Full Length Research Paper HOTEL SECTOR

JOURNAL OF BUSINESS MANAGEMENT (JBM)
VOL. 1(2), pp. 35-54, JULY 2013

REF NUMBER: 0520130801
ONLINE: http://www.projournals.org/JBM
-------------------------------------------------------------------------------------------------------------------------------
Full Length Research Paper
-------------------------------------------------------------------------------------------------------------------------------
HOTEL SECTOR INVESTMENT IN ETHIOPIA
EBISA C. GOBENA1 AND ANDUALEM H. GUDETA2
1 Planning and Research officer, Awash International Bank.

2Manager, Planning and Research Division, Awash International Bank.
Accepted 16 AUGUST, 2013

-------------------------------------------------------------------------------------------------------------------------------
ABSTRACT
The stock of hotels in Ethiopia has increased sharply over the last few years. While tourist
accommodation is available as the major attraction, improvement as well as new construction is
taking place. The Inbound Tourist Arrivals in Ethiopia continued to grow from 76,844 in 1989, to
115,000 in 1999, 184,078 in 2004, 427,286 in 2009 and reaching 523,438 in 2011. The GTP’s target
on the number of tourist arrivals by the end of 2014/15 was set at 1 million in-bound tourist
arrivals. The total number of hotel rooms and beds of all hotel establishments in Ethiopia was
19,025 and 24,083, respectively in 2011. A total of 37 investors have taken investment permit in
Addis Ababa alone to construct hotels with star ratings in 2012/13. Furthermore, the projected
unsatisfied demand for hotel single night rooms in Ethiopia in the years 2015 and 2020 will be 1.3
million and 3.1 million, respectively. In line with this, Sectoral distribution of outstanding loans of
the banking system in Ethiopia indicated that credit to hotels sector accounted for an insignificant
amount of 2 percent in 2010 and 1.85 percent in 2011. Therefore, improvements of the banking
system in extending credit services would be helpful for the hotel sector.
Keywords: Hotels, investment, in-bound tourist, loan, demand for hotels
--------------------------------------------------------------------------------------------------------------------------------------------
*Corresponding Author. Email: ebisa.deribie@yahoo.com
-------------------------------------------------------------------------------------------------------------------------------
HOTEL SECTOR INVESTMENT IN ETHIOPIA 0520130801
INTRODUCTION
Tourism is a big industry comprising many sectors such as accommodation, food and beverage
services, recreation and entertainment, transportation, and travel services. Each of these sectors contributes
to tourism development in various destinations, and has different structures, and performances. However, in
many countries, only the hotel and restaurant sector is separately analyzed as being the one closely related to
tourism, being also statistically separate from the others.
JUSTIFICATION OF THE STUDY
Ethiopia has much to offer to international tourists. It has a unique historical and cultural heritage,
magnificent scenery, a surprisingly cool climate, rich flora and fauna, important archaeological sites and
hospitable people. The northern tourist circuit known as the “Historic Route’’ comprises the most important
tourist sites in the country.
The country is a strategically located in the Horn of Africa and therefore, many international
meetings and conferences are held in Ethiopia. This creates a huge demand for accommodation at an
international standard and even an increase in such a demand is expected in the future because the
importance of Ethiopia in Africa has been growing and as a result, many international organizations have
been continuously strengthening their institutions and augmenting their personnel in Ethiopia.
The stock of hotels in the country has increased sharply over the last few years. While some tourist
accommodation is already available at all the major attractions, improvement as well as new construction is
taking place. The presences of a number of international organizations in Addis Ababa such as the African
Union (AU) and the Economic Commission for Africa (ECA) have even more increased the demand for hotels.
Many hotels are under construction, stimulated by the initiative of Government of Ethiopia and the
sharp rise in demand. Since the hotel industry can create job opportunities for enormous number of workers,
the development of the hotel industry benefits not only the tourism sector but also poverty reduction. On top
of the importance of the industry itself, since hotels are at the center of supply chains, such as food,
handicrafts and tour operations, focusing on the hotel industry provides an occasion to overview those
associated industries.
The services that are given in the industry are vital for the development of the industry by creating
adequate hospitality to tourists or business people that may visit the country.
The hotel industry in Ethiopia has been developing very fast but there is still a big room for improvement
when it comes to the quality of service.
RESEARCH QUESTIONS
This study aims at investigating the overall performance of the hotels industry in Ethiopia. Thus, the
following are the basic research questions:
 How are the demands for hotels/accommodations explained in Ethiopia?

