A difficult year: Political uncertainty and regional instability dent visitor numbers

When asked about 2011, Egypt’s former minister of tourism, Mounir Fakhri AbdelNour, is candid: “It would be an understatement to say it was a difficult year.” The same holds true for the millions of Egyptians who rely on tourism for their livelihoods. More than any other sector of the economy, tourism has suffered from the ongoing political uncertainty.

But the sector is no stranger to ups and downs, and it is nothing if not resilient. Although this downturn has been longer and deeper than most, a recovery is inevitable. And when it does come, the tourism sector will emerge even stronger for the experience, with a new set of priorities and a vision for how to build on its heady growth of the past 30 years.

BY THE NUMBERS: Just how difficult a year it has been is borne out by the numbers. According to the Ministry of Tourism (MoT), the number of foreigners visiting Egypt fell to 9.8m in 2011. That is 33% lower than the 14.7m who visited the country in 2010. But these numbers tell only half the story.

To attract somewhat wary tourists, tour operators and hoteliers have been forced to offer steep discounts. Abercrombie and Kent, for instance, an upmarket Nile cruise operator, offered discounts of up to 50%. As a result, average tourist spending had fallen by 28.8% during the second half of 2011 compared to the same period in 2010.

Some in the industry question the official numbers. “The ministry has quoted arrival figures in the 9m-10m range. I find that hard to believe,” said Stephen Newbigging, director of central operations support for Thomas Cook in Egypt. “Frankly, I think it has to be lower, somewhere closer to 50% fewer arrivals than 2010.” Karim El Minabawy, president of Emeco Travel, is of a similar mind. “The official numbers are inflated,” he said, pointing out that they are based on foreigners arriving in Egypt. This would include Libyans fleeing 2011’s violence and Palestinians residing in Gaza with permission to enter Egypt, many of whom enter multiple times every year. “These people are counted as visitors each time they cross into Egypt, but they don’t stay in hotels, visit museums or book tours,” Minabawy said.

Nevertheless, the MoT insists it has no reason to tinker with the numbers. According to Adla Ragab, the economic advisor to the tourism minister, 2011 was a down year, but not as bad as many might have expected. Ragab acknowledged that refugees from Libya and visitors from Gaza are included in the figures, but she also notes that unlike most countries, Egypt does not count Egyptians residing abroad who return to the country to visit family.

THE WIDER IMPACT: Regardless of the methodology, all agree that 2011 was a tough year. According to Minabawy, it was the worst of the 27 years he has been in the business. “This year has been far worse than previous crises, and I’ve seen a lot of crises: the Gulf War in 1991, the 1997 attack in Luxor, the Intifada in 2000, 9/11, and then the attacks in Khan El Khalili and on the Ramses Hilton next to Abdel Moneim Riad Square in 2005. We have been hit by all of these,” he said. “But in each case, we saw a temporary setback and then a return to growth. What we are going through now is not comparable. Here we are a year and a half later and we’re still suffering.” It is not just travel agents, hoteliers and tour guides experiencing hard times. As one of the largest sources of foreign exchange and an essential source of employment, tourism has a key role to play in Egypt’s wider economy, accounting for around 12% of GDP and bringing in some $12.5bn in 2010.

More than 1.4m Egyptians are directly employed by the sector and 4m indirectly, meaning around 14m people rely on tourism as a primary source of income. And as many as one in every four Egyptians – shop owners and restaurateurs, for example – benefits indirectly from the economic activity that flows from the tourism sector.

TOUGH TIMES: What began as an inspiring 18 days in early 2011 has come to threaten some people’s livelihoods, as would-be visitors remain wary of the periodic violence that has followed in the wake of Egypt’s revolution. After President Hosni Mubarak stepped down in February 2011, the police forces melted from the streets and authorities saw a spike in petty crime. The summer months then showed signs of improvement, but a series of incidents since then have dissuaded cautious tourists.

In November 2011 protests on Mohammed Mahmoud Street, near Tahrir Square and football-related violence in early February 2012 saw more than 1000 wounded and several dozen people killed.

Sporadic kidnappings of foreign tourists have been reported throughout the year, particularly in the Sinai Peninsula, where Bedouin tribesmen complain about underinvestment from the state. Increased activity by militant Islamist groups in the Sinai since the revolution, and especially an attack on a border post in August 2012 have also led to concerns about safety. All of these incidents have been reported in the international news media, leading potential tourists to consider alternative destinations.

In addition, tourism has been impacted by events outside of Egypt, including the ongoing violence in Syria. Tourists have shunned the wider region, deterred by a general sense of instability in the Middle East and North Africa. Sales of travel packages that include several regional destinations have plummeted. According to the UN World Tourism Organisation, the number of visitors to North Africa fell 12% on 2010 figures, to 16.4m in 2011. Figures for the Middle East were down 8% to 55.4m.

