(above) Dubai World Africa plans to further develop the Victoria & Alfred Waterfront in Capetown.

In Rwanda, what Wilson likes to call “the Switzerland of Africa, with its outlook and business sense,” DWA is investing US$230 million over three years on a tourism master plan and will build three, 4-star hotels at the foothills of three national parks and a 5-star golf resort with 300 luxury apartments in the capital, Kigali.

DWA has opened a Kempinski in Djibouti and is developing a US$150 million beach resort in Zanzibar, as well as a 150-room hotel in the Comoros. In total, DWA is active in eight African nations, investing US$1 billion in Cape Town and another US$1.5 billion across the continent. To say the company is bullish on the future of the underdeveloped, often politically instable “Dark Continent” would be an understatement.

The good news is DWA is not alone, as many major hotel developers are in lockstep in believing oil economies and tourism can drive development and long-term returns. Everyone from Dubai-based Kingdom Hotel Investments and IFA Hotels & Resorts, to global giants Accor (the biggest player on the continent with about 125 hotels and 21,000 rooms in 21 countries), Marriott International, IHG, and Hilton Hotels Corp., regional players such as Corinthia Hotels International and locals such as Zimsun Leisure Ltd. and the recently acquired Protea Hotels. Hotel companies have lofty goals in sub-Saharan Africa that they finally believe are sustainable.

“From an economic and political perspective, Africa has never been better,” says Trevor Ward, managing director, W Hospitality Group, Lagos. “Several countries are making strong moves to introduce or strengthen their democracies and clamp down on corruption—the bane of many of them.” The continent is a provider of a multitude of primary products, the most important being oil, which the newly developing economies need. At the same time, three are now sources of finance to develop new product. “There are 53 countries in Africa, so that is 53 capital cities, for a start,” Ward says.

For most global chains, South Africa remains the top target for expansion as development is easier there despite rigorous environmental controls that can slow new projects. DWA’s Wilson likes to cite statistics, such as South Africa now being ranked as the 18th most attractive foreign direct investment destination, and the airlines’ growing interest in the continent. In fact, Emirates is increasing the number of weekly flights into Johannesburg, and last month it began flying directly to Cape Town.

Fairmont Hotels & Resorts is running this new resort for IFA Hotels & Resorts in Zanzibar.

Ward continues to recommend following the oil. “Look at Nigeria, Angola, Sudan, and Equatorial Guinea for the oil; Tanzania and Mozambique for tourism,” he says. “Zanzibar is going to be big in the future and so is the rest of Tanzania for its safari product.

Ward’s “53 Capitals” strategy is the very strategy being followed by Hilton, according to Jean-Paul Herzog, president of Middle East and Africa for Hilton Hotels Corp. “We have set a goal of wanting a Hilton in every capital,” he says. “It is a goal that is here to stay. We have nine capital hotels today and in the next 10 years I expect 10 to 15 additional capitals covered.”

While Herzog points to South Africa and Nigeria as the best development opportunities, he also says Namibia is getting stronger and calls Uganda a potential target for mid-market hotels. “I see growing economies almost everywhere in Africa and I only hope people there realize a sound and healthy infrastructure will aid in further establishing and stabilizing their countries.”

Dubai-based IFA Hotels & Resorts is concentrating on increasing its investment and product offering in Africa. It recently formed a joint venture with Indian Ocean Resorts in the Seychelles to develop a mixed-use private island estate, made a US$411 million investment in a Legend Golf & Safari Resort in South Africa and reopened its now Fairmont-managed hotel in Zanzibar, with plans to add a residential product in the near future, according to Patrick Smith, vice president of asset management for IFA.

In fact, Fairmont Hotels & Resorts is a big operations partner for IFA in Africa, including the Fairmont Zimbali in South Africa and Fairmont’s Kenya portfolio in partnership with Kingdom. IFA also partners in the region with the likes of Kempinski, Mövenpick Hotels & Resorts, Sun International and Starwood Hotels & Resorts Worldwide.