 Does the supply of hotels match with the current demand for hotels?
 What does hotel sector investment looks like?
 What factors are influencing service delivery of hotels?
 How do we explain trends of bank loans to the sector?
Page 2
PRO JOURNALS [JBM] - HOTEL SECTOR INVESTMENT IN ETHIOPIA
By Ebisa C. Gobena1 and Andualem H. Gudeta2
Journal of Business Management (JBM)
METHODOLOGY
The study mainly used secondary data from journals, books, newspapers, magazines, and reports of
various governmental and nongovernmental organizations. Above all, crucial information was obtained from
Ministry of Culture and Tourism and Addis Ababa Investment Agency. The method of analysis used in the
study is descriptive statistics. In this study, descriptive analyses were chosen because of its simplicity and
clarity to draw inferences. Averages, percentages and tables were used for the presentation of the data.
FEATURES OF HOTEL INVESTMENT
The most unique attribute of hotel investment relates to the large up-front cost of construction. This
dictates a particular form of developer behavior. Heavy initial costs generate considerable dependence on the
future revenue streams expected to cover this initial outlay. The need to create a revenue stream is
immediate and this creates instability especially when demand is volatile. Hotel investment is therefore
characterized by a 'high operating leverage'. The cost composition of hotels includes a large component of
fixed costs and a small share of variable (operating) costs. Hotels with a high operating leverage will
therefore be volatile in their profit levels [3].
The returns to hotel investment are inextricably linked to tourist demand (local and foreign).
Therefore, the relationship between the hotel industry and the wider tourism industry is two directional.
Without tourists there can be no hotel industry and without hotels there can be no tourism industry. This
symbiotic relationship is reflected on the supply side as well. Local and foreign investment in the hotel sector
can be stimulated by public incentives for construction, expansion etc. [7].
Hotel investment was considered as an investment in an operating business and its' real estate
character was not considered unique [2]. However, with the advent of real-estate driven hotel investment,
other motives for hotel investment start to surface. For example, the aim of protecting or realizing property
rights on the land on which a hotel is built can serve as a motive for hotel construction. Thus, it has become
increasingly difficult to view hotel investment as simply a form of investment in an operating business [5].
HUMAN RESOURCES AT HOTEL BUSINESS
The ultimate product in hospitality industry exhibits abstract features after being added concrete
ingredients and then offered as a service. To this end, the quality of service offered as a whole has been used
as a competition element in the market by enterprises. Within this sector where human serves human, quality
- as a whole offering by service providers- is assured by the human resources that decide on service delivery.
Employee work motivation is more important in a customer service oriented business such as the hospitality
and tourism industries [6].
Quality becomes more important than the quantity as the service outcome is not physical and it
cannot be measured by quantitative tools. Therefore, besides inputs, we should take management,
organization, creativity, intelligence, attitude and behaviors of the workers into consideration; that is to say,
qualitative and quantitative outputs should also be dealt with in defining productivity for service
establishments [12].
As for hotel and hospitality establishments, human resources, which are crucial for most of the
enterprises within the industry, may have a direct impact on the enterprise’s ontology as the product is
abstract and the quality of that product is determined by the qualifications of the distributor. Reflecting the
Page 3
quality of this resource to the products of the enterprise or ensuring the productivity for the best interest.
enterprise can only be achieved through motivation [6].
THE HOTEL INDUSTRY IN ETHIOPIA
DEMAND FOR HOTELS
A relative increase of investment is recently observed in the hotel & tourism sector. The hotel
industry consists of many different services, including accommodation, restaurants, cafes and catering. The
market for the hotel industry, especially classified hotels in a developing country like Ethiopia, is closely
linked to the tourism industry, because a majority of consumers for the sector services come from
international tourists. According to the United Nations Statistical Commission, tourism comprises the
activities of persons traveling to and staying in places outside their usual environment for not more than one
consecutive year and staying at least 24 hours in the country visited. The total number of international
tourists arriving in Ethiopia is steadily increasing. As the gateway of all international inbound, outbound and
transit tourists/ passengers, Addis Ababa has been taking the lion’s share in the county’s tourist arrivals
hosting an estimated 95-99% of the total international tourist arrivals.
With an additional 39 million international tourists, up from 996 million worldwide in 2011,
international tourist arrivals surpassed 1 billion (1.035 billion) for the first time in history in 2012. The
African continent receives approximately 5.0% of international tourist arrivals in 2011. In the same year,
there were over 50.17 million international tourist arrivals to Africa, an increase of 0.9% over 2010.
Compared with other world countries, Ethiopia’s share in international tourist arrivals, increased from 0.03%
in 2005, to 0.053% in 2011.
The Inbound Tourist Arrivals in Ethiopia continued to grow from 76,844 in 1989, to 115,000 in 1999,
184,078 in 2004, 427,286 in 2009 and reaching 523,438 in 2011. During the year 2011, Ethiopia witnessed a
positive tourist growth of 11.8 % over 2010. The compound annual growth rate in Inbound Tourist Arrivals
in Ethiopia during 1989 to 2011 was 9.7%. Table 1 indicates the trends of tourist flows into the country and
the growth rates over the period (1989-2011).
Table 1: The number of Inbound Tourist Arrivals in Ethiopia and the growth rate (1989 to 2011)
Source: Ministry of Culture and Tourism (MoCT)
Year in G.C Inbound Tourist Arrivals Growth rate (%)
1989 76,844
1990 79,346 3.26
1991 81,581 2.82
1992 83,213 2.00
1993 93,072 11.85
1994 98,070 5.37
1995 103,336 5.37
1996 108,885 5.37
Page 4
1997 139,000 27.66
1998 112,000 -19.42
1999 115,000 2.68
2000 135,954 18.22
2001 148,438 9.18
2002 156,327 5.31
2003 179,910 15.09
2004 184,078 2.32
2005 227,398 23.53
2006 330,026 45.13
2007 357,841 8.43
2008 383,399 7.14
2009 427,286 11.4
2010 468,305 9.6
2011 523,438 11.8
Average 9.7
The GTP’s target on the number of tourist arrivals by the end of 2014/15 was set at 1 million in
bound tourist arrivals. However, this strategic target seems unlikely to be achieved with the current growth
rates of inbound tourist arrivals in the country. For GTP targets to be met, a greater and conducive space for
the private sector and Ethiopia’s regions, and the direct involvement of tourism asset custodians is needed.
Thus, a strong multi-stakeholder and federal-regional dialogue as well as integration of regional development
plans into tourism development strategies will be critical. Table 2 below depicts arrivals of tourist at
Ethiopia’s national borders, by purpose of visit in the period from 2007 to 2011.
Table 2: Arrivals of tourist at Ethiopia’s national borders, by purpose of visit (2007 to 2011)
Source: Ministry of Culture and Tourism (MOCT)
2007 2008 2009 2010 2011
Count Count Count Count Count
Leisure, Recreation and Holidays 128,533 99,394 138,070 171,414 183,008

