uganda hotel study 2005, research consultant , jairus ounza muhehe, [email protected]

FUTURES ARCHITECTS SARL Hotel Demand Survey for Uganda

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Jairus Ounza Futures Consulting Group www.f-arch.com

FUTURES

Evaluation of Demand and Profitability of Five Star Class

Hotels in Uganda:

A Case of Mbale District

A Proposal Submitted to Futures Architects

by

Jairus Ounza Muhehe

Tel: 0752411738

Email: [email protected]

For Futures Group


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February , 2006


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Table of Contents Table of Contents 3Introduction 41.0 Background 41.1 The Tourism Sector in Uganda 41.2 The Hotel Industry 61.3 Recent Performance of the Tourism Sector in Uganda 61.4 Tourism Sector’s contribution to National GDP 91.5 Government Policy 91.6 Alternative Tourist Attractions 101.7 Tourist Accommodation 111.8 Serviced Apartments 111.9 Conferences and Incentives Travel 121.10 The Nile International Hotel 141.11 Joint Ventures 141.11.1 Incentives 141.12 Hotel Developments In Uganda. 151.13 Objectives 16Literature Review 182.0 Factors associated with Demand and Profitability of 5 Star Hotels 182.1 External Factors 182.2 Disposable Income 192.3 Prices 202.4 Foreign Exchange Rates 22

3.0 METHODOLOGY 233.2 Description of the study area 243.3 Sample Size Calculation 27

Appendix I 29Tourist Industry Questionnaire 29Appendix II 38Questionnaire for Policy Makers 38Appendix III 40Important Contacts for Policy Makers and Hotels Surveys 40Respondents for Main Survey –Hotels 42Appendix IV 46Study Time Schedule 46Appendix IV 47Budget for Survey 47


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Introduction

1.0 Background

This section elaborates on Global, regional and Uganda’s hotel industry in the last few

decades. Although the thrust of the current study is on transit businessmen who utilize

hotels, some of the material will touch on the tourism sector due to its future potential on

the countries GDP.

Travel and tourism is the world’s largest industry. Its size and scope dwarf many other

industries, which are commonly viewed as significant. According to the World Tourism

Organisation (WTO), receipts from international tourism climbed to US$476 billion in

2000, an increase of 4.5 per cent over the previous year. World tourism grew by an

estimated 7.4 per cent in 2000-its highest growth rate in nearly a decade and almost

double the increase of 1999. Nearly 50 million more international trips were made in

2000-the same number of new tourists as a major country such as Spain or the United

States receive in the entire year-bringing the total number of international arrivals to a

record 698 million, according to preliminary results released by the World Tourism

Organization (WTO).

It is estimated that tourism and related activities employed an estimated 200 million

persons worldwide in 1999, which is 8% of the total global employment. Tourism is

expected to generate 5.5 million new jobs per year until 2010. As an economic force,

tourism constitutes an estimated 11% of world GDP. Africa’s share of world tourism

remains small and the continent’s tourism growth rate in 2000 stood at 1.5%. While

Kenya, Zambia, Mauritius, Morocco, Tunisia and Algeria all enjoyed strong growth, two

of Africa’s biggest destinations stagnated or suffered-South Africa and Zimbabwe.

1.1 The Tourism Sector in Uganda Tourism to Uganda began in earnest in the 1950s with the gazetting of Queen Elizabeth

National Park, Murchison Falls National Park and Kidepo National Park. The principal

attractions were the superabundance of animals and the incredible diversity of scenery.

By the 1970s, there were hundreds of thousands of holidaymakers flooding into Uganda


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and the country was an integral part of the then famous East African Tourist Circuit,

which also covered Kenya and Tanzania.

During the 1960s, revenue from tourism, including restaurants, hotels, and related

services, increased faster than any other sector of the economy. In 1971, the peak year

for tourist receipts, more than 85,000 foreigners visited Uganda, making tourism the

nation's third largest source of foreign exchange, after coffee and cotton. After 1972,

however, political instability destroyed the tourist industry. Rebels damaged and looted

hotels, decimated wildlife herds, and made many national park roads impassable. Part of

the airport at Entebbe was also destroyed.

Recognizing the role tourism could play in economic development, the government

assigned high priority to restoring the tourism infrastructure in its (Rural Development

Plan-RDP). To this end, the government planned to rehabilitate hotels and promote

wildlife management. In February 1988, ministry officials announced a plan to build four

new hotels worth US$120 million as part of a barter trade agreement with Italy. The

Italian company Viginter agreed to construct the 200-room hotels at Masaka, Fort Portal,

Jinja, and Mbale. International tourist arrivals gradually increased, from about 32,000 in

1986 to more than 40,000 in each of the next two years. Tourism earned roughly US$4.2

million in 1988. At the same time, continuing unrest in the north halted rehabilitation

efforts in Murchison (Kabalega) Falls and Kidepo national parks, and many tourist

attractions awaited a reduced climate of violence before maintenance and repairs could

be improved.

Today, animal populations are no longer what they were but these have shown a

remarkable recovery rate. Though still not as highly competitive in the market segment

catering to the Long Haul tourists seeking the “big five” Uganda has repositioned itself to

focus on new markets and attractions. This strategy is being coordinated by the Ministry

of Tourism, Trade and Industry and implemented by Uganda Tourist Board. As part of

the regional cooperation efforts through the East African Cooperation, players in the

sector have also launched efforts to market the region to enable tourists benefit from the

biodiversity offered by each of the three countries.