One of the global companies very active and bullish on Africa ahead of the rest is Dubai-based Kingdom, which is in various execution stages of new hotel developments and capital projects in seven African countries. It is in the advanced stage of development of The Four Seasons Marrakech and has new developments in Accra, Ghana; Kampala, Uganda; and the Seychelles. It is also renovating four Fairmont hotels in Kenya, as well as the InterContinental in Lusaka, Zambia.

Among the more interesting local developers is Zimsun Leisure, a Zimbabwe Sun Ltd. subsidiary and an existing franchisee of IHG in Zimbabwe that is taking the brands into other countries, including Nigeria and Tanzania. The company, an investor as well as a manager, currently has 12 hotels and has raised a substantial equity fund, according to Ward.

As part of its future developments, Zimsun plans to extend its footprint into the region (namely sub-Saharan Africa) and grow its rooms under management to at least 4,500 within five years. Zimsun also plans to be listed on a regional course in the next three years and aims to achieve a market capitalization of US$1 billion within the next five years.

A local player with new ownership is Protea Hotels, which last year was acquired by Australia’s Stella Group and the BEE consortium from South Africa. With 121 hotels at the end of 2006, the group now has more than 25 hotels on the continent outside of South Africa and has been very successful developing in oil-rich Nigeria.

Kingdom Hotel Investments, Dubai, is in the advanced stages of development of The Four Seasons Marrakech in Morocco.

Ward also points to Africa Sun, which, he says, intends to develop an extended-stay brand in Africa in 2008 in the face of reluctance from the majors to introduce their brands here—despite the demand for it in many locations.

“African Sun is also interesting in that they prefer to lease hotels rather than manage, recognizing the difficulty in some markets, where hotel owners don’t understand the principal of non-interference—it is a cultural thing, wanting to micro-manage,” Ward says.

Lastly, look out for Chinese developers. “They want Africa’s raw materials for their booming economy,” Ward says. “But they have also recognized opportunities for them to set up businesses here—in manufacturing and construction, in particular. A Chinese company plans to build at least two hotels in East Africa. They are working with the Chinese Development Bank, a lender, which owns the China Africa Development Fund, and equity investors.”

While equity investors such as DWA have deep pockets and the “big picture” mentality when it comes to investing in Africa, the challenge still facing many other developers relates to a lack of financing, as home-grown investors don’t have the patience for long-term returns and many overseas investors still see too much risk.

In addition, Ward points to issues with land title, some unstable economies and governments, high interest rates (20% or more in Nigeria), lack of long-term local debt (maximum five years in many cases) and corruption.

Ward cites the developer of a new hotel in Juba, the capital of southern Sudan, where the owners of the land keep changing as the opportunity becomes more apparent. “The entrepreneur does a deal with the owner, but then the local chief/clan gets involved, and decides that that individual cannot sell the land unless…” Ward says.

For those with little experience in Africa, the mantra is research, check, and check again on the local partner, without whom you will get nowhere. “In some countries, working with government is essential (and in some cases compulsory); in others, steer clear if at all possible,” Ward says. “Africa is incredibly diverse; no two countries are at all alike. Be patient as the culture, the business environment, everything, in fact, is completely different—and you are not going to change it. You have to work with the way things are here. It can take ages.”

For example, Ward refers to a U.S.-based investor trying for three years to do something in West Africa, waiting for the right documentation from the government. In that time the same company built and opened a new resort in the Caribbean. “It took a meeting with the president of the country when he was in the U.S. to unlock the logjam, which was caused by bureaucracy, corruption and the generally slower pace of life in Africa,” Ward says.

But the rewards can be worth the wait, as returns can be very high with strong room rates (upwards of US$250 in Lagos and Luanda) and low labor cost. Ward says a large hotel can easily achieve 60%-plus gross operating profit; a smaller one 45%-plus. “But this can be upset by extraordinary costs such as energy, as every hotel in Nigeria has to have full backup power, and will use that probably 50% of the time—and diesel is expensive,” Ward says. “All things being equal, in many markets a return of 20% on investment is not too difficult.”

DWA’s Wilson reminds everyone that the FIFA World Cup is coming to South Africa in 2010 and represents a huge marketing opportunity for the entire continent. In fact, it could be Africa’s coming of age party.

Direct comments to: jweinstein@reedbusiness.com