HARDEST HIT: Of Egypt’s most popular destinations, Cairo has been hit the hardest. As the epicentre of the protests in 2011 and home to sometimes violent demonstrations ever since, the capital saw far fewer visitors in 2011. During the most difficult weeks, hotel occupancy rates dipped to between 10% and 15%. Red Sea resorts were also hurt, albeit not as severely. More than 80% of tourists visiting Egypt spend some of their vacation along the Red Sea, so resorts in areas such as Sharm El Sheikh, Marsa Alam and Hurghada felt the squeeze, but they also saw numbers rise in the latter half of the year and are expecting a stronger performance in 2012.

The recovery along the Red Sea bodes well for the future. With a new government in place, a sluggish recovery should gain pace. Other figures also show signs of momentum. The number of visitor nights in December 2011 was down 18% from December 2010. This compares to drop-offs of between 30% and 50% during the first few months of 2011.

MINISTRY’S EFFORTS: The MoT has done its best to spur the recovery by adding charter flights, lowering airport fees, relaxing restrictions on cabotage and attending more than 180 tourism trade fairs in the year following the revolution. In March 2012 Egypt became the first Arab country to serve as an official sponsor at ITB Berlin, the world’s leading international tourism exposition. Leaning on one of the country’s many iconic attractions, exhibitors displayed a giant replica of Tutankhamun’s golden mask and treated visitors to a traditional Egyptian bazaar replete with handicrafts, culinary treats and dancers. Advertisements touting Egypt as the place “Where It All Begins” were seen around the German capital.

Another step taken by the MoT is to extend the duration of Nile cruises. Due to security concerns following terrorist incidents in the mid-1990s, officials did not allow cruises north of Luxor. As a result, the majority of cruises lasted just three or four nights. The new voyages will mark the first time in 16 years tourists will be able to sail from the High Dam in Aswan in Upper Egypt all the way to Cairo.

Many in the industry have taken note of these efforts. “To their credit, the ministry has done a great deal to promote Egypt,” said Nabila Samak, the director of marketing and communications at the Semiramis Intercontinental Hotel in Cairo. “They have been quite supportive.” Minabawy is less enthusiastic about the previous government’s efforts, but acknowledges the difficulties the sector faces. “Before I rate someone, I have to ask myself if I could have done it better, and I must admit there is very little that I could have done better,” he told OBG. A major problem, however, has been the periodic violence. “Every time it seemed like things were calming down, another incident occurred.”

LOOKING AHEAD: Although the ministry believes tourist figures for 2012 could rebound to their 2010 numbers, many in the industry are more cautious. Samak told OBG that she expects Egypt will not see stronger growth until the end of 2012. “We hope that following the presidential elections and the winter tourist season, things will return to normal.” In the meantime, the Intercontinental Semiramis Hotel is focusing on domestic business, everything from weddings and catering to restaurants and delivery. “You do what you can,” Samak said. “This is what you have to focus on during difficult times.”

Over the longer term, many are bullish. “Egypt is a very resilient country,” said Newbigging, who has spent nearly 20 years in Egypt with Thomas Cook. “We’ve had crises here before. And each time, the industry bounced back faster and faster.” Newbigging expects the country will rebound yet again and sees a future of continued growth, “provided Egypt can develop a long-term vision and stick to it”. He also stressed the need for international expertise to help Egypt tailor its product for high-end visitors with more exacting standards.

Increasingly, those high-end visitors will come from outside Europe, which appears likely to post slower economic growth over the next few years. At present, six of the top seven sources of tourists for Egypt are European countries, and three of them are members of the troubled eurozone. Increasingly, opportunities for new growth will come from South and East Asia as well as other parts of the Middle East.

SOURCE MARKETS: In recent years, strong growth came from Russia, which now accounts for the most visitors to Egypt – a total of 1.8m Russians travelled there in 2011. Russians, who often find it difficult to secure a visa from members of Europe’s Schengen zone, can obtain a visa upon arrival in Egypt, as is the case with most nationalities. Russian tourists tend to spend more time at the Red Sea, where numbers did not fall nearly as much as in Cairo or the Nile Valley. “The coastal regions are mass market,” Newbigging said. “That group tends to vanish quickly because they have many options. But they also tend to be the first to come back.” The profit margins on such tourists are not significant, but in a down market, their sizeable numbers are not to be overlooked.

Another promising source for new arrivals is the Gulf, whence an increasing number of tourists originate. Many carriers are betting that this trend will continue. Riham M Mamdouh Dawa, the sales manager for Emirates Airline in Egypt, noted, “We always have full flights.” The Dubai-based carrier currently operates 14 flights per week between the UAE and Egypt and would like to add more. “Of course, we saw passenger numbers decline a bit this past year,” said Mamdouh Dawa, but we still have a good load and we’ll need even more seats in the years ahead.”

