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Boom in services
At Your Service Ethiopian Style
by Melaku Sahlu
Thursday, 18 March 2010
In the 2008 fiscal year, Ethiopia’s service sector crept ever closer to agriculture and could surpass it this year for the first time ever. Elevated levels of government spending which have spawned numerous support businesses in various areas are part of what’s contributing to this but so is Ethiopia’s burgeoning hospitality sector comprised of hotels, restaurants, travel and health related industries. The growth of the hotel subsector in the capital is the most prominent trend with more than 15 major hotels opened in the last 2 years alone. The next 2 will see at least as many more headlined by the Accor Group’s 2 hotels off Meskel Flower Road, a Marriott close by and Kenenisa Bekele’s first venture in the city with the hotel that will most likely bear his own name.
In 1991, virtually every notable hotel in the country was government owned. The Ras and Ghion Hotel chains stretching across the country were the destinations of choice in a limited number of locales with minimal private sector activity filling the considerable gap. The Hilton Addis was the only major exception although it to was (and still is) under 75% government ownership. With the advent of liberalization after the 1991 change of government, development of this sub-sector was uncertain at first and it was not until the late 1990s that a raft of new hotels headlined by the 5 Star Sheraton Addis but also including other notable establishments such as Atlas and Desalegn Hotels, came into existence. Occupancy rates increased slowly at first but then began to skyrocket with attendant price increases that soon came to rival rates in more developed countries. The higher prices did not seem to deter guests however and by 2003, it was clear that the pressure for more standardized rooms was not to abate anytime soon. Room rates kept up their dramatic increases – Ghion Hotel had rates of only 135 ETB for a double room in 1999 but now stands at close to 600 ETB for the same room; an increase of close to 400% in about 10 years.
There are distinct classes of lodgings within the sector with the so called tourist class hotels mostly comprised of those achieving 3-5 stars from the Ministry of Tourism and Culture. There are currently 42 such hotels in Addis registered with the Ministry representing a total of 2792 rooms and 3868 beds. 12 of these hotels (just under 30%) opened their doors within the last 24 months. Out of this subset, The Intercontinental has been awarded a coveted 5 star rating while Harmony Hotel is the only independent hotel that is linked to international reservation systems. More new hotels are on the way at a rate that could exceed even that of the recent surge with international brands like the Marriott) seeking a foothold in what is clearly being perceived as a market with still more room for growth. By way of comparison, Kenya’s coastal tourist areas alone hold close to 200 hotels with as many as 32,000 beds compared to a total of 4498 beds in Addis. Although sometimes subject to seasonal slowdowns, occupancy rates of more than 90% are common in Ethiopia’s 5 star hotels and have continued to be high even amongst the rest though recently falling a bit to the 70-80% range .
Outside of Addis, some areas have also seen rapid growth. Elevated levels of development activity, better road networks to various locales and higher weekend tourism rates are some of the factors driving growth in these areas. Haile Gebreselassie’s resort and conference center in Awassa is a good example and if occupancy rates at Tadele Enjory’s hotel in that town are anything to go by, it looks to have great prospects for success as well. Overall, Oromia region has the most number of hotels at 111 followed by the Amhara and Southern regions at 70 and 62 respectively.
To the casual observer, it might seem odd that there is suddenly enough demand to sustain such a torrid growth rate in supply but Addis, as the so called political capital of Africa, has almost always been woefully short of the accommodations and other facilities that hospitality calls for, to live up to its billing. Driving the skyrocketing demand for quality rooms in the city isn’t just Addis’ status as the so called political capital of Africa. The new conference center at UNECA is certainly doing its share of attracting a seemingly endless parade of international conferences but so is Bole International Airport’s growing status as a regional hub and EAL’s rapid expansion of services centered here. Transit passengers now make up significant portions of the guests at many hotels. Leisure tourism is not yet a big part of the equation given the anemic state of Ethiopia’s tourism sector at the moment but given its projected growth in the next few years, it will only add to the pressurefor more beds in the capital and beyond in the near term. The country’s continued economic growth is also drawing an increasing number of business travelers in the form of current or prospective investors as well as consultants servicing both private and public sectors. It is yet another metric which is expected to move upwards in the near future.
