Operators in the Nigerian hospitality industry have created opportunities for themselves amid the Covid-19 pandemic, in order to redefine value propositions and keep their heads above water.
To survive the negative impacts and ensure that they give their patrons reasons to continue patronizing their services, some of these hotels came up with initiatives like drive-in events, outdoor events, promotions, guest engagements, and group conference events, amongst others.
During its Q3 2020 Investors Call, the Managing Director of Transcorp Hotels, Dupe Olusola, told Nairametrics that though the revenue of the hotel, dropped by 54% year-on-year due to the lingering negative impact of Covid-19; Through the various initiatives implemented to reduce the impact of the pandemic, over 237% increase was recorded in Q3 revenue compared to that of Q2.
She said, “Drive-In Events product, launched in May, is for ‘top of mind’ awareness for the hotel amongst our targeted audience. It has also driven sales in the restaurant and other business areas within the hotel.
“Continuous promotion of our meetings, simplified product offerings like the Weekend Staycation, Work-From-Hotel package, amongst other initiatives, and have increased leisure business at the hotel.
“With the launch of EventReady and the CleanStay program, we have seen an increase in meetings.”
She added that the hotel had witnessed improvement in room revenue, majorly driven by the transient and group segments, as well as its continuous marketing campaign of hotel offerings.
She said, “Our Weekend Staycation is to attract both Abuja residents and potential guests from other states, in order to drive local and leisure demands.”
Ikeja Hotels Plc
Ikeja Hotels Plc also adopted some initiatives across its hotel chain to survive the pandemic. A staff of Sheraton Hotel Ikeja, who preferred anonymity, as she was not permitted to discuss on behalf of the hotel, told Nairametrics that the hotel had adopted some initiatives like outdoor events and promotions to attract more patrons.
She said, “As part of our strategy to improve operational efficiencies, we have put in place cost-cutting and recovery measures, including negotiating vendor contracts, energy conservation, and optimizing our workforce to the required manning at different occupancy levels.
“Our Food and beverage revenue has improved, driven mainly by the conference and event businesses. We recorded a week on week increase in the month of October.”
In the case of L’eola Hotel, formerly known as Protea Hotel, surviving the challenges created by the pandemic is key and this made the hotel to introduce some initiatives.
In an interview with Nairametrics, its Deputy General Manager, Tunde Oduyoye, explained that the hotel had to invest more on social media tools to reach out to its clients and also to meet the needs of some patrons, who wanted to hold social gatherings despite the social distancing rule.
He said, “We just did a photoshoot, which we shared with our existing and potential clients via our social media tools, to remind our patrons that we are back and fully compliant with the Covid-19 protocols.
“We now host weddings and other occasions and Zoom to other guests that cannot attend physically due to social distancing rules. We also host occasions on our open field to guarantee the safety of our patrons.
“We deliver food to our clients and also engage Jumia for deliveries. The hotel has also started baking bread for lodging guests and others within and outside the community.”
Radisson Blu Anchorage Hotel
Like other hotels earlier mentioned, Radisson Blu also adopted several measures to remain relevant to its patrons.
In an interview with Nairametrics, a source at the Hotel, who preferred anonymity, as he was not permitted to speak on behalf of the hotel, disclosed that it had adopted an outdoor catering service for both corporate clients and individuals.
He said, “Continuous promotion of our product offerings and other initiatives, has boosted patronage in our hotel. We now offer outdoor events and new discount rates for using our facilities. With this development, we have seen an increase in meetings at the hotel, compared with when the lockdown was eased few months back.”
What the future holds
Hotels in Kenya, Egypt, and South Africa rely on local tourism to drive occupancy rates. In contrast, locals in Nigeria prefer smaller mushroom hotels that are cheaper and often well-furnished to meet their needs, especially the short-stay apartments.
Hence, hotels in Nigeria rely on commercial room sales, driven by the influx of business and leisure travels into the country.
With several airlines yet to be fully operational due to reciprocal bans and lockdowns in some countries, it is highly unlikely that things will improve anytime soon.
What you should know
The lockdown effect on the revenue of these hotels is reflected in the 2020 Q2 results of the main listed hotels.
According to the data, Ikeja Hotels (Sheraton), Tourist Company of Nigeria (Federal Palace), Capital Hotels (Abuja Sheraton), and Transcorp Hilton Hotel Plc all lost 90% of their revenue in the three months preceding June 2020.
- The hotels earned a combined revenue of N1 billion in the quarter, compared to N10.2 billion in the corresponding period of 2019.
- They lost over N4.7 billion for the quarter alone.
- Combined, they had about 3,502 employees as of 2019.