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1.2 The Hotel Industry

Uganda’s hotel industry development was mainly tailored to the tourist industry and the

greatest expansion of the industry occurred at the peak of the tourism industry in the mid

and late 1960s. Tourist geared hotels developed along the ‘southern tourist circuit’ from

the two international entry points at Entebbe Airport with Lake Victoria Hotel and Rock

Hotel at the Kenya-Uganda border at Tororo. The circuit continued through Jinja with

Owen Falls Dam and Source of the Nile attractions, through Kampala, Masaka, Mbarara

to the Kigezi Highlands centered on White Horse Inn at Kabale. The circuit further

extended southwest to Kasese with the Mweya Safari Lodge and Magherita Hotel at

Kasese serving the game rich Queen Elizabeth National Park and ending at Fort Portal

on the foot of the ‘Mountains of the Moon’, Rwenzori. Kampala provided the radiation

and transit center to further reach these two major circuits as well as having tourist

attractions of its own.

The development of hotels in Uganda was spearheaded initially by Government under

the Uganda Development Corporation. Later, the various government owned hotels

were run under the Uganda Hotels Corporation. Private participation in the sector was

very limited until the post 1986 era. With the privatization process, these hotels have

been sold off to private investors who have undertaken major renovations and upgrading

of these facilities. At the same time private companies have also invested heavily in

building new hotels, resorts, lodges and other tourist accommodation.

1.3 Recent Performance of the Tourism Sector in Uganda

From 1987 to 1991, the government’s focus was on rehabilitation of the existing tourism

facilities including hotels, lodges and national parks. The government also set up

projects aimed at tourism development for example, by establishing hotels and tourism

training institutes. The number of tourist arrivals during the period increased from under


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25,000 in 1985 to approximately 60,000 tourists in 1991. In 1992, Government launched

its ‘Integrated Tourism Development Master Plan’, which henceforth has been the main

policy document driving government’s intervention in the tourism sector.

Figure 1.0 shows the number of vistors via Busia and Malaba border posts. Using the

equation modeled from the figures, the extrapolated figures are shown in table 1. In

general the figure shows an increasing trend in the number of visitors coming via these

two border posts. It is estimated from the time series approximations that in the year

2020 the estimated number of visitors will increase to 96118 from the current figure of

92021 which represents an increase of 3.4 percent.

Figure 1.0 Visitor Arrivals (Numbers) – Non-Ugandan Non Residents by Continent Over the Period 1998 – 2020 – (Through Busia and Malaba Posts)

Y = 89388 + 292.6 X

Time (1=1998)

252321191715131197531

Num

ber

of

Vis

itors

100000

90000

80000

70000

Observed

Linear

Sources: Immigration Department, Civil Aviation Authority, Uganda Bureau of Statistics, Ministry of


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Finance, Planning and Economic Development (Statistical Abstract – 2002)

Visitors to Uganda are classified under four major categories, namely; holidays/tourist,

visiting friends or relatives, business/official, transit and other. The purpose of travel is

indicative of the average stay in Uganda and the period especially in the case of holiday

visitors. Figure 1.0 above show the number of arrivals for visitors who are both non-

resident and non-Ugandan. This category comprises mostly tourists (holiday visitors)

and business travelers and accounts for the bulk of so-called tourist arrivals in the

country. The United Kingdom, Norway, India and the USA account for the bulk of tourists

who come to Uganda from outside Africa.


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1.4 Tourism Sector’s contribution to National GDP

Uganda has attracted over 200,000 tourists in 2001 who earned the country over US$

163 million in foreign exchange and it projected that by 2006 the number will have grown

to half a million tourists per year. Correspondingly, tourism has been one of the fastest

growing sectors of the economy with an annual growth rate of 21% over the years 1992

– 2000. Tourism is emerging as Uganda’s main foreign exchange earners having

overtaken Coffee which has traditional been the key foreign exchange earner in Uganda.

Although the general trend remains positive, the tourism sector has suffered major

setbacks over the last years resulting from the political instability in the Great Lakes

Region. In spite of this, visitor numbers have remained steady (Figure 1.0).

The tourism sector is one of the key sectors being promoted by the Uganda Investment

Authority (UIA). From 1991 to 2002 UIA has licenced 156 projects with over US $ 300

million in planned investment. This translates into about 6% of total planned investment

for the years 1991 to 2002. In 2002 alone 12 projects worth US $ 38.4 million were

licenced.

1.5 Government Policy

Investment in the tourism sector is guided by a number of policies, of which the most

important are discussed briefly below.

The major regulations and legislation governing the tourism industry include: -

a) The Tourist Agents (Licensing) Act, 1968

b) The Tourist Agents (Licensing) Regulations, 1972

c) The Hotel Act, 1964

In addition, the Ministry of Tourism, Trade and Industry has published operational

guidelines for tour and travel operators and travel agents, 1995, which sets strict

regulations to be adhered to by travel and tour operators. These regulations aim at

standardization and harmonization of the activities of various actors in the tourism


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industry. Some of the aspects considered under these regulations include: location, staff

and qualifications, capital requirements, the necessary logistical resources and annual

licensing fees.

1.6 Alternative Tourist Attractions The focus of Uganda’s tourism drive in recent years has been the rare mountain gorilla.

This has been very successful with the demand for viewing permits currently far in

excess of existing supply. This over reliance on the mountain gorilla leaves Uganda’s

tourism industry susceptible to political factors as was the case with the 1999 Bwindi

Massacre. The response of Government has been to initiate the development and

promotion of alternative tourist products. The Uganda Tourist Board, with the assistance

of the European Union, is leading this effort and has already identified several tourist

products that it is felt can attract visitors to Uganda in their own right. These include: -

- Avi-tourism (bird watching)

- Sport fishing

- Boating

- Primate tracking (Gorillas, Chimps and others)

- Game Viewing

- Walking and trekking

- Mountaineering

- White water rafting

Most of Uganda’s wildlife is concentrated in its protected areas, of which there are three

main categories: National Parks, Wildlife Reserves, and Forest Reserves. The

conservation and management of these areas falls under two principal agencies, the

Uganda Wildlife Authority under the Ministry of Tourism, Trade and Industry and the

Forestry Department under the Ministry of Natural Resources. Uganda has established

