Ethiopia has immense tourism potential owing to its natural, historical and cultural endowments. The reasons behind the sector’s poor performance have not been studied in a comprehensive way, however. This paper, using an array of methodologies including simple historical explanation of tourist flow time series data, panel data analysis of tourist flow determinants and destination competitiveness analysis, attempts to fill this gap. The review of history illuminates the detrimental effects of civil wars, famine and nationalization of private companies on the performance of the Ethiopian tourism sector. The panel data analysis takes into account the positive and significant impact of previous year’s tourist arrivals, the Ethiopia’s infrastructural development as well as the per capita GDP and the total population of the sending countries. The analysis shows that the price differential between Ethiopia and Kenya and distance negatively affect tourist flows in Ethiopia. In addition, the dummy for Africa is significant and positive. Finally, the destination competitiveness analysis shows that Ethiopia is better rated in inherited endowments than in created and supporting resources (like tourism infrastructure). Yet almost every rating exhibits considerable improvement after tourists visited the country, suggesting that the famine-related bad image of the country still hinders Ethiopia’s tourism sector.