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Tourism in Egypt

Global Arab Network - David Morgan

Friday, 24 July 2009 13:43

Despite the impact of the global downturn on Egypt’s important tourism industry, international investors continue to recognise that there are numerous lucrative opportunities worth exploiting in the market.

Some notable examples of new investments announced at the end of 2008 and the beginning of 2009 include the renovation of the Nile Hilton costing $64 million (LE350mn), the Fairmont Hotels launch of its Fairmont Residences in Zamalek Island, in Cairo and the US timeshare company, Interval International affiliation with the Monte Cairo resort.

These new projects are joining the multibillion dollar luxury tourism projects in the coastal areas that have already started and all proved very positive signals about the medium-term prospects for the tourism industry in Egypt.

Trade and services, which includes tourism, is the most important tertiary sector for the Egyptian economy. Activity in the sector was reported as relatively modest in 2008 and performance was clearly affected by the global economic downturn particularly in the second part of the year.

Tourism, representing 40 percent of a service export receipts and the third largest contributor to GDP growth, slowed down notably as a result of the recession in the western economies. This can be clearly seen by a 0.6 percent growth in the second half of 2008, which is in marked contrast to the 15.9 percent growth in the same period of the previous year.

Slowdown is also evident in construction projects related to tourism. In the past few years, Egypt has experienced a mushrooming of tourism complexes, which has helped to fuel the construction boom and elevate Egypt’s status as a prime real estate investment opportunity with good rental yields as a tourism destination.

Recently the projects have slowed down a little with various plans temporarily suspended in the last quarter of 2008 but some have been resumed soon afterwards.

Activity in the sector is still continuing and investment is still being attracted. For example, recently Kuwait’s Abyaar Real Estate Development Co announced that it had bought a one million square metre plot of land in Marsa Alam on the Red Sea coast to develop as a real estate project.

Overall construction activity is expected to continue to benefit from the hospitality sector’s expansion in the long term, especially given that the latter sector is the subject of a mega expansionary strategy launched by the country’s Tourism Development Authority.

Foreign visitor numbers were estimated at 12.8 million in 2008, up by 15.4 percent year-on-year, but this was lower than the growth recorded in the previous year, which stood at 22.1 percent, according to Business Monitor International (BMI) estimates.

Over the last year, the Ministry of Tourism said that it was growing at a rate of 25 percent until the global crisis hit the world in September. Since then, tourism numbers began declining.

The growth rates are forecasted by BMI to become even more negative in 2009, and are expected to only slightly recover by 2010. The decline is attributed to the deteriorating economic conditions in key source markets, such as Russia that normally accounts for around 14 percent of tourists, Germany and the UK with 10 percent each and the countries of Eastern Europe, which have contributed an important source of visitors to Egypt in recent years.

In terms of revenues, tourism still generates an important flow of hard currencies for Egypt with $10.9 billion in international receipts in 2008, up by 15.9 percent from 2007. When considering only government expenditure on travel and tourism, inclusive of tourism promotion, aviation administration and security services, the figures amounted to $0.7bn in 2008, which was unchanged from the previous year, whereas capital investment totalled $4.5bn, up from $4.1bn in 2007, according to the World Travel and Tourism Council (WTTC).

Despite growth reported in most tourism indicators in 2008, the picture for the next does not look very positive and recent forecasts have been putting tourism revenues down 12 percent this year.

Employment in the broader travel and tourism sectors is expected to fall from 1.47 million workers to 1.39 million, according to the WTTC, especially if the sector comes under any new threats, such as a serious epidemic outbreak, not the mention the worldwide recession whose repercussions are still unfolding.

In response to the challenges that the tourism sector is expected to face, Egypt initiated a crisis plan in 2009 whose aim is to raise the value added of tourist visits by offering more free nights or enhancing tour packages.

The strategy also entails a more vigorous tourism marketing strategy overseas in collaboration with travel agencies. Charter flights will see reduced taxes in order to increase the number of planes coming into the country. A number of special services will be introduced to familiarise potential visitors with the country’s culture and heritage.

Along with tourism development, the aviation industry in Egypt is the subject of public attention and a development strategy. In 2008 the Cairo International Airport was used by around 14.4 million passengers, an increase of 14.2 percent year-on-year, BMI reported.

The Egyptian authorities aim to further expand airport services and have been investing in the upgrading and expansion of air transport, which is also benefiting from increased private sector involvement.

The Cairo International Airport renovation project has been allocated $354.6mn (LE2bn), while an additional $887.4mn (LE5bn) has been earmarked to improve existing airports over the next five years and a further $1.06bn (LE6bn) over the next six years to construct new airports.

In December 2008, Cairo’s airport opened a new terminal 3 for both international and domestic traffic and with a capacity of 11 million passengers a year.
The terminal building is designed to receive 15 planes at any one time and can accommodate large aircraft. A fourth runway and new service facilities, including a hotel, business and shopping centres, are currently under construction at the airport.

Global Arab Network
This report appears in Arab-British Business, the fortnightly bulletin of the Arab-British Chamber of Commerce.
Source material for this report is from a recent Egypt Economic Report published by Bank Audi.

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