Hilton, InterCon down as 10 others cling to lifeMonday March 27 2023
The exit of the Hilton Hotel in 2022 from the central business district of Nairobi came just a year after Hotel Intercontinental Nairobi had closed shop, the two going down with a rich history of a combined 107 years.
Established in 1967, only four years after Kenya had attained independence, the growth of the five-star InterCon along City Hall Way would in many ways coincide with the young republic's milestones.
A kilometre away from the InterCon along the same street, Hilton Nairobi came up two years later. Founding President, Jomo Kenyatta was on hand to officially open the hotel.
For more than five decades, the ‘‘siblings’’ would dominate the hospitality industry through different socio-political seasons, surviving regimes and overcoming multiple economic upheavals.
Having been founded within a year of each other, their journey and fate also appeared joined at the hip.
When the InterCon, as it was fondly known, closed down in 2021, the market waited for the other shoe to drop. And true to form, the Hilton threw in the towel in December 2022.
Even with its enormous financial muscle, every hospitality business the government touches turns into dust.
But the InterCon and Hilton are not the only properties the government has owned. Shortly after independence, the government went on an investment spree in the hospitality industry.
Between 1967 and 1977, the government also put money into Sunset and Kenya Safari Lodges and Hotels (KSLH) among others.
At the time, the economy was just coming out of the ashes of colonialism, with few private investors in the country.
The State, therefore, moved in to capitalise on this gap with the hope of minting millions in revenue from a growing tourism sector.
In recent years, however, the government has watched these multi-billion shilling businesses waste away. With their fall have been taxpayer billions pumped into them every year in the last 50 years.
From Mountain Lodges Limited to Golf Hotel, Kenya Utalii and Kenya Safari Lodges and Hotels, many of these hotels, lodges and beach resorts are either struggling or practically dead.
Read: InterCon rots away two years after grand slump
In the 2020/2021 financial year alone, Kenya Utalii, Kenya Safari Lodges and Hotels and the Kenya School of Government incurred combined losses of Sh679.7 million.
During the same period, KSG made the biggest loss after haemorrhaging Sh314 million. With swimming pools and gym facilities, KSG is a hotel like any other.
The facility in Lower Kabete in Nairobi has both accommodation and conferencing facilities, and is popular with government training events, with corporate events such as product launches and board meetings also hosted there.
Only Sunset Hotel, a two-star property in Kisumu, appears to be moving in the opposite direction. The facility made a profit of Sh10 million in 2021.
The government holds an 80 percent stake in the hotel with 20 percent owned by the County Government of Kisumu.
While brands that started in the 1960s and 1970s are going stronger by the year, government hotels appear to give up after hitting their 50th birthday.
Most private hotels have upgraded to ultra-modern facilities while the government continues to operate mostly two-star hotels with old amenities, attracting little worthwhile business and generating minimal returns.
In a competitive market with new players coming up every year, the government’s business model has been rendered ineffectual.
Some of the State’s properties may have modern facilities, but maladministration has seen them struggle, forcing them to rely on government bailouts.
In 2020, then Tourism Cabinet Secretary Najib Balala ordered the closure of Kenya Utalii College after perpetual financial woes.
The administration of the institution which is also a premier training facility for students in hospitality was also accused of ‘‘poor leadership, misuse of resources and unsound financial planning.’’
‘‘The hotel does not generate any revenues and yet depletes the institution’s resources in overhead costs,’’ CS Balala said.
The hotel’s stakeholders would move to court to block Mr Balala’s decision, arguing it was unconstitutional for failure to involve them in the decision.
The petitioners argued that Utalii’s primary objective is to offer hospitality training rather than to make profits. At the time, the college’s Kisumu and Mombasa campuses did not have enough students to sustain their operations.
Another loss-making government hospitality entity is the Kenya Safari Lodge and Hotels which sank Sh109 million two years ago. Established in 1969, KSHL operates three facilities across the country.
Mombasa Beach Hotel is a 151-room prime property in Nyali, while in the neighbouring Taita Taveta County, the State operates the 52-room Ngulia Safari Lodge and Voi Safari Lodge.
