Draft development impact case
study
Serena Kigali Hotel, Rwanda
Carolin Williams & Jonathan Mitchell
8 February 2012
Confidential
Overseas Development Institute
111 Westminster Bridge Road
London SE1 7JD, UK
Tel: +44 (0)20 7922 0300
Fax: +44 (0)20 7922 0399
www.odi.org.uk
Disclaimer: The views presented in this paper
are those of the author(s) and do not
necessarily represent the views of ODI or our
partners.
Draft development impact case study - Serena Kigali Hotel, Rwanda
Contents
Contents
Tables, figures & boxes
Abbreviations
Executive summary
1
2
2.1
2.2
2.3
3
3.1
3.2
4
4.1
4.2
4.3
4.4
4.5
5
6
i
ii
iii
1
Introduction
Rwanda and tourism
Tourism statistics
Tourism policy
Tourism and the economy
The project
History of the (InterContinental) hotel
Kigali Serena
Development outcomes
Operational performance
Financial Performance
Economic performance
Environmental and social performance
Private sector development
Impact of the project and IFC support
Recommendations
i
4
5
5
7
7
9
9
9
12
12
15
17
27
28
29
32
Draft development impact case study - Serena Kigali Hotel, Rwanda
Tables, figures & boxes
Tables
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
1: Arrival statistics by nationality and business segment
2: Tourist spend
3: Operational results Kigali Serna
4: Project cost and financing plan
5: Kigali Serena occupancy and room rates
6: Business and leisure guests, no of rooms and room nights
7: Profit and Loss
8: Number of staff by department, sex and nationality
9: Training spend
10: Payments by Serena Kigali to GoR
11: Breakdown of expenditure Phase I ROKO
5
6
9
11
13
14
17
21
21
24
26
Figures
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Annex
1: Economic impact 2007-2001 (total USD 28,279,683)
2: Economic impact 2011 (total USD 14,220,309)
3: Number of jobs created
4: Visitor arrivals by air
5: Average length of stay
6: Hotel room supply
7: Tourism revenue
8: Registered investment projects with RDB
9: Total number of guests (25,505) by nationality
10: Business mix by room nights (total 25,505)
11: Revenue breakdown
12: Revenue breakdown of total revenue (USD 12,460,627)
13: Expenditure breakdown
14: Total number of staff
15: Payroll cost breakdown
16: Gross pay breakdown
17: Average monthly wages
18: Staff spending patterns
19: Food and beverage breakdown
20: Estimated national content by value
21: Financial performance of the project
B: Breakdown of total spend on refurbishment
1
2
2
5
6
7
8
8
13
14
15
15
16
18
18
19
19
20
22
23
30
34
Boxes
Box 1: Kigali Serena
Box 2: Expected development impact
10
12
ii
Draft development impact case study - Serena Kigali Hotel, Rwanda
Abbreviations
AKDN
AKFED
ADR
CSR
DOTS
DTS
EROIC
F&B
FFV
GOR
GOP
IFC
lDC
ODI
ODI
ODI
P&L
RDB
STPS
TPS
TPS(R)
TPSEA
TSA
VFR
WACC
Aga Khan Development Network
Aga khan Fund for Economic Development
Average Room Rate
Corporate Social Responsibility
Development Impact Tracking System
Discretionary Tourist spend
Economic Return on Invested Capital
Food and Beverage
Fresh Fruit and Vegetable
Government of Rwanda
Gross Operating Profit
International Finance Corporation
Least Developed Country
Overseas Development Institute
Overseas Development Institute
Overseas Development Institute
Profit and Loss
Rwanda Development Board
Serena Tourism Promotion Services
Tourism Promotion Services
Tourism Promotion Services (Rwanda)
Tourism Promotion Services Eastern Africa
Tourism Satellite Account
Visiting Friends and Relations
Weighted Average Cost of Capital
iii
Draft development impact case study - Serena Kigali Hotel, Rwanda
Executive summary
The International Finance Corporation (IFC) contracted the Overseas Development Institute
(ODI) to assess the socio-economic development impact of the Kigali Serena hotel in Rwanda,
which benefited from a loan and equity support from IFC of a total of USD 8.1 million, and to
assess associated implications for IFC’s Development Impact Tracking System (DOTS)
framework. Based on an in depth value chain analysis, the below sets out ODI’s findings:
Development outcomes
Operational and financial performance
Kigali Serena’s total revenue has almost doubled between 2007 and 2011. This was largely
achieved by an increase in the number of rooms and in the average room rates charged,
rather than an increase in occupancy which in fact fell. Increased food and beverage (F&B)
sales also contributed to increased revenue.
As revenue, expenditure also almost doubled since Serena assumed management of the hotel.
As a result, profit and loss on rooms and food and F&B as well as gross operating profit (GOP)
have remained approximately the same in relative terms. Net profit has remained stable in
nominal terms but has almost halved in percentage terms.
Compared to national tourist arrival flows, Kigali Serena’s tourist demand is disproportionally
from outside Africa. Most guests are business related although there is significant leisure
tourist demand. This supports the target of Rwanda’s tourism strategy, which focuses on
increasing arrivals numbers and spent from this tourist segment, as it accounts for the
majority of tourism revenue.
Economic performance
Figure 1 illustrates total estimated financial flows from Serena Kigali into the economy between
2007 and 2011. As shown, of the total USD 28.3 million an estimated 58% has benefitted the
local economy and 23% ‘leaked out’ of the country. The remaining 19% are not classified in
our calculations as it was not possible to establish how Prime Holdings and the Government of
Rwanda (GoR) handles the financial contributions from the hotel. The largest contribution was
from discretionary tourist spending (DTS) according to our estimates.
Figure 1: Economic impact 2007-2001 (total USD 28,279,683)
USD millions
25
20
15
10
unclassified
5
leakage
local
0
1
Draft development impact case study - Serena Kigali Hotel, Rwanda
Figure 2 illustrates the estimated financial flows from the hotel into the economy in 2011,
which shows an increase in local benefits compared to the total between 2007 and 2011. Of a
total of USD 14.2 million, 69% benefitted the local economy, 12% ‘leaked out’ of the country
and 18% could not be classified for the reasons given above. Discretionary tourist spending
continues to make the largest contribution accounting for over 37% of total financial flows
from the hotel.
Figure 2: Economic impact 2011 (total USD 14,220,309)
6
USD millions
5
4
unclassified
3
leakage
2
local
1
0
discretionary
tourist spend
staff
payments to
GOR
F&B
utilities
outsourced
services
In terms of job creation Kigali Serena has created a total of 1,916 jobs of which 528 where
only created on a temporary basis during the construction and renovation phase of the hotel.
Figure 3 shows the breakdown of the number of jobs created. This implies that, on cautious
assumptions, each hotel job generates two-and-a-half times as many jobs outside the hotel in
the Rwandan economy on farms, taxis, restaurants and outsourced services.
Figure 3: Number of jobs created
milk faremrs
outsoruced services
meat farmers
jobs supported by DTS
number of jobs created
hotel staff
FFV farmers
construction workers
0
100
200
300
400
500
600
Although the impact of the Kigali Serena on the economy is considerable, some 7% of total
tourist expenditure is accounted for by this establishment, attributing the financial impact of
the hotel to the IFC intervention is challenging. The IFC initially provided USD 6 million (or
32%) of the finance for the project (it is too early to assess the impact of the additional
finance provided in 2011). The IFC intervention can be credited with the additional revenue
2
Draft development impact case study - Serena Kigali Hotel, Rwanda
generated by the construction of 14 rooms (32% of the total of 44 additional rooms) and USD
8 - or 32% of the total increase in the ADR from USD 158 in 2008 to USD 184 in 2011 (as a
result of the rehabilitation and addition of hotel facilities). These two factors suggest additional
revenue to the hotel of some USD 821,00 in 2011 (at current room occupancy rates of 66%)
resulting from the IFC investment. At a gross operating profit of 32%, this additional revenue
amounts to about USD 263,000 per year – or a 4.3% financial return on a USD 6m
investment.
In addition, as the financier of the equivalent of 14 of the hotels 148 room, about 9% of the
aggregate development impacts of the Kigali Serena can be attributed to the IFC.
Environmental and social performance
Whilst some improvements in terms of environmental performance have been made by the
recent installation of solar panels the hotel’s overall environmental performance appears
limited. Similarly, whilst some Corporate Social Responsibility (CSR) activities are in place,
these could be strengthened and more closely aligned with Serena Kigali’s core business.
Some of these activities are taking place but are not formally reported on.
Private Sector development
Kigali Serena has had a strong impact on private sector development. The hotel has become a
training ground for the Rwandan tourism sector leading to a general upgrading of skills.
Linkages with local suppliers have been strengthened through both formal and information
training by the hotel. The hotel has facilitated further investment in the tourism sector and
raised the standards provided. There have also been spillovers from Kigali Serena to other
sectors in terms of labour force development.
IFC and DOTS
This report concludes with some suggestions about how to improve the way that the IFC
monitors the outcome of its investments using the Development Outcomes Tracking System in
the hotel sector.
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Draft development impact case study - Serena Kigali Hotel, Rwanda
1
Introduction
In November 2011 the International Finance Corporation (IFC) contracted the Overseas
Development Institute (ODI) to assess the development impact of the Kigali Serena Hotel in
Rwanda. The hotel benefitted from a loan and equity support from IFC agreed in October 2007.
