Uganda Hotel Study 2005, Research Consultant, Jairus Ounza Muhehe, Ounza2002@agric - Mak.ac - Ug

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FUTURES ARCHITECTS SARL Hotel Demand Survey for Uganda
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: ounza2002@agric.mak.ac.ug
For Futures Group
Page 1 of 47 Jairus Ounza Futures Consulting Group www.f-arch.com
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February , 2006
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Table of Contents
Table of Contents Introduction 1.0 Background 1.1 The Tourism Sector in Uganda 1.2 The Hotel Industry 1.3 Recent Performance of the Tourism Sector in Uganda 1.4 Tourism Sectors contribution to National GDP 1.5 Government Policy 1.6 Alternative Tourist Attractions 1.7 Tourist Accommodation 1.8 Serviced Apartments 1.9 Conferences and Incentives Travel 1.10 The Nile International Hotel 1.11 Joint Ventures 1.11.1 Incentives 1.12 Hotel Developments In Uganda. 1.13 Objectives Literature Review 2.0 Factors associated with Demand and Profitability of 5 Star Hotels 2.1 External Factors 2.2 Disposable Income 2.3 Prices 2.4 Foreign Exchange Rates 3.0 METHODOLOGY 3.2 Description of the study area 3.3 Sample Size Calculation Appendix I Tourist Industry Questionnaire Appendix II Questionnaire for Policy Makers Appendix III Important Contacts for Policy Makers and Hotels Surveys Respondents for Main Survey Hotels Appendix IV 46 Study Time Schedule Appendix IV 47 Budget for Survey 3 4 4 4 6 6 9 9 10 11 11 12 14 14 14 15 16 18 18 18 19 20 22 23 24 27 29 29 38 38 40 40 42 46 47
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Introduction
1.0 Background
This section elaborates on Global, regional and Ugandas 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 worlds 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. Africas share of world tourism remains small and the continents tourism growth rate in 2000 stood at 1.5%. While Kenya, Zambia, Mauritius, Morocco, Tunisia and Algeria all enjoyed strong growth, two of Africas 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

Ugandas 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 governments 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 governments 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)
100000
Number of Visitors
90000
80000
Observed 70000 1 3 5 7 9 11 13 15 17 19 21 23 25 Linear
Time (1=1998)
Y = 89388 + 292.6 X
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 nonresident 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 Sectors 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 Ugandas 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 Ugandas 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 Ugandas 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 Ugandas 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 Murchison Falls National Park Queen Elizabeth National Park Kidepo Vally National Park Lake Mburo National Park Rwenzori Mountains National Park Bwindi Impenetrable National Park Mgahinga Gorilla National Park Semuliki National Park Kibale Forest National Park Mt. Elgon National Park TOTAL
1998 12,099 8,349 1,840 8,182 0 3,437 2,698 0 2,003 1,231 39,839
1999 12,713 8,073 1,501 8,552 0 2,100 1,741 0 955 1,308 36,943
2000 23,169 8,743 2,285 8,443 0 3,983 2,517 0 1,149 1,872 52,161
2001 20,284 14,855 2,470 9,616 117 4,517 2,205 77 1,839 2,024 58,004
2002 34,241 27,814 1,443 10,800 268 5,075 1,485 802 4,899 3,234 90,061
Source: 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 Ugandas 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 Ugandas 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
Ugandas 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 companys 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 Ugandas 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 Factors
Studies 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 Irelands 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, Irelands 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 lowinflation 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 countrys 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 tourisms share of expenditure out of GNP would grow indefinitely. In tandem with this, Barry and OHagan (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 tourists 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 OHagan (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 OHagan (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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Gerakiss (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 035 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 11001350 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 agroecological 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 tickborne diseases, for namely East Coast for Rhipicephalus Fever (ECF), and for
appendiculatus Boophilus
decoloratus and
babesiosis variegatum
anaplasmosis
Amblyomma
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). pq n = 2 +1 p Where: n= sample size p = Proportion of interest within the district (Proportion of hotels with a high business traveler clientele) q= 1-p p = sampling error =0.15/2.58 (precision divided by 90 % confidence that the proportion lies within 2.58 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 2important 3 fair 4-poor 5 very poor
Season offered (months)
Unit price
Quality
12very good 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 2important 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 Number of Qualification of Proportion of Annual /Section personnel department head Front office Finance Marketing Housekeeping Administration Security Food and Beverage Engineering trained staff (%) Expenditure
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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 Page 34 of 47 Jairus Ounza Futures Consulting Group www.f-arch.com
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Facilities
Number
Size
Where situated
Other details/Remarks
% utilized during peak
Jacuzzi Hairdryer Airport shuttle Radio Car rental facilities Laundry facilities Automatic 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 Page 35 of 47 Jairus Ounza Futures Consulting Group www.f-arch.com
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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 required 24 hr cancellation policy Rates 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 Surveys
a) Ministry of Tourism, Trade and Industry Farmers House Plot 6/8 Parliament Avenue P.O.Box 7103 Kampala, Uganda Tel: 343947, 256395 20 Fax: E-mail: b) Uganda Tourist Board Plot 13/15 Kimathi Avenue, Impala House P.O.Box 7211 Kampala, Uganda Tel: 342196/7 Fax: 342188 E-mail: utb@starcom.co.ug Http://www.visituganda.com c) Uganda Wildlife Authority Plot 3 Kintu Road P.O.Box 3530 Kampala, Uganda Tel: 346287/8/9, 346290,346651 Fax: + 256 41 346291 E-mail: uwa@uwa.or.ug Website: www.uwa.org.ug d) Uganda Investment Authority Plot 28 Kampala Road P.O.Box 7418 Kampala, Uganda Tel: 251562-5, 234105 Fax: 342903 E-mail: info@ugandainvest.com Http://www.ugandainvest.com e) IPA-PAMSU Project Tourism Database Unit Ministry of Tourism, Trade and Industry 5th Floor, Farmers House Plot 6/8 Parliament Avenue P.O.Box 7103 Kampala, Uganda Tel: 254827, 233548, 233562 Fax: 234054, 342011 E-mail: pamsu@imul.com or pcu-mtti@imul.com
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f) Civil Aviation Authority P.O.Box 5536 Kampala, Uganda Tel: 320516, 320519, 320555 Fax: 321401 e-mail: caa@starcom.co.ug
Uganda Development Corporation