Visiting Friends and Relatives 26,337 25,482 35,593 28,672 37,116
Page 5
Business and Professional 61,337 64,930 118,890 113,961 141,595

Business 43,455 49,209 71374 77816 91,064
Meetings, Conferences, Congresses 17,882 15,721 47516 36145 50,531
Other 95,736 140,351 134,733 154,258 161,719
Transit 58,916 77,572 81481 84229 86,020
Not Stated 36,820 62,779 53252 70029 75,699
Total 357,841 383,399 427,286 468,305 523,438
In the period (2007- 2011), on average about 35% of the total number of tourists that have visited
the country were for Leisure, Recreation and Holidays purpose while those who visited the country for
Business and professional affairs account 23.7% of the total. Regarding the others, transit accounts for 19.2%,
visiting friends and relative 7.5%, and those who did not stated their purpose account for 14.5% of the total.
In Addis Ababa, hotel demand conditions are buoyant – particularly at the top end of market. This
reflects the lack of supply of high quality hotels and the relative lack of seasonality of conference and business
travel. Low-end hotels in Addis Ababa are used exclusively by the domestic business market and experience
much greater seasonal variation.
Accordingly, assuming 365 working days, in 2011 international standard (two and above stars)
hotels in Ethiopia had a total of 1,778,280 per annum tourist night room capacity. Based on information from
different sources the average stay of tourists in a hotel is assumed to be 4 days. In order to project tourist
arrival in to Ethiopia, the past trend in tourist arrival is considered. During the period 1989-2011, the total
tourist arrival in the country has registered 9.7% average growth rate. Accordingly, assuming that this
growth rate will continue in the future and taking year 2011 figure (523,438) as a base, tourist arrival is
forecasted.
Moreover, in order to compute the unsatisfied demand of the total annual capacity of international
standard hotels in Ethiopia, which computed to be 1,778,280 rooms per annum, is taken as the existing
capacity. The projected tourist room requirement, which is calculated by taking the projected tourist arrival
and multiplying it by the average hotel stay of tourists (4 days), the unsatisfied demand, is shown in Table 3
below.
Table 3: Existing hotel capacity, projected and unsatisfied demand

* Actual data for existing hotel capacity and unsatisfied demand
Year in G.C Projection of Room Night Existing Hotels Unsatisfied

Tourist Arrival Demand Annual Demand
Capacity
2011* 523,438 2,093,752 1,778,280

315,472
2012 574,212 2,296,848 1,778,280
518,568
2013 629,910 2,519,640 1,778,280
741,360
2014 691,011 2,764,044 1,778,280
985,764
2015 758,039 3,032,156 1,778,280
1,253,876
2016 831,569 3,326,276 1,778,280
1,547,996
Page 6
2017 912,231 3,648,924 1,778,280