Besides lossmaking, the majority of these hotels have accumulated debt over the years, data from the National Treasury shows. KSLH, for instance, has a debt of Sh13.4 million that had been guaranteed by the government.
In the past, debt distress has seen the government’s hospitality businesses go for each other’s jugular, with the battles sometimes playing out in court.
In 2017, Kenya Utalii sued Kenya School of Monetary Studies (KSMS), demanding Sh17 million for catering and laundry services, and recreation bills it claimed it offered to the institution between 2002 and 2010.
KSMS would later countersue, making a demand of Sh217 million it said Utalii owed it as payment for rooms it had reserved for the college’s staff during the contract.
Further, the Central Bank-owned KSMS claimed payment for commission on meals extended to employees of the college and other debts accrued during that time.
In what has become the inevitable path to the grave for government properties, Serena Hotels ended a 22-year partnership with Mountain Lodges Limited in 2021, leaving the government scrambling to find a new tenant.
It is unclear if the 41-room prime property on the slopes of Mount Kenya has since found a tenant.
With a bed capacity of 62, Golf Hotel in Kakamega is the largest facility in Western Kenya outside of Kisumu, able to host significantly large conferences.
Yet with its strategic location and size, the hotel is still unable to operate sustainably, much less profitably. Golf made losses worth Sh3 million in 2020/2021.
Ironically, at a time its hotel and lodge facilities across the country are struggling to remain in business, the government spends an average of Sh6.9 billion annually to pay for hospitality services for its officers.
Read: InterCon shuts Kenya hotel, sends home all employees
Between 2019 and 2022, for instance, the Treasury paid Sh27.4 billion for accommodation, meals and other amenities for civil servants.
Government hospitality gobbled up Sh9.8 billion in the 2018/2019 financial period. This was the highest amount for this expense in a single year in the last five years.
Kenya Development Corporation (KDC) is the custodian of State shares in hotels and lodges, whose performance it monitors on behalf of taxpayers.
Yet in 2021 alone, KDC itself made Sh635 million in losses, raising questions about the ability of a lossmaking entity to steer other virtually insolvent companies to profitmaking.
The body was established in 2020 as a development finance institution, through the merger of the Industrial and Commercial Development Corporation (ICDC), Tourism Finance Corporation (TFC) and IDB Capital Limited.
KDC would also take over the assets and liabilities of the trio as part of parastatals reforms by the government of former President Uhuru Kenyatta.
Since December last year, Norah Ratemo has been serving as the acting Director-General and board member of KDC whose mandate is to provide ‘‘long-term financing and other financial, investment and business advisory services’’ to the government.
KDC is also charged with addressing capital gaps ‘‘for long-term funding that cannot be met by commercial banks in target sectors.’’
A year after its formation, KDC launched an ambitious four-year strategic plan to revive and refurbish its hotels to regain their competitiveness.
The corporation would use the event to appeal to investors to put money in Mount Elgon Lodge in Kitale, Sunset Hotel, Mombasa Beach Hotel and Golf Hotel and to offset their debt.
Today, about $2 million (Sh260 million) is needed ‘‘refurbish and modernise’’ Golf Hotel, for instance, and to promote it to a five-star rating, according to KDC.
At the same time, the government has been looking for a strategic investor to ‘‘assist in stabilising’’ and develop ‘‘a vibrant and realistic turnaround plan’’ for Sunset Hotel.
The colourful launch at Hilton Nairobi was attended by then Head of Public Service Joseph Kinyua. Months later, Hilton folded.
Last week, the Cabinet approved the Privatisation Bill of 2023, effectively giving the Cabinet Secretary powers to privatise government enterprises without seeking the input of Parliament.
The bill that is sponsored by the government targets to sell struggling State businesses.
In the past, however, government efforts to sell its stake in properties have often hit a dead wall, owing to either underquoting by prospective buyers or their consistent depreciation over the years.
Since independence, the government has owned its hotels through at least three different institutions.
At independence, Kenya Tourist Development Corporation held a government stake in hotels before the Tourism Finance Corporation (TFC) took over.