Source: Wall Street Journal

PALMA - April 16, 2014 - When Enrique Nieto arrived here in the searing heat eight months ago, there was one communal water tap and no paved roads. Now the Spanish businessman is about to open the village’s first hotel.

The reason: natural gas.

In 2010, Texas-based energy company Anadarko Petroleum found one of the world’s largest untapped gas reserves off the coast of this tiny town. What the area didn’t have were hotels—or much of anything else. On his first visit, Mr. Nieto stayed in a home that had a hole in the ground for a toilet.

And yet an estimated 10,000 workers and executives soon will be moving to Palma, the country’s future gas capital that currently boasts a population of a few thousand people. Many of the arriving workers will be employed by contractors connected to the oil companies and housed in makeshift camps. Others will need a place to stay.

Enter the company Mr. Nieto works for, Nexar Group. The Spain-based developer, which is spending about $1 million to build its hotel named Karibu Residence 1, is betting it can charge hundreds of dollars a night to those who want air conditioning, wireless Internet access and other business-class amenities in a remote African village.

Nexar isn’t the only one making that wager.

African Century, an investment firm co-founded by the former chief executive of Morgan Stanley International, Jonathan Chenevix-Trench, is spending $2 million in Palma to build an industrial park, hotel and serviced apartments. In Pemba, a nearby town, property developer Pembaland plans to spend $6 million to build apartments. And retail chain Carlson Rezidor Hotel Group, with headquarters in the U.S. and Belgium, is considering adding more hotels in Pemba. Its local partner, Rani Resorts, currently operates one of the city’s most expensive hotels, charging $300 a night.

The moves afoot in rural Mozambique reflect the rush to build up the hotel industry in Africa, as businesspeople arrive seeking similar accommodation that they may find in Asia or Europe. The number of hotel rooms in sub-Saharan Africa should rise by about 28% in 2014 from last year, says Nigeria-based hotel consultancy W Hospitality Group.

Major players including Marriott International Inc., Starwood Hotels & Resorts Worldwide Inc. and Hilton Worldwide Inc. are planning to expand on the continent. Marriott earlier this year bought Protea Hospitality Holdings Ltd. of South Africa, one of Africa’s largest hotel companies, for more than $200 million.

While big companies aren’t going to remote places like Palma, those that are say the benefit of being among the first to arrive is high. Nexar predicts it will take less than four years to make back its investment. Pembaland’s Brian O’Donohue says real-estate companies building now can get annual returns in the 15%-to-20% range.

Yet risks are high, especially for remote markets like Mozambique. In December, Brazilian infrastructure company Zagope Construcoes e Engenharia SA completed the first tarred road into Palma, connecting the village to Pemba, the nearest large city at about 225 miles away.

But the country has a lot of infrastructure to build to get its gas sector pumping and if that doesn’t happen the energy boom could fizzle, along with the demand for hotel rooms.

Also, developers say the costs of investing in remote markets like Palma are higher than they are in the U.S. and Europe. “You will need generators, your own water and sewage plants. You really need to do it all yourself,” Mr. O’Donohue says.

To build its hotel in Palma, Nexar Group had to import nearly everything to the quiet fishing village whose dusty streets are filled with chickens and goats.

Goods took two months to arrive from Spain by boat and then it was a 500-mile trip by road to reach the site.

Material costs were high. “If one bolt wasn’t in the container that arrived, you were lost,” Mr. Nieto said as he observed the hotel construction site next to his green SUV, which he needs to navigate the dirt roads that still dominate the area.

Mozambique’s gas-boom towns aren’t unique. Property markets in energy boomtowns in remote regions like Aberdeen, Scotland, and Fort McMurray, Canada, also are getting big boosts from the influx in workers. In Africa, some of the most expensive cities are those experiencing an energy-production boom, including Luanda in Angola and Lagos in Nigeria.

Nexar hopes Palma’s turn is coming. The company is seeking a long-term contract with one of the big energy companies for rooms in Karibu Residence, which is still under construction and nearing completion.

Signs of new economic activity also are showing up in other places. The first bank and ATM in Palma opened at the end of 2013 and small shops have popped up along the road to sell toilet paper and cheap flip-flops to the growing population.

Yusufoo Musa, a 30-year-old welder in Palma, works down the road from Nexar’s building site. He says all the new building has spurred more business for his cement block molds.

The gas will be the source of changing Palma,” Mr. Musa said from his roadside workshop.