

% change
8.2 114.0 2.3 6.2 -1.1 38.0 -15.6 42.9 32.6 13.3

The Mauritian experience in 2012 differed from that of South Africa where visitor numbers from Europe were up nearly 10%, highlighting the contrast between the resort and business markets.

Source: Ministry of Finance and Economic Development

40

Destination Africa

The Americas are not a significant source of tourists to Mauritius, but 2012 saw a 21.8% increase from Canada, which was offset by a 7.2% decline from the United States. The total number of tourists from the Americas rose 15.4% in 2012, including a 51.0% increase in visitors from Central and Latin America. Tourist arrivals to Mauritius from the Americas
2011
United States Canada Central and Latin America Total 6 870 3 887 3 651 14 408

2012
6 374 4 736 5 514 16 624

% change
-7.2 21.8 51.0 15.4

Source: Ministry of Finance and Economic Development

Improving economic conditions in Europe, and globally in general, should limit declines in tourism from that region and lead to faster growth in tourist arrivals in Mauritius. Real GDP growth (%)
2013-17 CAGR (%)
4.4 4.1

2013

2014

2015

2016

Mauritius Global

5.5 2.8

3.0 -0.6

4.1 5.2

3.8 4.0

3.3 3.2

3.7 3.3

4.4 4.0

4.7 4.4

4.6 4.5

Sources: International Monetary Fund, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Global real GDP is expected to rise by 4.1% compounded annually and we project tourist arrivals to Mauritius to increase at a 2.2% compound annual rate through to 2017. Figure 29: Real annual GDP growth (%)
6 5 4 3 2 1

0 -1

2008

2009

2010

2011

2012

2013 Global

2014

2015

2016

2017

Mauritius

Source: International Monetary Fund

2017
4.5 4.5

2008

2009

2010

2011

2012

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Hotel performance
The number of available hotel rooms increased by 13% between 2008 and 2012, a slower gain compared with the 23% increase in South Africa and the 31% gain in Nigeria over the same period. In 2012, the number of available rooms increased 5% and a number of projects currently underway mean there will further growth in room availability. We project the number of available hotel rooms to increase at a 4.3% compound annual rate to 15 400 in 2017 from 12 500 in 2012. The slowdown in tourist arrivals contributed to a 3.4% decline in stay unit nights in 2012. With declines continuing in early 2013, we project a 3.6% drop for the year as a whole. We then look for the market to rebound as foreign tourist arrivals begin to pick up. We project stay unit nights for the forecast period as a whole to rise from 2.8 million in 2012 to 3.2 million in 2017, a 2.7% compound annual increase. The average occupancy rate will drop from 61.2% in 2012 to 56.9% in 2017. As a resort destination, the average room rate in Mauritius is much more expensive than the typical hotel in South Africa. The average hotel room in Mauritius costs €166 (R2 005), more than twice the level in South Africa and 13% higher than South Africa’s average fivestar room rate. The average room rate in 2012 was 9% lower than in 2008, reflecting discounting, principally among five-star hotels, special holiday offers and combined packages with airlines that lead to reduced rates for hotels. These reductions were made in response to the recession and were intended to help sustain tourism in the face of falling demand. Rates were up significantly in early 2013 and we project a 16.9% increase for the year as a whole. We then expect rates to grow by mid-single digits to €238 (R2 874) in 2017, a 7.5% compound annual increase from 2012. Hotel room revenue in Mauritius is expected to increase from €465 million (R5.6 billion) in 2012 to a projected €762 million (R9.2 billion) in 2017, growing at a 10.4% compound annual rate. Figure 30: Occupancy rates (%)
70

60

50

40

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Figure 31: Average room rate (€)
250

200

150

100

50

0

2009

2010

2011

2012

2013

2014

2015

2016

2017

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

42

Destination Africa

Hotels in Mauritius
2013-17 CAGR (%)
4.3 2.7 7.5 10.4

2013

2014

2015

2016

2008

2009

2010

2011

Available rooms (thousands) % change Stay unit nights (millions) % change Occupancy rates (%) Average room rates (€) % change Total room revenue (€ millions) % change