10 National Parks, enabling tourists to enjoy the pristine wilderness environment.


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National Park 1998 1999 2000 2001 2002

Murchison Falls National Park 12,099 12,713 23,169 20,284 34,241

Queen Elizabeth National Park 8,349 8,073 8,743 14,855 27,814

Kidepo Vally National Park 1,840 1,501 2,285 2,470 1,443

Lake Mburo National Park 8,182 8,552 8,443 9,616 10,800

Rwenzori Mountains National Park 0 0 0 117 268

Bwindi Impenetrable National Park 3,437 2,100 3,983 4,517 5,075

Mgahinga Gorilla National Park 2,698 1,741 2,517 2,205 1,485

Semuliki National Park 0 0 0 77 802

Kibale Forest National Park 2,003 955 1,149 1,839 4,899

Mt. Elgon National Park 1,231 1,308 1,872 2,024 3,234

TOTAL 39,839 36,943 52,161 58,004 90,061Source: Uganda Wildlife Authority (2002)The visitor numbers include all categories of visitors i.e. non residents, residents and citizens

1.7 Tourist Accommodation

Almost 80% of the accommodation of tourist standard is concentrated in and around

Kampala, with 430 beds being distributed among the various up-country tourist zones.

Initially, most of the hotels in Uganda were under a government owned parastatal,

Uganda Hotels Limited but all have been privatized. The Ministry of Tourism, Trade and

Industry in its Integrated Tourism Development Master Plan, recognizes the need to

create additional capacity, particularly in the National Parks. Almost 80 percent of the

accommodation of tourist standard is concentrated in and around Kampala, with 430

beds being distributed among the various up country tourist zones. The Sheraton

Kampala Hotel, Nile Hotel International, Grand Imperial Hotel, Hotel Equatorial and Hotel

Africana are some of the key hotels in Kampala, offering 4-5 star services. Many smaller

but modern hotels have also been set up, to cope with the growing demand for cheaper

but decent accommodation.

1.8 Serviced Apartments


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There are a number of serviced apartments within Kampala City. These offer both daily

and monthly accommodation at fairly cheaper rates than traditional hotel ccommodation

facilities. The serviced apartments include: -

· Hillview Apartments

· Salaama Springs Apartments

· Dolphine Suites

· Mosa Courts Apartments

· Speke Apartments

· Golf Course Apartments

Opportunities still exist in this area.

1.9 Conferences and Incentives Travel

Although Uganda’s natural resource endowment favours the promotion of resource

based tourist packages, there is a risk in overly relying on natural resources alone. The

non-resource based tourist market is also growing significantly and should be targeted

as a means to diversify Uganda’s tourist appeal. Studies show that on average business

travelers stay twice as long and spend three times as much as regular tourists. This

points to the potential attractiveness of the conferences and incentives travel sector as a

tourist product. Currently, the regional conference and incentive travel sector is

dominated by Zimbabwe, South Africa and to a lesser extent Ethiopia and Kenya.

On the whole, however, the international conference market is still largely underserved

in this part of the world. Uganda is presently constrained by a lack of adequate facilities

both in terms of accommodation and also in terms of event and exhibition facilities. The

country does not have a single recognized exhibition center of international standards.

The Nile Hotel International Conference Centre is the only existing facility of its kind, with

other hotels like the Sheraton and Botanical Beach Hotel offering much smaller facilities.

Currently the main center for conferences is the Nile Hotel International Conference

Centre. The main conference room can accommodate up to 1,700 delegates and three

committee rooms each with capacities for 200 people. Another room, specially for press


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conferences, will hold between 50 and 70 journalists. Simultaneous translation services

are provided. There is space for exhibitions, a document center and 20 well-equipped

offices, as well as a business bureau, foreign exchange desk, and duty free shop. Other

major hotels in both Kampala and Entebbe have facilities for meetings and conferences

of up to 450 delegates while several of the larger lodges provide an ideal setting for a

‘meeting in the bush.’ Another existing facility is the Nelson Mandela Stadium at

Nambole. This 40,000-seater stadium is a potential venue for international music and

entertainment festivals. The opportunities in this area for investors include the

establishment of world-class accommodation and exhibition facilities that can attract

major international conferences and events, the establishment of event planning

operations/companies to run such events.


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1.10 The Nile International Hotel

Although the Government of Uganda has privatized most hotels, the Nile Hotel and

International Conference Center is one hotel that is still yet to be privatized. The hotel

comprises a 4-star hotel and conference center of international standards. The complex

is set in extensive grounds of 17 acres. It has 40 executive suites and 45 double rooms.

It has several bars and restaurants. The conference center has a conference hall for

1,500 people, press gallery, 2 large committee rooms that can hold 150 people, 10

shops, 15 offices, and small committee room accommodating 100 people.

1.11 Joint Ventures

Uganda Investment Authority maintains a database of local and foreign companies

seeking joint ventures in tourism and other sectors. Interested investors may contact the

Investor Faciliation and Aftercare Division, UIA.

1.11.1 Incentives

Uganda’s incentive package provides generous capital recovery terms, particularly for

investors whose projects entail significant investment in plant and machinery and whose

investments are likely to yield profits over longer term. The rights and incentives

package includes:

· Zero rate of tax on imports of plant machinery and equipment.

· 7% Import duty on specialized tourist vehicles.

· VAT Deferral facility for plant, machinery and specialized tourist vehicles

· Guaranteed repatriation of profits and dividends.

· Guarantee against non-commercial risks through the multi-lateral investment guarantee

agency (MIGA) of the World Bank.

· Up to 100% foreign ownership of investments allowed,


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· Capital allowances of 50% on plant and machinery for projects located in Kampala,

Entebbe, Namanve, Jinja and Njeru. Outside these areas the deductible allowance is

75%.

· Start up costs allowance spread over the first 4 years at 25% p.a.

· 100% allowance on scientific research expenditure and training expenditure also

deductible once from the company’s income.

