Tourist Flows and Its Determinants in Ethiopia Part 4

Our balanced panel data set covers tourist arrivals in Ethiopia originating from 40 countries1
from 1998 to 2004 (7 years), a total of 280 observations. This is typically important for
tourism studies as it helps to incorporate the features of both the receiving country (Ethiopia)
and the originating ones. The data source for tourist arrivals is Tourism statistics Bulletin
number 8 of Ministry of Culture and Tourism of the Federal Democratic Republic of Ethiopia
(MCT, 2006).

The main data source for the explanatory variables is the 2007 edition of the World
Development Indicators CD/ROM of the World Bank. The CD/ROM is a source of data for
per capita income of the sending countries, the exchange rate between the currencies of
Ethiopia and origin countries, the ratio of Consumers’ Price Indices (CPIs) of Ethiopia and
the origin countries, the ratio of CPIs of Ethiopia and Kenya, the total population of the
sending countries, and the urbanization rate, and number of internet users in Ethiopia. The
length of road networks in Kilometers of Ethiopia is obtained from an unpublished document
of Ethiopian Roads Authority(2008) and the air distance from the capital cities of the origin
countries to Addis Ababa is taken from the website The data for is summarized in Table 3.1. The table shows that the average mean arrival from
a country in a year is 2,307 where the minimum is registered in 1999 from New Zealand (70
tourists) and the maximum is 28,112 in 2004 from USA. This relatively high number could be
attributed to the large number of Ethio-Americans coming to Ethiopia each year. On
average, the tourists covered in this study are from a high-income category as the average
per capita GDP of the sending countries is USD 12,798.84. However, there is a significant
variation in this variable(a standard deviation of USD 3374.54), with the minimum USD
140.45 (Malawi, 2001) and the maximum USD 39,004.86 (Norway, 2004).

The sending countries are: Australia, Austria, Belgium, Canada, Chad, China, Denmark, Egypt, Finland, France, Germany,
Ghana, Greece, India, Israel, Italy, Japan, Kenya, Korea, Kuwait, Malawi, Mali, Netherlands, New Zealand, Nigeria, Norway,
Pakistan, Philippines, Rwanda, Russia, South Africa, Sudan, Sweden, Switzerland, Tanzania, Turkey, Uganda, UK, USA,
Yemen.

The average distance from Addis Ababa and the capital cities of the countries of origin is
5485.82 kilometers (a bit smaller than the distance between Addis and Paris, 5571.15 kms) Yemen is the nearest country included in the study (922.91 kilometers) and New
Zealand is the farthest (14415.65kilometers).
3.2 Estimation Methodology
For dynamic panel data sets (where the model includes lagged dependent variable), the
lagged dependent variable is by construction correlated to the unobserved country specific
error term causing biases in Ordinary Least Squares(OLS) estimators (Casseli et al, 1996).
For such models, Generalized Methods of Moments (GMM) estimators of Arellano and Bond
(1991) and Blundell and Bond (1998) have great advantage of avoiding endogeneity and
omitted variable bias.
The following illustration of how the systems GMM estimators of Blundell and Bond (1998)
works for a dynamic panel model like ours is based on Levine et al. (2000) and Beck et al.
(2000).
Consider the following equation.
yit = α yit− + βX it +ηi + ε it
∧
1 , where
∧α
= 1+α (1)
where, yit is the logarithm of tourist arrivals; X is the set of explanatory variables (other than
lagged tourist arrivals);η is unobserved country specific effect; ε is the error term; and the
sub-scripts i and t represent country of origin and time period, respectively.2
Casseli et al.(1996), showed the correlation between yit and η makes yit endogenous and
thus OLS estimation of equation(1) results in biased estimates. To avoid such biases, let us
take the first differences of equation (1).
yit − yit−1
=
∧α
( yit−1 - yit −2 ) + β ' ( X it − X it−1) + (ε it − ε it−1) (2)
Applying OLS on equation (2) gives us the fixed effects estimators. However, fixed effects
estimators might be prone to bias for two reasons. First, the explanatory variables in the set
X might be endogenous. Second, in the period t −1, the lagged dependent variable ( yit−1 -
yit −2 ) is correlated with the new error term, (ε it − ε it−1) .
In lieu of the fact that it is usually difficult to find good instrumental variables and these
instrumental variables might be jointly endogenous, Arellano and Bond (1991) suggest the
use of internal instruments, defined as instruments based on lagged values of explanatory
variables. Under the assumptions that the error term ε is not serially correlated, and the
explanatory variables are weakly exogenous (uncorrelated with future realization of the error
term), the GMM dynamic panel estimator by Arellano and Bond (1991) uses the following
moment conditions.