11.1 0.9 2.7 3.8 66.5 182 -1.1

11.5 3.6 2.6 -3.7 61.9 174 -4.4

12.1 5.2 2.9 11.5 65.7 157 -9.8

11.9 -1.7 2.9 0.0 66.8 159 1.3

12.5 5.0 2.8 -3.4 61.2 166 4.4

2012

12.8 2.4 2.7 -3.6 57.8 194 16.9

13.3 3.9 2.8 3.7 57.7 204 5.2

14.0 5.3 2.9 3.6 56.8 214 4.9

14.7 5.0 3.0 3.4 55.8 226 5.6

15.4 4.8 3.2 6.7 56.9 238 5.3

491 2.7

452 -7.9

455 0.6

461 1.3

465 0.8

524 12.7

571 9.1

621 8.6

678 9.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

2017
762 12.3

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Five-star hotels
Compared with South Africa, relatively high room rates in Mauritius reflect the high concentration of five-star hotels, which in turn reflects the role of Mauritius as a resort destination. Five-star hotels accounted for 40% of the available rooms in Mauritius in 2012 and 49% of total hotel room revenue, compared with only 5% percent of available rooms in South Africa and 12% of total hotel room revenue. The average room rate for five-star hotels has declined as hotels have discounted rates to attract tourists. The average room rate for a five-star hotel in 2012 was €226, 24% lower than in 2008. With stay unit nights trending upward for five-star hotels in recent years, hotels began raising rates in early 2013. We expect that for the year as a whole, the average five-star hotel will cost €245 (R2 959) per night. The increase in five-star rates is driving the large gain in the overall average rate in 2013. With economic conditions expected to improve over the next five years, we expect a return to mid-singledigit growth in the average room rate beginning in 2014. By 2017, the average five-star hotel will cost €301 (R3 635), up 5.9% compounded annually from 2012. Helped by declining room rates, stay unit nights were up for five-star hotels over the past three years, including an increase in 2012. With room rates expected to increase, we look for smaller gains in stay unit nights averaging 5.4% compounded annually. Total room revenue for five-star hotels will increase by a projected 11.6% compounded annually to €391 million (R4.7 billion) in 2017 from €226 million (R2.7 billion) in 2012. Figure 32: Average room rates for five-star hotels (€)

350 300 250 200 150 100

50 0

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Five-star hotels in Mauritius
2013-17 CAGR (%)
4.7 5.4 5.9 11.6

2013

2014

2015

2016

Available rooms (thousands) % change Stay unit nights (millions) % change Occupancy rates (%) Average room rates (€) % change Total room revenue (€ millions) % change

4.3 4.9

4.4 2.3

4.5 2.3

4.8 6.7

5.0 4.2

5.2 4.0

5.4 3.8

5.7 5.6

6.0 5.3

0.9 0.0 57.2 296 -8.1

0.7 -22.2 43.6 276 -6.8

0.8 14.3 48.7 245 -11.2

0.9 12.5 51.4 235 -4.1

1.0 11.1 54.6 226 -3.8

1.0 0.0 52.7 245 8.4

1.0 0.0 50.7 257 4.9

1.1 10.0 52.9 270 5.1

1.2 9.1 54.6 285 5.6

56.5 301 5.6

266 -8.3

193 -27.4

196 1.6

212 8.2

226 6.6

245 8.4

257 4.9

297 15.6

342 15.2

391 14.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

44

Destination Africa

2017
6.3 5.0 1.3 8.3

2008

2009

2010

2011

2012

Three and four-star hotels
We have combined data for three and four-star hotels in Mauritius. Stay unit nights were down for this segment of the market in 2012. We expect a flat market in 2013 followed by modest increases as foreign tourism grows. Stay unit nights will average 4.6% growth compounded annually for the forecast period as a whole. The average room rate for three and four-star hotels was also lower in 2012 than in 2008, although the decrease was much less severe than for five-star establishments. In early 2013, however, discounting led to an 8.0% drop. Figure 33: Total room revenue comparison (€ millions)
900

We expect room rates to expand as the global economy improves and tourism increases. The average rate is expected to rise from €113 (R1 365) in 2012 to €118 (R1 425) in 2017, a 0.9% compound annual increase. Overall room revenue for three and four-star hotels is projected to increase at a 5.4% compound annual rate to €177 million (R2.1 billion) in 2017 from €136 million (R1.6 billion) in 2012.