· There is deductible annual allowance on depreciable assets, which are specified in 4

classes (sixth schedule) under declining balance method.

Class I: Computers and data handling equipment 40%

Class 2: Plant and machinery, vehicles 30%

Class 3: Furniture, fixture 20%

Class 4: Industrial buildings, hotels and hospitals 5%.

· A nominal corporate tax of 30%, which is among the lowest in Africa and the world, and

· Duty draw back/refund for exporters.

1.12 Hotel Developments In Uganda.

The latest hotel developments in Uganda are a sure indication of tourism growth in

Uganda and East Africa as a whole.

The development of tourism has been enhanced by effective promotion, of both the

destination and products offered by specific businesses. Establishment of awareness

programes, qualified, trained and skilled human resources, improved and stronger

tourism administration, investment in the tourism plant and associated products

(attractions, entertainment, shopping, etc), enhancing marketing methods and

development of basic facilities, social services and proper infrastructure.

The hotels and other accommodation facilities have developed to offer distinguished

ambience, panoramic views, and tranquil surroundings. They are uniquely refurbished to

offer comfortable accommodations for a relaxing business or holiday trip. Hotels are

perfectly situated for visitors with a welcoming atmosphere, friendly and hospitable

services, with excellent facilities as well as comfortable guestrooms and public areas.


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Business centers with boardrooms and equipment, Bars and restaurants serving

intercontinental cuisine with wines and cocktails, Services like massage, sauna, Internet

facilities, private lounges, gyms, swimming pools, shopping malls, Recreation

courtyards, open spaces, pergolas, terraces and entertainment centers are offered by

Uganda’s hotels and accommodation facilities.

The hosting of the Commonwealth Heads of Government Meeting scheduled for 2007 in

Uganda has also enhanced hotel development and refurbishment, and Hotel Owners

have put their facilities together necessary to host the summit in 2007.

Hotels are on the increase in the country like Emin pasha, which opened at the end of

March 2004. Kampala Sheraton Hotel, Bwebajja on Entebbe Road, Garden City, Golf

Course and Kampala Serena hotels are undergoing construction and refurbishment.

Buhoma Homestead, mantana-tented camps and the Volcanoes lodges are undergoing

upgrading and expanding, and the most luxurious hotels used by business travellers and

upmarket tourists have prices set in dollars.

1.13 Objectives

Owing to the great potential that the hotel industry offers in Uganda this study will aim to

evaluate the potential demand and profitability of developing a 5 star hotel in Mbale

town. Specifically the study aims to

• Quantify the current and projected demand of a 5 star hotel in Mbale town

• Estimate the profitability of such a venture

• Determine factors that are associated with profitability of a 5 star hotel in such a

location

• Determine seasons that maximize on demand

• Profile the type of clientele/services that would maximize profits


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• Profile characteristics of the competition which are mainly hotels around the

district and Kampala

• Profile the staff in terms of capacity

• Outline constraints in managing this venture

• Recommend to the investor on the best way to approach the venture


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Literature Review

2.0 Factors associated with Demand and Profitability of 5 Star Hotels

2.1 External FactorsStudies round the world have demonstrated that the level of security has a potential of

affecting the demand for tourism and therefore hotels where the tourist stay. For

example in Ireland real revenue earned from tourism showed a slowdown in growth up

to the mideighties and subsequently, some major reviews pointed to the poor

performance of Irish tourism and more specifically, to the loss of market share in the UK

and US. External factors were often cited as reasons for Ireland’s poor tourism

performance, for example, the escalation of violence in Northern Ireland during the early

1970s, the sun destinations’ rapidly increasing share of the total UK outbound market

and uncompetitive high rates of inflation in the 1970s compared to rival destinations

(NESC, 1980).

There was a recovery of growth in 1992, albeit at a slower pace than that of the

preceding years. The period 1993-1995 has seen a huge increase of 52 per cent in

arrivals from North America, a trend greatly shaped by the announcement of the ‘Peace

Process’ related to Northern Ireland and the subsequent media publicity that ensued.

“Ireland achieved the fastest growth in earnings from international tourismamongst

fifteen prime European destinations in the period 1980-1992.” (Tansey, Webster and

Associates, 1995:2)

Therefore, Ireland’s relative performance cannot be attributed solely to external factors,

but probably to a combination of factors; including the expansion of the Irish tourist

product base, more effective marketing, improved access transport and an international

trend to move away from sun holidays coinciding with the image of Ireland as a ‘green’

holiday destination. Ireland had by 1987 already established itself as a stable low-

inflation economy and a greater co-ordination of government efforts existed within the

industry.

Classical economic theory implies that the major determinants of the demand for


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foreign tourism should include: the price of tourist goods and services relative to the

price of relevant substitutes, the incomes of tourists and any other specific factors

which may alter the tastes of travellers for tourism.

2.2 Disposable Income Conceptually, the larger the real per capita income of a country, the more likely its

citizens can afford to purchase travel services abroad, ceteris paribus. Growth in real

incomes provides consumers with increased spending power. Consideration of income

distribution is central to any estimates of national income elasticity with regard to tourism

demand. The more skewed is a country’s income distribution, the greater is the tendency

to place a limit on the percentage of its population, whose income levels indicate that

foreign travel is financially possible. Decisions on holidays are generally taken early in

the year, if not before. Therefore, one may reasonably expect a larger than usual

increase in incomes in one year to be followed in the next, by a remarkably rapid

increase in demand for tourism, ceteris paribus.