In June 2012, Etihad, another UAE flag carrier, added four more flights between Cairo and Abu Dhabi, bringing the weekly total to 18. In a statement to the press about the change, James Hogan, the CEO of Etihad, noted that, “Despite the Arab Spring’s impact, this route has continued to perform strongly. And over the past eight years, our services to Cairo have exceeded our expectations.”

Following the strong performance of Islamist parties in the elections in January 2012, many observers fretted about the potential impact on tourism. Despite assurances to the contrary from the Freedom and Justice Party (the political wing of the Muslim Brotherhood, which holds the largest share of seats in parliament), some media outlets have raised the spectre of stricter dress codes in seaside resorts and efforts to curtail the consumption of alcohol.

But most travel industry professionals within Egypt think the fear is overblown. “We haven’t seen anything yet,” said Samak. “There is a lot of talk, a lot of rumours, but we haven’t seen any concrete steps in that direction.” Mamdouh Dawa argues that the Muslim Brotherhood is not as retrograde as is often assumed. “They are pragmatic and recognise the importance of tourism to Egypt’s economy. I really don’t think they will put it at risk.”

INFRASTRUCTURE: As strong as growth has been over the past two decades, industry observers agree that the country still has a great deal of untapped potential. Realising that potential requires improved infrastructure, better services and more modern amenities. According to the World Economic Forum, Egypt ranks 75th out of 139 countries in terms of travel and tourism competitiveness. That is down 11 spots since 2009. It also ranks in the lower half among countries in the Middle East and North Africa. The report cited several areas in need of improvement. These include tourism infrastructure (hotels, restaurants, museums), where Egypt ranked 74th, education and training (87th), ground transport infrastructure (88th), and information and communication technology infrastructure (93rd).

The majority of recent investment has been made along the Red Sea coast, transforming resort cities like Sharm El Sheikh and Marsa Alam. Sleepy fishing villages just 20 years ago, these cities now bustle with hotels, shops and restaurants, drawing hundreds of thousands of tourists each year.

ACCOMMODATION: According to statistics from the MoT, roughly one-third of hotels in Egypt are situated along the eastern coast and another third along the Sinai coast. Just 15% of hotel beds are found in Cairo, with another 2% in Upper Egypt.

One-third of properties in Egypt are rated five star, as are 75% of boats cruising the Nile, but these do not reflect international standards. In an effort to set higher standards, a number of major hotel and tourism brands are investing in new facilities, betting that the difficulties in 2011 are an aberration from Egypt’s otherwise impressive tourism growth.

Mövenpick Hotels and Resorts has added three resorts along the Red Sea and four new boats to its Nile cruise line. After announcing Mövenpick’s expansion plans in the country, the company’s senior vice-president for Africa, Roger Kacou, described them as a demonstration of “our commitment to and total confidence in Egypt’s tourism”. The former Nile Hilton Hotel, a 13-story, 64,000-sq-metre landmark located on Tahrir Square is also being redeveloped as the Nile Ritz Carlton Hotel. Meanwhile, some other brands have decided to wait and see. Four Seasons Hotels and Resorts has placed on hold the development of hotels in Luxor and El Gouna. The 200-room Luxor hotel and the 215-room El Gouna resort were scheduled to open in 2013 and 2014, respectively.

One major construction project that is going ahead is the Grand Egyptian Museum. The $500m, pyramid-shaped facility will be the world’s largest archaeology museum, housing approximately 100,000 ancient artefacts. The first and second phases of construction have been completed and the museum is on schedule to open in March 2015.

The artefacts are currently stored in the Egyptian National Museum in downtown Cairo. That facility, first completed in 1902 under Khedive Abbas Helmi II, holds 120,000 artefacts, but only a small minority can be displayed at a time.

While few deny that Egypt needs a new facility for the museum, some are concerned that the museum’s location on the outskirts of Giza near the pyramids will attract tourists away from downtown Cairo. Storeowners in the Khan El Khalili market and Islamic Cairo worry that business could falter as fewer tourists venture into the city centre.

OUTLOOK: Although a full recovery for Egyptian tourism may take a couple of years, the sector will be ready when the tourists return. If there is a silver lining in the downturn, the difficulties have underscored the importance of the tourism sector to the wider economy and provided an opportunity to reflect on previous successes, while planning for the future. Former tourism minister AbdelNour has referred to 2011 as “a turning point”.

As hundreds of millions of people across the developing world accrue disposable income and aspire to a middle-class lifestyle, Egypt stands to benefit. Affordable, centrally located and endowed, with everything from beaches to world-renowned cultural sites, Egypt will certainly be on their short list.

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The Report: Egypt 2012

Tourism chapter from The Report: Egypt 2012

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