The 136-roomed hotel’s cost went up 16,3 times from an initial budget of US$3 million in 2007 to US$49 million at completion in 2014
… as RTG closes Beitbridge Hotel
ZIMBABWE Stock Exchange (ZSE) listed Rainbow Tourism Group (RTG) this week shut down Rainbow Beitbridge Hotel constructed only recently at a cost of nearly US$50 million, sending shockwaves in an economy teetering on the brink of collapse.
The closure — highlighting the crisis in the tourism sector that has seen room occupancy plummeting to unsustainably low levels over the years — could just be a tip of the iceberg lurking in the turbulent tourism industry waters.
In a statement released yesterday, RTG said the decision to close the hotel on May 31 was reached following wide consultations.
RTG cited market factors characterised by depressed occupancies, low margins as well as high operating costs as the major reasons for exiting Beitbridge.
“Operational costs of the hotel were no longer sustainable. Since opening in January 2014, the hotel has incurred losses amounting to more than US$2 million,” said RTG in a statement.
The hotel group said measures had been put in place to ensure a seamless transition for its customers, suppliers and service providers.
“The latest projections show a declining market demand and rate yield with strong indications that the hotel will continue to make losses into the foreseeable future. This poor performance has continued to weigh down the overall performance of the group,” said RTG yesterday.
The hotel closure comes hard on the heels of an announcement by another ZSE listed stock, African Sun, which closed its Holiday Inn Beitbridge Express Hotel in February citing prolonged loss-making by the facility.
Unlike with Holiday Inn Beitbridge Express’ closure, RTG’s shutting down of the facility in the border town will set tongues wagging over the multi-million-dollar investment that never brought in any meaningful returns for the investors.
The 136-roomed hotel whose cost went up by a staggering 16,3 times from an initial budget of US$3 million in 2007 to US$49 million at completion in 2014 has raised the possibility of prices having been inflated during its construction.
Elementary estimates indicate that the cost of each room at the hotel ended up at a shocking US$360 000 after total expenses rose to US$49 million.
The amount is enough to buy a house in Harare’s leafy suburb of Borrowdale or seven houses in the capital city’s Warren Park high density area.
Had the project been completed at the initial cost of US$3 million, the cost per room would have ended up at a reasonable US$22 000.
But even at the eventual cost, the hotel was replete with poor workmanship.
An audit by Deloitte Advisory Services into the operations of the under-fire National Social Security Authority (NSSA) exposed shocking evidence of potential sleaze on the construction of the hotel.
In February 2007, NSSA and RTG entered a strategic partnership to construct the four-star hotel and a commercial centre in the border town, but the costs suddenly started rising, first to US$17 million, then to US$33,4 million and US$44 million before finally hitting US$49 million in 2014.
NSSA controls 40 percent shareholding in RTG. In the audit report, Deloitte said NSSA had pushed for the implementation of the project regardless of its lack of viability.
RTG operates six hotels in Zimbabwe, the Rainbow Towers, its flagship, and New Ambassador Hotel in Harare; A Zambezi Lodge and Rainbow Victoria Falls in the resort town of Victoria Falls; Kadoma Hotel and Conference; and the Bulawayo Rainbow.
There has been speculation within both the construction industry and the hotel and leisure sector of underhand deals in the project, which could have badly prejudiced long-suffering pensioners, who are getting paltry payouts from government’s compulsory pension scheme.
The auditor said some figures on the Beitbridge project were not adding up, although the auditors did not examine why the costs rose at a terrific pace at a time when the country had entered a period of sustained deflation.
The auditors noted the NSSA board had in October 2014 said it was aware of the exorbitant overheads after the main contractor, CZL, had failed to pay workers and subcontractors, forcing the authority to intervene by directly paying the workers and the subcontractors.
There was no evidence of any punitive action by NSSA on CZL, which failed to honour commitments to subcontractors.
Analysts said the payments made directly to workers and subcontractors could have been easily recouped from CZL.
The property also took seven years to complete, which is abnormal for such a small property. Government has failed to get to the bottom of what transpired, and appears to have taken a back seat amid indications of potential abuse of public funds.
The report said a feasibility study conducted before the project was initiated had clearly spelt out “that the hotel would be loss-making”.
This view had forced RTG executives to decline management of the hotel, resulting in a fallout with the NSSA executives who were fired by the current board in 2014.
RTG reported an operating profit of US$1 million in the full-year to December 31, 2015 compared to a loss US$800 000 on prior year after aggressive cost cutting measures.
Revenue for the year was flat at US$30,6 million, despite a growth in occupancy levels from 48 percent to 50 percent, driven by foreign business.
The financials also showed a net loss of US$400 000 from a profit of US$340 000 in the prior year.
Zimbabwe Council of Tourism chief executive officer, Paul Matamisa, said the closure of the hotel was a reflection of the country’s economy, which is not conducive for domestic tourism to boom.
“The closure is a true reflection of challenges the industry is facing due to the unstable economic environment. Many people no longer afford to go on holidays locally,” he told the Financial Gazette.
“Beitbridge also has not been a hive of activities to warrant increased occupancies for hotels in that area. You also have to take into account that local hotel groups would be competing with hotels in South Africa which are just across the river and are competitive. You then ask yourself were would a person or group choose to stay. One also has to take into account the fact that South Africa’s economy is performing better than us,” he said.
Economist Brains Muchemwa, however, argued that the closure of Beitbridge Rainbow Hotel was of little significance to the tourism industry especially considering that the occupancy levels have been low and that the unit was running at such unimaginable losses.
“The hotel was conceived out of disastrous planning and ineptitude at NSSA way back in 2006 in anticipation of the 2010 FIFA World Cup windfalls from across the border,” he said.
He also noted that the hotel was not priced correctly considering cheaper options that are across the border, hence having regular clients was always going to be a challenge in the current unstable economic environment.
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