In examining the relationship between income and tourism demand, it seems reasonable

to suggest, that once one achieves a certain level of income, the income elasticity will

increase initially but then, it will remain approximately constant for a range of per capita

income. Ultimately, it will decrease as it is unlikely that tourism’s share of expenditure

out of GNP would grow indefinitely. In tandem with this, Barry and O’Hagan (1972) have

addressed the concept of a “saturation effect”. They base it on the hypothesis that, after

a certain point, the amount of utility accruing to an individual from a holiday may decline

as the number of tourists enjoying utility from the same holiday increases. The vast

majority of studies have included income as an explanatory variable in tourism demand

models. Some studies have used total national disposable income: Bond and Ladman

(1972) and Oliver (1971). Artus (1970) derived an index from real disposable income

whereas, Uysal and Crompton (1984) used GNP per capita data. While it is interesting to

examine the differing representations of the income variable, ideally, data representing

discretionary income per capita would be the most appropriate form. However, since


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discretionary income is very subjective and thus not measurable, origin disposable

income data is employed as a proxy for the purposes of this study. The disposable

income figures are divided by the origin population and also, by the consumer price

index (the base year is 1985). Therefore, the income variable in this study enters the

model as real personal disposable income per capita for each country.

2.3 Prices The effect of price changes is far more complex in tourism than are the effects of

changes in income. It is not just destination holiday prices which are important but also,

relative price differences between the destination and the generating country. If prices in

destination countries increase by more than those of the generating country and, this is

not (fully) compensated for by changes in exchange rates then, the relative cost of travel

abroad has clearly risen. Basically, relative prices result from factors which tend to

operate in opposite directions: if prices increase faster than average in a particular

destination, then its currency tends to depreciate. However, when the two influences

exactly counterbalance one another, then relative prices remain unchanged. Therefore,

it is implied that changes in relative prices reflect either a short term or a long term

imbalance between relative rates of inflation and exchange rates. Basically, there are

three elements constituting the price of tourism:

1. the cost of travel to the destination,

2. the exchange rate between the tourist’s country of origin and that of the

destination country,

3. the cost of goods and services incurred after arrival, e.g., information on

prices of accommodation and sustenance is generally available in advance

but information on entertainment and inland travel may not be widely

available in advance.

Gerakis (1966) suggests that the effects of these price changes are short term whereas

Barry and O’Hagan (1972) view the effects to be more long term, on the basis that,


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reputations for expensiveness or cheapness passed on by word-of-mouth are developed

over a number of years, for example, the reputed cheapness of Greece and

expensiveness of Paris. Edwards (1976) justifies his suggestion that price changes

anticipate travel by approximately twelve months on the basis that countries tend to get

a reputation for being expensive after the event, not while it is happening. Defining

tourism prices is very difficult in that, the cost of tourism is a function of the total mix of

goods and services consumed by each tourist. However, price indices for tourists simply

do not exist (Witt and Witt 1992). Edwards (1988) emphasises the point that no country

has an adequate price series representing costs to tourists. Most authors have used the

consumer price index or the retail price index to act as a proxy for the cost of tourism:

Little (1980), Loeb (1982), Witt and Martin (1987).

Nonetheless, these authors complain about the fact that there is no better measure.

However, most authors who have used the CPI as a proxy would accept the argument

that the mix of goods and services consumed by tourists is not very different from the

mix constituting the CPI and that, the changes in the CPI reasonably reflect the changes

in the prices of goods and services consumed by tourists.

Essentially, price may be represented in either absolute and/or relative terms. The

manner in which the cost of tourism variable enters a demand model differs quite

markedly between studies. Most authors acknowledge the point that, tourists who reflect

on price do not just consider price in isolation but relative to prices in substitute

destinations. In cases where price is to be represented in relative terms, the question

arises as to what should it be related, for example, prices in the generating country

and/or prices in alternative destinations. A number of studies include a price variable in

the form of cost of tourism in the destination relative to the cost of tourism in the origin;

Artus (1970), Barry and O’Hagan (1972), Kliman (1981), Uysal and Crompton (1984)

and Witt (1980a, 1980b). The consequent implication/assumption from this approach is

that the substitute for a particular foreign holiday is domestic tourism. To consider only

the destination-origin cost is not adequate. In reality of course, there is much wider

substitutability. Demand for goods and services is dependent upon the price of substitute

goods, amongst other things.


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2.4 Foreign Exchange Rates

Travellers are concerned with the price of foreign currency. It is expected that, if the

price of foreign currency declines then, travellers will demand more foreign travel

services, ceteris paribus, i.e. both present and future expected exchange rates are

important. However, it is the actual process by which exchange rate movements

influence peoples’ choice of holiday destination that is of relevance here. Studies which

have provided evidence of the significance of exchange rates include: Loeb (1982) and

Quayson and Var (1982). Nominal exchange rate changes can have predictable effects

on tourism demand patterns, i.e. the rate of exchange is regarded as a prime indicator of

expected prices. A study in The Economist (1978) highlights the fact that, countries with

a depreciating exchange rate had generally shown a larger growth in tourism receipts

than in expenditure and that the opposite (with exceptions) was true for countries with an

appreciating currency. It appears, however from the study, that these exchange rate

changes did little more than offset differing rates of inflation. The market exchange rates

are normally a poor guide to the real purchasing power of currencies. It is the actual

movements in real exchange rates which provide a more reliable estimate, i.e. market

rates adjusted for movements in price levels in the home country compared to

destination countries.

In general, justification for the inclusion of exchange rates to explain tourism demand

usually stems from either its influence on price or the proposition that ‘in practice’,

people use the exchange rate as a proxy for destination prices. The impact of exchange

rates have been largely embodied in the price variables and economic theory does not

suggest the incorporation of a separate exchange rate variable per se. Relative

exchange rates do not reflect relative prices because relative inflation rates are not taken

fully into consideration. However, exchange rates tend to fluctuate more frequently than

relative prices.

“In the short run .... buyers of foreign travel services will be informed faster and more

precisely of exchange rate changes than of changes in local currency prices in foreign

countries.” (Artus, 1972:588)


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Gerakis’s (1966) results illustrate a shift in demand to the more price competitive

destinations. However, he later revisits his findings and stresses the point that, he is not

suggesting that all devaluations or revaluations have strong stimulating or retarding

effects on tourism receipts but rather that the countries he has examined, form part of

closely knit and very active tourism markets within which, the possibilities of substitution

are considerable.

