Opinion: The cost of doing business in Nigeria — Hotels edition

by Anonymous

Hotels get a bad reputation in Nigeria. It is easy to understand why. In a society were corruption thrives, it is not difficult to label hotels as being part of proceeds of ill-gotten wealth. To the minds of the average person, starting a hotel is quite easy if you have got the Capital. Just buy land, build something nice and employ people. That’s all. Nothing could be further from the truth. Especially in Abuja. A lot more goes into starting a hotel and running it successfully.

The Current Situation

For starters, before you start a hotel in Abuja, you need to make sure that your property is designated as a commercial property or as a hotel. If it is not, then you have to obtain a permit or waiver to do so. Getting this waivers are very difficult. The Abuja masterplan is an act of parliament. Altering it, which is what you want to do, requires an equal act of parliament and no entrepreneur has the patience or the wherewithal to go through that. Those affected by this have an arrangement with the relevant authorities. For our members some pay up to N5,000,000 per year as contravention charges. (Exhibit 1).

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You might ask why anyone would want to break the law and build a hotel in an area designated differently. Well, this question can be answered with an example. If I live on a 1500m2 property on Adetokunbo Ademola crescent or on Gana Street, almost all my neighbours will be commercial buildings that conduct their business from 8.00am till 2.00 am. These businesses are the types that register a lot of foot-fall ranging from banks to night-clubs. Does it make sense to still live in this area with the inevitable amount of noise and loss of privacy? Doesn’t it make sense to convert my property into something that yields returns? 1500m2 might be small for a mall but it is ideal for a hotel.

When you are done obtaining all your building permits and the building is completed, you’ve got to staff it. Hotels in Abuja are the highest employers of labour. A rule of thumb is to count the amount of rooms in a hotel and multiply this by 2 to get the amount of staff it takes to get the number of staff it takes to efficiently run the hotel. We provide a specialized service to our customers. In order to do this well, we have to train our staff well enough. In Abuja, after the government, Hotels are the biggest providers and sponsors of vocational training.
In order to retain the staff, you have to pay them well. The law does not allow Hotels to employ casual staff and so there is a floor to what can be paid. This makes salaries within the industry to be higher than other blue-collar jobs in Abuja. It is common practice to also pay monthly bonuses to staff. So most Hotels pay their staff twice. The law also mandates us to pay the Nigerian Social Insurance trust Fund (NSITF) and Industrial Training Fund (ITF) 1% each of the gross salary of your staff. (Exhibits 2 & 3)

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Due to the dynamic and competitive nature of the Hotel industry, this particular bill is usually borne by the hotel and not the staff.
Once you are done with staffing, the next thing to do is make a market for your business. The first line of option is usually to put up a sign board with your name on it. This, in Abuja, is akin to putting a target on your back for the raiders. There is a dispute between the local government (AMAC) and the Federal Capital Development Authority (FCDA) on who is to collect a bill on this. So, we get two bills for it. (Exhibits 4 & 5)

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On average, they cost about N40,000 each. So that is N80,000 for signage per year. How much does it cost to make an average signboard?
The market for the Hotel Industry is strictly the business traveler. Very few people come to Abuja for tourism. Most of these people come under the auspices or in search of one regulatory agency or government office. To meet your market you need to engage your primary customer, that is the protocol desks in these parastatals. To visit them you need to employ a marketer and buy a car. If you have a logo on this car you have to pay different agencies for this. (Exhibits 6 & 7)

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Even other associations want a slice of the hotel cake, so we also get a bill from the National Union of Road Tramsport Workers (NURTW) and the National Freight and Haulage of Nigeria. (Exhibits 8 & 9)

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Oh, and even when you do not display your signboard properly, you get fined N255,000.(Exhibit 10)

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Hotels were previously regulated by the Nigerian Tourism Development Commission (NTDC). For this service, they charge an annual fee of N75,000 and a onetime registration fee of N150,000. (Exhibit 11)

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But there was a landmark judgement gotten by the Lagos State Government against them in 2013. The judgement gave the right to regulate hotels to the state government. I heard you say thank God for us. But this has only raised the number of demand notices we receive.
The Consumer Protection Council (CPC) believes that we should pay them N20,000.(Exhibit 12)

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Abuja Municipal Area Council (AMAC) also wants us to pay them an annual registration fee that varies between N150,000 and N1,000,000 depending on your size. (Exhibit 13)

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They are not quite sure whether to classify us as hotels or kiosks. So they give us a notice for being both. (Exhibit 14).