China Harbour Engineering Company latest equity infusion into Lekki Port is $221million – CEO, Lekki Port
CEO, Lekki Port LFTZ, discusses how Lekki Port will create an immense macro and catalytic economic impact on Lagos State and Nigeria in general.
Contrary to allegations that lack of fund has been the major source of delay of the Lekki Deep Sea port project, the management of the port has cleared that such claim is false and that it recently got an equity infusion worth $221 million from China Harbour Engineering Company, its major shareholder.
In an interview with Nairametrics, the Chief Executive Officer, Lekki Port LFTZ Enterprise Limited, Mr. Du Ruogang, talked on the catalytic economic impact on Lagos State and Nigeria, which include the creation of about 170,000 jobs and approximately $201 billion in revenue to State and Federal agencies from taxes, royalties and duties. Excerpts:
It appears the completion date has been shifted several times for a while now. Specifically, when will the facility be ready for business? Is the deadline realistic and how prepared are you?
Personally, as the CEO of Lekki Port, with full responsibility for delivering this project, I am fully committed to ensuring the project completion by the end of 2022. My team and I, in conjunction with the EPC Contractor, are working very hard to meet this deadline, and we are doing our best to anticipate any unforeseen circumstances that can derail this goal, so we can eliminate them and stay focused. We are very committed to honouring our pledge to the Honourable Minister of Transport, Rt. Honourable Rotimi Amaechi for a 2022 completion date. This was in November 2020 when he visited the port site.
What would be the impact of Lekki Port on the Nigerian economy after completion?
Lekki Port, when operational, will help to ease the congestion in existing ports and generally upgrade the continued development of the maritime and port facilities in Nigeria. With full collaboration from all port users and the regulatory authorities, we hope to cut down the operating costs and improve efficiency of doing business in Lagos, Nigeria.
What are the pressing challenges faced by the management, are there any funding issues?
There are no funding issues. All the equity partners have fully funded the project, with the latest equity infusion being the $221million received from China Harbour Engineering Company.
There are 4 beneficiary owners of The Lekki Port LFTZ Enterprise Limited, the sole operators of Lekki Seaport i.e. Four China Harbour Engineering Company, Tolaram Group, Lagos State Government and the Federal Government through the Nigerian Ports Authority (NPA). Which of these entities is the majority shareholder of the company and what percentage shareholding does each of these entities have?
China Harbour Engineering Company and Tolaram Group jointly hold 75% of the project through Lekki Port Investment Holding Inc. The other shareholders are Lagos State Government (20%) and the Nigerian Ports Authority (5%).
Do you have any plan to list the company on the Nigerian Stock Exchange?
Yes, at the right time Lekki Port intends to list the company on the Nigerian Stock Exchange.
What is the financial benefit of the port (after completion) to the Nigerian economy?
When completed, Lekki Port will create an immense macro and catalytic economic impact on Lagos State and Nigeria in general. This includes the creation of about 170,000 jobs and approximately $201 billion in revenue to State and Federal agencies from taxes, royalties and duties. Also, over the term of concession, there will be direct and induced business revenue impact of $158 billion as well as qualitative impact on manufacturing, trade and commercial services sector.
In summary, Lekki Port will have an aggregate impact of approximately US$ 361 billion on the Nigerian economy.
Five years into your operation, where do you see the Lekki seaport?
Lekki Port when operational will help to ease the congestion in existing ports and generally upgrade the continued development of the maritime/port system in Nigeria. Within five years of operation, we hope to have become the transhipment hub for the West African region.
Essentially, we hope to be doing our own part in increasing commercial operations in Nigeria and indeed, across the entire West African region.
In terms of marine infrastructure, we are aiming for global standards. Vessels will approach through a 9 km long and 19 m deep navigation channel reaching the 600 m wide turning basin. The port is protected against the ocean waves and currents by a main breakwater of 1,900 m long and a secondary breakwater of 300 m, providing a controlled environment for the handling of vessels alongside the 1,500m quay at a water depth of 16.5 m, and 3 Liquid Bulk Jetties with 19m water depth. For safe and secure handling of shipping, berthing facilities for marine services (tugboats, pilots’ boats) are provided as well.
The Container Terminal will have a 1,200m long quay for 3 container berths and a storage yard with over 15,000 ground slots. The terminal is designed to support a throughput of 2.7 million TEUs annually. The Dry Bulk Terminal will have an available quay length of about 300m which will be sufficient to accommodate 1 berth for a Panamax size vessel (75,000 DWT).
The Liquid Berths will be capable of servicing vessels up to the size of 45,000 DWT initially, with design flexibility for expansions, catering to an increase to a capacity of 160,000 DWT. The berth will be equipped with loading arms and connected by pipelines running along the breakwater to carry cargoes between tank farms and the vessels. Finally, there will be in-built technology that allows for screening and processing which will promote efficient movement of goods within 48 hours.