Developmental impacts and continuing opportunities
Many of the newer hotels employ anywhere from 50 to a few hundred employees directly. But the greater impact of their recent influx can be found in the numerous businesses that play a supporting role, chief amongst them being the supply of food and non-food items that hotels require. The supply of quality fruits and vegetables in the capital has never been very strong to start with and the hospitality sector as a whole (inclusive of the numerous higher end restaurants that have opened up in recent years) has put significant pressure on it. Along with dairy products and poultry, the difficulty of procuring sufficient quantities to sustain their needs is one of the challenges of operating a major hotel in Ethiopia. Indeed many of them purchase their produce from local supermarkets due to the dearth of direct suppliers with the adequate capacity. The result is an expensive and uncertain supply chain that significant effort must be spent on managing. There are a small but growing number of investors engaged in horticulture production although most of them appear to be targeting external markets. Still, there appears to be an upward trend in the supply of good quality produce as a result. Whether this improvement can catch up and indeed keep up with the constantly escalating demand is still an open question representing one of the clear cut investment opportunities that the hospitality sector can take some credit in giving rise to.
Another area where local capacity has a clear opportunity to step in and capitalize on is the supply of non-food items to hotels as well as restaurants. One sub-category is commonly referred to as crockery, cookery, cutlery and glassware. There currently appears to be no domestic producer that can supply such items of sufficient quality to meet a tourist class hotel’s needs. This means such hotels have to use precious foreign currency to import these items. Similar issues exist in the supply of items such as bed sheets, towels, soap and other standard hotel necessities. For the businesses (existing or new) that can fill this supply gap, the market size is considerable already and only looks set for much further growth in the future.
Of course the increasing number of visitors also mean additional opportunities for other segments of the hospitality sector such as car rental services, restaurants and entertainment. The latter two in particular have been pushing forward to try and keep up with not just visiting customers but an increasing segment of the domestic population that can afford their services.
Dining & Entertainment
Addis (and most other cities/towns that we can think of in Ethiopia) has never had a problem with a shortage of cafes although the standards of these establishments has gone up significantly in certain segments of the market. High class restaurants inside purpose built spaces are popping up here and there with Avanti – the upscale Italian restaurant close to Bole Airport being one of the newer headliners and Café Bon (reviewed in this issue’s Lifestyle section) another. More often than not, new entrants have little trouble drumming up a lot of business, partly because they are new but also because Addis Ababans seems to have an insatiable appetite for spending time in restaurants, cafes and bars that manages to sustain a seemingly endless number of them. In some areas, the sheer density of such establishments is quite astonishing. On Meskel Flower Road – a 3 kilometer strip between Bole and Debre Zeit Roads – there are no less than 68 restaurants, bars and cafes crowding the street and seemingly all coexisting in fiscal bliss. A reason behind these large numbers could be what many believe are very high margins that the proprietors of these places extract courtesy of a seemingly price insensitive consumer base and multiple opportunities to hike their prices. Especially in the recent past, the average restaurant bill seems to be climbing at a higher rate than prices for common goods and services. It certainly doesn’t help that close to 20% of what consumers pay on such bills is composed of VAT (15%) and a recent trend in which many establishments are adding a 5% service charge before VAT in accordance with recent instructions to this effect from tax collection agencies.
Entertainment is a big part of the hospitality scene here and perhaps even one of the reasons that Addis is considered one of the great destinations to work in or visit on the continent. For more on this sub-sector, please visit our website where previous articles pertaining to this topic are archived.
As you drive past the Bisrate Gabriel Church in the Old Airport area of Addis, the megastructure of the Laphto fitness, entertainment and shopping complex is one of the more striking architectural pieces you will find in the city. It is one of the latest and the grandest of facilities in Addis that have fitness & health at the heart of their existence. Laphto has much more than that housing a sizable shopping area not to mention a bowling alley, dual purpose auditoriums (cinema and conferencing facilities), spa and nightclub as well as several eateries. It is not the only new health and fitness facility around either – Maxview in Gerji boasts impressive facilities as well. Coming in a city where such concepts were completely foreign just 20 years ago, the presence of numerous such establishments is further proof that Ethiopia’s hospitality sector has undergone dramatic transformation in just a short period. For even more proof, one can consider Boston Day Spa – possibly the crown jewel of such places here and one that did a lot to advance the cause of spas overall with dozens now open all over the city. Biogenic Spa was one of the first to open here though and originally started out providing skin care and other related services in 1995. It now offers a full complement of spa services and sees so much promise in the business, that it is set to open another outlet inside the Laphto.
Overall, hospitality appears to be another sector that is definitively on the upswing. Its positive contribution to job creation and the development of adjacent sectors is something we can all appreciate although a greater focus by the business community to address emerging supply needs could help out even more by reducing its demand on the nation’s limited foreign currency reserves not to mention providing a much needed boost to the manufacturing sector in Ethiopia.