The objective of this project is to measure the socio-economic outcomes of this support to
Kigali Serena and assess the implications for the Development Impact Tracking System
(DOTS) framework, which is used by the IFC to monitor the development effectiveness of
investments.
Approach and data collection
The work is based on a value chain analysis, which was carried out in Kigali in December 2011.
The findings are based on data, which should be treated with differing levels of confidentiality
and is subject to margins of error as set out below:
 The value chain analysis was undertaken in close cooperation with the IFC and the




Serena Kigali hotel management, which provided information on an open book
basis. The project team had full access to the financial statements of the hotel from
2007 to 2011. We note that all figures obtained from Kigali Serena include
estimates for December 2011.
Information from staff and tourists was collected as part of structured surveys. The
information provided by these surveys is intended to be indicative only and is
therefore subject to margin of error.
Information from suppliers to the Kigali Serena was collected during a series of
interviews, which had a small sample size and where information given could only
be validated to a limited extent. This information is therefore indicative only.
The data gathering also involved extensive interviews with key stakeholders in the
Rwandan tourism sector including the Rwanda Development Board (RDB), Tourism
Chamber, IFC Rwanda and competitors of Kigali Serena.
This report only includes financial figures in USD. The exchange rate is based on
Serena Kigali hotel’s financial statement exchange rate of 1RWF=USD 0.002 and
was assumed to have been the same from 2007 to 2011.
Report outline
Chapter 2 provides a brief overview of the Rwandan tourism sector in terms of tourism
statistics, tourism policy and the impact of tourism on the economy. Chapter 3 sets out the
details of the investment project including the history of the hotel, details of the agreement
between Tourism Promotion Services Rwanda (TPS(R)) and the Government of Rwanda (GOR),
the financing agreement for the acquisition and renovation of the hotel as well as expected
development impacts. Chapter 4 tracks development outcomes in terms of operational-,
financial- and economic performance as well as the hotel’s environmental and social
performance and broader private sector development impact. Chapter 5 analyses the impact of
the project in relation to IFC’s support. The report concludes with recommendations for
improvements of IFC’s DOTS framework in chapter 6.
4
Draft development impact case study - Serena Kigali Hotel, Rwanda
2
Rwanda and tourism
2.1
Tourism statistics
Arrival numbers
Up until the mid 1990s few tourists visited Rwanda. Following the 1994 genocide, tourist
activity collapsed. Since the turn of the Century, however, tourist arrivals have picked up
rapidly. Indicating the upward trend in total numbers of tourist arrivals, Figure 1 shows the
increase of visitor arrivals by air between 2000 and 2011, over which period arrival numbers
have more than tripled.
Figure 4: Visitor arrivals by air
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Source: RDB, Visitor arrivals by air including estimates for 2000-2004 and 2011
Table 1 shows the arrival statistics by nationality and business segment for 9 months in 2011.
The number of arrivals is larger than in Figure 1 because visitors using the land border are
included, as well as arrivals by air. Most tourists are African nationals, representing over 80%
of all visitors, and travelling for business, which account for over 40% of all arrivals, closely
followed by tourists visiting friends and relations (VFR), which account for 35% of total
arrivals.
Table 1: Arrival statistics by nationality and business segment
nationality
leisure
VFR
business
transit
other
total
African
24,069
198,825
224,028
9,398
62,222
518,542
European
17,544
8,620
15,474
8,335
2,531
52,504
Americas
11,298
5,330
8,572
3,561
769
29,530
Other
6,124
2,567
8,877
4,910
816
23,294
Total
59,035
215,342
256,951
26,204
66,338
623,870
Source: RDB, Highlights of tourist arrivals in Rwanda January-September 2011
Length of stay
An international visitor survey conducted by the research consultancy, Acron, in 2010 showed
that tourists VFR stayed longest, 11 days if arriving by air. Leisure and business tourists
arriving by air stayed 8 and 7 days respectively. 7 days is the weighted average length of stay
5
Draft development impact case study - Serena Kigali Hotel, Rwanda
for total tourist arrivals. Visitors arriving by road tended on average to stay 2.5 days less than
tourists travelling by air.
Figure 5: Average length of stay
15
days
10
air
road
5
0
leisure
VFR
business
transit
other
Source: International visitor survey by Acorn (2010) for TSA
Tourist spend
Table 2 summarises tourist spend by segment and region of origin. Leisure tourists spend by
far the most, USD 1,386 on average per visit, almost five times as much as business visitors,
who on average spend USD 292 per visit. Tourists VFR spend the least, USD 84 per visit,
whilst tourists in transit or visiting for other purposes spent USD 313. The total weighted
average tourist spend per visitor in 2011 is USD 327. Over half of total tourist spend is derived
from non-African leisure and business tourists. This is considerable given they only account for
6% and 5% respectively of arrivals.
Table 2: Tourist spend
Spent USD
African
Non-African
Total
leisure
26,600,000
55,200,000
81,800,000
VFR
16,200,000
1,900,000
18,100,000
business
23,200,000
51,900,000
75,100,000
5,800,000
2,400,000
8,200,000
71,800,000
111,400,000
183,200,000
transit & other
Total
Source: RDB highlights of tourist arrivals in Rwanda January-September 2011
Hotel rooms
Hotel room supply has grown almost nine fold between 2003 and 2011 as shown in Figure 3.
Of those, an estimated 15% were in the 5, 4, and 3 star categories, 30% in the 2 and 1 star
category and 55% unrated. Occupancy levels in the upper category were estimated to be
considerably higher, 70% in 2008, than the middle category, with an estimated occupancy of
46%, followed by the lower category with an estimated occupancy of 32%. 97% of guests
staying in the upper category hotels were foreign, 80% in the middle category and 32% in the
lower category.
6
Draft development impact case study - Serena Kigali Hotel, Rwanda
Thousands
Figure 6: Hotel room supply
6
4
2
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
Source: RDB hotel room supply projections (2010)
2.2
Tourism policy
The country has made significant progress towards its vision of becoming “through wellmanaged marketing, development and public/private partnerships ... a leading wildlife and
eco-tourism destination and regional conference hub, with a high quality, affordable and
diversified tourism product that makes a growing contribution to the overall socio-economic
development of the country”.1
The apparent success in reviving the tourist sector has primarily been driven by the
government’s concerted commitment to the development of the tourism sector as exemplified
in the early development of a tourist policy and strategy. Tourism has been identified as one of
the priority sector to achieve the country’s development goals in Rwanda’s 2020 vision. 2 The
country’s overall strategy for the development of the tourism sector - as set out by the
Ministry of Commerce, Industry, Investment Promotion, Tourism and Cooperatives (MINICOM)
and the Rwanda Development Board (RDB) - is to increase arrival numbers, length of stay and
spending per tourists by developing new products, upgrading skills and standards and
stimulating private sector activity and investment. Overall the focus is on high spend-low
impact tourists.3
2.3
Tourism and the economy
Tourism Revenue
Tourism revenue has increased significantly. The direct contribution of travel and tourism to
GDP is estimated to have reached USD 248.8 million in 2011. Figure 4 shows the increase in
the direct contribution of travel and tourism to GDP. As an average percentage of total GDP
this reflects an average annual increase of 2% between 2006 and 2007 rising to an average
increase of 3.5% between 2008 and 2011.
1
RDB (2009), “Sustainable Tourism Development Master Plan for Rwanda”
2
Ministry of Finance and Economic Planning (2000), “Rwanda Vision 2020 strategy”
3
Following structural reforms in 2009, MINICOM holds overall responsibility for the tourism sector and developed
Rwanda’s National Tourism Policy (2006). RDB is responsible for tourism development and marketing as well as
wildlife preservation and the management of the national parks. RDB’s tourism strategy is set out in the Sustainable
Tourism Development Master Plan for Rwanda (2009).
7
Draft development impact case study - Serena Kigali Hotel, Rwanda
USD million
Figure 7: Tourism revenue
250
200
150
100
50
0
2005
2006
2007
2008
2009
2010
2011
Source: World Travel & Tourism Council (2011), “Travel and tourism economic impact in Rwanda”
Tourism and GDP
The total contribution of travel and tourism to GDP, including direct, indirect and induced
effects, is more than twice that of direct effects at an estimated USD 581 million in 2011,
equivalent to just under 8% of total GDP. 4 Further, tourism has become Rwanda’s top export
revenue earner, exceeding the traditional exports of tea and coffee, and accounting for an
estimated 40% of total export revenues.5
Tourism and investment
As shown in figure 5 investment in the tourism sector as a percentage of all registered
investment projects with RDB has been substantial. Over USD 100 million were invested in the
Rwandan tourism sector in 2010, equivalent to 26% of all investment projects registered for
that year. Showing an upward trend, average investment into the tourism sector as a
percentage of total investment has risen from 17.6% between 2000 and 2007 to 25% between
2007 and 2010.