Nigeria records $4.3 billion in Corporate Deals in 2020
Paystack, Flutterwave, 54 gene, Trade Depot headline as Nigeria generates $4.3 billion from corporate deals.
Nigerian owned businesses and businesses operating in Nigeria recorded over 106 corporate deals valued at over $4.3 billion (N1.63 trillion) in 2020.
This is according to data compiled by Nairalytics the research arm of Nairametrics between January and December 2020 all at different stages of completion.
Nigeria’s investment climate was precarious in 2020 as the global economy spluttered due to the Covid-19 pandemic. Nigeria’s GDP contracted by 3.62% (year-on-year) in real terms in the third quarter of 2020 after enduring a 6.1% contraction in the previous quarter, a development that was also attributed to the sustained shocks emanated from the continued spread of the virus as well as weak global oil prices.
Thus, foreign investor sentiments towards investing in Nigeria remained dampened due to the economic downturn stifling foreign portfolio inflows into the country. Data from the National Bureau of Statistics (NBS) shows that capital inflow into Nigeria was estimated at $8.61 billion between January and September 2020, compared to $20.19 billion recorded in the corresponding period, falling by 57% year on year.
In addition, data obtained from the Nigerian Stock Exchange (NSE) reveals that about N226.13 billion was recorded from Foreign Portfolio Investors between January and November 2020 as domestic investors drove market turnover for the most part of the year.
Despite the economic downturn, the economy witnessed several corporate deals consummated or under different stages of completion for the period ended December 2020.
Corporate Deals Soar
Corporates ranging from Startups to more matured businesses announced the closure or intent to secure funding through debt or equity-related deals amidst covid-19 and the lockdown. From Silicon Valley to South Africa the deals flowed in from all over the world boosting the capital structure of most Nigerian firms.
- A total of 106 deals were captured in 2020 valued at $4.3 billion or N1.6 trillion occurred during the year with transactions ranging from raising equity, debt issuances, outright acquisitions, and divestments.
- While the tech community dominated most of the equity-related deals, more established companies focussed on public offerings and debt securities such as commercial papers to raise money.
- It is no surprise that the largest deal captured in 2020 was the International Breweries rights issue valued at about N165 billion or $457 million.
- Dangote Cement was next to a bond issuance of about N150 billion, one of the largest private-sector debt-related deals for the year. BUA Cement followed suit with its own debt issuance of about N100 billion.
- In terms of commercial papers, MTN raised N100 billion, the largest commercial paper issuance raised during the year.
- In the tech community, the $200 million acquisition of Paystack by Stripe was by far the largest deal directly affecting a Nigerian based tech-related company.
- Bolt, the cab-hailing tech firm operating across Nigeria and some African countries also got a significant funding boost raising about $100 million.
Why this matters
While the Nigerian economy suffered one of the biggest drops in portfolio investments in 2020 there was a flurry of mega deals that boosted the capital structure of most firms operating in the country.
- Nairametrics research believes a large chunk of this funding will be spent in Nigeria as the country picks up from the economic ruin that was 2020.
- The funds will flow into marketing budgets, capital expenditures, hiring of talents and executives, software acquisitions, etc.
- Nairametrics also expect a significant rise in corporate deals on the Nigerian Stock Exchange as more companies take advantage of low-interest rates to either raise cheaper debts or replace expensive debts with equity.
- Nigeria has a thriving Deals market that provides a significant source of revenue to law firms, financial advisory firms, auditors, fund sourcing firms, and investors.
- Nigerian regulators also earn significantly from fees and taxes collected as the deals are consummated.
A comprehensive report on all 106 deals will be published by Nairametircs next Monday. Kindly send in your email address here to get a copy.
Nigeria spends N29 trillion on recurrent (non-debt) expenditure in last 10 years
Nigeria spent N29.3 trillion on recurrent expenditure, 10x more than capital expenditure.
The Federal Government of Nigeria has spent N29.3 trillion in the last 10 years on (non-debt) recurrent expenditure. The government has earned N33.2 trillion as revenue in this period.
This is according to data compiled from the budget implementation report of the federal government compiled and published by the Budget Office of Nigeria.
High on non-debt recurrent expenditure
Nigeria’s recurrent expenditure includes spending on personnel expenses, pensions, and gratuities, service-wide votes, and overheads. It has consumed about 50.6% of total budget expenditure and 88.5% of revenue in the last decade.
- Nigeria is amid an economic crisis brought upon by the fall in oil prices and more recently the covid-19 pandemic.