Figure 34: Stay unit nights comparison (millions)

3.5 3.0 2.5

600 2.0 1.5 300 1.0 0.5 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

0

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Three and four-star hotels Other hotels

Five-star hotels Total

Three and four-star hotels Other hotels

Five-star hotels Total hotels

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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Three and four-star hotels in Mauritius
2013-17 CAGR (%)
3.9 4.6 0.9 5.4

2013

2014

2015

2016

Available rooms (thousands) % change Stay unit nights (millions) % change Occupancy rates (%) Average room rates (€) % change Total room revenue (€ millions) % change

6.0 0.0

6.2 3.3

6.3 1.6

6.6 4.8

6.6 0.0

6.7 1.5

7.0 4.5

7.4 5.7

7.7 4.1

1.1 -8.3 50.1 116 0.0

1.0 -9.1 44.2 121 4.3

1.1 10.0 47.8 106 -12.4

1.3 18.2 54.0 112 5.7

1.2 -7.7 49.7 113 0.9

1.2 0.0 49.1 104 -8.0

1.3 8.3 50.9 105 1.0

1.3 0.0 48.1 108 2.9

1.4 7.7 49.7 112 3.7

51.4 118 5.4

128 -7.9

121 -5.5

117 -3.3

146 24.8

136 -6.8

125 -8.1

137 9.6

140 2.2

157 12.1

177 12.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

46

Destination Africa

2017
8.0 3.9 1.5 7.1

2008

2009

2010

2011

2012

Outlook: 2013-2017 Nigeria and Mauritius
Mauritius is currently a much more developed market than Nigeria in virtually all categories. However, we expect Nigeria to overtake Mauritius over the next five years to become the larger market.

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Available hotel rooms
Mauritius had 56% more hotel rooms in 2012 than Nigeria. Because of the expected building boom in Nigeria, we expect its total number of hotel rooms to jump dramatically in the next few years, overtaking Mauritius in 2016 and having 36% more rooms than Mauritius by 2017. Although we expect stay unit nights to more than keep pace with room availability, there is always the danger that a large increase in supply can lead to falling occupancy rates if economic conditions should change. The market in Mauritius is mature and we expect much slower growth in available rooms over the next five years. Figure 35: Available hotel rooms (thousands)
25

20

15

10

5

0

2008 Nigeria

2009

2010

2011

2012

2013 Mauritius

2014

2015

2016

2017

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Available hotel rooms in Nigeria and Mauritius (thousands)
2013-17 CAGR (%)
21.3 4.3
2016 2017

2013

2014

2015

2016

Nigeria % change Mauritius % change

6.1 5.2 11.1 0.9

6.3 3.3 11.5 3.6

7.1 12.7 12.1 5.2

7.9 11.3 11.9 -1.7

8.0 1.3 12.5 5.0

8.1 1.3 12.8 2.4

9.0 11.1 13.3 3.9

12.5 38.9 14.0 5.3

16.5 32.0 14.7 5.0

21.0 27.3 15.4 4.8

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Hotel stay unit nights
Mauritius had 75% more stay unit nights in 2012 than Nigeria. Nigeria’s booming economy combined with the expected increase in hotel rooms will lead to large projected increases in stay unit nights. We project stay unit nights in Nigeria to surpass Mauritius in 2015 and to be 63% larger in 2017. We expect the decline in stay unit nights experienced in Mauritius in 2012 to continue in 2013 before the market recovers. Growth, however, is expected to remain relatively modest. Figure 36: Stay unit nights comparison (millions)
6

5

4

3

2

1

0

2008 Nigeria

2009

2010

2011

2012

2013 Mauritius

2014

2015

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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2017

2008

2009

2010

2011

2012

Hotel stay unit nights in Nigeria and Mauritius (millions)
2013-17 CAGR (%)
26.6 2.7
2016 2017