Figure 8: Registered investment projects with RDB
3%
4%
4%
26%
6%
tourism
construction/real estate
agriculture
energy
16%
ICT
other
23%
18%
Source: RDB registered local and foreign direct investment 2010
4
World Travel & Tourism Council (2011), “Travel and tourism economic impact in Rwanda”
5
Government of Rwanda (2011), “Rwanda National Export Strategy”
8
mining
other
Draft development impact case study - Serena Kigali Hotel, Rwanda
3
3.1
The project
History of the (InterContinental) hotel
Recognising the lack of high-end accommodation in the country, the Government of Rwanda
(GoR) developed and completed five star hotel in Kigali (and Lake Kivu) in January 2004.
Through a 15 year management contract with the GoR, South African-owned Southern Sun
operated the hotel(s) with an InterContinental franchise from 2004. In March 2005, however,
the two parties agreed to an early termination of the contract following disputes over the
terms of the contract and quality of management provided by Southern Sun. The properties
were then managed by Prime Holding, a government entity, still under the InterContinental
franchise.
Table 3 sets out the hotel’s operational results from 2004 to 2006. Hotel occupancy rates were
slightly lower than those subsequently achieved by Kigali Serena (see table 5). However, in the
third year of operation, gross operating profit (GOP) reached the 30% level - generally
regarded as healthy in the hotel sector - and average room rates (ADR) achieved USD 156.
Although room rates have subsequently increased, GOP has remained approximately the same
since 2006 (see table 7).
Table 3: Operational results Kigali Serna
Operational results
2004
2005
2006
occupancy (%)
na
60
56
ADR (USD)
na
104
156
3,900,000
5,400,000
na
-10.0
11.0
32.0
revenues (USD)
GOP (%)
Source: IFC PDS - Early Review (2007)/operational results for Serena Kigali as of November 2006
3.2
Kigali Serena
On 31 December 2006 Tourism Promotion Services Rwanda (TPS(R)) signed a renewable 30
year lease agreement with the GoR to manage and operate the Kigali Serena Hotel (and the
Lake Kivu Serena hotel) having been selected by GoR for its regional reputation and the
successful results of previous takeovers in the region. The lease agreement with the GoR
required the rehabilitation of the two leased hotels and the expansion of the Kigali Serena. The
concession agreement required the concession holder to add a minimum of 46 rooms at the
Kigali Serna hotel. In addition, it was planned to: (1) expand the swimming pool, build a
health and fitness centre; (2) carry out other renovation works including upgrading of air
conditioning and ventilation and plumbing system; and (3) improve the food and beverage
(F&B) facilities and provide extensive training to improve service quality.
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Draft development impact case study - Serena Kigali Hotel, Rwanda
Box 1: Kigali Serena
The Kigali Serena is currently still
the only five-star hotel in Kigali.
The hotel is well-located in an upmarket area, near most of the
government, embassy and
development agency offices. It has
148 rooms, a convention centre,
two large conference rooms, two
F&B outlets, a business centre, a
health centre, a swimming pool and
a retail shop.
Source: Kigali Serena homepage
The lease required a USD 4.5 million upfront fee and an ongoing concession fee of 10% of
revenue for the Kigali Serena hotel - to be reduced to 8% once the expansion was to be
completed to be paid to Prime Holdings (and 5% in concession fees for the Lake Kivu Serena
hotel).
The sponsors
TPS(R) was formed to manage and operate the Kigali Serena (and Lake Kivu Serena) hotel(s).
TPS(R) is the Rwandan subsidiary of the Aga Khan Fund for Economic Development (AKFED),
which is the for-profit arm of the Aga Khan Development Network (AKDN).6 AKFED is involved
in the tourism sector though its multiple subsidiaries, generally referred to as Tourism
Promotion Services (TPS), which manages a franchise of hotels under the Serena brand. TPS
has extensive experience in the African tourism sector via several subsidiaries, of which the
main is Tourism Promotion Services Eastern Africa Limited (TPSEA). TPSEA is a listed company
that manages a regional portfolio of hotels, resorts and loges. TPSEA and Serena Tourism
Promotion Services (STPS), a Swiss subsidiary of AKFED, are managing the Rwanda property.
The investment
Phase I and Phase II loan agreement
The estimated project cost of acquiring the concession and rehabilitating both hotels and the
expansion of the Kigali Serena hotel, was USD 18.7 million in 2007. As shown in table 4 the
financing plan included USD 5.3 million equity from AKFED and TPSEA, USD 6 million in debt
and equity from
IFC and USD 6
million from Deutsche Investitions und
Entwicklungsgesellschaft mbH (DEG). The USD 6 million IFC investment involved a USD 2
million equity injection and USD 4 million loan.
6
AKDN is an international development agency dedicated to promoting entrepreneurship and building economically
viable enterprises in the developing world.
10
Draft development impact case study - Serena Kigali Hotel, Rwanda
Table 4: Project cost and financing plan
project cost
USD
%
financing plan
USD
%
upfront concession fee to Prime Holding
4,500,000
24
debt
Kigali Serena Refurbishment
3,500,000
19
local facility
1,380,000
7
Kigali Serena Expansion
7,000,000
37
IFC A Loan
4,000,000
21
Kivu Serena refurbishment
1,550,000
8
DEG Senior loan
3,000,000
36
working capital
1,500,000
8
total debt
8,380,000
45
650,000
3
equity
AKFED
4,490,000
24
TPSEA
830,000
others
Total
18,700,000
100
4
IFC
2,000,000
11
DEG Senior loan
3,000,000
16
Total equity
10,320,000
55
Total
18,700,000
100
Source: IFC Investment Review Memorandum (2007)
Both the IFC and the DEG loan were to be repaid by 14 semi annual instalments starting from
15 September 2009. The interests of the senior IFC and DEG loans is currently at 3.331% per
annum (3 month LIBOR + 2.85%). According to the TPS(R) 2011 board paper, repayment of
senior loans is up to date.7
In addition to Phase I, IFC singed a Phase II loan agreement in June 2010 committing USD 2.1
million in new equity and loan to partly finance further refurbishments of Kigali Serena and the
eventual development of a Gorilla lodge in Kinigi, Rwanda. The investment was complemented
by analogous financing from DEG and Norfund.
All of the acquisitions and refurbishments have been implemented (although only 42 additional
rooms have been added to the Kigali Serena rather than the 46 agreed) apart from the Kinigi
investment. This has been designed but is currently on hold until environmental issues are
resolved.
Expected development impact of the investment
Box 2 sets out IFC’s expected development impact of this investment, which includes: the
expansion of Rwanda’s business and tourism infrastructure, increases in foreign exchange
earnings and government revenue, direct benefits to employees as well as the development
and expansion of local supplies.
7
In addition to the redevelopment and expansion as outlined, TPS(R) is also planning the construction of the Kinigi
Lodge in the gorilla area. For this TPS(R) expects to draw a total loan amount of USD 5.45million from DEG (USD
1.6million), IFC (USD 1.15 million) and Norfund (USD 2.7 million) with the first drawdown having been expected
towards the end of 2011.
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Draft development impact case study - Serena Kigali Hotel, Rwanda
Box 2: Expected development impact
The project is expected to:





Add to the country’s business and tourism infrastructure by expanding and improving the
limited existing base of quality accommodation facilities and business services as well as by
providing extensive hotel training to employees, upgrading the overall service quality
standards of the hotel industry
Increase foreign exchange and government revenue in the form of concession fees, income
tax and value added tax;
Benefit TPS(R)’s employees, who will receive training and an approximately 30% higher than
market compensation;
Strengthen linkages with local suppliers through continued purchases of produce and other
on-going operating supplies, encouraging their growth and development. Spending by
international visitors will also help support a wide range of local economic activities, including
handicraft and souvenirs, restaurants, transportation, torus, entertaining, sports and leisure
activities, etc.; and
Encourage increased tourism, business and MICE travel, and as a result, help sustain
employment and create additional direct and indirect positions.
Source: IFC Development Tracking System TPS(R) (575799)
IFC Rwanda SME linkage programme
In addition to the outlined IFC investment, IFC’s Rwanda country office also started
implementing a SME tourism linkage program as part of its SME value chain development
programme in 2009, scheduled to run until 2013. The program is designed to address issues
around revenue leakage, a weak tourism cluster and limited access to funding affecting SMEs
in the Rwandan tourism sector. Serena Kigali along with several other high end hotels in Kigali
has been actively involved in the program and training workshops of SMEs. Consultations with
both IFC, Serena Kigali and suppliers suggest that this programme has enhanced local
sourcing in the Rwandan tourism sector.
4
4.1
Development outcomes
Operational performance
Kigali Serena occupancy and room rates
Table 5 shows the hotel occupancy and average room rate from 2007 to 2011. Occupancy
initially increased by 7% when Serena took over the management of the hotel in February
2007 but has since 2009 fallen and in 2011 was 66%, 5% lower than in 2007. This is a
reflection of additional rooms available (had no rooms been added to the hotel and the number
of guests followed recent trajectory, the occupancy would have continuously increased from
71% in 2007 to 90% in 2011), and some guests being deterred from staying at the hotel by
the construction activity. It may also to a smaller degree be a reflection of some guests being
displaced by other high-end hotels entering the market since 2007.
Unlike occupancy, the average room rate per occupied room has continuously increased by
almost 25% between 2007 and 2011, from USD 148 to USD 184. Higher room rates combined
with an almost 30% increase in the total number of rooms occupied over the same period,
have resulted in total room revenue almost doubling between 2007 and 2011 (see figure 8).