- The federal government currently relies on about 33% of its actualized revenue since 2015 when oil prices started their sustained fall. It was about 55% between 2013 and 2015.
- With oil revenues falling, the impact of a continuous increase in recurrent expenditure has widened Nigeria’s fiscal deficits closing at N6.1 trillion in 2020, the highest since we started tracking records in 2009.
- Economic analysts have for years pointed to Nigeria’s high spending on recurrent expenditure compared to capital expenditure as a phenomenon that is inimical to economic growth.
Nigeria has recorded a budget deficit every year since 2009 averaging about N1.1 trillion in the 5 years before the Buhari Administration came into power in 2015. However, since 2015, budget deficits have averaged N3.3 trillion.
The government budget deficits have meant increased borrowing, exacerbating the situation. Last year, Nigeria borrowed N2.8 trillion from the central bank via the Ways and Means provisions. To service this borrowing about N3.2 trillion was spent in 2020, once again the highest on record.
Recurrent expenditure vs Capital expenditure
A cursory review of the data shows that at N29.3 trillion, recurrent non-debt expenditure is about 3x more than the N10 trillion spent on capital expenditure in the last 10 years.
- The Buhari Government has often compared itself with prior PDP led governments claiming it has spent more on capital expenditure. In 2020, the government spent N1.7 trillion on capital expenditure, the highest on record.
- They have also spent between N1.4 trillion and N1.7 trillion between 2017 and 2020.
Whilst, their numbers have been impressive, spending on Capex as a percentage of total government expenditure is far lower than any other year in the last 10 years.
Here are some stark numbers
- Nigeria spends on average 21% of the total budget on capital expenditure. The highest percentage was 29.8% in 2017.
- It was 20.9% in 2020.
- In contrast, recurrent expenditure as a percentage of total expenditure is as high as 115% on average in the last 10 years. It was 86% in 2020.
- While capital expenditure has risen to N1.7 trillion in 2020 compared to just N958 billion in 2017, it is far lower in dollar terms at $4.6 billion compared to $5.8 billion respectively.
In the recently approved budget for 2021, Nigeria plans to spend N13.5 trillion in budgetary expenditure out of which N4.3 trillion is for capital expenditure and another N5.64 trillion on recurrent(non-debt) expenditure.
If this plan pans out the government would have succeeded in increasing its capital expenditure as a percentage of total expenditure to 32% in line with 30% included in the ERGP.
If history is to be relied upon as a basis for projecting, the government is more assured of hitting its recurrent non-debt expenditure spend than capital expenditure.
Nigeria’s Capital Expenditure challenges
According to a world bank report, capital expenditure involves spending on transport, information technology, power and utilities, defense, etc.
- A recent Moody’s report indicates Nigeria needs to spend about $3.3 trillion in capital expenditure over the next 30 years or $1.1 trillion a decade to close its infrastructure deficit.
- This amounts to $100 billion (N40 trillion) per annum or 28% of Nigeria’s GDP of N144 trillion, a tall task considering where the country is at the moment.
- Nigeria is far from this goal and may not meet this target if it continues to spend more on recurrent expenditure compared to capital expenditure.
Also, the government will also need to explore new revenue sources other than oil to boost its revenues while relying less on budget deficits.
- Doing this will require massive tax reforms that target the informal sector, block leakages and reduce wasteful incentives.
- Unfortunately, the covid-19 pandemic has pushed back any immediate plans to aggressively tax revenue.
- For example, in its 2021 budget, the government is projecting a tax revenue of N1.4 trillion down from N1.6 trillion a year earlier.
The Private Sector way
Another possible area of increasing achieving Nigeria’s infrastructure goals is via the private sector. But to do this, Nigeria will need to improve its capital formation policies that enable the private sector to invest in public infrastructure while delivering a legal path to recovering its investments and profits.
- There is also the public-private partnership initiative pursued by the federal government towards funding infrastructure development in the country.
- Just recently, the president approved the setting up of a $39.4 billion Infrastructure Company, wholly focused on critical infrastructural investments in Nigeria.
According to the president, “this Infrastructure company will raise funding from Central bank of Nigeria, Nigeria Sovereign Investment Authority, Pension funds, and local and foreign private sector development financiers.”
Upshots: Nigeria plans to spend N5.6 trillion on recurrent non-debt expenditure in 2021. The increase is coming from the following;
- Personal cost for MDA’s rising from N2.8 billion (as per 2020 budget) to N3 billion in 2021 budget.
- Personal cost for government-owned enterprises (GOEs) will more than triple from N218 billion to N701 billion.
- Overheads also increased considerably during the year.
- In addition, debt servicing for 2021 is budgeted at N3.1 trillion up from N2.6 trillion in 2020.