It is Time For County Hotels To Court Strategic Investors

By Soko Directory Team / November 25, 2017

Kenya Named as Hotspot for Luxury Hotel Investments

Kenya’s leisure industry has been abuzz with the entry of new international hotel brands as well as the expansion of incumbent ones, as players eye the growing demand for both luxury and business travel.

The onset of devolution following promulgation of the new Constitution in 2010, which gave birth to county governments, has further created demand for quality hotels at the county level as these areas continue to become investment destinations which have created demand for quality conferencing facilities.

Lost in the excitement over the wave of new international hotel brands that are setting up shop and expansion by current operators is the fate of hotels that were once owned, either fully or partially, by the defunct county councils.

These assets, which similar to other assets that were held by councils, and are now owned by county governments (fully or partly) still continue to operate but are rarely top of mind when one thinks of an ideal county-based hotel.

Years of neglect and competing needs by county governments in sectors such as education, health, and infrastructure, not forgetting the heavy staff costs, take up the lion’s share of money leaving meager funds meant for maintaining facilities.

The increasing demand for investment in the aforementioned areas means that it is the time that county governments thought about seeking innovative solutions such as Public-Private Partnerships (PPPs) that can unlock the full economic potential of these hotels and in the process earn county governments constant cash flows.

Furthermore, the 2013 Report of The Presidential Taskforce on Parastatal Reforms found that even in cases where the hotels are fully-owned by a government entity, they have now become financial burdens to the Exchequer as they are not able to support daily operations.

The report recommended that these hotels should partner with strategic investors who would then pump funds in addition to bringing both technical and operational expertise.

Borrowing from the report county governments can, for instance, get strategic partners to operate these assets either through franchising and concession agreements or they can sell stakes in these hotels. For the latter, the money raised can then be reinvested into modernizing the facilities.

Such solutions create a symbiotic relationship between potential hoteliers and county governments. For one, investors do not have to incur heavy costs such as land acquisition in addition to absorbing the heavy cost of construction. Since the hotels already exist, the bulk of the work would be on renovating them and upgrading them to international standards.

Under such an arrangement hotel brands would run the hotels and earn from operating the facilities while county governments would be de facto landlords creating a mutually beneficial arrangement.

A successful partnership would also benefit locals through the creation of jobs including housekeeping, administration, culinary and security services. Running hotel operations is a job-intensive affair and would go a long way into tackling the stinging problem of youth unemployment.

Communities would also share in the expected boom in hotel occupancy through local content programmes that would see locals supply goods and services to the facilities.

In the long run, such partnerships are also a boon for county hotels as they would insulate them from mismanagement. International brands would adopt a high standard of corporate governance which would vaccinate the hotels from the virus of mismanagement that is endemic to government-owned entities.

This model is already being used locally by the private sector and it is now time that the public sector embraces it.

As stated before counties are increasingly under pressure to provide higher funding for social services and infrastructure development and time is ripe for county assets to generate cash for local governments and cease being annual receivers of funds.

For hotels, the time is ripe for them to get strategic investors to improve their financial viability.



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