12
Draft development impact case study - Serena Kigali Hotel, Rwanda
Table 5: Kigali Serena occupancy and room rates
GUESTS
2007
2008
2009
2010
2011
104
104
113
148
142
no of room nights available
34,736
38,064
41,304
54,020
51,827
no of room nights occupied
24,531
29,603
28,501
32,124
34,437
71
78
69
59
66
no of beds available
69,472
76,128
82,608
108,040
103,654
no of beds occupied
31,076
33,741
32,703
36,653
38,891
148
158
174
175
184
no of rooms
occupancy (%)
room rate per occupied room (USD)
Source: Kigali Serena P&L 2007-2011 (Statistics)
Guest nationality
Figure 9 illustrates the number of guests by nationality and room night production for 2011.
One-third of guests are from Africa (10% are Rwandan, 15% East African and 8% from the
rest of the continent); 25% of guests are from the Americas; 19% from Europe; and 23%
from the rest of the world.
Figure 9: Total number of guests (25,505) by nationality
19%
10%
Rwandan
East African
15%
4%
South African
Southern Africa
1%
2%
1%
4%
25%
West African
North African
Europe
Americas
19%
Asia and Australasia
Source: TPS(R) 2011 board paper – Nationality statistics/room night production for Serena Kigali (January to August 2011)
Compared with national tourist arrival flows (see Table 1), the percentage of African nationals
staying at the Kigali Serena is considerably lower than the average of 83%. The percentage of
guests from outside Africa staying at the Kigali Serena, 67%, is considerably higher than the
national tourist flow of 17%.
Business mix
Figure 10 shows the business mix by room nights for Kigali Serena between January and
August 2011. Over 80% of guest nights are business related - including government
representatives staying at the hotel. Only 12% of guest nights were represented by leisure
tourists.
13
Draft development impact case study - Serena Kigali Hotel, Rwanda
Figure 10: Business mix by room nights (total 25,505)
4%
6%
6%
business
leisure
12%
GoR
complimentary
72%
other
Source: TPS(R) 2011 board paper – Kigali Serena business mix (room nights) January – August 2011
Overall, Kigali Serena’s tourist demand is disproportionately business-related. Leisure tourist
demand is, however, broadly representative of the national tourist market. Kigali Serena’s
leisure segment does include some high-end VFF tourists.
Guest length of stay
Table 6 shows guest segments and average length of stay during 2011. Based on these
figures, leisure tourists stay only half as long as business travellers at the hotel. Leisure
tourists visiting Rwanda only spent a small percentage of their visit in the capital and the
remainder in Rwanda’s national parks, unlike business tourists who are assumed to spend
most of their stay in Kigali.
Table 6: Business and leisure guests, no of rooms and room nights
Purpose of visit
2011
business pax
20,264
business no of rooms
5,604
business room nights
18,836
average length of business stay
3.4 days
leisure pax
5,831
leisure no of rooms
2,593
leisure room nights
3,993
average length of leisure stay
1.5 days
weighted average length of stay
3.0 days
Source: Kigali Serena general management – guest segment statistics 2011 as of 21 December 2011
14
Draft development impact case study - Serena Kigali Hotel, Rwanda
4.2
Financial Performance
Revenue
Figure 11 summarises Kigali Serena’s breakdown of total revenue, by the main revenue
centres, from 2007 to 2011.8 Between 2007 and 2011 Kigali Serena’s total revenue almost
doubled from USD 6.98 million in 2007 to USD 12.46 million in 2011. In terms of percentage
shares of the main revenue centres, this has not significantly changed between 2007 and
2011.
Figure 11: Revenue breakdown
7
USD millions
6
5
2007
4
2008
3
2009
2
2010
2011
1
0
Rooms
Food sales
Beverage salesOther food F&B
income
Shop/Health
Club/M.O.D.
Other
Source: Kigali Serena P&L 2007-2011
Figure 12 shows the breakdown of revenue for 2011. Room revenue accounts for over half of
total revenue, food sales for 31% and beverage sales for 10%. Beverage sales are expected to
increase following the opening of the new bar and lounge facilities in 2011.
Figure 12: Revenue breakdown of total revenue (USD 12,460,627)
2%
5%
1%
Rooms
10%
Food sales
Beverage sales
51%
Other food F&B income
Shop/Health Club/M.O.D.
31%
Other
Source: Kigali Serena P&L 2011 (January to November 2011 actual, excluding estimate for December 2011)
8
Sale figures for the shop, health club and M.O.D. are estimates deducted from total sales figures.
15
Draft development impact case study - Serena Kigali Hotel, Rwanda
Conference F&B sales account for almost 40% of total F&B sales.9 A 2011 board paper
indicates that growth in food revenues was achieved mainly through conferences and
functions.
Expenditure
Figure 13 illustrates the components of Kigali Serena’s expenditure between 2007 and 2011.
As for revenue, total expenditure has almost doubled between 2007 and 2011 from USD
5.97m to USD 11.54m.
Figure 13: Expenditure breakdown
3.0
USD Millions
2.5
2.0
1.5
2007
1.0
2008
0.5
2009
0.0
2010
2011
Source: Kigali Serena P&L 2007-2011
Profit and Loss
Table 7 shows the profit and loss for the hotel between 2007 and 2011. Both revenue and
expenditure have almost doubled since Serena assumed management of the hotel. As a result,
profit and loss on rooms and F&B and gross operating profit have remained approximately the
same in relative terms. Net profit has remained stable in nominal terms but has, however,
almost halved in percentage terms as sales have increased between 2007 and 2011. This is
due to a combination of an increase in management fees, depreciation, and administration and
finance charges between 2007 and 2011. No tax payments are included in these figures.
9
This figure excludes December 2011.
16
Draft development impact case study - Serena Kigali Hotel, Rwanda
Table 7: Profit and Loss
2007
total sales
6,983,555
2008
8,438,856
2009
9,194,383
2010
10,739,864
2011
12,460,627
total expenditure
5,977,084
7,502,450
8,483,379
10,046,484
11,547,436
rooms profit (USD)
3,068,787
4,020,339
4,220,390
4,868,707
5,410,344
rooms profit (%)
84
86
85
87
85
F&B profit (USD)
1,053,925
1,047,698
1,143,297
1,504,151
1,709,056
37
33
32
37
33
gross operating profit (%)
1,941,182
2,508,122
2,905,323
358,116
3,943,744
gross operating profit (%)
28
30
32
33
32
1,006,471
936,406
711,004
693,380
913,191
14.4
11.1
7.7
6.5
7.3
F&B profit (%)
net Profit (USD)
net Profit (%)
Source: Kigali Serena P&L 2007-2011
4.3
Economic performance
Staff
Staff directly employed by Kigali Serena, including permanent employees and casuals,
represents the largest element of the hotel’s operational cost structure in 2011. The total
payroll comprises 23% (USD 2.65m) of total expenditure in 2011. Payroll includes permanent
staff as well as casuals according to Kigali Serena’s management. We were unable to obtain
details of the number of casuals employed. Some of the staff figures and analysis in terms of
number of staff and wages may therefore be distorted.
Staff numbers
Figure 14 shows the average number of staff employed by Kigali Serena between 2007 and
2011, including permanent staff and casuals. Whilst management positions have almost
quadrupled between 2007 and 2011, non-management staff and casual positions declined
between 2007 and 2009 and only started to increase again in 2010 coinciding with the
completion of the renovation project. The total number of staff increased by almost 40%
between 2007 and 2011.
17
Draft development impact case study - Serena Kigali Hotel, Rwanda
Figure 14: Total number of staff
Total number of staff
400
350
300
250
non-management
200
management
150
total
100
50
0
2007
2008
2009
2010
2011
Source: Kigali Serena management and main payroll 2007-2011 (April 2007 to November 2011)
The total numbers of staff as shown on Kigali Serena’s P&L statistics from 2007 to 2011 appear
considerably higher reflecting high levels of staff turnover, 11% in 2011 peaking at 43% in
2009. Based on discussions with Serena Kigali’s human resource department, the relatively
high turnover is largely due to the hotel employing a large percentage of students, who work
at the hotel during their studies and then leave Serena Kigali upon graduating as well as
members of staff being poached by other hotel and restaurants – and increasingly other
sectors as well. Further these figures include casuals, which may explain the considerable
variations in staff turnover between 2007 and 2011.
Staff payroll
Figure 15 outlines the breakdown of total payroll expenditure by principle category for
November 2011.10
Figure 15: Payroll cost breakdown
3%
1%
1%
net pay
13%
P.A.Y.E.
mid-month advance
N.S.S.F.
55%
26%
SESCO
meals & drinks
other
Source: Serena Kigali management and main payroll for November 2011
Figure 16 outlines the breakdown of gross pay for management and main staff by basic pay
and additional allowances for November 2011. Basic pay accounts for less than half of gross
pay. The service charge, which is paid by guests as a supplementary charge, is variable but
10
According to TPS(R)’s 2011 board paper payroll related expenses were above budget by 11.8% mainly on account
of an accrued amount of USD 13,000 per month arising as a result of a claim by the national social security fund
(N.S.S.F.) to be paid on service charge and tips. TPS(R) is currently disputing this claim. Whilst this figure is reflected
in the total payroll it does not yet appear under N.S.S.F.