1,870,644
2018 1,000,718 4,002,872 1,778,280
2,224,592
2019 1,097,787 4,391,148 1,778,280
2,612,868
2020 1,204,273 4,817,092 1,778,280
3,038,812
2021 1,321,087 5,284,348 1,778,280
3,506,068
2022 1,449,233 5,796,932 1,778,280
4,018,652
2023 1,589,808 6,359,232 1,778,280
4,580,952
We can conclude from the above analysis that there are clear expanding demand situations for international
standard hotels. The expected increasing rate of inbound tourist arrival will definitely create a big business
opportunities for those who are planning to enter the hotels industry.
SUPPLY OF HOTELS/ACCOMMODATIONS
Ethiopia has a small number of hotels which are, generally, of poor standard. For instance, when we
compare the number of international standard hotels in Ethiopia with hotels in countries like Egypt, Morocco
and Kenya we notice a big difference in number. According to The Embassy of Japan in Ethiopia (2008), even
by 2004 data the hotel stock amounted to more than 140,000 in Egypt, in Morocco 80,000 and more than
65,000 in Kenya. The international hotel classification system is adopted in Ethiopia and hotels are classified
into categories with stars from one to five and hotels without stars.
According to Ministry of Culture and Tourism (MOCT) Tourism Statistics Bulletin of 2009, the total
number of hotels in Ethiopia in the year 2009 was 426. Recent data on the number of hotels in the country
was unavailable. As a result, to estimate the total number of hotels in 2012, we can take a 20% growth rates
over 2009 making it 511 hotels in the country. This number includes all five stars, four stars, three stars, two
stars, one star and not classified categories of hotels. On the other hand, the most recent comprehensive data
is presented in Table 4 and 5 below.
Table 4: The Number of Room Capacity – all hotel establishments in Ethiopia (2008 to 2011)
Years/
2008 2009 2010 2011
Ratings
Count % Count % Count % Count %
Deluxe 0 0 0 0 0 0 0 0
5 stars 469 3.51 794 5.62 794 4.38 794 4.17
4 stars 1,073 8.03 921 6.52 921 5.08 921 4.84
3 stars 1,368 10.24 1,691 11.98 1,691 9.33 1,692 8.89
2 stars 1,527 11.43 1,465 10.38 1,465 8.08 1,465 7.70
Page 7
1 star 695 5.20 698 4.94 698 3.85 698 3.66

Unclassified
8,226 61.58 8,549 60.55 12,559 69.28 13,455 70.7
Hotels
TOTAL 13,358 100 14,118 100 18,128 100 19,025 100
The standard of the accommodation establishments was based on previous classifications, which
didn’t clearly segregate according to the services they provide. However, the ministry is in the process of
reclassifying existing hotels based on a new criterion. As it is depicted in table 3 above the number of hotel
rooms registered sharp increases in 2010 over 2009 with a growth rate of 28.4%. However, in 2011 a
decreasing growth rates on the number of hotel rooms have been observed compared to their figures in 2010.
In table 5 below we can find the total number of beds of all hotel establishments in Ethiopia. The growth rate
in the total number of beds of all hotels in the country amounted to 22.3 % in 2010 over 2009.See table 5
below for details.
Table 5: The number of bed places of all hotel establishments in Ethiopia (2008 to 2011)
Years/
2008 2009 2010 2011
Ratings
Count % Count % Count % Count %
0 0 0 0 0 0 0 0
Deluxe
5 stars 895 5.31 1,264 7.05 1,264 5.76 1,264 5.25
4 stars 1,331 7.90 1,197 6.67 1,197 5.46 1,197 4.97
3 stars 1,872 11.11 2,314 12.90 2,314 10.55 2,314 9.60
2 stars 2,101 12.47 1,898 10.58 1,898 8.65 1,898 7.88
1 star 967 5.74 941 5.25 941 4.29 941 3.90
Unclassified
9,682 57.47 10,322 57.55 14,323 65.29 16,469 68.38
Hotels
TOTAL 16,848 100 17,936 100 21,937 100 24,083 100
The Ministry of Culture and Tourism has adopted a system of approving and classifying the hotels on the
basis of the facilities and services provided by them. The category-wise details regarding the number of hotels
and hotel rooms available in Ethiopia during the year 2009 are presented below:
Page 8
Table 6: Categories of Hotels by Number of rooms and beds in Ethiopia, 2009

