Tanzania’s tropical island destination of Zanzibar is grabbing the attention of overseas investors, who are recognising a favourable investment environment and blossoming potential to elevate the tourism and hospitality industry to world-class standards.
As reported by Tourism Update, Israeli real estate investment firm RM Group has seen an opportunity for rich returns on Zanzibar. Over the past five years, the group has raised and invested private equity for four hotel projects in the beach paradises of Pumzika, Nungwi, Pongwe and Kiwenga.
In an exclusive interview with Tourism Update, RM Group Head of Marketing Meital Tsfadia gave insights into why Zanzibar presents such ideal investment opportunities, and how the archipelago has all the ingredients to become one of Africa’s hottest tourism destinations.
Demand exceeds supply
RM identified enormous economic benefits and a particularly high profit potential, based mainly on a gap between demand for the tropical destination, and supply of high-quality, luxury tourism facilities.
“There is tremendous growth in incoming tourism (20% a year) and high demand for boutique, luxury hotels. There is a limited supply of such accommodations, with only 10% of the existing hotels meeting a four-star standard or higher. This opportunity is also based on the assessment and vision that the tourism industry will fully recover and continue to expand in the coming years,” said Tsfadia.
Tsfadia also pointed to a favourable discrepancy between operating costs and hotel rates.
“Nightly hotel accommodation prices are more in line with prices seen in Western hotels, compared with relatively low operating expenses, particularly in terms of personnel – manpower represents less than 10% of the turnover – on the island.”
Other reasons encouraging the group to invest in the islands include the growth of air capacity, a long tourist season (about 10 months a year), and the ability of the growing middle class in China and India to afford to travel to Zanzibar.
A favourable investment environment
The government has sought to create a conducive environment for foreign direct investment through the Zanzibar Investment Promotion Authority (ZIPA), which grants a five-year corporate tax exemption.
“Contrary to expectations of conduct in a developing country, we were favourably impressed by the level of bureaucracy, the manner in which our requests as foreign investors were handled, and the ongoing co-operation from the authorities. At the same time, the most prominent obstacle is the lack of a sophisticated banking system in favour of providing bank financing, especially in regards to real estate investments,” said Tsfadia.
“The government is also investing heavily in infrastructure to support the expansion of the tourism industry, through the construction of new roads, municipality systems, public transportation, and the opening of the international terminal at Abeid Amani Karume International Airport in October 2020,” Tsfadia added.
New hotel shows strong demand
RM Group’s first five-star boutique hotel – TOA Hotel & Spa – is an 84-unit establishment located on Pongwe Beach, on Zanzibar’s east coast. Opened on August 1 and operated by Preferred Resorts, the hotel is in high demand, according to Tsfadia.
“In only the second month of operation, dozens of reservations were made by potential guests, with a nightly rate higher than the original business plan predicted. To our delight we have already received high ratings from previous guests. Due to all these positive indicators, RM Group expects the hotel to be profitable throughout the entire investment period.”
Tourism recovery in Zanzibar reached 64% of 2019 levels in 2021, with 394 185 tourists visiting the island, staying an average of 8.3 nights. According to Tanzania Invest, of the 367 632 tourists who arrived in Tanzania in the first quarter of 2022, more than a third (124 212) entered the country through Zanzibar.
