In August, Addis Ababa city barred its offices and the 11 sub-cities from holding hotel events.
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In August, Addis Ababa city barred its offices and the 11 sub-cities from holding hotel events. Officials say this aims to redirect discretionary spending to capital outlays. The directive covers digitisation for cost-cutting, as well as office supply repair and reuse. Businesses, especially hotels, say the move will shrink their income and threaten viability, voicing strong opposition.
As the government is the hotels’ biggest client, its withdrawal rightly shocks the industry. Losing government training, evaluation, and workshops means a downturn worth millions, with some reporting a 40% immediate loss in business. Even without official figures, spending on office provisions is significant, and cuts impact suppliers deeply. The sector’s decline will ripple through the supply chain, leading to multiple layoffs.
Making a bad situation worse?
The move came amidst a not-so-good period for the hospitality industry, due to nationwide security issues and suspension of major event funders like USAID. A fair portion of the government’s 100.1 billion birr dedicated to operational costs now seems far beyond the reach of the hospitality industry. Events are set to be held in the municipality's facilities.
Businesses and critics insist that undermined profit will backfire on the government through diminished tax payments. This is critical as the government, for the first time, set an internally funded budget. The 350 billion birr allocation is planned to be sourced from the city’s revenue streams alone, unlike previous contributions from the federal funds. The move was applauded by some and called out as too ambitious by a few others.
Officials, on the other hand, state the shift was necessity-driven. After the declaration of its budget’s independence from federal government subsidies, the city administration is pursuing its self-led growth agenda. Besides vigorous revenue collection measures, they assert, optimizing expenses is crucial to realize the lofty development plans. They dismiss concerns, pointing out that no argument justifies government extravaganza.
Is every government doing it?
Several countries have taken similar economic prudence initiatives. India, Indonesia, and Tanzania are prominent examples, but both faced varying consequences, which resulted in one maintaining its restrictions while the other lifted them. In 2012, India’s central government targeted the 5-star luxury hotels for the bar. It was later amended, allowing exceptions for bilateral and multilateral engagements. Despite the immediate struggles of hoteliers, the ban remains in place and is broadly applied throughout states for its effectiveness in austerity.
As for Indonesia, budget restrictions on hotel spending were made as early as 2014. Reinforcements pushed in late 2024 triggered stiff opposition from the hotel sector and other stakeholders. By mid-2025, the policy was reversed due to its compound economic counterproductivity. Tanzania is one of the first African countries to take similar steps and persist with its decision, regardless of the industry being severely affected. It’s, however, taking the initiative to be a leading destination for MICE events.
While the industry continues to press on for its best interest, incisive discussions on how businesses can survive and thrive when such waves hit are crucial. From others’ experience, targeting foreign and non-governmental clientele for market diversification is a decisive strategy to adopt. Capitalizing on core hospitality functions and leveraging digital tools to reach a wider market keeps businesses afloat and flourishing.