Category of Hotels Number of Hotels Rooms Beds

Five Star 3 794 1264
Four Star 13 921 1197
Three Star 37 1691 2314
Two Star 40 1465 1898
One Star 23 698 941
Not Classified 310 8549 10322
Total 426 14118 17936
Tables 7 present the number of classified hotels and hotel rooms by categories in different regions of the
country. It can be seen from the Table below that Addis Ababa has the maximum (4,468) number of hotel
rooms followed by Oromia (3,257).
Table 7: Distribution of hotels in different states of Ethiopia, 2009

Regional States No. Hotels Rooms Beds
1-Addis Ababa
1.1. Five Star 3 794 1264
1.3. Four Star 11 757 1008
1.3. Three Star 32 1457 1876
1.4. Two Star 30 1043 1293
1.5. One Star 8 254 325
1.6. Not Classified 4 163 200
1.7. Total 88 4468 5966

2-Afar
3-Amhara
3.1. Three Star 3 147 277
3.2. One Star 3 64 94
Page 9
3.5. Total 70 2156 2956
4-Benshangul
5-Dire Dawa
5.1. Two Star 2 62 72
5.2. One Star 1 16 18
5.4. Total 15 526 649
6-Gambela
7-Harari
7.1. Two Star 1 22 30
7.2. One Star 2 89 108
7.5. Total 11 295 363
8-Oromia
8.1. Two Star 4 189 240
8.2. One Star 3 160 269
8.4. Not Classified 104 2908 3486
8.5. Total 111 3257 3995
9-Somali
10-SNNP
10.1. Two Star 2 64 113
10.2. One Star 2 46 54
10.4. Not Classified 58 1419 1583
10.5. Total 62 1529 1750
Page 10
11-Tigrai
11.1. Four Star 2 164 189
11.2. Three Star 2 87 161
11.3. Two Star 1 85 150
11.4. One Star 4 69 73
11.7. Total 37 1244 1488
HOTELS UNDER PLAN IN ADDIS ABABA
Compared to other African countries, the number of hotels in Ethiopia is smaller and in this regard
Ethiopia has less competitiveness to attract big international conferences than other countries. In the regional
states, the shortage of accommodation which meets international standards is quite serious and improving
the existing accommodation and constructing additional lodging are crucial to attract international tourists to
the natural and cultural tourism destinations in the country.
According to Addis Ababa Investment Agency, 49 Hotels with star ratings in Addis Ababa were being
planned to be constructed in 2011/12. There are plans for plenty of hotels, but it is not clear how many of
them will be built and how long it will take to complete such plans. Table 8 below shows hotels in Addis
Ababa which are in the pre-implementation phases in the period from 2007/08 to 2012/13.
Table 8: Number of hotels under plan in Addis Ababa (2007/08 to 2012/13)

Source: Addis Ababa Investment Agency (AAIA)
S/N Ratings Years
2007/08 2008/09 2009/10 2010/11 2011/12 2012/13*
1 One Star 2 1 4 0 1 0
2 Two star 6 3 6 3 7 3
3 Three star 60 33 22 19 22 16
4 Four star 22 19 41 29 14 16
5 Five star 7 7 15 11 5 2
6 Deluxe 0 0 0 0 0 0
Total 97 63 88 62 49 37
*Ten months data
Page 11
As it is depicted in table 8 many hotels have been planned to be constructed, which will add more
hotels into the national hotel stock. Hotel construction is expanding fast coupled with the country’s growing
inbound tourist arrivals from around the world. Furthermore, table 9 shows the amount of initial investment
capital of hotels under plan in Addis Ababa during 2007/08 and 2009/10
Table 9: Initial investment capital of hotels under plan in Addis Ababa, 2007/08 and 2009/10.
Source: Addis Ababa Investment Agency (AAIA)
S.No. Initial Investment Capital (ETB) Number of Hotels
2007/08 2009/10
1 >300 million 3 2
2 200-300 million 0 2
3 150-200 million 0 0
4 100-150 million 2 2
5 90-100 million 1 0
6 80-90 million 2 0
7 70-80 million 2 0
8 60-70 million 3 0
9 50-60 million 6 5
10 40-50 million 6 7
11 30-40 million 3 10
12 20-30 million 20 12
13 10-20 million 27 15
14 < 10 million 23 33
Total 97 88
REVIEW OF ACCOMMODATION FEES OF HOTELS IN ADDIS ABABA
The pricing of hotel services depends considerably on the quality of service rendered and its location.
The relatively high standard hotels in Addis Ababa charge a price, which ranges from USD 49 average price to
over USD 420 (Sheraton Addis) for a single night per room. Other hotels charge prices that fall in this range.
The hotel service also earns revenues from the sale of food and drinks and other hotel services.
Page 12
Table 10: Hotels in Addis Ababa and their Average Price USD/single night per room, 2013
Source: www.ixigo.com
S.NO Hotels Star Ratings Average Price