In a later study, Artus (1972) argues for the inclusion of an exchange rate variable:

“For purposes of statistical analysis, it is preferable to separate as much as possible the

exchange rate variables from the other price factors included .... The reason is that

exchange rates are known precisely, while the data on local currency prices of travel

services and costs of transportation may contain large errors of measurement”. (Artus,

1972:588)

3.0 METHODOLOGY

The following section presents a detailed account of how the research will be designed

and executed. It first highlights theoretical and empirical underpinnings of the analytical

model. This is followed by a description of the study area, a discussion of how the sample

size will be calculated and finally, data analysis or model implementation undertaken to

answer the objectives of the study is explained.


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3.2 Description of the study area

Mbale District is located in the eastern region of

Uganda bordering with the Republic of Kenya in the

east. The district covers a total land area of 2,504

square kilometers and lies approximately between

latitude 0° 45• N; and 0°35• N and longitudes 34° and

34°, 35• E. The district is made of five counties of

Bungokho, Bubulo, Manjiya, Budadiri and Bulamburi.

The district has diverse climatic and environmental

conditions due to variation in altitude, rainfall and

agricultural activities. The topography of the district

can be conveniently divided into three distinct types:

(1) Lowland at an altitude of 1100–1350 m above sea

level. This merges into extensive undulating plateau

but is occasionally interrupted by a few upland and

mountain ridge extensions. (2) The upland, which

starts from the upper levels of Mbale plain, rises to

form a hill and valley topography. The altitude is about


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1800m above sea level. (3) The Elgon mountain with

its highest point 4,322m above sea level. The

orographic effect of Mountain Elgon massif and the

district's proximity to Lake Victoria increase the

amount of rainfall and tamper the severity of the dry

periods. The distribution of this rainfall is irregular and

depends on the location. Accordingly, three agro-

ecological zones (zones) are identified. These are the

lowland zone, the midland zone and the upland zone;

the three falling in the lowland and upland

typographical types.

The district is densely populated and so there is a

general shortage of land for agriculture. This land

shortage problem is compounded by the hilly

landscape, which makes some parts inhabitable. The

majority of the farmers, therefore, are small holder

farmers living in scattered homesteads where they

keep limited number of cattle under zero-grazing,

tethering, fenced and free-range grazing systems


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depending on land availability and the zone. In the

midland and upland zones (Budadiri, Bulamburi and

Manjiya counties) perennial crops (banana and

coffee) are grown while in the lowland zone (Bubulo,

Bungokho and lower parts of Bulamburi counties)

annual crops (maize and beans) are grown.

The district enjoys a favourable climate for agriculture

and plant growth. This climate, however, also

provides ideal conditions for ticks, the vectors of tick-

borne diseases, namely Rhipicephalus

appendiculatus for East Coast Fever (ECF),

Boophilus decoloratus for babesiosis and

anaplasmosis and Amblyomma variegatum for

heartwater (Branagan, 1973). As a result cattle in the

district are under constant threat of severe tick

infestations and tick-borne diseases unless tick

control measures are undertaken (Maywald 1987,

Perry 1994).


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3.3 Sample Size Calculation

The method of sample proportions was applied in calculating the sample size, n (Cooper

and Emory, 1996).

12 +

=

p

pqnσ

Where:

n= sample size

p = Proportion of interest within the district (Proportion of hotels with a high business

traveler clientele)

q= 1-p

σp = sampling error =0.15/2.58 (precision divided by 90 % confidence that the proportion

lies within 2.58σ from the mean.

0.15 = precision (chosen arbitrarily not to be confused with the level of significance)

Therefore n = (0.50 x 0.50) /[0.15/2.58] 2 +1

= 75

A sample size of 80 hotel managers and owners will be targeted for the study, an addition

of 5 more to compensate for non-responses and refusals. An additional 40 policy makers

in the hospitality industry will be targeted to corroborate findings from the cross

sectional survey. Due to the small number of 4/5 star hotels in Mbale District the

researcher will also interview respondents in similar situations in Kampala District.


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Appendix I

Tourist Industry Questionnaire My name is ……………………………..currently taking a course business management. The aim of the

study is to identify major constraints in the tourism sector and recommend ways on how to counter the

challenges. The responses you give will be used for research purposes only.

1) District …………………………………………….

2) Name of Hotel………………………………………………………

3) Physical Address………………………………………………………

4) Type of Hotel…..................................................................................(4 /5 star)

5) Type of ownership………………………………………………………..(sole

proprietor, limited company, family business etc)

6) Nationality of Ownership……………………………………………………..

7) Whether has similar hotels in other countries………………………………….

8) Number of staff……………………………………………………………….

9) Education level of Manager…………………………………………………..

10) Professional Qualification of Manager……………………………………….

11) Age of Manager ………………………………………………………………..

12) Gender of Manager ……………………………………………………………

13) Other major branches

Name of

Branch

Year

Established

Number of staff Location Distance from

Kampala

14) Year established……………………………………………….

15) Number of diploma holders in Hospitality Courses ………………………

16) Distance from Kampala ……………………………………………………….


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17) High season (months )…………………………………………………………

18) Explain your answer………………………………………………………………..

…………………………………………………………………………………………..

19) Low season (months )…………………………………………………………

20) Explain your answer………………………………………………………………..

……………………………………………………………………………………………..

13a) Number of visitors per year…………………………………………………………..

21) Strategies management has undertaken to mitigate low season……………………

………………………………………………………………………………………….

…………………………………………………………………………………………..

15) Services offered

Type of service Importance

(profitability)1 –very important 2-

important 3 –fair 4-poor

5 – very poor

Season offered

(months)

Unit price Quality 1- very good

2- good 3- fair 4

–poor 5 –very

poor

16) Number of beds ……………………………………………………………………….