2013

2014

2015

2016

Nigeria % change Mauritius % change

1.4 7.7 2.7 3.8

1.2 -14.3 2.6 -3.7

1.3 8.3 2.9 11.5

1.5 15.4 2.9 0.0

1.6 6.7 2.8 -3.4

1.8 12.5 2.7 -3.6

2.1 16.7 2.8 3.7

3.0 42.9 2.9 3.6

4.0 33.3 3.0 3.4

30.0 3.2 6.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Hotel occupancy rates
Occupancy rates in Mauritius have been higher than in Nigeria over the past five years, although they have declined in both countries since 2008. We expect an increase in occupancy rates in Nigeria in 2013, which will put it ahead of Mauritius, where we anticipate a further decline. We expect occupancy rates in Nigeria to continue to be higher than in Mauritius throughout the forecast period. Figure 37: Hotel occupancy rates comparison (%)
80

70

60

50

40

2008 Nigeria

2009

2010

2011

2012

2013 Mauritius

2014

2015

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Hotel occupancy rates in Nigeria and Mauritius (%)
2008
Nigeria Mauritius 62.7 66.5

2009
52.2 61.9

2010
50.2 65.7

2011
52.0 66.8

2012
54.6 61.2

2013
60.9 57.8

2014
63.9 57.7

2015
65.8 56.8

2017
5.2

2008

2009

2010

2011

2012

2016
66.2 55.8

2017
67.8 56.9

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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Average room rates
Despite the large number of five-star hotels in Mauritius, the average hotel room in Nigeria cost 27% more than in Mauritius in 2012, reflecting the high cost structure in Nigeria. Five-star hotels in Mauritius have been cutting rates over the past five years to help sustain business in the face of a weak global economy. Nevertheless, we expect average room rates to now grow faster in Mauritius than in Nigeria. We expect rates for five-star hotels in Mauritius to begin to increase in 2013, which will propel the overall average by 7.5% on a compound annual basis, compared with a projected 4.2% compound annual increase in Nigeria. Despite a faster growth rate in Mauritius, we still expect Nigeria to be 8% more expensive than Mauritius in 2017. Figure 38: Average room rates comparison (R)
3 500

3 000

2 500

2 000

1 500

000

2008 Nigeria

2009

2010

2011

2012

2013 Mauritius

2014

2015

2016

2017

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Average hotel room rates in Nigeria and Mauritius (R)
2013-17 CAGR %
4.2 7.5

2013

2014

2015

2016

Nigeria % change Mauritius % change

2 146 18.4 2 198 -1.1

2 331 8.6 2 101 -4.4

2 294 -1.6 1 896 -9.8

2 460 7.3 1 920 1.3

2 544 3.4 2 005 4.4

2 728 7.3 2 343 16.9

2 858 4.7 2 464 5.2

2 978 4.2 2 584 4.9

3 061 2.8 2 729 5.6

3 126 2.1 2 874 5.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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2008

2009

2010

2011

2012

.

Hotel room revenue
Hotels in Mauritius generated 37% more room revenue in 2012 than hotels in Nigeria. However, hotel room revenue in Nigeria is forecast to grow much faster than in Mauritius. We expect Nigeria to overtake Mauritius in 2015 and to be 76% larger in 2017. Combined hotel room revenue is expected to increase from R9.7 billion in 2012 to a projected R25.5 billion in 2017, growing by 21.3% on a compound annual basis. Figure 39: Total room revenue (R millions)
18 000 16 000 14 000 12 000 10 000 8 000 6 000 4 000 2 000 0

2008 Nigeria

2009

2010

2011

2012

2013 Mauritius

2014

2015

2016

2017

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Hotel room revenue in Nigeria and Mauritius (R millions)
2013-17 CAGR(%)
31.9 10.4