USD/single night
per room
1 Ararat Hotel 3 $151
2 Beer Garden Inn 2 $149
3 Beshale Hotel 3 $122
4 Damu Hotel 3 $95
5 De Leopol International Hotel 3 $90
6 Dimitri Hotel 2 $70
7 Dreamliner Hotel 3 $132
8 Empire Addis International Hotel 3 $140
9 Family Cozy Bed and Breakfast No $54
10 Harmony Hotel 3 $176
11 Hilton Addis Ababa 5 $ 145
12 Hotel Siyonat 4 $194
13 Intercontinental Hotel 4 $198
14 Jupiter International Hotel 3 $152
15 Kaleb Hotel 3 $147
16 Nexus Hotel 4 $ 108
17 Panorama Hotel 3 $92
18 Radisson Blu Hotel, Addis Ababa 5 $244
19 Riviera International Hotel 3 $132
20 Semien Hotel 3 $56
21 Sheraton Addis 5 $420
22 Soramba hotel 3 $110
23 Yeka Guesthouse No $ 49
Page 13
Apart from the two five stars hotel viz. Sheraton Addis and Hilton hotel in the country, two new five
stars hotels have joined the hospitality industry of the country. Radisson Blu, a subsidiary of Rezidor Hotel
Group, built at a cost of about half a billion birr opened its door for customers in January, 2012. Radisson, the
third international hospitality chain for Ethiopia, started part of its luxury services including partial,
restaurant, café and bar services. The nine storey global brand located at Kazanchis, in the heart of the city
and close to the Economic Commission for Africa (ECA) and national palace has 204 bedrooms including 44
business classes, 16 luxury suites including one presidential suite. The luxury hotel cost over 500 million birr,
although that has not officially been disclosed by the hotel.
Capital Hotel and Spa, a 114 room five-star hotel and resort which is the fourth five stars hotel was
inaugurated in May, 2013 in Addis Ababa, Ethiopia. The hotel is owned by Yemane Gebreselassie, also owner
of Hosea PLC, a company importing steel, auto parts, machinery, and export of agricultural commodities.
Economic realities and the Addis Ababa event calendar indicates further growth in travelers visiting Addis
Ababa and Capital Hotel and Spa will therefore accommodate the growing number of visitors to the city. The
hotel is constructed on 19,383 square meter plot located off Haile Gebresilassie Avenue, costing 720 million
Ethiopian Birr.
Obviously a number of hotels are either under construction or planned to be constructed in the
country. As a result, there appears to be an important gap between the supply and future demand of hotels
particularly for big events, such as the African Union heads of states meetings and other commemorations
which call for careful tourism planning and destination management.
SECTORAL DISTRIBUTION OF LOANS IN ETHIOPIA’S BANKING SYSTEM
The total outstanding loan of the banking system, including the central government deficit financing
reached Birr 77.7 billion at end June 2011. Sectoral distribution of outstanding loans indicated that credit to
trade sector (both domestic and international) accounted for 32.5 percent followed by industry (26.6
percent) and agriculture (13.6 percent). However, credit to hotels sector accounted for an insignificant
amount of 2 percent in 2010 and 1.85 percent in 2011. (See table 11)
Table 11: Sectoral distribution of outstanding loans in Ethiopia’s Banking System (in millions of birr)
Source: National Bank of Ethiopia
S.NO Economic sectors Periods
2010 2011
1 Government Deficit Financing 7,600 3,719
2 Agriculture 6,819.6 10,575.3
3 Industry 12,234.9 20,650.5
4 Domestic Trade 6,210.0 7,261.1
5 International Trade 14,433.9 18,025.7
6 Hotel and Tourism 1,257.4 1,435.5
Page 14
7 Transport and Communication 2,786.5 3,558.6
8 Housing and Construction 8,222.5 9,023.1
9 Mines, Power and water resources 3.4 37.2
10 Others 2,233.8 3,076.6
11 Personal 229.2 315.0
12 Interbank lending 260.9 12.9
Total 62,292.2 77,690.5
CHALLENGES AND PROSPECTS OF THE HOTELS INDUSTRY
CHALLENGES OF THE HOTELS INDUSTRY
The shortage of accommodation in Addis Ababa and in the regions is one of the main impediments
even to tourism development. Since tourism destinations are spread throughout the country, infrastructure
development connecting the sites, as well as hotel development, is a must. International conference tourism is
on the rise in Ethiopia due the presence of many international organizations such as the headquarters of the
African Union and the United Nations Economic Commission for Africa (UNECA) in Addis Ababa.
The capital city, being a business centre and a conference venue, is host to annual conferences for UN
branches, pan-African business organizations and special interest groups that have been attracting a growing
number of delegates to the country each year. Conference tourism has great potential to grow and is poised to
gain greater significance due to the development of several top hotels in Addis Ababa to meet the demand.
The government has been taking measures to expand hotel facilities into other parts of the country and also
plans to set up an office responsible for conference tourism in the near future.
Human resource development is another issue. Training staff is one thing but retaining the trained
staff is also another concern. Other tourism-based counties such as UAE attract the trained/ skilled workers
with better working conditions. Brain drain is a problem observed in other sectors, too.
Stable supply of quality agro-products is important for both hotel/tourism. Although, the hotels
would like to purchase agro-products from local suppliers, the buying and selling does not go through due to
the lack of reliability of supply and the quality of the products.
Some business chances are missed due to the low quality of packaging. Despite their intention to
purchase from the local market, the hotels import some goods from abroad because good quality packaging is
important for the luxurious image of hotels.
The banks in Ethiopia normally require expensive collateral, which should have to cover for loans.
Therefore, many of them have difficulties to get loans at the initial stage. Credit card services are not yet
