As Government Unplugs Support System Too Early
Globally, no other industry has been hit as hard by the COVID pandemic as the hospitality industry has. With severe restrictions on travel, hotels shutting down, and tourist attractions deserted, the world has experienced the first disaster of its kind in decades. In Ethiopia, the hospitality industry experienced a double blow from the pandemic and a series of security challenges nationwide. As if the series of security challenges were not enough, the country plunged into war in 2020, affecting famous tourist attractions such as Lalibela and Al Nejashi Mosque. Even though the government showed a gesture of goodwill to support the industry through tax related incentives, tourism remains too broken to revive after brief painkiller measures, write EBR’s Addisu Deresse and Eden Teshome.
Timket is an Ethiopian and Eritrean Orthodox Tewahedo Church celebration of Epiphany. It is observed on January 19 (or January 20 in a leap year), which corresponds to the 11th day of the month of Tir in the Ge’ez calendar.
The Tabot is a replica of the Ark of the Covenant that may be seen on every Ethiopian altar (similar to the Western altar stone) and is carried in procession on the head of the priest during Timkat rituals, lovingly wrapped in fine cloth. The Tabot, which is otherwise hardly observed by laypeople, symbolizes the coming of Jesus as the Messiah to the River Jordan for baptism. Early in the morning (around 2 a.m.), the Tabot is held next to a stream or pool. When daylight arrives, the surrounding body of water is blessed, and sprinkled on the attendees. Some of them then immerse themselves in the water to repeat their baptismal vows symbolically. The celebration, however, does not end there.
Inscribed on the Representative List of Humanity by UNESCO in December 2019, Timket is one of the most significant Ethiopian intangible cultural heritages. Since recently, it has become one of the most important tourism sites and has helped bring together local tourists during celebrations.
On January 19, 2023, Timkat was celebrated across Ethiopia. One city in particular, however, had the most fun. Gondar city in the Regional State of Amhara is said to have attracted 1.5 million visitors for the celebration, mainly local tourists from other parts of the country. Recently, Timket has been presenting Gondar with this bonanza of tourists.
“There weren’t enough lodgings to accommodate all the tourists,” Enyew Abebe, a resident of the city and one who participated in the celebrations, told EBR. “Some local residents let tourists stay at their home while other locals mobilized contributions to prepare tents to host visitors.”
It would be a severe mistake, however, to assume that the recent tourist bonanza in the city of Gondar tells the whole story of the industry. The truth of the matter is that the tourism industry is in a dilemma and remains broken due to various challenges, new and old.
Young people and women make up the majority of the labor force in the tourism industry. In terms of gender, men make up 70 Pct of the workforce, with women making up the remaining 30 Pct. The industry employs roughly 1.5 million people. This includes everything from luxury hotels and high-end amenities to budget-friendly service providers and classic Ethiopian coffee shops. In Ethiopia, small and medium-sized businesses account for more than 60 Pct of the tourism industry. For trekking and other adventure-based tourism activities, some individuals even rent mules. Most significantly, there are many kinds of handmade goods inspired by Ethiopia’s rich tradition and culture, sold in the numerous gift shops. These shops are primarily owned and run by young people and women.
“Given the size of the industry, COVID-19 has had a significant impact,” says Tewodros Derbew, strategic team leader and coordinator at the Ministry of Tourism. The COVID pandemic severely hurt tourism on both the supply and demand sides. It had an international impact and affected the source markets of Europe, America, and Asia. Prior to the pandemic, the tourism industry brought in more than USD 3 billion in 2019, but there has been a 72 Pct reduction since the start of the pandemic, with the number of tourists decreasing by 74 Pct. The impact on the industry caused an unprecedented economic impact.
In general, the tourism industry’s contribution to employment and GDP has decreased significantly due to the massive job losses, the threat of hundreds of thousands of jobs, the loss of foreign exchange and tourism revenues, the serious inhibition of tourism investment, skill migration to other industries, investment migration, and other factors.
Ethiopian tourism was also severely impacted by the war in Northern Ethiopia between the federal government and Tigray People’s Liberation Front (TPLF) that broke out in 2020, adding insult to injury. These two phenomena have had a significant impact on tourism, yet there is light at the end of the tunnel. The government is making efforts to resurrect the industry and is striving to protect newly generated jobs in the industry. Promising initiatives have been introduced to rehabilitate the industry and ensure its resilience.
