Scaling up pathways to growth in Ethiopia through tourism investments

From the otherworldly vistas of the Bale Mountains to the rock-hewn churches of Lalibela and the mysterious stelae of Tiya, Ethiopia is home to a unique mix of natural, cultural, and historical sites. UNESCO has added 11 Ethiopian sites to its World Heritage List with an additional seven on the tentative list. Ethiopian food has found a global audience (culinary tourism is an $11 billion market globally!) and Ethiopian Airlines brings the world to Ethiopia’s front door.

Ethiopia saw a near doubling of tourist arrivals from 438,000 in 2010 to 936,000 in 2017. This was driven by improvements in air travel connectivity and a dedicated effort to market Ethiopia as a world-class destination. It led to an increase in foreign exchange earnings which reached a high of nearly $3.6 billion in 2018, at more than 45% of exports. In 2019, an estimated 1.9 million jobs were in the tourism sector which generated more than 6% of GDP.

As seen elsewhere across the globe, tourism took a nosedive in Ethiopia during the COVID-19 pandemic. Though other destinations are now recovering, tourism in Ethiopia continues to struggle as the country grapples with fragility and macroeconomic challenges. A bump in tourists was seen in the aftermath of the 2022 peace accord but tourism receipts fell by more than 6% in 2023 compared to 2022 (UNWTO Barometer).

Research shows that conflict lowers annual GDP growth by 2-8.4% (Pathways to Peace, United Nations & World Bank, 2018). Some estimates place the cost of the conflict in Ethiopia at $6 billion in productivity losses, which have far-reaching effects. The scale of the losses makes investment in economic diversification and regeneration even more urgent. Even as the 2022 peace deal led to a minor resurgence in tourism revenues, increasing fragility in other regions and continued food insecurity in Tigray threatens prospects of economic growth.

In this context, the question arises, why should we focus on tourism investments?

For one, tourism in Ethiopia offers a strong opportunity to create new jobs, support domestic resource mobilization, and contribute to the country’s foreign exchange earnings. Tourism also creates demand for other industries, including food processing, retail, construction, logistics, renewable energy, and transport, generating direct and indirect economic benefits. Tourism employs skilled and unskilled labor with low probability for automation, as tourists continue to value positive customer service experiences. Green tourism offers the additional benefits of conserving and protecting natural and cultural assets, and incentivizing greater community participation in conservation as people see the benefits of preserving assets.

Second, Ethiopia has the assets and endowments needed to be a vibrant and popular destination for tourists across multiple segments. Adventure tourism to Erta Ale, food tours in Addis, pilgrimages to ‘New Jerusalem’ in Lalibela, there is something for everyone! The diversity of experiences across the country speak to its potential for repeat visitors and higher spending per tourist.

Thirdly, Ethiopia is a large market and well connected to the rest of the world via Addis Ababa and Ethiopian Airlines. With ease of access to the destination generally being a major factor in tourist decision-making, Ethiopia is well-placed. Connectivity (and, indeed, security) within the country remains challenging but this can be addressed through investments in infrastructure and a broader effort to improve security. Investments targeted strategically in regions and locations where there is an existing tourism industry, baseline infrastructure, and critical mass of tourism businesses can help draw more tourists, provided the security situation improves.

There is no denying that the binding constraint for tourism development currently is the inaccessibility of some key sites and the safety concerns across several regions. Tourism businesses report having to turn away tourists and proposed group excursions due to the uncertain security situation and inability to offer adequate safety to visitors. There is also concern about the lack of coordination between government initiatives to support the industry and private sector stakeholders. Both sets of stakeholders need to be better aligned to mobilize new investments and develop a menu of activities and experiences that would attract tourists. This is not a short-term agenda and will take consistent efforts to bear fruit.

The World Bank is working with the Ethiopia Ministry of Culture and Tourism to pilot the mapping of key tourism assets (i.e. attractions, cultural and historical sites that would draw tourists and generate revenues), in order to support integrated destination management in one region of the country. Integrated destination management is a holistic approach that identifies the combination of infrastructure investments, firm-level support and capacity building, and private capital mobilization that would be needed to leverage Ethiopia’s tourism assets more fully for inclusive, green growth.

While Ethiopia faces compounded challenges of fragility, macroeconomic instability, and spiraling food insecurity, it is essential to scale up investments that lay the ground for medium-to-long-term growth and employment. One of the main factors for the relapse of post-conflict countries into conflict is the lack of economic opportunities, which can exacerbate existing fault lines. Tourism offers an opportunity for diversified economic growth, and robust investments now would lay the foundation for future growth.