2013

2014

2015

2016

Nigeria % change Mauritius % change

3 006 27.5 5 929 2.7

2 793 -6.9 5 458 -7.9

2 978 6.6 5 495 0.6

3 690 23.7 5 568 1.3

4 070 10.3 5 615 0.8

4 911 20.7 6 329 12.7

6 002 22.2 6 895 9.1

8 935 48.9 7 499 8.6

12 246 37.1 8 188 9.3

16 260 32.7 9 202 12.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

2017

2008

2009

2010

2011

2012

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Conclusion
South Africa experienced encouraging growth in overall room revenue in 2012. As demand increased and supply remained unchanged, this gave rise to increased occupancy rates as well as higher average room rates being achieved during 2012. Five years on from the financial crisis, there are signs that the world economic environment is beginning to stabilise in certain parts of the world and this is evidenced by the increase in foreign visitors to South Africa. South Africa, with its wide range of hospitality offerings, attractions and history, is well placed to take advantage of these improving economic conditions in both the business and leisure tourism markets. Nigeria’s booming economy has led it to become an extremely attractive market for all major hotel operators and we expect to see faster growth in available rooms as the major industry players invest heavily in Nigeria on the back of the Nigerian Government’s investment in infrastructure in the country. While Mauritius has an established tourism sector, we expect to see further pressure on occupancy and room rates during 2013 before turning around in 2014. Local and international hotel operators continue to extract value in Africa’s developing economies with major developments planned in Nigeria.

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The voice of the guest

Stronger than ever in the online environment

The online environment has changed guest behaviour, placing significantly more importance on delivering an exceptional guest experience every time.

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In the past, discussion of people’s experiences of business and leisure accommodation was limited to speaking to a few friends, either in-person or perhaps over the phone. Today, the voice of the guest reaches a lot further in the online environment and all classes of accommodation are experiencing the consequences of this. With the proliferation of social media, platforms like Facebook, Twitter and personal blogs are now commonly used to comment on lifestyle experiences, including where they have stayed. Both guests who had good experiences (promoters) and those who had bad experiences (detractors) can now comment, tweet or blog about them. Their views can be shared and passed on by a multitude of friends and followers. Furthermore, in the online environment, sites such as TripAdvisor, with more than 200 million unique monthly visitors1, can be used to find recommendations of places to stay and view other guests’ commentary on them.

In order to optimise relationships with guests and define what they want, it is important to understand both why guests value what they do and their willingness to pay for it. By analysing these experiences hospitality businesses can choose to either raise the floor (incremental improvement) or raise the roof (transformational change). Many bad experiences are driven by basics such as a lack of cleanliness, including bad odours, poor staff attitude and support and unacceptable noise levels. Despite these findings, many leading hotels are still spending mainly on renovation and upgrades.

The power of the voices of promoters and detractors
A positive experience can create a devoted guest, who in turn becomes a brand ambassador. Ambassadors are not only loyal, engaged guests, but can also be an establishment's best friends and marketers: buyers of services and active sellers of these services.3 Promoters can now post comments on Facebook, tweet, blog and give excellent ratings on TripAdvisor. They can also defend hospitality businesses from brand detractors.2 Conversely, if guests have a negative experience, they can potentially become brand detractors. Most detractors share bad experiences with others within a month or less. If issues are not resolved before guests walk out the door, there can be negative repercussions since guests are not likely to come back after a bad experience. Furthermore, they will make sure to let their whole social network know of their bad experience. In contrast, well-handled problem resolution at the time an issue arises has the potential to rescue the situation and convert a detractor into a promoter. It is therefore important to make it easy for guests to complain, so that problems can be addressed promptly and guests can be made to feel their concerns have been heard. The need to resolve issues as and when they happen has become even more important since the advent of digital technology that eliminates the checkout process.

Why is it important to hear the voice of the guest?
The challenge for hospitality businesses is to deliver a seamless customised guest experience to a variety of guests with a variety of preferences. Negative guest reviews and bad experiences cost business and tarnish hard-earned reputations.2 Listening to the voice of the guest minimises this risk and provides an opportunity to read guests signals, react to their requests and redesign the experience to give guests what they are looking for. Many guests leave comments and check reviews online before booking. The voice of an enthusiastic guest can therefore be turned into a powerful marketing force and enable an establishment to find the hidden sources of value that drive exceptional, differentiating guest experiences.2 It also helps to measure the experiences of guests in order to better understand what makes their experience exceptional, in order to build comprehensive, measurable, and actionable guest-centred solutions and memorable stays.
1 2

3

Source: http://www.hospitalitynet.org/news/4056072.html

Source: Google Analytics, worldwide data, April 2013 Source: http://www.hospitalitynet.org/news/4060520.html

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Preventative measures to avoid and minimise brand detractors
Mapping guests’ footsteps
Guests’ footsteps or path at each step of their interaction with a service or staff member can be tracked, starting from making a reservation (online or otherwise) to checking out. This provides a map of guests’ interactions throughout their stay and provides discrete points of engagement to consider improvements in interpersonal and online processes.4
4

Analysing online data
Accommodation owners can use tools to analyse online comments on an ongoing basis and respond to comments directly by addressing the root causes of problems reported to ensure non-recurrence of bad experiences and reinforcing those aspects for which positive feedback was received.