The rehabilitation plan, which was implemented for three months, was created by the Ministry of Tourism and concentrated on boosting domestic tourism until foreign tourism picked back up. Access to low interest loans was the first action the government took. This made it easier for hotels and other similar businesses to retain their workers, amidst the uncertainty. While there was material and financial help, especially for vulnerable areas, the support was less than anticipated due to the government’s capacity constraints. Special measures were taken to safeguard people from physical and mental challenges.
Despite this early support by the government, both the support and the understanding appear to be fading away well before the industry revives from the most significant setbacks it recently faced. The Ministry of Finance and Economic Development is drafting a bill that does not include businesses in the tourism industry in the list of those businesses that will entertain a value added tax exception privilege. The draft bill had industry players and the chamber furious.
Business owners think it is too early to unplug the support system from the tourism industry, which is yet to revive from the scars left by COVID and the conflict. “The sector has to recover first before collecting any kind of tax,” Andinet Feleke, President of the Ethiopian Tour Operators Association (ETOA), told EBR in a recent interview.
Business owners present various arguments about why the industry should be back on the list of industries to entertain VAT exemption privileges. Registered enterprises in the industry might not have all of their expenses documented with receipts. Consider a hotel that must provide its guests with delectable meals, even though there are significant costs associated with producing the meal, not all of them are accounted for in a way that allows them to be subtracted from sales.
Let’s consider a tour company that takes tourists all across the nation. A tour of the nation’s diverse attractions subjects the operator to a range of fees, including transportation costs and payments to tourist destinations. The majority of these companies that provide the services are not included in the country’s tax brackets, so they don’t give the operator any receipts. Hence, none of these costs can be deducted from sales.
For tour companies, the costs don’t stop here. Even before a visitor lands in Ethiopia, fees to bring them here are incurred. To attract travelers, a tour operator must participate in numerous promotional activities with significant costs, which are often paid in dollars, for everything from paying the agencies that coordinate these promotional efforts to the costs of attending these events abroad.
The fact of the matter is that these operators frequently have to deal with the difficulty of finding the requisite amount of dollars to cover these costs. What’s worse, there is no defined process in place for the tax authorities to account for these expenses. The challenge posed by the new draft bill was well highlighted on a panel entitled “The Challenges and Opportunities of Tour Operators in Ethiopia.” The panel, conducted on December 27, 2022, was organized by the Addis Ababa Chamber of Commerce and Sectoral Association.
“The irregularity in the definition and practice of the tax implementation has been affecting the efficiency of the sector,” said Yohannes Woldegebriel, director of the Arbitration Institute at the Chamber.
Other developing countries have various packages to support the tourism sector. Some of these packages were introduced after the unprecedented impact of the pandemic on the sector, while other countries consider the privileges permanently to boost the potential of the industry.
In Barbados, an eastern Caribbean island and an independent British Commonwealth nation, businesses in the tourism sector pay a 7.5 Pct VAT while the national rate is 15 Pct. In Montenegro, a Balkan country with rugged mountains, medieval villages, and a narrow strip of beaches along its Adriatic coastline, VAT for the tourism sector remains at 7 Pct against the national rate of 17 Pct. In neighboring Kenya, tourism pays a 14 Pct VAT while the rest of the business sector pays a 16 Pct.
According to the Ministry of Tourism, Ethiopia’s tourism industry is beginning to show indications of revival following the signing of the peace accord between the government and TPLF. Selamawit Dawit, the State Minister for Tourism, says that one of the industries adversely impacted by the conflict in the country’s north is tourism. The State Minister added that maintaining peace is essential for the growth of the tourism industry. As a result, she said, the peace accord has started a new chapter for the industry.
As a service sector, tourism services are particularly important in enhancing a nation’s reputation and also in promoting economic growth and development. In 2017, more than 933,000 visitors came to Ethiopia, a slight increase over the 870,000 that came in 2016. However, that figure sharply dropped, and during the same third quarter of 2020, a total of 46,540 visitors visited Ethiopia. However, during the same time in 2021, this number rapidly increased to 118,972. Unfortunately, these improvements are inadequate to help Ethiopia achieve its objective of becoming a major tourist destination in Africa.
EBR 11th Year • April 2023 • No. 116