Tel: (+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:Delegation-Uganda@cec.eu.int
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 Uganda 50 Bungoho Road P.O.Box. 1621 Mbale Uganda
2) Hotel Africana Kampala Uganda Plot 2-4 Wampewo Avenue Kampala Uganda Hotel Rating :
3) Grand Imperial Hotel Kampala Uganda Kampala Uganda Hotel Rating :
4) Hotel Equatoria Kampala Uganda Kampala, Uganda
5) Imperial Botanical Beach Hotel Uganda P. O. BOX 90 Entebbe, Uganda Hotel Rating :
6) Sheraton Kampala Hotel Uganda Ternan Avenue, P. O. Box 7041 Kampala Uganda Hotel Rating :
7)Tourist Hotel Kampala Uganda Plot 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 Resort P.O.Box 608 Jinja, Uganda
DIRECTIONS
By 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
Athina Club House, Box 8717, Kampala Tel: 41-235812 Fax: 41-241428
17)
Hotel Diplomate, Box 6968, Kampala Tel: 41-268311 Fax: 258505

18)
Hotel Rena, Box 5545 Kampala Tel: 41-273504

19) 20) 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 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 March Month February Day of the Week Friday Saturday Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sunday Monday Tuesday Date 10th 11th 12th 13th 14th 15th 16th 17th 18th 19th 20th 21st 22nd 23rd 24th 25th 26th 27th 28th 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th Activity Training Training Pilot Study Pilot Study Analysis of Pilot Study Analysis of Pilot Study Revision of Survey Strategy Field Work Field Work Field Work Field Work Field Work Field Work Coding Coding Coding Coding Data Entry Data Entry Data Entry Data Entry Data Entry Data Analysis Data Analysis Data Analysis Data Analysis Report writing Report writing Report writing Report writing Report writing Report writing Report Presentation
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Appendix IV Budget for Survey

Quantity Item Pilot Study Enumerators Phone calls, letter heads Main Study Enumerators Coding (110 questionnaires) Data Entry Data Analysis Proposal , Questionnaire & Report Writing Total 110 10000 1,100,000 5820000 10 110 110 110 50000 1000 1000 10000 6 3,000,000 110,000 110,000 1,100,000 4 Amount per Unit 50000 No. of Days 2 400,000 Total

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FUTURES

FUTURES ARCHITECTS SARL Hotel Demand Survey for Uganda

A Proposal Submitted to Futures Architects by

Jairus Ounza Muhehe Tel: 0752411738 Email: ounza2002@agric.mak.ac.ug

For Futures Group

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FUTURES ARCHITECTS SARL Hotel Demand Survey for Uganda

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FUTURES ARCHITECTS SARL Hotel Demand Survey for Uganda

1.1 The Tourism Sector in Uganda

FUTURES ARCHITECTS SARL Hotel Demand Survey for Uganda

FUTURES ARCHITECTS SARL Hotel Demand Survey for Uganda

1.2 The Hotel Industry

1.3 Recent Performance of the Tourism Sector in Uganda

FUTURES ARCHITECTS SARL Hotel Demand Survey for Uganda

Observed 70000 1 3 5 7 9 11 13 15 17 19 21 23 25 Linear

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FUTURES ARCHITECTS SARL Hotel Demand Survey for Uganda

Finance, Planning and Economic Development (Statistical Abstract 2002)

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FUTURES ARCHITECTS SARL Hotel Demand Survey for Uganda

1.4 Tourism Sectors contribution to National GDP

1.5 Government Policy

FUTURES ARCHITECTS SARL Hotel Demand Survey for Uganda

1.6 Alternative Tourist Attractions

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1.7 Tourist Accommodation

1.8 Serviced Apartments

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1.9 Conferences and Incentives Travel

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1.10 The Nile International Hotel

1.11 Joint Ventures

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1.12 Hotel Developments In Uganda.

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FUTURES ARCHITECTS SARL Hotel Demand Survey for Uganda

2.2 Disposable Income

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FUTURES ARCHITECTS SARL Hotel Demand Survey for Uganda

2.4 Foreign Exchange Rates

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