Protea Hospitality Group CEO Arthur Gillis said late last week that his company was willing to boost black hospitality entrepreneurship by helping black managers to buy hotels of 80 bedrooms or less, and in the process put businesses into the hands of individual families who will run them with dedication.
He was speaking at the 2013 Hotel Investment Conference Africa (HICA) held last week in Durban, South Africa. HICA is hosted every year by the Tourism Business Council of South Africa (TBCSA).
But Gillis said Protea was finding it difficult to find funding to put some of its smaller hotels into the hands of black entrepreneurs. “We have a situation where there are a lot of black people who are employed in our industry at menial level, and a number of investors at a senior level,” he said. “But the fact of the matter is that these investors are not actually involved on a day-to-day basis, and Protea’s team is looking for a way to create wealth in the hands of a significant number of black hotel managers.
“We’re happy to contribute a significant slug of the equity portion to them, and they would then work their debt off which will take 8 to or 10 years. But at that point, 100% of the debt and 100% of the equity should be paid back.” However, he said the problem does not lie in finding hotels, individuals or the equity, but funding the debt. “Most agencies are very happy to fund brand new hotels, but are completely averse to funding existing properties,” Gillis charged.
“We’re prepared to enter into soft franchise agreements with them. We would charge an absolutely minimal fee, and they would get all the benefits of the power of purchasing, distribution, and marketing,” he said.
Gillis said the best way to invest in the hospitality industry was not to build a new hotel from scratch but rather to invest on an existing property. “I’m trying to say to them that if you build a new hotel, it’s going to be R1.5 million (165 000 USD) a room, but a room in an existing property will cost something between R600 000 and R700 000 (66 000 and 77 000 USD). And that’s a very big difference in your pay-back period.”
However, he warned that his company will not allow its brand to be put onto properties that were not up to standard.” Gillis’ Protea’s straightforward intervention on black equity delighted TBCSA CEO Mmatšatši Ramawela. “This is exactly what HICA was designed to do: find the constraints and create the linkages that will remove them,” Ramawela said.
However, despite Protea’s ‘kind gesture’ to help potential black investors, skills transfer was still a troubling factor in the hospitality industry. Advocate Brenda Madumise, chairperson of Culture, Art, Tourism, Hospitality and Sport Education and Training Authority (CATHSSETA), cautioned that skills transfer remained a serious concern, particularly at middle and senior hotel management levels.
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(Final editing by Issa Sikiti da Silva).