Full Length Research Paper HOTEL SECTOR INVESTMENT IN ETHIOPIA

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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: [email protected]

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JOURNAL OF BUSINESS MANAGEMENT (JBM) VOL. 1(2), pp. 35-54, JULY 2013 REF NUMBER: 0520130801 ONLINE: http://www.projournals.org/JBM

mailto:[email protected]

HOTEL SECTOR INVESTMENT IN ETHIOPIA 0520130801

Page 2 PRO JOURNALS [JBM] - HOTEL SECTOR INVESTMENT IN ETHIOPIA

By Ebisa C. Gobena1 and Andualem H. Gudeta2

Journal of Business Management (JBM)

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?





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





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

http://en.wikipedia.org/wiki/Africa





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





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

Tourist Arrival

Room Night

Demand

Existing Hotels

Annual

Capacity

Unsatisfied

Demand

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





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)

Source: Ministry of Culture and Tourism (MOCT)

Years/

Ratings 2008 2009 2010 2011

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





1 star 695 5.20 698 4.94 698 3.85 698 3.66

Unclassified

Hotels 8,226 61.58 8,549 60.55 12,559 69.28 13,455 70.7

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/

Ratings 2008 2009 2010 2011

Count % Count % Count % Count %

Deluxe 0 0 0 0 0 0 0 0

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

Hotels 9,682 57.47 10,322 57.55 14,323 65.29 16,469 68.38

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:





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






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





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





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.





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

http://www.ixigo.com/de-leopol-international-hotel-addis-ababa-ethiopia-hid-191771

http://www.ixigo.com/dreamliner-hotel-addis-ababa-ethiopia-hid-76372

http://www.ixigo.com/

http://www.ixigo.com/family-cozy-bed-and-breakfast-hotel-addis-ababa-ethiopia-hid-184383

http://www.ixigo.com/hotels/et/hilton-hotel-addis-ababa--72219.ixi



http://www.ixigo.com/radisson-blu-hotel-addis-ababa-addis-ababa-ethiopia-hid-330335


http://www.ixigo.com/yeka-guesthouse-hotel-addis-ababa-ethiopia-hid-184382





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





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





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.





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Full Length Research Paper HOTEL SECTOR INVESTMENT IN ETHIOPIA

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