Tourist Flows and Its Determinants in Ethiopia Part 3

The current government (EPRDF) had inherited the power to attract about 81,581 tourists in
1991 that is only 8,000 more than the 1973 record. This flow increased steadily to 139, 000
in 1997 mainly due to the political stability and the market liberalization that attracted a large
number of business, conference and vacation tourists.
Unfortunately, the country had
another war: this time with Eritrea. This war led to a fall in the number of tourists by 27, 000
into 112,000 and 115,000 in 1998 and 1999 respectively. From 2000 onwards the county is
witnessing a massive inflow of tourists that doubled in six years time (2000 to 2005).
To decompose the relative increase and decrease in different types of tourism motives,
figure 2.2 is very helpful. Unfortunately, this data is available only since 1991; the coming of
the EPRDF regime, and our discussion would be restricted to that. In the first seven years of
this period, business was the leading motive to visit Ethiopia. Yet, in 1998, during the EthioEritrean war, business travelers to Ethiopia considerably decreased in number and their
place was taken over by vacation tourists, whose steady increase was only temporarily
halted during the war and showed magnificent increase after the war that led to a total
threefold increase in the period under consideration.. In general, business tourism increased
slowly to double in 2005 the number it had in 1991. Conference tourism has been the least
contributor to tourism with sluggish growth and falling share from the total tourist arrivals.
The number of transit visitors in Ethiopia is directly related to airport efficiency, strong
security and growth of the Ethiopian Air Lines. And except during the Ethio- Eritrean war and
its aftermath (1998-2001), this number has grown steadily to register a five-fold increase in
2005 from the 1991 record. The recent growth is mainly explained by the growth of the
Ethiopian Air Lines as one of the best airlines in Africa (World Bank, 2006). Almost every
year, the number of visitors whose purpose was to visit relatives showed a continuous but
slower increase in the period under study. Still more than 10% of the tourists’ purpose of
visiting Ethiopia is not known.
The data on tourism receipts is available only from 1971 onwards. Again the receipts show a
stagnant and sometimes a falling trend throughout the Derg period (see Appendix 1). From
12,224,000 USD in 1973 it went down to 1,609,000 USD in 1978 and the maximum annual
revenue generated from tourism throughout that period was in 1990 (20, 583,464 USD).
Due to the increase in the number of tourists, the tourism revenue has increased significantly
after 1991 reaching a maximum of 134, 500, 000 USD in 2005.
Another important factor to see the performance and the significance of the sector is to
assess how much an average tourist expended in the country. This depends on a number of
factors: purpose of visit, average days spent in the country, prices in the country, the
competitiveness in the sector, and variety of tourist supplies that motivate them to expend
more. The average expenditure by a tourist in Ethiopia has been oscillating between USD
100 and USD 200 for quite longer time between 1973 and 1988. From 1988 on, that number
has never been below USD 200 and it has fluctuated between USD 200 and USD 300 in the
period 1988-1999. This increment can reasonably be explained in the general increase in
world prices and increase in the number of vacation tourists who stay pretty long in the
country. However, a more than 100% growth of this expenditure per tourist from USD 276 in
1999 to USD 517 in 2000 and a more than USD 500 receipt since then is difficult to explain.
Though unspecified, the ministry may have changed its measure of tourist receipts. In fact
this is still much lower than the World Bank (2006) estimate on tourist expenditures in
Ethiopia indicating a good deal of underestimation of tourism receipts in the pre -1999
period.
The World Bank (2006) diagnostic study of the tourism sector shows that in 2005-6—
excluding foreign exchange earnings from Ethiopian Airlines—tourism generated
approximately USD 132 million in direct in-country expenditure on accommodation, inland
transport, food and drink, visitor fees and arts and crafts purchases (making it the third
highest foreign exchange earner behind coffee at USD 185million and oil seeds at USD
168million). This was collected from about 150,000 foreign visitors who came to Ethiopia for
various purposes such as leisure (63,000), business and conferences (62,000) and to visit
friends and relatives (25,000). The average length of stay, according to the study, was 7-8
days and the per capita expenditure averaged USD 850. The length of stay is below the
regional averages (Kenya 12.8 days, Tanzania 14.1 days, Uganda 9.7 days) while the per
capita/per day expenditure is above average (Kenya USD 62, Tanzania, USD 104, Uganda
USD 71, South Africa USD 47, and Ethiopia USD 109). The study considers this as evidence
that Ethiopia is at an early stage of development as characterized by relatively short and
expensive stays due to poor tourism infrastructure and a weaker supply side (ibid).