widespread and where they are available, the interest charged is prohibitive. This should be solved quickly to
attract international tourists. Also, the restriction on the possession of domestic credit cards for foreigners
and corporate bodies is an impediment for the hotel and tourism business because payment by credit card
through internet is often required nowadays. The limitation of the location where tourists can exchange their
Page 15
traveler’s cheque and the control over the exchange of Birr to foreign currency is troublesome for tourists, as
well. This drastically limits their purchasing power (Embassy of Japan in Ethiopia, 2008).
The process of customs is not efficient and burdensome for hotels. The hotels have to go to 13
different offices to get permission to import goods and the duration of the process varies from 1 day up to 6
months depending on the personnel in charge.
The negative image of Ethiopia as a country of poverty and starvation prevents it from being a
tourism destination. Also, the hotel industry as well as the tourism industry is affected directly by security
issues. Deterioration of security can damage the industry seriously. The situation with Somalia, Eritrea, Egypt
and Sudan are the big concerns for the industry at the moment.
CONCLUSION AND SUGGESTION
The hotels industry of Ethiopia signifies a substantial gap between demand for hotels and supply of
accommodation establishments. We have learnt from the analysis that there is an escalating demand for
international standard hotels. Furthermore, the expected increasing rate of inbound tourist arrival will create
a big business opportunities for those planning to enter the hotels industry. Therefore, increasing the supply
of a good quality hotel accommodation throughout the country is necessary for the subsequent improvement
of the competitiveness of the sector.
Hotel construction is important both because it brings higher-quality accommodation into the
national hotel stock and also because construction is a significant sector economically. The privatization of
the hotel sector in Ethiopia is an increasing reality, partly due to a gentle privatization process but more
significantly due to the rapid rate of private sector hotel building. The state does, however, retain control of
much of the top-end assets in the sector and there are strong practical and developmental reasons for a
measured privatization of these assets.
The hotel industry may serve as a window linking of other industries to local markets. The hotel
industry is in interface with other sectors, such as agriculture, restaurants, handicrafts, infrastructure and
trade. Also, the hotels in Ethiopia have the intention to purchase from the local market. Improvement of
productivity of other sectors can take advantage by exploiting the characteristics of the hotel industry as an
interface with other industries and its purchasing power, and eventually it will contribute to poverty
reduction and the growth significantly.
The improvements of the banking system in extending financial services and the customs procedures
would be helpful not only for the hotel sector but also for the economic growth of the country. Thus, the hotel
sector requires a strong commitment from the side of government and other stake holders such as the private
sector banks. Generally, the hotel industry of Ethiopia is worthy to be availed with adequate loanable funds
from both public and private financial institutions as it is an expanding and promising industry.
Page 16
REFERENCES
[1] Addis Ababa Investment Agency (2013). A Series Data on Hotels in Addis Ababa.
[2] Corgel JB. And de Roos JA 1997. Hotel investments in the portfolio: Are they part of the core? Real
Estate Finance 14(2):29-37.
[3] Freeman D and Felsenstein D (2007.) Forecasting Regional Investment in the Hotel Industry: An Input-
Output Approach. Tourism and Regional Science. JRAP 37(3): 243-256. http://ageconsearch.umn.edu
[4] Kifle E (2012). More hotels, not enough professionals. Capital Newspaper
http://www.capitalethiopia.com
[5] Fleischer A and Freeman D 1997. The economic impact of rural tourism in Israel: Multi-regional in-
put-output analysis. Annals of Tourism Research 24(4)
[6] İbrahim Ç (2013). Motivation and Its Impact on Labor Productivity at Hotel Business “A Conceptual
Study”. International Journal of New Trends in Arts, Sports & Science Education - volume 2, issue 1 (ISSN: 2146
– 9466) www.ijtase.net.
[7] Ixigo W. (2013). Hotels in Ethiopia. http://www.ixigo.com.Accessed on June 06, 2013
[8] Jonathan M and Christopher C (2009). Enhancing private sector and community engagement in
tourism services in Ethiopia. Overseas Development Institute. London, UK. http://www.odi.org.uk.
[9] Ministry of Culture and Tourism (2009). Tourism Statistics Bulletin, Addis Ababa, Ethiopia.
[10] Ministry of Culture and Tourism (2011).Various Reports on Hotels and Tourism, Addis Ababa
[11] Petersen GA and Singh A (2003). Performance of hotel investment in a multi-property commercial
real estate portfolio: Analysis of results from 1982 to 2001. Journal of Retail and Leisure Property 3(2): 158-
175.
[12] Rudez, HN and Mihalic, T (2007). Intellectual capital in the hotel industry: A case study from
Slovenia, Hospitality Management 26, 188–199.
[13] The Embassy of Ethiopia in Washington (2006). Profile on International/ Tourist Standard Hotel.
Washington, DC. USA. http://www.ethiopianembassy.org.
[14] The Embassy of Ethiopia in Washington (2012). Ethiopia Investment Guide. Washington, DC. USA.
http://www.ethiopianembassy.org.
[15] The Embassy of Japan in Ethiopia (2008). A Series of Studies on Industries in Ethiopia. Addis Ababa,
Ethiopia. http://www.et.emb-japan.go.jp.
[16] World Bank Group and Ministry of Culture and Tourism (2012). Ethiopia’s Tourism Sector: Strategic
Paths to Competitiveness and Job Creation. www.worldbank.org.
Page 17