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The Federal Capital Territory Authority (FCTA) wants to get into the act as well. They simply classified us as entertainment providers. They have decided that we should become collecting agents for a 5% fee that they charge our customers. (Exhibit 15)

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There are other statutory fees backed by law (or so they seem) that we have to pay. To play music or watch TV in a hotel, every Hotel pays the Copyright Society of Nigeria (COSON) a fee that is computed by multiplying a rate with the number of rooms in a hotel, the occupancy rate and the days in a year. (Exhibit 16)

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This fee is paid annually. We also get a demand notice from AMAC for Radio/Television license (Exhibit 17)

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That’s N500,000 per year. You also get charged for having a parking lot too. (Exhibit 18)

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Yes, you read it right — N5,000,000 for having a parking lot.
As a hotel, you are not exempt from paying your utility bills. Our Utility bills are the biggest expense we deal with. For instance, this is the Abuja Electricity Distribution Company (AEDC) bill for a 50 room hotel. (Exhibit 19)

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That is N2,165,970. This was a good month. The same hotel paid N2,400,000 for the month of August. This does not remove the cost of running Generators. For the same hotel quoted, it costs about N400,000 per month. So if you operate within the same area, your energy bill should be between N2,600,000 — N3,000,000 monthly. Another utility bill you have to pay a lot of is your Abuja Environmental Protection Board (AEPB) bill. This varies with location and size. The same hotel gets to pay this amount yearly; (Exhibit 20)

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That is N1,008,000 per year. Other statutory bills include the three paid on the property. One is collected by AMAC — the Tenement Rate. (Exhibit 21)

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The other two are collected by the FCT. They are Business Premises Rate and Ground Rent. (Exhibit 22)

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What Does The Future Hold?

The logical question from here is, can we sustain this current regime of bills and expenses? Before I answer this question, let me tell you what the current market looks like. Since Boko Haram bombed EMAB plaza in 2014, Business has been on a downward trend. The situation got worse with the current economic recession that Nigeria has been in since the beginning of the year. Due to the underperformance of the Federal Budget the amount of people that come into Abuja has reduced drastically. Average occupancy is now at 40%. It used to be about 75% around 2009–2012. So if you had a 100 rooms, you were really running on 70 rooms in 2012. In 2016, you are running on 40 rooms. That is a 43% reduction in revenue. This is even worse if you factor in discounts. Therefore the answer to the previous question is no.

One would think that the market situation would prompt the various agencies and regulators to soft pedal on their demands. Unfortunately, the opposite is the case. Hotels are harangued and harassed on a daily basis by enforcement teams who are experts in meting out jungle justice.

Consequently, hotels are retrenching staff, some in lieu of closing down permanently. Is this the objective of this government? To close down businesses and lose jobs?

I’d like to reiterate that Hotel owners in Abuja are not crooks and criminals. We are mostly owned by legitimate entrepreneurs who have decided to take up the mantle of providing an essential service in Abuja. We do not deserve to be seen in any other way. We should enjoy the right to enterprise as enshrined in the constitution of the Federal republic of Nigeria.
Thank you.

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Feyi Fawehinmi
So there you have it. We talk a lot about the cost of doing business in Nigeria but a significant part of these costs are man made. It’s not even infrastructure problems (even though those ones are costly too) but the way our regulatory agencies approach businesses in a parasitic manner.

I’m usually suspicious of Nigerian business associations crying wolf but this is a graphic example of the challenges facing the Nigerian economy. I am afraid that these things will only get much worse under Buhari’s government.
I thank the author who has chosen to remain anonymous


Op–ed pieces and contributions are the opinions of the writers only and do not represent the opinions of Y!/YNaija

This article was first published here

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