18
Draft development impact case study - Serena Kigali Hotel, Rwanda
amounts to almost 20% of gross pay. 11 Housing and transport allowance accounts for over
30% of gross pay.12 Unlike the system elsewhere, gross pay is the amount staff ‘take home’,
the employer pays the income tax and social security payments on behalf of the employee.
Figure 16: Gross pay breakdown
3%
1%
basic pay
13%
Service charge
45%
19%
Housing allowance
Transport allowance
Out of station allowance
Other
19%
Source: Serena Kigali management and main payroll for November 2011 (including estimates for December 2011)
Figure 17 shows how average wages for Kigali Serena management and non-management
staff including casuals have evolved in recent years. Since 2007 the salary gap between
management and non-management staff has been widening because non-management wages
have remained fairly constant at USD 500, whereas wages for the management cadre have
doubled. We were unable to identify data for an industry average and therefore to assess if
Kigali Serena does pay 30% above the industry average. Based on discussions with the
Rwandan Tourism Chamber, employees of Kigali Serena benefit from having written contract
and being paid on time compared to employees of other hotel. There is no set minimum wage
for employees in the tourism sector against which to compare Kigali Serena pay levels.
Figure 17: Average monthly wages
3,500
average gross pay management
3,000
average net pay management
USD
2,500
2,000
average gross pay nonmanagement
1,500
average net pay nonmanagement
1,000
average gross pay total
500
average net pay total
0
2007
2008
2009
2010
2011
Source: Serena Kigali management and main payroll for November 2007-2011
11
Service charge was only introduced to the hotel once Serena took over the management in 2007 and was therefore
not available to employees when the hotel was operated under the Inter-Continental brand).
12
Note out of station allowance, entertainment allowance and responsibility allowance are only available to
management, whilst acting allowance is only available to main staff.
19
Draft development impact case study - Serena Kigali Hotel, Rwanda
How staff spend their income
Figure 18 shows the average breakdown of staff spend by category and place based on a
survey of 38 randomly selected permanent members of staff. Staff spending on food
accounted for just over a quarter of total spend, housing and education accounted for just
under a quarter each, and medical expenses, savings, remittances, entertainment and others
accounted for the remaining quarter.13 These figures suggest that the wages paid by the
Serena are above the ‘living wage’ – because staff do, on average, have some spending
capacity for discretionary items.
Figure 18: Staff spending patterns
Kigali
Rwanda
abroad
total
food
24.9
0.6
0.0
25.5
housing
21.9
1.2
0.0
23.1
education
21.8
1.4
0.0
23.2
medical
6.4
1.0
0.0
7.4
savings
7.3
0.8
0.0
8.2
remittances
1.5
1.0
0.3
2.8
entertainment
4.5
0.0
0.0
4.5
other
5.4
0.0
0.0
5.4
Total
93.7
5.9
0.3
100.0
Source: ODI staff survey of 38 permanent Kigali Serena members of staff selected randomly
Payroll ‘leakages’
Based on a staff survey 93.7% of permanent staff salary is spent on food, housing, education,
medical bills, savings, entertainment and remittances within Kigali, 5.9% within Rwanda and
only 0.3% leak out of Rwanda. Based on this estimated 0.3% leakage, we estimate that only
about USD 8,000 leaks out of Rwanda from the Rwandese staff working at the hotel.
This estimate does not reflect the potential leakages from Kenyans employed within the
management of Kigali Serena. If we assume that all 16 Kenyan staff are in management and
earn gross wages of USD 3,000 per month and remit half their wages overseas, this amounts
to some USD 290,000 per year. In total, therefore, we assume about USD 300,000 (or 11%)
of the payroll leaks out of Rwanda. It should be noted that this so-called ‘leakage’ is to Kenya,
which is also a Least Developed Country (LDC).
Permanent staff demographics
Table 8 shows the total number of permanent staff by department, gender and nationality. The
gender division is just over 2 to 1 in favour of men. Over 95% of staff are Rwandan with the
remaining 5% being Kenyan. In terms of age 38% of staff are between the age of 25-30, 45%
between 30-35, 12% between 35-40 and 4% between 40-45. Only one member of staff is
under 25 and one over 45.
13
Average total spend amounted to USD 387 but average net salary a self-reported on the questionnaire only
amounted to USD 342.
20
Draft development impact case study - Serena Kigali Hotel, Rwanda
Table 8: Number of staff by department, sex and nationality
Male
Female
Rwandan
Kenyan
25-30
30-35
35-40
40-45
45-50
Total
5
8
11
2
1
6
3
2
1
13
front Office
28
10
37
1
17
14
6
1
38
kitchen
35
17
50
2
25
20
1
5
52
stewarding
19
3
22
0
11
11
finance
22
8
27
3
7
18
4
1
30
F&B
39
26
62
3
26
29
9
1
65
housekeeping
10
16
25
1
8
16
2
26
laundry
14
7
21
0
4
7
10
R&M
12
1
13
0
2
9
1
security
12
4
16
0
8
5
3
16
spa
15
17
28
4
17
14
1
32
211
117
312
16
126
149
38
A&G
Total
20-25
1
1
22
21
1
13
13
1
Total plus vacant
334
Source: Serena Kigali staff list as of November 2011
Staff training
Table 9 shows the total and average annual spent per staff on training between 2007 and
2011. Spend on training amounted to an annual average of USD 75 per member of staff
between 2007 and 2010. We were unable to verify whether this figure included training or
casuals or not. In 2011 this figure rose to USD 200. We were unable to obtain details for the
reasons in the increase of spent. A staff survey of 38 randomly selected members of staff
suggests that on average each member of staff was in training for just over five days a year.
Table 9: Training spend
training
Total spend (USD)
Average annual spend per staff (USD)
328
2007
2008
2009
2010
2011
14,122
22,138
21,322
23,921
70,698
55
85
85
75
200
Source: Kigali Serena Finance department (verbally only) / Kigali Serena payroll (2007-1011)
Of those surveyed, 90% had received training in customer care, 30% in health and safety,
30% in leadership skills, 28% in HIV/AIDS and 7.5% in energy conservation. A surprisingly
high percentage (some 18%) had taken part in the exposure program, in which staff is
seconded for approximately two weeks to one of the other Serena hotels in the region. Based
on discussions with staff, this exchange program is highly valued by staff.
21
Draft development impact case study - Serena Kigali Hotel, Rwanda
Food & Beverage
Food and beverage (F&B) represent the second largest element of the hotel’s operational
expenditure, amounting to over 23% (USD 2.57m) of total expenditure in 2011.14 Figure 19
outlines the breakdown of total F&B expenditure.15
Figure 19: Food and beverage breakdown
8%
9%
31%
meat & fish
dried goods
fruit & vegetables
13%
alcoholic drinks
diary & milk
17%
non-alcoholic drinks
22%
Source: Serena Kigali finance department: breakdown of purchases for 2011 as of 22 December 2011
Just under 40% of total F&B procurement by value was sourced from within Rwanda with the
remainder being imported as shown in figure 20.16 The relatively low percentage of imports is
a reflection of the relatively rich product mix available within Rwanda. Further, due to high
transport costs as a result of Rwanda being landlocked and the main port of entry being
Mombasa, a distance of 1,400km covering two border crossings, locally produced products
have a distinct cost advantage. Therefore, although the hotel has an ‘unwritten’ policy to
maximise local supply, there is also a strong business case for this.
14
Serena Kigali P&L 2011 including estimate for December 2011
15
We note a discrepancy of USD 90,000 between total food and beverage cost as shown on Kigali Serena’s P&L for
2011 and Serena Kigali breakdown of purchases for 2011 for F&B. We were unable to verify the cause.
16
These estimates are based on interviews with the hotel management and local suppliers, examination of hotel and
supplier records, and additional desk-based research. The estimates related to direct origin only, however, and
therefore do not capture non-domestic inputs for domestically processed goods. The methodology also does not
capture the distribution of value between local and international actors within a value gain, for example good produced
in Rwanda under licence to foreign companies or by local subsidiaries of foreign companies are classed as Rwandan, or
measure the percentage of value captures by the government through indirect taxation.
22
Draft development impact case study - Serena Kigali Hotel, Rwanda
Figure 20: Estimated national content by value
non-alcoholic drinks
diary & milk
alcoholic drinks
local
fruit & vegetables
Imported
dried goods
meat & fish
0
200,000
400,000
600,000
800,000
1,000,000
USD
Source: Serena Kigali finance department: estimate from breakdown of purchases for 2011 as of 22 December 2011
F&B supply chain
To get an order of magnitude estimate of the number of livelihoods in Rwanda which are
supported by the local supply chain, we examined the fresh fruit and vegetable, meat and
dairy supply chains.
Fresh fruit and vegetables
The Kigali Serena Hotel purchases some USD 300,000 of fresh fruit and vegetables (FFV) per
year in Rwanda. The average wholesale price at which Kigali Serena purchases FFV varies
around an average of about USD 0.33 per kg, which implies that the hotel purchases about
900 tonnes of local FFV per year (or 2.5 tonnes per day).
Data from the Department of Agriculture indicates that the average yield of FFV in Rwanda in
2010 is just under 11 tonnes per Ha per year and the average farm size is 0.7 Ha. If we
assume that the average farm supplying the Kigali Serena devotes half its land to FFV and
markets half its FFV output, this implies that an average smallholding will produce about 1.9
tonnes of marketable FFV per year.