17) Percent occupancy in high season…………………………………………………….

17a) High season Months…………………………………………………………………..

18) Percent occupancy in low season…………………………………………………….


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18a) Low season Months…………………………………………………………………..


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19) Type of clientele (eg tourist, Business traveler, local tourist, workshop /conference)Type of

Clientele

Importance

(profitability)

1 –very

important 2-

important 3 –

fair 4-poor 5 –

very poor

High

season

(months)

Low

season

(months)

Average

stay per

month

(days)

1st Leading

%

nationality

2nd %

nationality

3rd %

nationality

No of

visitors

per

year

20) Constraints encountered with managing the hotel……………………………………

…………………………………………………………………………………………….

…………………………………………………………………………………………….

…………………………………………………………………………………………….

20b) How have you successfully countered the challenge ………………………………

…………………………………………………………………………………………….

…………………………………………………………………………………………….

…………………………………………………………………………………………….

21) Which kind of service do you anticipate to introduce in the near future……………..

…………………………………………………………………………………………….

22) Explain …………………………………………………………………………………


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………………………………………………………………………………………………

23 ) Are there services that you used to have in the past then dropped …………………..

24) Which are those services……………………………………………………………….

25) Why did this happen………………………………………………………………….

………………………………………………………………………………………………

26) When did this happen…………………………………………………………………..

26a) What features /attributes about this hotel makes it more attractive than competitors...

………………………………………………………………………………………………

Section II Hotel Management

27) How many sections /departments do you have in the Hotel ?..................................Department

/Section

Number of

personnel

Qualification of

department

head

Proportion of

trained staff

(%)

Annual

Expenditure

Front office

Finance

Marketing

Housekeeping

Administration

Security

Food and

Beverage

Engineering


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28) Facilities available at the hotel (Fill only where Applicable)Facilities Number Size /% of rooms/

number of people

Where situated Other

details/Remarks

%

utilized

during

peak

Air conditioning

Balcony / Terrace

Bathroom amenities

Cable / Satellite TV

In-room safe Private bathroom / Ensuite

Refrigerator

Telephone

Cocktail bar

Conference facilities

Faxing facilities

Internet access

Lobby

Lounge

Parking facilities

Reception

Restaurant

Types of rooms

Deluxe

Ensuite

Standard

Sports Facilities


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Facilities Number Size Where situated Other

details/Remarks

%

utilized

during

peak

Jacuzzi

Hairdryer

Airport shuttle

Radio

Car rental facilities

Laundry facilitiesAutomatic wake-up call

Disabled facilities

Baby sitting

In-house movie

Gymnasium

Sauna

Flights updates

Room Service

indoor pool (heated

Mini bar

Business Center Secretarial and translation services Parcel and postal services

Notebook computer

Mobile phone rental International courier service


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Reference library Shopping arcade /mall

Printers

Webcam

Video recorder hire

range of souvenirs

Facilities Number Size Where situated Other

details/Remarks

%

utilized

during

peak

Wedding facilities

Wedding facilities

Excursion services

Daily local newspaper in English

Advance booking required24 hr cancellation policyRates may vary in certain periods


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Appendix II

Questionnaire for Policy Makers Hospitality Industry Questionnaire

1) District…………………………………………………………..2) Occupation……………………………………………………………………………

3) Title…………………………………………………………………………………..

4) Organization………………………………………………………………………….

5) Which are some of the leading hotels in Uganda in order of importance……………

Name of Hotel Location Rank

6) Why do think these hotels are performing better than others…………………………

……………………………………………………………………………………………

7) What are some of the strategies that poor hotels can embark to catch up with those at

the top…………………………………………………………………………………….

…………………………………………………………………………………………….

8) What type of clientele normally visit 4 and 5 star hotels in Uganda apart from tourists

……………………………………………………………………………………………

9) What is their main purpose of visit ………………………………………………….

……………………………………………………………………………………………

10) What can you say about the quality of services offered in 4/5 star hotels in Uganda

……………………………………………………………………………………………

11) Explain your answer…………………………………………………………………

……………………………………………………………………………………………


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12) What type of services can be offered profitability by a nontourist hotel in eastern

Uganda …………………………………………………………………………………..

13) Explain your answer………………………………………………………………

……………………………………………………………………………………………

22) Which season can these services be offered……………………………………………

………………………………………………………………………………………………

23) What would be the optimum prices of these services…………………………………..

24) What are some of the major constraints encountered by 4/5 star hotels in Uganda …..

…………………………………………………………………………………………….

……………………………………………………………………………………………..

25) What can the interested parties do to counter such challenges……………………….

………………………………………………………………………………………………

26 ) Which are some of the incentives that the government offers to investors especially

in the Hospitaly

industry…………………………………………………………………….

………………………………………………………………………………………………

.

27) How can one benefit from such incentives ……………………………………………

……………………………………………………………………………………………..


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Appendix III

Important Contacts for Policy Makers and Hotels Surveysa) Ministry of Tourism, Trade and IndustryFarmers HousePlot 6/8 Parliament AvenueP.O.Box 7103 Kampala, UgandaTel: 343947, 25639520Fax:E-mail:

b) Uganda Tourist BoardPlot 13/15 Kimathi Avenue, Impala HouseP.O.Box 7211 Kampala, UgandaTel: 342196/7Fax: 342188E-mail: [email protected]://www.visituganda.com

c) Uganda Wildlife AuthorityPlot 3 Kintu RoadP.O.Box 3530 Kampala, UgandaTel: 346287/8/9, 346290,346651Fax: + 256 41 346291E-mail: [email protected]: www.uwa.org.ug

d) Uganda Investment AuthorityPlot 28 Kampala RoadP.O.Box 7418 Kampala, UgandaTel: 251562-5, 234105Fax: 342903E-mail: [email protected]://www.ugandainvest.com

e) IPA-PAMSU ProjectTourism Database UnitMinistry of Tourism, Trade and Industry5th Floor, Farmers HousePlot 6/8 Parliament AvenueP.O.Box 7103 Kampala, UgandaTel: 254827, 233548, 233562Fax: 234054, 342011E-mail: [email protected] or [email protected]