Tourist Flows and Its Determinants in Ethiopia Part 2

Ethiopia’s great potential for tourism development is mentioned everywhere and I do not go
into the details in this study. Various travel books and websites of tour operators). It suffices to say
that it has almost all types of primary tourist products: historical attractions, national parks
with endemic wild life and cultural and religious festivals.
UNESCO recognizes eight world
heritage sites (as many as Morocco, South Africa and Tunisia and more than any other
country in Africa): Axum’s obelisks, the monolithic churches of Lalibela, Gondar's castles,
the Omo Valley, Hadar (where the skeleton of Lucy was discovered), Tia's carved standing
stones, the Semien National Park, and the walled city of Harar.
Tourism in Ethiopia dates back to the pre-Axumite period when the first illustrated travel
guides to Ethiopia can be found in the friezes of the pyramids and ancient sites of Egypt.
These depicted travels to the land of Punt, which the Egyptians knew was the source of the
Nile, and where they traded for gold, incense, ivory and slaves. The fourth century Persian
historian Mani described the Kingdom of Axum as being one of the four great empires of the
world, ranking it alongside China, Persia and Rome (World Bank, 2006).
Modern tourism in Ethiopia can be said to have started with the formation of a government
body to develop and control it in 1961: the Ethiopian Tourist Organization. The earliest
analysis on the tourist flows and expenditures in Ethiopia was done by UNESCO (1968).
From the data covering 1963-1968, the total number of tourists was very low.

These numbers would not be considered small if most of them were vacation tourists, who
stay generally longer and spend more. However, it was noted that more than half of them
were business tourists and conference tourists that came to participate in international
meetings of the United Nations Economic Commission for Africa and Organization for
African Unity. In the same study, the daily per capita expenditure of tourists was estimated at
about USD 24, which was a relatively big sum. In addition, the average length of stay was
about four days, emphasizing the significance of conference and business tourism from the
total tourist arrivals data.
Recently, the Ministry of Culture and Tourism has published its number 8 Tourism Statistics
Bulletin in 2006 (henceforth MCT, 2006) which gives a fairly detailed analysis of tourists by
country of residence, entry port, purpose of visit, age, and gender and amount of receipts
from tourists for the years 2003-2005 and a good compilation of tourist arrivals from 1963-
2003. The ensuing discussion is based on the data from this publication.

The country's socio- economic history is pretty well explained in the number of tourist flows to the country. There
was a rising trend of tourist flows from 19,215 in1963 up to 73,662 in 1973, an approximately
four folds increase in 10 years. This growth was not sustained, however. Mainly because of
the political unrest and the ensuing government change and the contemporary famine (of
1973/74), the number of tourists went down to 50, 220 in 1974 and 30,640 in 1975. Even
though the data is crude and do not discriminate between different types of tourists, one can
imagine a big fall in the number of business travellers due to the massive nationalization of
private industries (including foreign companies); an enormous decline in the number of
conference tourists for the political unrest and a complete drop in vacation tourism as it was
practically unsafe for a foreigner to move out of Addis.
The failure of the number to increase above 45,000 up to 1981 could fairly be attributed to
the continued upheavals in Eritrea, Tigray and Hararghe regions and the ‘Red Terror’ in
major central towns. Though the rate was low, the number started to grow to above 60, 000
in the coming years. It would not be exaggeration if one said Ethiopia is the classic example
of how war and famine (bad image) adversely affect tourist flows. Due to the 1984 famine
and its related news throughout the world that gave birth to the famine related image of
Ethiopia to date, the number of tourists has declined from 64,240 in 1983 to 59,552 in 1984.
In general, tourism development during the Derg period was so sluggish that it took 14 years
for the number to come back to its peak of the Imperial regime. One thing that demands care
is the fact that the two 70,000 numbers are not equivalent as they mean absolutely different
share of the world tourist flow (which showed a steady growth over the decades).