Sales of this volume will generate about USD 630 per year at the wholesale end and, because
of the very short supply chains in Rwanda and efficient marketing through farmer associations,
about USD 410 of farm-gate sales (the difference being absorbed by transportation costs to
Kigali and a 20% margin charged by wholesalers to the hotel).
This analysis suggests that the Kigali Serena FFV supply chain is supporting the equivalent of
about 470 predominantly women smallholders (if they supplied the hotel exclusively). In
reality, local FFV supplies will contribute to the livelihoods of many more farmers because each
farmer will have a variety of market outlets and also the organisation of the farmer
associations ensure that a proportion of sales from any one member farmer benefit the entire
membership.
Meat
The Kigali Serena makes local meat purchases (the fish are almost all imported from Uganda)
of some USD 300,000 per year. The chickens in the Kigali Serena supply chain are reared
intensively in three large farms and have limited pro-poor impact. However, about 50% of the
local meat supply chain relates to Rwandan beef which are typically reared by smallholders.
23
Draft development impact case study - Serena Kigali Hotel, Rwanda
USD 150,000 equates to purchases of about 46 tonnes a year (or about 4.5 cattle per week). A
typical smallholder will sell one animal a year for USD 470 at the farm-gate (there are few
large scale beef farmers and a 25Ha farm is considered large). Between the farmer and the
hotel about 30% of value is added through the trader transporting the live animal to the
abattoir in Kigali, slaughter of the animal, sale to the butchery, processing and wholesaling to
the hotel. Therefore Kigali Serena’s local purchases of beef support the livelihood of
approximately 230 smallholders each year.
Milk
The Kigali Serena makes local dairy purchases of just over USD 200,000 per year. Almost half
of this total equates to the purchase of about 72,000 litres of packaged milk per year from the
main supplier, Inyange. The remainder is made up on 9,700 pieces of cheese; 5,500 litres of
yoghurt and 5,000 litres of cream. The total demand for milk generated by the hotel is
therefore in excess of 100,000 litres of milk.
Rwanda has an innovative milk collection system which allows smallholders (on 1-2 Ha plots
with 2-4 cows) to deliver an average of 45 litres of milk per day (at a farm gate price of RWF
300, or USD 0.5 per litre). Kigali Serena’s local purchases of milk directly support the
livelihoods of some 6 smallholder dairy farmers..
Concession fees and other payments to government
Concession fees to the GoR represent the third largest element of the hotel’s operational cost
structure comprising just under 10% (USD 1,110,218) of total expenditure in 2011. These are
in addition to an upfront concession payment by Serena to the GoR in 2007 of USD 4.5 million.
Table 10 outlines the estimated breakdown of all payments by Kigali Serena to the GoR
between 2007 and 2011, which amount to an estimated total of just under USD 16 million over
that period.
Table 10: Payments by Serena Kigali to GoR
concession fees
Up-front
2007
2008
2009
2010
2011
Total
4,500,000
697,722
780,096
903,047
861,634
1,110,218
8.853,717
corporate tax
225,375
VAT
225,375
1,140,881
976,648
-224,828
1,025,128
734,174
3,652,003
238,799
468,588
523,108
639,071
671,525
2,541,091
social Security
19,924
51,757
44,299
67,417
73,841
257,238
district tax
35,000
35,000
35,000
35,000
35,000
35,000
2,132,326
2,537,464
1,280,626
2,628,250
2,624,758
15,703,424
PAYE
Total
4,500,000
Source: Serena Kigali P&L 2007-2011 / VAT Paid 2007-2011 / Payroll 2007-2011 / TPS(R) 2011 board paper
According to the TPS(R) 2011 board paper, total corporate income tax paid between 2007 and
2011 was USD 225,375. Corporate tax was only paid in 2007 prior to the construction period.
This is because of a government tax concession, which allow corporate tax to be offset by
foreign direct investment. We calculate the value of this incentive in terms of unpaid tax to be
USD 997, 214.
Utilities
Utilities represent the fourth largest element of the hotel’s operational cost structure,
comprising just under 8% (USD 1,051,194) of total expenditure in 2011. Spending on utilities
between 2007 and 2011 has increased by over 50%. In 2011 energy expenditure was
24
Draft development impact case study - Serena Kigali Hotel, Rwanda
relatively high and above budget due to an increase in the price of diesel used to fuel
generators during power outages and the purchase of water from tankers due to water
shortages. We were unable to obtain a breakdown of utilities expenditure by principle
category, but were struck by the lack of routine energy and water conservation measures in
the hotel.
To save energy, Serena Kigali invested USD 227,554 in the installation of solar panels, USD
172,794 of which in the panels, tanks and fitting and USD 54,760 in piping. These are not
operational yet but will result in an estimated 30% saving in energy costs when operational.
The local impact of spending on utilities is surprisingly high. Statistics from EWSA, the utility
company, indicate that Rwanda only imported about 23% of its energy in 2010. In terms of
domestic production, about 45% is from hydroelectric sources and is generated from dams
built at least 30 years ago (for which, it is assumed, any foreign loans have been repaid). The
remainder of domestic production is produced by generators. Some is powered from natural
gas from Lake Kivu, the remainder from imported fuel. It is assumed that imported fuel and
generators make up about 60% of the cost structure of fuel driven generators. On the basis of
these assumptions, it is estimated that 36% of utility costs ‘leak’ out of Rwanda and 64%
remain in the Country.
Construction
To improve and expand the infrastructure of the hotel Serena committed a total of USD 19
million to a construction project implemented between 2008 and 2011. Phase I of the
construction project amounted to a total of USD 15 million and involved the creation of an
additional 44 rooms (two rooms less than the commitment to in 2007), a new swimming pool
as well as a gym and a spa. Phase II of the construction project amounted to a total of USD 4
million and involved the construction of a new reception and lobby, new bar lounge, business
centre, business lounge, and two small size conference rooms as well as the relocation of lifts.
Based on information provided by the main construction company as set out below we
estimated that an average of 35% of the total project cost, amounting to USD 6.65 million was
spent locally, with the remaining USD 12.35 million leaking out of Rwanda, primarily due to
construction materials being imported.
ROKO Phase I
Of the total USD 15 million committed to Phase I, USD 10.6 million (71%) of the budget was
awarded to ROKO Construction (Rwanda) S.a.r.i. (ROKO), an East Africa-based construction
company with headquarters in Uganda, which had tendered internationally for the contract.
The construction started in August 2008 and took 18 months to complete.
Table 11 summarizes ROKO’s breakdown of expenditure. Labour costs amounted to just under
USD 3 million or 28% of the total budget and involved a total of 460 staff or an average of 330
staff working at any one time during the project lifecycle. Apart from the management and the
foremen, all labour was Rwandan and on permanent contracts. Average salary for Rwandan
staff was USD 420 gross pay and USD 360 net pay. Materials for the project were almost all
imported from Dubai, South Africa, Kenya and Europe. Only USD 0.5 million of consumables
were sourced locally such as timber and low-grade cement representing under 5% of total
project budget.
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Draft development impact case study - Serena Kigali Hotel, Rwanda
Table 11: Breakdown of expenditure Phase I ROKO
Phase I ROKO 08/2008-Feb/2010
USD
total tender USD
10,600,000
% labour cost of tender
28
total labour cost USD
2,968,000
total number of staff
460
average monthly gross salary for Rwandan staff
500
average monthly net salary for Rwandan staff
360
local consumables
500,000
Source: Interview with Rwanda based operation manager of ROKO
The project was managed by Symbion International (Symbion), a Kenya-based project
management company, on behalf of Serena.
ROKO Phase II
Of the total USD 4 million committed to Phase II, USD 3.6 million (90%) of the budget was
again awarded to ROKO, with the remainder being absorbed by design and client-side project
management functions. The construction for Phase II started in September 2010 and was
completed in September 2011.
Labour cost amounted to just over USD 1 million or 28% of total project cost and involved an
average of 168 staff working at any one time during the project. Again, apart from the
management and the foremen, all labour was Rwandan and on permanent contracts. Average
gross and net pay and allowances were the same as for Phase I.
Materials for the project were almost all imported from East Africa. Only USD 0.15 million of
materials were sourced locally representing just over 4% of total project budget.
Remainder Phase I and II
Based on a breakdown of total spent on construction as of August 2010 USD 4,340,956 were
spent as shown in Annex C leaving just under USD 460,000 of the total budget unaccounted
for as of August 2010.
Outsourced Services
Kigali Serena outsources elements of its security, gardening and cleaning. Based on interviews
with a representative of two of these companies:
 Outsourced security amounts to USD 268,000 in 2011. The company employs 12


members of staff at Kigali Serna and pays an average monthly salary of USD 90
net.
Outsourced gardening amounts to USD 250,000 in 2011. The company employs 12
members of staff at Kigali Serena and pays an average monthly salary of USD 70
net.
We were unable to obtain details for outsourced cleaning but assumed outsourced
cleaning to amount to USD 250,000 in 2011 and for the company to employ 12
members of staff guided by the figures for outsourced security and gardening.
