Room for growth: Amidst challenges there are many opportunities for expansion

As protests spread across much of the Arab world in early 2011, Egypt’s tourism sector braced for a challenging year. Few, however, realised just how difficult it would be. According to the Ministry of Tourism (MoT), arrivals were down 33%, revenues dropped by 30% and the number of nights spent in the country by tourists fell 22%. However, Egypt’s tourism sector has faced many challenges in recent years and each time it has overcome them.

Tourism is the lifeblood of the country’s economy, ranking first or second as a source of foreign currency every year between 2001 and 2010. It fell to fourth in the 2010/11 fiscal year, trailing remittances, petroleum exports and other exports.

Given its importance, any sustained drop in arrivals would adversely affect the wider Egyptian economy. Little wonder, then, the MoT is doing everything it can to rebound from 2011 and continue its strong record of growth in the years ahead.

ON THE REBOUND: Early indications are that these efforts are paying dividends. Despite continued political uncertainty during the second half of 2011, a strong rebound is under way.

Figures from the MoT show that after January 2011, the six strongest months in terms of revenue came in the latter half of the year. Speaking in late December 2011, the then minister of tourism, Mounir Fakhri AbdelNour, suggested that revenues could return to their record 2010 level of $12.5bn within a year. However, just a few months into 2012, that appeared unlikely. Even now that Egypt has transitioned smoothly to a new political order, the uprising will have lasting effects. Karim El Minabawy of Emeco Travel points out that months of political uncertainty following the resignation of Hosni Mubarak has jeopardised attractive business tourism.

The so-called meetings, incentives, conference and exhibitions (MICE) business accounts for 8-10% of the country’s tourism revenues. “These are usually booked a few years in advance,” Minabawy said. “In the case of mega-conferences, they are booked between five and eight years in advance. Egypt has not even been able to make bids for these conferences over the past year and will not likely win any until conference organisers are convinced the country will remain stable over the long term. The effects of this lost business will be felt for some time if we do not work on it immediately.”

NEW MARKETS: Still, looking further ahead, numerous other trends are pointing in Egypt’s favour. Despite an uncertain global economy, international tourism has continued to grow in recent years.

During the first two months of 2012, international tourist arrivals were 5.7% higher than over the same period of 2011, according to the UN World Tourism Organisation. As traditional source markets in Europe have suffered somewhat from the economic slowdown, emerging markets, including Russia, Turkey, China and Brazil, have made up for the lag.

Egypt is also well positioned to capitalise on the expanding middle class in these new source markets. It remains extremely price-competitive, ranking 5th out of 139 countries in a survey conducted by the World Economic Forum.

PREFERRED CHOICE: Prices for hotel rooms, fuel and food are all quite inexpensive compared to regional competitors, making Egypt the low-cost destination of choice for many. The country has already moved into mass-market tourism, becoming for Europe what Mexico is to the US – an affordable, warm weather holiday destination in a similar time zone that can be booked relatively late.

While mass market does offer great opportunity, it also invites instability, said Stephen Newbigging, the director of central operations support for Thomas Cook in Egypt. “The mass market tends to shy away during periods of instability, but they also tend to return rather quickly,” he told OBG.

As a result, many in the industry are pushing for greater diversification in Egypt’s offerings. At present, recreational tourists account for over 90% of arrivals. Cultural, health, business and study account for less than 7%. “There is opportunity there for a new tourist base,” said Newbigging. “If you can establish a market, retirement tourism can be very lucrative because retirees tend to return year after year and stay for several weeks or even months at a time.” He also sees spill-overs for the wider economy. “Retirees spend money in cafes and supermarkets. They are the ones hiring housekeepers.” Newbigging conceded that none of this is easy. “This would take some time because you need the infrastructure: hospitals, spas and stores with Western brands.”

NICHES & NEW OPPORTUNITIES: Adventure tourism is another potential area for development. Egypt is ideal for desert safaris, scuba diving and windsurfing, yet only a small share of tourists travelling to the country currently engage in these activities. This could also attract local youth, although these activities are accessible to only the most affluent Egyptians. Nevertheless, two-thirds of Egyptians, or 55m people, are under the age of 30. That is a huge potential market. As new, more luxurious hotels are built to appeal to international tourists, existing hotels could attract domestic tourists with mid-level pricing schemes and off-season specials.

Egypt has a relatively small number of repeat tourists. Travellers from across the world are keen to see the pyramids or the tombs in Luxor, but they tend to believe that once is enough. Both retirement and adventure tourism would address this problem, drawing tourists year after year. “Whichever strategy it chooses, getting to the next level will require a driving strategy and sticking to it,” Newbigging said. He also thinks Egypt would benefit from external expertise. “I hate to say it, but they need outside help.” He pointed out that Egypt’s most lucrative tourists come from Europe and North America. “They need consultants who understand the tastes of customers from these markets,” Newbigging said.

AMBITIOUS AIMS: Despite the difficult circumstances at present, the MoT has ambitious goals for the future, including having 25m visitors by 2020. “We understand that we will not join the ranks of leading tourist destinations – countries that attract 50m tourists or more – but we can handle 25m,” said Adla Ragab, the economic advisor to the minister of tourism. That would put Egypt on par with Turkey, which like Egypt offers tourists a mix of leisure, cultural and historical tourism.

However, Turkey has a head start and has made considerable progress in upmarket tourism. “We understand that it will take some time, but we are committed to doing what it takes,” she said.

It will take both time and money. With the exception of Egypt’s coasts, the tourism infrastructure is in need of modernisation. Cairo’s roads are already highly congested – a problem that has only grown worse since the revolution.

In addition to attracting more tourists, the MoT would like to boost the amount they spend during a visit. At present, the average visitor to Egypt spends about $1000, while visitors to Lebanon, for instance, spend more than $3000 on average.

“We need to concentrate on the high-end tourists, while maintaining appeal to the mass market,” Ragab said. Thankfully, Egypt has a diverse enough set of attractions to do this. From beaches to tombs to important religious sites, a variety of tourists are likely to consider Egypt as a travel destination. Improving the facilities and services for the better-heeled traveller will thus be critical.

By most accounts, the MoT has done well in very difficult circumstances. The favourable reviews bode well for greater cooperation between the ministry and the private sector in developing Egyptian tourism. That collaborative spirit helped drive much of the growth over the past two decades.

In 1994 arrivals were at 3.1m, with most of these centred around the Nile Valley. Working hand in hand, the MoT and local and international hotel groups, travel agencies and private developers expanded their offerings along the Red Sea coast and in the Sinai Peninsula. The arrival figures soared, averaging over 10% annual growth.

LASTING APPEAL: Egypt’s best advantage remains its brand. The country is virtually synonymous with history, and the fact that arrival figures did not fall further than they did underscores the country’s enduring appeal as a destination.

With the uprisings of 2011, that appeal will only grow. Tahrir Square, more than any other place, captured the world’s imagination during those heady days and it will long be associated with the inspiring narrative of the Arab Spring.

Minabawy, whose offices sit just off of Tahrir Square, has noticed that while the overall number of tourists visiting Egypt may have fallen, those coming to downtown Cairo to catch a glimpse of Tahrir Square have soared. “It has become a destination. You can’t come to Cairo without seeing Tahrir.”

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The Report: Egypt 2012

Tourism chapter from The Report: Egypt 2012

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