Leverage off promoters
Source: http://www.haveringdata.net/research/tools.htm

Owners can leverage off promoters to share promotional offers with their own social networks in order to boost revenues from restaurants, spas, events and even new renovations/additions at a property.5
5

Source: http://www.hospitalitynet.org/news/4060520.html

(By Veneta Eftychis and Marthie Crafford, PwC Revenue Growth and Assurance Services)

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Corporate reporting in the hospitality sector
Corporate reporting is an ever-evolving field as companies strive to improve their communication with stakeholders. One of the most important ways of doing so is through the annual integrated report, which seeks to align relevant information about an organisation’s strategy, governance systems, performance and future prospects in a way that reflects the economic, environmental and social environment within which it operates. Integrated reporting guidelines advocate appropriate discussion of material sustainability issues. Sustainability risks and key performance areas are relatively easy to identify for sectors such as mining and construction, but more difficult to identify in sectors such as hospitality where material impacts and influence are, in the main, indirect. This raises the question of what the key sustainability risks and opportunities in the hospitality industry are.

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Stakeholders require companies to share details of progress and challenges in all aspects of the business, beyond the traditional financial reporting indicators and through the entire value chain. In light of this, we investigated what risks, opportunities and issues have been identified as material to the hospitality sector through an analysis of the integrated reports of a selection of JSE-listed hospitality companies.

A reporting landscape for the hospitality industry
A reporting landscape for the hospitality sector soon began to emerge through our analysis, as the sustainability risks and key performance areas identified showed a clear consistency. As expected, people-related aspects received considerable attention, followed by economic and environmental aspects.

Material issues
The material issues summarised below form a basis for current performance reporting in the South African hospitality sector. All companies report on these issues:

Environment
• Provision and disruption of essential services • Water • Energy • Carbon emissions • Waste and recycling • Environmental savings initiatives

Social
• Customer satisfaction • Corporate social investment (CSI) • Political concerns • Transformation and diversity • Union impact • Employee relations • Training and development • Regulatory requirements • Security (crime) • Occupational health and safety • IT (social media/marketing) • HIV and Aids

Economic
• Suppliers and business partners • Investor and funding institutions • Rise in the cost of services

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Other issues that should be reported
The review exercise highlighted various unique, but important risks and performance areas in the sector. It also revealed clear evidence of good practice regarding the types of issues addressed in the companies’ daily activities and performance feedback. To bring an international perspective to our analysis, we compared the integrated report of a leading international hospitality company to those of the three South African companies. While our analysis revealed a sound alignment with the international case study selected, we found the case study effectively demonstrated that many of the material impacts in the hospitality sector take place beyond the immediate hotel setting and daily business activities that occur there. The results are presented in the form of a value chain in the figures that follow. For every component of sustainability, including the environmental, social and economic aspects of a business, impacts can be experienced at the beginning of the value chain through a demand created by the hospitality company (an input). Impacts can also be made at the end of the value chain through the activities of providing services (an output). It is therefore important to monitor and report on the impacts along the full length of the value chain. While South African hospitality companies have come a long way in reporting on their businesses in an integrated manner, our study shows that there is still room for improvement and we look forward to future developments in this area.