Full Length Research Paper HOTEL SECTOR

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Full Length Research Paper HOTEL SECTOR

Uploaded by

Copyright:

Available Formats

JOURNAL OF BUSINESS MANAGEMENT (JBM)

VOL. 1(2), pp. 35-54, JULY 2013

HOTEL SECTOR INVESTMENT IN ETHIOPIA

EBISA C. GOBENA1 AND ANDUALEM H. GUDETA2

1 Planning and Research officer, Awash International Bank.

Accepted 16 AUGUST, 2013

Keywords: Hotels, investment, in-bound tourist, loan, demand for hotels

JUSTIFICATION OF THE STUDY

 How are the demands for hotels/accommodations explained in Ethiopia?

FEATURES OF HOTEL INVESTMENT

HUMAN RESOURCES AT HOTEL BUSINESS

THE HOTEL INDUSTRY IN ETHIOPIA

DEMAND FOR HOTELS

1990 79,346 3.26

1991 81,581 2.82

1992 83,213 2.00

1993 93,072 11.85

1994 98,070 5.37

1995 103,336 5.37

1996 108,885 5.37

1997 139,000 27.66

1998 112,000 -19.42

1999 115,000 2.68

2000 135,954 18.22

2001 148,438 9.18

2002 156,327 5.31

2003 179,910 15.09

2004 184,078 2.32

2005 227,398 23.53

2006 330,026 45.13

2007 357,841 8.43

2008 383,399 7.14

2009 427,286 11.4

2010 468,305 9.6

2011 523,438 11.8

2007 2008 2009 2010 2011

Count Count Count Count Count

Leisure, Recreation and Holidays 128,533 99,394 138,070 171,414 183,008

Business and Professional 61,337 64,930 118,890 113,961 141,595

Table 3: Existing hotel capacity, projected and unsatisfied demand

Year in G.C Projection of Room Night Existing Hotels Unsatisfied

2011* 523,438 2,093,752 1,778,280

2017 912,231 3,648,924 1,778,280

Count % Count % Count % Count %

1 star 695 5.20 698 4.94 698 3.85 698 3.66

TOTAL 13,358 100 14,118 100 18,128 100 19,025 100

Count % Count % Count % Count %

TOTAL 16,848 100 17,936 100 21,937 100 24,083 100

Table 6: Categories of Hotels by Number of rooms and beds in Ethiopia, 2009

Category of Hotels Number of Hotels Rooms Beds

Table 7: Distribution of hotels in different states of Ethiopia, 2009

Regional States No. Hotels Rooms Beds

1.1. Five Star 3 794 1264

1.3. Four Star 11 757 1008

1.3. Three Star 32 1457 1876

1.4. Two Star 30 1043 1293

1.5. One Star 8 254 325

1.6. Not Classified 4 163 200

1.7. Total 88 4468 5966

2.1. Not Classified 9 174 221

3.1. Three Star 3 147 277

3.2. One Star 3 64 94

3.4. Not Classified 64 1945 2585