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Draft development impact case study - Serena Kigali Hotel, Rwanda
Tourist discretionary spending
15 short questionnaires were completed by departing guests between 12 and 22 December
2011 recording nationality, purpose of visit, length of stay and discretionary spending inside
and outside Kigali Serena. Whilst the sample size is insufficient to be robust, it does provide
some insights into discretionary spending of guests staying at the Kigali Serena.
Out of the total 15 questionnaires 8 provided details on guest spend outside Kigali Serena
during their entire stay in Rwanda. Leisure tourists spend over 2.5 times as much as business
travellers. Excluding one outlier in the VFR segment, the weighted average amounts to USD
460. Assuming an average weighted stay of 3.35 days in Rwanda, this amounts to an average
daily spend outside the hotel of USD 137 per guest staying at Kigali Serena each day. These
figures suggest very significant benefits to the local economy from out-of-hotel spending from
the 38,891 guests staying at Kigali Serena in 2011 – amounting to over USD 5.3 million during
the year.
Whilst an average daily spend of USD 137 per guests outside the hotel may seem high, we
note that on average leisure tourists spent an estimated USD 173 per day of visit (see Table
2). It is therefore assumed that USD 137 is a realistic estimate given that Kigali Serena caters
primarily for the very high end business, leisure and VFR tourists arriving in Kigali.
Estimating the development impact of this discretionary spending is relatively straightforward
for the USD 1.3m (24% of USD 5.3 million discretionary spend) spent on F&B. Using the ratio
of F&B sales to procurement for the Kigali Serena Hotel, USD 1.3 million would require
restaurants to buy USD 670,000 supplies. External restaurants are likely to use the same
suppliers as the hotel, so procurement of this scale is likely to create about USD 268,000 of
F&B supplies from Rwanda and 184 jobs on FFV, beef and dairy farms to supply restaurants
outside the hotel and 30 jobs for kitchens and serving staff in these restaurants.
Interviews with taxi drivers serving the Kigali Serena Hotel suggested that each taxi driver
grossed about USD 70 per day in taxi fares. 19% of the USD 5.3 million discretionary spending
equates to USD 1,023,000 spending by hotel guests on transport each year and 40 taxi jobs.
We do not have an empirical basis for estimating the job creation from the shops,
entertainment and other discretionary spending outside the hotel.
4.4
Environmental and social performance
The information on Serena Kiglai’s environmental and CSR activities between 2007 and 2011
are summaries below based on information provided in TPS(R)’s 2011 board paper.
Environmental activities
Kigali Serena is involved in the monthly national public cleaning exercise organised by the
GoR. This Government initiative has been credited for uplifting general cleanliness levels in
Rwanda and Kigali in particular. Beyond sweeping and clearing roadsides, hotel staff has been
involved in constructing houses for widows, orphans and poor people as part of the exercise.
Kigali Serena (and Lake Kivu Serena) has supported the conservation of the Rwandan
mountain gorillas through sponsorship of annual “Kwita Izina”, the Gorilla naming ceremony.
CSR activities
Kigali Serena has been cooperating with the “Abahumurizanya” Association, which supports
102 child headed homes run by 316 orphans of the 1994 genocide. Besides donating linen and
food, Kigali Serena has committed to providing training opportunities in the hotel for some
orphans with the potential of being subsequently hired.
Kigali Serena provided support to a local under-17 football team, “Amavubi”. The hotel
branded the team with t-shirts bearing the Serena logo and organised a farewell cocktail in
advance of the team’s departure to the under-17 World Cup, held in Mexico in June 2011.
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Draft development impact case study - Serena Kigali Hotel, Rwanda
TPS(R) participated through sponsorship in the International Youth Fellowship (IYF). IYF
provides foundations for sound leadership by guiding youths through primary school to college.
4.5
Private sector development
Impact on workforce in the tourism sector
Serena Kigali has been instrumental in enhancing the perception of tourism as a well respected
career choice in Rwanda, which according to a representative of the Tourism Chamber did not
exist prior to Serena taking over the management of the hotel. This has largely been driven by
Kigali Serena’s emphasis on staff training.
A lack in adequate service standards in Rwanda has long been recognised as an obstacle to
meeting the objectives of the tourism development strategy. Two tourism training colleges
operating in the country are regarded as not meeting the needs of the sector.
As a result Serena Kigali, which provides extensive in house training as well as exchange
programmes with other Serena hotels in the region, has evolved as a training ground for the
Rwandan tourism sector leading to a general upgrading of skills. Serena trained staff is
generally regarded as the best qualified in Rwanda and are frequently poached by other hotels.
Further, Serena Kigali also facilities the return of some of the Rwandan Diaspora as the hotel
offers attractive employment opportunities. For example, all Rwandan nationals training at a
tourism college in Nairobi, are offered an immediate position at the hotel upon completing their
studies.
Impact on suppliers
Kigali Serena has actively been developing its local supplier network in terms of both the
number of suppliers and the quality standards achieved (on average less than 3% of local
purchases are rejected by the hotel).
Linkages with local suppliers have been strengthened through both formal and informal
training by the hotel. For example, representatives of the hotel have been taking part in
training workshops sharing Kigali Serena’s product and service requirements with potential
suppliers. The hotel also continuously engages with existing suppliers on how to develop and
diversify their local products to meet the quality standards of the hotel. For example, one of
the local meat suppliers has been developing his processed meat products, which are currently
imported, to meet Serena Kigali’s standards. The hotel is testing the products and making
suggestions for improvements. This is despite Kigali Serena only having an ‘unwritten’ local
sourcing policy in place.
Beyond Kigali Serena, other hotels have also benefitted from Kigali Serena’s development of
its supplier network, as several local suppliers now also supply other hotels.
Impact on Rwandan tourism sector
The decision by the GoR to build the first five star hotel in Rwanda in 2004 was critical to
meeting the Rwandan tourism development strategy’s objective of focusing on high-spend –
low impact tourist. Prior to this investment neither the infrastructure to cater for this tourist
segment nor the conference facilities to build Rwanda’s conference hub capabilities were in
place.
Whilst at the time it was challenging to secure investment, having Serena now manage the
hotel profitably “shows that it is a model that works” according to a representative of the RDB.
Across all consulted stakeholders there was consensus that Kigali Serena has been
instrumental in facilitating investments in other hotels and conference facilities. For example,
the second five start hotel of Kigali, a Marriott, is currently being built adjacent to Kigali
Serena and the construction of a large conference hub is on its way.17
17
Both projects are currently dormant. This is largely due to credit constraints as a result of the global financial crisis
and fall of the Libyan regime, which had been involved in the investment.
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Draft development impact case study - Serena Kigali Hotel, Rwanda
The conference facilities provided by Serena have been instrumental in developing Rwanda’s
conference market. Not only does demand now outstrip supply, which encouraged the two
above large-scale investments, but it has also created a new market of conference visitors
needing accommodation beyond that provided by Kigali Serena.
Based on RDB figures total accommodation supply in Rwanda has not been significantly
affected by Serena taking over the management of the hotel (see figure 6). It has, however,
raised the room standards of several other hotels, some of which are now modelled on Kigali
Serena rooms. These hotels maintain good relations with Kigali Serena and benefit from an
overflow from Kigali Serena with very few guests being displaced. There is evidence that,
through the hotel association, Kigali Serena management are making genuine efforts to
improve service standards in the Kigali hotel sector.
Beyond room services, Kigali Serena’ emphasis on customer care in particular but also a
diversified high-standard cuisine has developed an awareness among other hotels and
restaurants of the level of service required to cater for high end international guests. This has
facilitated an overall increase in the standard of services provided by hotels, with hotel
managers aiming to copy Kigali Serena’s standard either by poaching trained Serena
employees or hiring qualified staff from neighbouring countries, notably Kenya and Uganda. As
a result of the increase in room and service standards there has been an overall increase in
rack rates of hotels, especially at the high end, with Kigali Serena serving as a benchmark for
pricing.
Overall, Kigali Serena maintains good relations with all stakeholders in the Rwandan tourism
sector and has positioned itself as a supportive leader. The hotel actively participates in
tourism related trainings provided by the GoR, donor agencies and the Rwandan Tourism
Chamber, provides meeting room facilities free of charge for meetings of the Tourism Chamber
and also invites other hotels to internal trainings at the hotel.
Impact on Rwanda’s private sector
Whilst not possible to quantify, Serena’s large percentage of business guests relative to leisure
and VFR suggests that the hotel is critical to cater for the needs of high-end international
business travellers, which make a significant contribution to the country’s economic
development.
Beyond training staff for the tourism sector, there have been significant spillovers from Kigali
Serena to other sectors as well in terms of labour force development. Kigali Serena has
become a training ground for employees in the banking and service sector. For example,
several employees of Kigali Serena’s finance department took on roles in the city’s evolving
banking and insurance industry according to Kigali Serena’s management. Further, the hotel
along with some international professional service companies worked towards the introduction
of professional accounting standards and qualifications, which did not exist prior to Kigali
Serena’s investment as legislation to file accounts had not been in place.
5
Impact of the project and IFC support
‘Without project’ scenario
In our assessment, the ‘without project’ scenario would have seen Serena take over the
concession for the two hotels in Rwanda, as negotiations between Serena and the GoR were
concluded in December 2006 – before the IFC project was formulated. Serena took over the
hotel in early 2007 and by the end of 2008 had increased occupancy rates to 77% and ADR
rates to USD 158. Without external support from IFC or DEG, the Serena would have had
29
Draft development impact case study - Serena Kigali Hotel, Rwanda
available some 35% of the finances (from own and local sources) for the USD 18.7 million
project available. The most likely ‘without project’ scenario would have been for a slower
implementation of the refurbishing and additions to hotel infrastructure.
