Central areas in Adama have been transforming into either of twornforms - blighted and decayed areas or congested and very poor qualityrnurban environments. It seems that the problem exists as urbanizationrntakes place in the context of relatively slow economic growth,rnineffective legal and regulatory frameworks and perhaps an absencernof a strong and functional social order, all leading to spontaneousrnurban development. The aim of this study is to understand how thesernurban areas became to be the way they are today. There have been arnlot of studies on transformation of cities in the context ofrnindustrialized nations. It is not clear, however, whether or not thesernstudies can explain the situation in the developing world. Attentionrnthus far, in cities in the developing world, has been limited tornamelioration of problems associated with poverty and delivery ofrninfrastructure and social services. The quality of the urbanrnenvironment was not considered as a priority. This study discusses therndifferent stages in the transformation of central urban areas of Adamarnin general, and that of its commercial centers in particular, and therneffects of the transformation process on the quality of the urbanrnenvironment.rnlife of the low and middle income inner-city residents of AddisrnAbaba. Financial, institutional and legal problems are also seen