Ethiopia is Africa’s ninth-largest economy, similar in size to Kenya. By 2021, it is on course to move into seventh place. But even then, its gross domestic product will be just one-fifth of Africa’s largest economy, Nigeria.
The country’s farmers are recovering from a severe drought; the improvement in agriculture is expected to lift economic growth to 6.9% in 2017. The government is beginning to shift funds from drought relief to investment in ambitious infrastructure projects, which should stimulate growth and improve the business environment, enhancing Ethiopia’s prospects. In addition, Ethiopia’s large population of young workers is supporting an emerging services sector. And the country is getting increasingly adept at exploiting its natural resources.
Ethiopia still has some fundamental issues to address. Inadequate foreign exchange reserves reduce its ability to deal with external shocks and honor its external obligations, such as debt payments to foreign lenders. Lingering effects of the drought and an armyworm infestation that threatens the maize crop are fuelling higher food prices, which gives rise to general inflation.
Yet, all in all, Oxford Economics is optimistic, forecasting growth of 7.9% for Ethiopia in 2018.
The Ethiopian Ministry of Culture and Tourism aims to triple foreign visitors to the country to more than 2.5 million a year by 2020. That would make the country one of Africa’s top-five tourist destinations. Travelers from the U.S. make up about 20% of inbound visitors, and that’s expected to stay steady through 2021. The U.K. and China each accounted for 7% of arrivals in 2016. Industry forecasters see China’s inbound traveler market share reaching 8% by 2021.
Ethiopian travelers’ most popular international destination is Lebanon. A fifth of departures in 2016 were to the Middle Eastern country, where many Ethiopian expatriates work. Other important travel destinations include Saudi Arabia, Sudan and Kuwait—each country takes a 10% share of outbound international travel. Sudan is expected to see the strongest growth through 2021, adding another 7% per year to its share.
Ethiopia’s business travel market was worth around US$800 million in 2016. Domestic travel accounted for 70% of spending. Oxford Economics forecasts overall business travel spending will grow by 13% per year between 2018 and 2021, with inbound travel growth of 9%.
Ethiopian Airlines dominates the market, accounting for 90% of departures from Addis Ababa’s Bole International Airport. The airline has an international network of 110 destinations in 67 countries and monopoly routes from Addis Ababa to 14 destinations throughout Ethiopia. It faces competition from just nine other airlines.
As many of its African rivals retrench and restructure, Ethiopian Airlines is opening new routes, increasing its profitability and looking to invest in other African airlines to expand its hub-and-spoke network linking the continent’s cities with long-haul destinations.
The number of hotels in Addis Ababa has increased nearly threefold over the last five years, from 417 to 1,129. Starred hotels almost doubled—from 58 to 111—but not because of international chains; they operate just five hotels in the capital city. That’s changing, with AccorHotels and IHG now opening their first Ethiopian properties. At least 16 new chain hotels are set to open by 2021.
The international chains primarily are focused on Addis Ababa, which should increase the quality and affordability of accommodation in the city. Demand for accommodation in capital comes from businesses; aid agencies and nongovernmental organizations; and diplomatic travelers. Most business-related accommodation comes from domestic companies, but this is likely to shift as the Ethiopian economy opens up to more external investment.
While most hotel expansion is happening in Addis Ababa, a few other locations are getting hoteliers’ attention. The Hilton Awassa Resort & Spa on the banks of Lake Awassa and Wyndham’s Garden Langano on Lake Langano are examples of luxury properties under development south of the capital.
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