Environmental material issues

Input
• • • • • Water Energy Electricity Construction impacts Food and beverage demand and transport • Packaging • Transportation • Product safety/toxicity

Component

Output
• Indoor air quality • Water usage – upstream and downstream • Waste – life cycle contributions • Carbon emissions • Effluents and recycling • Environmental incidents • Spread of alien species • Sustainable buildings and eco-design • Landscaping and eco-friendly gardening products • Environmental savings initiatives • Ecosystem protection • Use of organic/natural fabric and goods

There are various initiatives that some hotel chains have implemented to decrease the negative effects of climate change. Some of the ways in which they have chosen to manage environmental issues include: • Calculating carbon emissions • Managing and recording the number of environmental incidents • Monitoring the spread of alien vegetation • Acknowledging the effects they have on climate change in their integrated report • Using eco-friendly landscaping and gardening products

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People material issues
Input
• Employees • Customers • Training and development • Social media and marketing • Occupational health and safety • HIV/Aids in the industry and surrounding communities • Diversity and transformation • Regulatory requirements • Fair trade

Component

Output
• Union-related issues • Corporate social responsibility • Local economic development • Customer satisfaction • Protection of children • Responsible eating • Training employees and customers on safety, health and environmental matters • Security • Political concerns • Human rights

Protection of children Over the years, there has been an increase in reports of child abuse and exploitation. As a result, some hotels have taken the initiative to ensure that their operations do not contribute to this problem. Responsible eating Obesity across all age groups has increased significantly over the years. The promotion of responsible eating at hotels is one way of tackling this issue. Training of employees in environmental matters Everyone has a role to play in reducing the effects of global warming. At least one hotel chain has taken the initiative to educate its employees on how best to protect the environment.

Economic material issues
Input
• Corporate governance • Investor and funding requirements • Supplier and business partner involvement • Rise in cost of essential services

Component
• • • •

Output
Carbon tax Market Opportunities Economic performance Accountability and transparency

Carbon tax Carbon tax will be introduced in South Africa in 2015. This will have an impact on the bottom line of all companies. Market opportunities As a developing country, South Africa will continue to see growth across all sectors of the economy, including in the hospitality sector.

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The importance of integrated reporting
Integrated management of economic, social and environmental sustainability issues, together with reporting in annual performance reports, will generate benefits to the reporting entity and its key stakeholders. Effective integrated reporting can promote changes in corporate behaviour, strategic planning and decision making that focus on value creation and preservation, both in the short and long term. It can also assist in enhancing accountability and stewardship with respect to a broader spectrum of assets and resources, while also promoting an understanding of the interdependencies between them. It cannot be emphasised enough that sustainability material risks as well as opportunities must be aggressively managed in order to ensure the longterm viability of a business and sector. The learning of those leading integrated reporting in the South African hospitality sector, should continue to be shared with, and challenged by, other role-players in the industry, to ensure the sector as a whole manages its cumulative sustainability risks and opportunities wisely.

(By Chantal van der Watt, PwC Sustainability and Integrated Reporting Services)

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Hospitality industry group contacts

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Hospitality industry group contacts

Technology, Information, Communications and Entertainment Industry Leader Berno Niebuhr berno.niebuhr@za.pwc.com +27 (0)12 429 0050

Advisory services Marthie Crafford marthie.crafford@za.pwc.com +27 (0)11 797 4555

Technology, Information, Communications and Entertainment Industry Leader – Nigeria Osere Alakhume osere.alakhume@ng.pwc.com +234 (1) 271 1700 Ext 4103

Taxation services Louis Carney louis.carney@za.pwc.com +27 (0)11 797 4715

Technology, Information, Communications and Entertainment Industry Leader – Mauritius Jean-Pierre Young jean-pierre.young@mu.pwc.com +230 404 5028

Corporate finance Jan Groenewald jan.groenewald@za.pwc.com +27 (0)11 797 5380

Hospitality Leader and Assurance services – Southern African Nikki Forster nikki.forster@za.pwc.com +27 (0)11 797 5362

Transaction services Peter McCrystal peter.mccrystal@za.pwc.com +27 (0)11 797 5275

Sustainability services Alison Ramsden alison.ramsden@za.pwc.com +27 (0)11 797 4658

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Scan the QR code to download an electronic copy of this document.

www.pwc.co.za/hospitality-and-leisure
©2013 PricewaterhouseCoopers (“PwC”), the South African firm. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers in South Africa, which is a member firm of PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal entity and does not act as an agent of PwCIL. “PwC” is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. (13-13233)