Tourist Flows and Its Determinants in Ethiopia Part 1

Ethiopia has immense tourism potential owing to its natural, historical and cultural
endowments. The reasons behind the sector’s poor performance have not been studied in a
comprehensive way, however. This paper, using an array of methodologies including simple
historical explanation of tourist flow time series data, panel data analysis of tourist flow
determinants and destination competitiveness analysis, attempts to fill this gap.
The review
of history illuminates the detrimental effects of civil wars, famine and nationalization of
private companies on the performance of the Ethiopian tourism sector. The panel data
analysis takes into account the positive and significant impact of previous year’s tourist
arrivals, the Ethiopia’s infrastructural development as well as the per capita GDP and the
total population of the sending countries. The analysis shows that the price differential
between Ethiopia and Kenya and distance negatively affect tourist flows in Ethiopia. In
addition, the dummy for Africa is significant and positive. Finally, the destination
competitiveness analysis shows that Ethiopia is better rated in inherited endowments than in
created and supporting resources (like tourism infrastructure). Yet almost every rating
exhibits considerable improvement after tourists visited the country, suggesting that the
famine-related bad image of the country still hinders Ethiopia’s tourism sector.

Tourism is one of the largest and rapidly growing industries in the world. According to the
World Tourism Organization (UNWTO, 2007), there were 846 million international tourist
arrivals in 2006 only, which showed an increase of 5.4% over the previous year. However,
the developed world is taking the lion's share of the market with Europe, North America and
East Asia claiming 76.3% the international tourists in the same year.
Though noted for its tourism potential, Africa's underdeveloped tourism sector is attracting
only 4.81% (40.7 million) of the total tourist arrivals in the world. What makes the problem
severe is the fact that a considerable proportion of this number is taken by South Africa and
Northern African countries (ibid).
The situation in Ethiopia is even worse. On the one hand, its tourism potential is diversified:
natural attractions that include some of the highest and lowest places in Africa along with
immense wild life including some endemic ones; a very old and well preserved historical
traditions with fascinating stelae, churches and castles to witness that, an attractive cultural
diversity of about 80 nations and nationalities; and various ceremonies and rituals of the
Ethiopian Orthodox Church which open a window on the authentic world of the Old
Testament (www.tourismethiopia.org). On the other hand, it is one of the poorly performing
countries in terms of tourist arrivals. For example, the total number of tourist arrivals in
Ethiopia in 2006 is 290,000 which is more than five times smaller than the number in
neighboring Kenya, 1,644,000 (WDI,2010). Even then, it is a major source of foreign
exchange earnings in the country claiming an average of 23.34% of the total export earnings
from 1995 to 2007 (WDI, 2010).
To develop the tourism potential and let it contribute in the effort to reduce poverty and
underdevelopment in Ethiopia, finding the main determinants of tourist flows in the country is
of great necessity. Yet, except as part of a panel of Sub-Saharan African countries (Naudé
and Saayman ,2004), as to my knowledge, organized and methodologically sound studies
to identify major determinants of tourist flows in Ethiopia are inexistent. It is now evident that
it is difficult to generalize global or regional findings to a single country as the country may
have a completely different institutional set up from the rest of the world. Hence, this work
fills this gap by using a triangulation of methodologies to sort out the major determinants of
tourist flow in Ethiopia.
This paper attempts to identify the major determinants of tourist flows in Ethiopia first by a
simple historical explanation of the time series of tourist flows and tourism receipt in Ethiopia
for the period 1963-2005. Then, systems Generalized Method of Moments (GMM) estimator
of Blundell and Bond (1998) is employed on a panel data of tourist arrivals in Ethiopia
originating from 40 counties from 1998 to 2004 to identify main macro economic
determinants of tourist flows in Ethiopia. Lastly, the so called destination competitiveness
analysis of Omerzel (2006) based on the views of tourists and tour operators is applied to
assess the degree of attractiveness of Ethiopia as a tourist destination relative to other
African countries.