The Ritz-Carlton of Failed States

Amid gunfire between the Pakistani military and Taliban fighters in the Swat Valley a few years ago, BBC reporter Nadene Ghouri found herself the lone guest at the luxurious Serena Hotel just outside the city of Mingora — and right in the center of the action. Despite the nearby battle, uniformed staff attended to her every need. When Ghouri inquired how they could afford to keep up the impeccable service, a saffron-suited waiter replied: "We are a five-star hotel, madam. We must maintain standards at all times."

The intense fighting eventually proved too much, and the Swat Valley hotel, part of the Serena chain operated by the Aga Khan Fund for Economic Development, was mothballed for more than a year. It reopened in April 2010, after the Pakistani military had pushed back the militants. Now the chain is looking to expand operations in — of all places — war-torn Afghanistan, where its five-star hotel in Kabul has been struck by Taliban rocket fire, beset by rioters, and damaged in a deadly bombing. Rooms at the Kabul Serena start at $356 per night, sealed off from the disheveled crowds, street noise, and fetid sewage outside. Call it blind optimism, but Serena now wants to create what it calls a "tourism circuit" in Afghanistan, with possible hotels in Herat and Mazar-e-Sharif.

It’s a niche: the Ritz-Carlton of failed states. Serena owns 35 hotels, resorts, and lodges across nine countries, most of them outposts of multi-star luxury in places where residents live in zero-star conditions. High-risk hostelry has proved to be a booming business, as the chain — named Serena in a deliberate echo of the title "His Serene Highness" used by the Aga Khan’s father — has doubled in size over the past decade, inaugurating a new property every two years, the most recent last November on the site of a Soviet-era shoe factory in Tajikistan. The Serena properties in East Africa reported a 33 percent rise in profits for 2010, and the entire hotel group is estimated to be worth more than half a billion dollars.

Serena doesn’t confine its operations to dangerous locales, but the chain is very much driven to the world’s political frontiers by its unusual benefactor. The 75-year-old Aga Khan — with personal wealth estimated at $2.7 billion — is the spiritual leader of the world’s 15 million Ismaili Muslims, followers of a Shiite branch of Islam who regard him as a direct descendant of the Prophet Mohammed. He started the Serena chain in the 1970s in Africa and then began opening hotels closer to large Ismaili communities in Central Asia.

Today’s Serena touts its unusual business strategy — in effect, combining development work with the quest for profits. "We are not in business to lose money," says Serena’s managing director, Mahmud Jan Mohamed, "but our objectives are different from other hotel companies. We’re happy to take on difficult projects." The Aga Khan himself has described Serena’s involvement in troubled states and post-conflict areas as bringing an "investment seal of approval" to attract even more foreign capital. "In all of these places," he said at the 2006 opening of the Serena in Kampala, Uganda, "our goal is not merely to build an attractive building or to fill its rooms with visitors, but also to make a strategic investment which many private investors might be reluctant to make."

It’s a vision not unlike that of the Hilton hotel chain in the 1950s, when the U.S. State Department thought opening beacons of modernity and Western comfort in exotic settings could bolster economic and political stability amid fears of rising Soviet influence. Washington actually financed part of Hilton’s overseas expansion through the Marshall Plan, funneling millions of dollars through the State Department’s Foreign Buildings Operations program to pay for construction in places such as Baghdad, Berlin, Cairo, and Istanbul.

In today’s Afghanistan and Pakistan — where Serena runs nine hotels, including its heavily guarded flagship in the heart of Islamabad — the properties are supported and partly owned by the World Bank’s International Finance Corp. and Norfund, the Norwegian-backed development institution. "Other partners see things are going sour and they want to pull out," says Kjartan Stigen, Norfund’s investment director. "They hang in there in bad times."

Serena’s philosophy finds its ultimate test in places like Quetta, Pakistan, the Taliban’s headquarters south of the Durand Line. Home to the Haqqani network, the surrounding area is rife with Islamic militants and suicide attacks — and a Baluchi separatist insurgency. But the hotel, built with curving mud walls typical of local architecture, is a haven of cool marble tiles and flower-filled courtyards. Wood and onyx decorations dot the public areas, which include three restaurants, a swimming pool, and two posh presidential suites. For all its opulent amenities, however, the Serena resembles a military barracks from the outside. "It’s a fortress, but a very elegant, luxurious fortress with terrific restaurants," says Jonathan Landay, a national security correspondent for McClatchy Newspapers.

Across the border in Afghanistan, the Kabul Serena was converted into an oasis of well-being with marble bathrooms, a health spa, sun deck, swimming pool, pastry shop, and banquet hall, as well as its own electric generators after a $36 million overhaul of the battle-scarred and decrepit Hotel Kabul. So far, the Serena has been attacked three times. Within months of its 2005 opening, rioters rampaged through the lobby, driven by a mistaken belief that the hotel served alcohol. (Other hotels in the chain do.) In 2008, Taliban suicide bombers struck again, killing eight people, including a Filipino spa worker. Then, in 2009, two rockets hit the premises, shattering windows and filling the reception area with smoke.

With each attack, the hotel has beefed up security, installing blast barricades, high perimeter walls, and armed guards. A loyal clientele of dignitaries, diplomats, consultants, aid workers, and journalists keeps occupancy rates above 60 percent. "Kabul would not have an international-standard hotel, which it needs, without the Serena," says Barnett Rubin, a State Department advisor on Afghanistan, "and no normal hotel company would have done it."

But doing business in problematic states brings, well, problems. In Syria, where the Aga Khan has signed agreements with the government of President Bashar al-Assad to open hotels in Damascus and Aleppo, Serena is vowing to complete plans made before the brutal crackdown by Assad’s regime that began in March 2011. Under the 2008 agreements, the properties will be state-owned but operated by the Aga Khan Development Network. "My interest in working in Syria," the Aga Khan said in Aleppo when the deal was inked, "is to take the various lead countries of the ummah [the global Muslim community] and say, ‘Let’s start. Let’s move together. Let’s revive our cultures so that modernity is not only seen in the terminology of the West, but in the intelligent use of our past.’"

Now, with Syria facing international sanctions over Assad’s violent suppression of dissent that the United Nations says has already killed more than 6,000 people, hotels are nearly empty, and the decision to continue work with the bloodstained and internationally isolated Assad could hurt the Aga Khan’s reputation.

Still, Serena’s Syria construction is moving forward. The chain is restoring three landmark houses built in the 18th and 19th centuries in the Old City of Damascus and refurbishing former government offices in Aleppo built during the French colonial period.

It’s hard to predict what Syria might look like when the facilities are slated to open in a few years. Even if Assad succeeds in clinging to power, luxury tourists are unlikely to rush to Syria to see the country’s famous ruins. But if nothing else, there will at least be a hot shower and a plush bed for the journalists covering the chaos — and the businessmen seeking to profit from it.