LISTED hotel group City Lodge is planning to invest about R1,5bn over the next five to 10 years to build as many as 20 hotels in Africa in an effort to expand its footprint and diversify its income away from a single economy.

The investment drive into sub-Saharan Africa had been selected over India, which it had identified as being its next market to establish a significant presence outside SA, City Lodge CEO Clifford Ross said yesterday.

"We will be very disappointed if we don’t make announcements in the next six months (on new hotels)," Mr Ross said.

The most likely cities for the new three-star City Lodge branded hotels included Nairobi, Gaborone and Lusaka, City Lodge financial director Andrew Widegger said. Cities in Nigeria, Tanzania, Mozambique, Uganda, Rwanda and Namibia are also being considered under the African expansion plans.

City Lodge, which operates 52 hotels in SA, was still "very interested" in India, Mr Ross said. "We would like to be as big as we are in SA in another part of the globe and India is still a story we like, maybe in three or four years’ time we will revisit that," he said.

The "real negative" in establishing a presence in India and obtaining the critical mass needed for the brand to flourish, was the time it took to get anything done. Regulations in the country were also onerous, Mr Widegger said.

"We were looking at a dual strategy in India to get critical mass, that was both a greenfields and brownfields, which meant acquisitions, and the prices people were asking were just crazy, we couldn’t understand it."

The African expansion, if it proceeds at the rate which City Lodge expects, will mean the group will be investing about R150m a year.

City Lodge is "highly cash generative; the past 40 properties we developed we built with our own cash", Mr Ross said. The group also owned almost all of its properties and had a substantial balance sheet, Mr Widegger said.

The group is confident that City Lodge is the right brand to take into southern Africa as it is a brand that is recognised by travelling businesspeople across the region, particularly South Africans who are increasingly travelling in the continent.

African expansion was a logical step for City Lodge, De Wet Schutte, an analyst with Avior Research, said yesterday.

"It’s a familiar brand for South Africans and its associated with decent value," he said. "They certainly have capacity to do it, they will have no debt the year after next and their cash flows are very strong. If they can’t find opportunities investors will want cash back but as long as they find the opportunities and go for it they generate value for shareholders in the longer term."

Weak economic conditions and a surplus of hotel stock in parts of SA are forcing stressed developers and operators to exit the industry.