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f) Civil Aviation AuthorityP.O.Box 5536 Kampala, UgandaTel: 320516, 320519, 320555Fax: 321401e-mail: [email protected]

Uganda Development CorporationTel:

(+256-41)23.33.03/23.33.04/

031263303/4

Fax: (+256-41)23.37.08

Postal address:

P.O. Box 5244, Kampala-Uganda

Physical address:

Plot 17-23, Hannington Road

15th Floor Crested Towers,

Kampala

Email:[email protected]

Uganda Hotels Corporation

Hotels training Institute

Tourism training Institute

Wildlife training college

Uganda Tourist Association

Abercrombie & Kent

Afritours and Volcanoes

Uganda Hotel and Catering Association


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Respondents for Main Survey –Hotels

1) Mbale Resort Hotel Uganda50 Bungoho Road P.O.Box. 1621 Mbale Uganda

2) Hotel Africana Kampala UgandaPlot 2-4 Wampewo Avenue Kampala UgandaHotel Rating :

3) Grand Imperial Hotel Kampala UgandaKampala UgandaHotel Rating :

4) Hotel Equatoria Kampala UgandaKampala, Uganda

5) Imperial Botanical Beach Hotel UgandaP. O. BOX 90 Entebbe, UgandaHotel Rating :

6) Sheraton Kampala Hotel UgandaTernan Avenue, P. O. Box 7041 Kampala UgandaHotel Rating :

7)Tourist Hotel Kampala UgandaPlot 9, Market Street, P.O. Box 7036, Kampala, Uganda

8) Emin Pasha Hotel Kampala Uganda

27 Akii Bua Road, Nakasero, Kampala Uganda

Hotel Rating :


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9) Imperial Resort Beach Hotel Entebbe Uganda

P.O. Box 895, Entebbe Uganda

Hotel Rating:

10) Mt Elgon Hotel Mbale

Mbale

11) Fair Way Hotel - Kampala ( 3 Star - hotel)

Location: Located along Kafuu road in the heart of Kampala's commercial and business hub.

12) Blue Mango Hotel - Kampala ( 4 Star - hotel)

Location:

The hotel is located next to the Kabira Club along Old Kira Rd, Bukoto, approximately 6

kilometers from town

13) Hotel Fang Fang

The hotel is close to the hub of Kampala, but set in the city's prime residential area.

14) Sambiya River Lodge - Murchison ( 5 Star - hotel)

Location: The Sambiya River Lodge, only 20 minutes from the top of the falls, is centrally located in the famous Murchinson Falls National Park. Its the perfect retreat for those who want to experience the ambience of Africa.

15) Kingfisher Safaris ResortP.O.Box 608Jinja, Uganda

DIRECTIONSBy boat: You can either hire a boat from the sailing club (jinja) or we can pick you from some spots with our boat.

By car/ bus/taxi:From Kampala: Before you reach the Owen Damm at Nile Breweries branch to the right and follow


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the signs (5.5km)or get out from the taxi/bus and board a boda boda and instruct them to take you to Kingfisher Safaris Resort

16) Antlers Inn,

Box 7036, Kampala

Tel: 41-257120

Fax: 41-243998

17) Athina Club House,Box 8717, KampalaTel: 41-235812 Fax: 41-241428

18) Hotel Diplomate, Box 6968, KampalaTel: 41-268311 Fax: 258505

19) Hotel Rena, Box 5545 KampalaTel: 41-27350420) Lake Victoria Hotel,

Box 15, Entebbe

Tel: 42-21078

Fax: 42-20104


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Serviced Apartments


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Appendix IV

Study Time Schedule Day Month Day of the Week Date Activity

1 February Friday 10th Training

2 Saturday 11th Training

3 Sunday 12th Pilot Study

4 Monday 13th Pilot Study

5 Tuesday 14th Analysis of Pilot Study

6 Wednesday 15th Analysis of Pilot Study

7 Thursday 16th Revision of Survey Strategy

8 Friday 17th Field Work

9 Saturday 18th Field Work

10 Sunday 19th Field Work

11 Monday 20th Field Work

12 Tuesday 21st Field Work

13 Wednesday 22nd Field Work

14 Thursday 23rd Coding

15 Friday 24th Coding

16 Saturday 25th Coding

17 Sunday 26th Coding

18 Monday 27th Data Entry

19 Tuesday 28th Data Entry

20 March Wednesday 1st Data Entry

21 Thursday 2nd Data Entry

22 Friday 3rd Data Entry

23 Saturday 4th Data Analysis

24 Sunday 5th Data Analysis

25 Monday 6th Data Analysis

26 Tuesday 7th Data Analysis

27 Wednesday 8th Report writing

28 Thursday 9th Report writing

29 Friday 10th Report writing

30 Saturday 11th Report writing

31 Sunday 12th Report writing

32 Monday 13th Report writing

33 Tuesday 14th Report Presentation


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Appendix IV

Budget for Survey

Item Quantity Amount per

UnitNo. of Days

Total

Pilot Study Enumerators 4 50000 2 400,000

Phone calls, letter heads

Enumerators 10 50000 6 3,000,000

Coding (110 questionnaires) 110 1000 110,000

Data Entry 110 1000 110,000

Data Analysis 110 10000 1,100,000

Main Study

Proposal , Questionnaire & Report

Writing 110 10000 1,100,000

Total 5820000

uganda hotel study 2005, research consultant , jairus ounza muhehe, [email protected]

Documents

international tourism

tourism infrastructure

role tourism

futures group page

tourism sectors contribution

world tourism organisation

world tourism organization

africas share of world