‘With project’ analysis
Assessing the impact of the project against targets is difficult because the DOTS system does
not disaggregate between the two hotels, the Kigali Serena and the Lake Kivu Lodge which
together constitute the TPS(R) project. In the analysis below, we have compared the actual
performance of the Serena Kigali hotel with the aggregate performance indicators for
aggregate TPS(R). This is partly because, without figures disaggregated per hotel in DOTS (as
they are in the Serena’s own accounting system), we are unable to perform a ‘like for like’
comparison. Also, pragmatically, the Kigali Serena hotel is the main focus of the TPS(R)
project. In 2011, the sales of this hotel comprised 83% of the project total – so the aggregate
ratios for the TPS(R) will largely reflect those of the Kigali Serena Hotel.
Financial impact
Assessing the financial impact of both the project and the IFC intervention has been below
target. The actual performance in 2010 was 8.1% - which compares unfavourably with the IFC
target of 9% and the actual weighted cost of capital (WACC) of 11%.
Although net sales from the project rose in 2011 to exceed projections, costs have escalated to
erode the profitability of the hotel. The striking feature of the project is that, whilst the ADR
has risen from USD 158 in 2008 to USD 184 in 2011, the profitability of hotel has remained
unchanged (in terms of GOP% and absolute net profit, although there is a decline in the net
profit percentage figure – as shown in Table 7).
Figure 21: Financial performance of the project
14
12
USD millions
10
Expected sales TPSR
8
Actual sales Kigali Serena
6
Expected net income TPSR
Actual net income Kigali Serena
4
2
0
2008
2009
2010
2011
Source: IFC Development Tracking System TPS(R) (575799)/ Kigali Serna P&L 2008-2011
Attributing the financial impact of the hotel to the IFC intervention is challenging. The IFC
initially provided USD 6 million (or 32%) of the finance for the project (it is too early to assess
the impact of the additional finance provided in 2011) and so can be credited with the
additional revenue generated by the construction of 14 rooms (32% of the total of 44
30
Draft development impact case study - Serena Kigali Hotel, Rwanda
additional rooms) and USD 8 - or 32% of the total increase in the ADR from USD 158 in 2008
to USD 184 in 2011 (as a result of the rehabilitation and addition of hotel facilities). These two
factors suggest additional revenue to the hotel of some USD 821,000 in 2011 (at a room
occupancy rate of 66%) resulting from the IFC investment18. At a gross operating profit of
32%, this additional revenue amounts to about USD 263,000 per year – or a 4.3% financial
return on a USD 6 million investment.
Economic impact
The economic impact of the project has been mixed. In terms of the economic return on
invested capital (EROIC) was 7% in 2008 and fell to 3% in 2009 and 4% in 2010. All these
returns are significantly below the WACC of 11%.
In addition, the output of the DOTS system suggests that several of the indicators may be
being monitored incorrectly. For instance, the DOTS system suggests that tax and other
payments in 2010 were USD 0.3 million, which exceeded the target of USD 0.2 million,
because the company paid more tax than projected. In fact, as the analysis in Table 10
illustrates, Kigali Serna contributed some USD 2.6 million to government in 2010 and this
included VAT, concession fees, PAYE, social security and district tax – but no corporate tax (as
the hotel was benefiting from fiscal incentives for investors). So the actual contribution of the
hotel was ten times larger than presented in DOTS. The understatement of this achievement is
curious, given that increasing foreign exchange and government revenue through concession
fees, income tax and VAT are an explicit development impact of the project.
We noted that the single largest beneficiary of the TPS(R) project has been Prime Holdings, a
government entity which developed the hotels and with whom Serena has a concession
agreement. Since Serena acquired the lease to operate Kigali Serena at the end of 2006, Prime
Holdings has received USD 8.9 million in concession fees. Although Prime Holdings is a
government entity, we are aware that there is an opaque relationship between the financial
affairs of the state and a political party. In order to establish how the considerable income
from the concession fee was being used, the ODI team requested a meeting with Prime
Holdings in Kigali. Our request for a meeting was unsuccessful – so we are unable to make any
judgement about how these funds are utilised.
Similarly, according to DOTS the purchases for local suppliers had a target of USD 11.6 million
in 2010 and this is reported to have been exceeded by an actual figure of USD 11.7 million. In
reality, this project found that the main supplies for the Kigali Serena are:




USD
USD
USD
USD
2.65 million for staff, 95% of whom are Rwandan;
2.57 million for food and beverages, almost 40% of which originated in Rwanda;
1.1 million concession fees for the use of the hotel, paid to a government agency;
1.05 million for utilities, which is sourced locally and has 75% local content.
So, it would appear that the aggregate target in the DOTS system is inflated. In 2010, the
local supplier target of USD 11.7 million matches the sales target figure, which could only be
achieved if the project was loss-making. Nevertheless, although the aggregate local supplier
total figure is lower than the target, it obscures a picture of great achievement in localising the
supplier base in a LDC. No data is collected by the IFC or the hotel on the extent of out-of18
14 additional rooms at an ADR of USD 184 and room occupancy of 66% amounts to USD 621,000 additional per
year. The uplift of USD 8 in the ADR of the 104 existing room which is attributable to improvements in the guest
facilities, which were financed by the IFC, amounts to a further USD 200,000 additional revenue per year.
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Draft development impact case study - Serena Kigali Hotel, Rwanda
hotel spending by guests although our cautious estimate of this figure is some USD 5.34
million per year. Given that the stated aim of the IFC intervention is to strengthen links with
local suppliers through hotel and guest purchases, this failure to monitor either indicator either
accurately or, in some cases, at all – particularly when this appears to be the major
development impact of the hotel – is puzzling.
Developing local supplier networks should be an important area of IFC additionality for this
project. The IFC has significant capacity in supply chain development and most hoteliers do
not. It is not, however, possible to assess the impact of the TPS(R) project, or the separate
IFC intervention to strengthen local suppliers in Rwanda, because no baseline exists – so any
comparison of the actual to the ‘without project’ scenario would be speculative.
The assessment of the environmental and social performance of the hotel in DOTS is limited to
establishing whether an E&S management system exists and whether fire and safety standards
have been improved. In our assessment, the emphasis on staff training is a significant and
positive development impact. There is also no monitoring of staff remuneration – particularly
amongst the non-management cadre where wages appear to have not risen since the project
started. The extent of staff training and generous compensation for staff are key justifications
for the project. This contrasts with the environmental performance of the hotel which, until the
solar panels were installed recently (but not connected) showed no obvious signs of
improvement.
Monitoring the private sector development impact of the hotel is difficult to distil into financial
ratios and fraught with attribution challenges. However, the DOTS system does allow for
qualitative assessment. Our review suggests that the Kigali Serena has had an important
impact on Rwanda’s business and tourism infrastructure (from developing accountancy
standards and supporting other hoteliers to stimulating high-end accommodation investment),
which was an important justification for the IFC intervention.
6
Recommendations
The key recommendations for DOTs are as follows:
1. The hotel is the basic unit of analysis so, in the frequent case that the IFC supports a
group containing more than one hotel, each hotel should be monitored separately. This
is particularly important when the aggregate group results mask strongly contrasting
performance from different hotels (as is the case in Rwanda);
2. There should be a much stronger link between the expected development impact for
the project and the indicators which DOTS monitors. In our assessment, the DOTs
system monitors – rather partially - just two of the five development impacts which IFC
expect from the TPS(R) intervention;
3. Measure the indicators correctly and unambiguously. When project partners supply data
to the IFC it should, after verification, be presented accurately within the DOTs
framework;
4. Better use should be made of the existing capacity of DOTs to monitor qualitative as
well as quantitative indicators. This is important for criteria such as private sector
development, where impacts are more diffuse and difficult to anticipate than others;
and
5. DOTS is unlikely to achieve its goal of improving development effectiveness (in terms of
lessons learned, informing future strategy and increasing accountability) if the partner
summary is anodyne. In the example of the Kigali Serena, important governance issues
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Draft development impact case study - Serena Kigali Hotel, Rwanda
and a failure to achieve financial and economic ratios are important findings – as well
as very significant positive development impacts – which are obscured by a series of
‘successful’ or ‘satisfactory’ ratings.
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Draft development impact case study - Serena Kigali Hotel, Rwanda
Appendix
Annex B: Breakdown of total spend on refurbishment
Breakdown of total spent as of August 2010
USD
main contractor
%
7,600,013
64
carpet sub
132,000
1
granite & marble
562,840
5
electrical installation
838,843
7
stained glass screens
20,000
0
lift sub
223,487
2
supplier of fabrics
218,400
2
supplier of furniture
500,000
4
waste water treatment sub
125,366
1
50,000
0
146,091
1
voice and data installations
86,695
1
signage
52,996
0
card operated door locks
32,493
0
supply of mirrors
10,776
0
1,340,969
11
11,940,969
100
artwork
ICT installations
symbion fees
Total
Source: Kigani Serna financial statements – Refurbishment, Alternations and extensions as of August 2010
34