Slow recovery?

Can Egypt’s tourism sector recover from the unrest? The country’s tourism minister, Hisham Zaazou, is more positive than most
By Courtney Trenwith
Fri 31 May 2013 11:29 AM

The sincere passion almost bounding off Hisham Zaazou, Egypt’s tourism minister, as he pleads with a room full of hospitality investors in Dubai to believe that his homeland is safe, for their money and tourists alike, would have been infectious only a few years ago. But that’s what a violent revolution will do to a once-revered country.

Egypt’s ancient pyramids are still gleaming under the desert sun, the Nile is calmer than ever and its world-famous beaches and coral reefs are intact. But convincing the outside world to see this for themselves is not easy, as Zaazou is discovering.

Two years after Hosni Mubarak was ousted in a historic, predominantly youth-led uprising, hotel occupancy across Egypt remains in the low 40s, while the average daily room rate is only slightly above $100, according to hospitality consultant STR Global. And the pipeline for investment remains well below par.

But Egypt is on a mission to draw back not only the 14.7 million people who visited the country in the year prior to the revolution but to see that figure double by 2022.

With the industry contributing more than 11 percent to GDP and accounting for about 12 percent of total employment, reviving it is critical to the economy’s overall health. Egypt remains in talks with the International Monetary Fund over a $4.8bn loan and its foreign currency reserves are almost dry.

Tourism has long been a key economic driver for Egypt, helping it rise above most of its African neighbours. The number of foreign tourists and hotel occupancy rates were increasing dramatically prior to the revolution in April 2011. Unsurprisingly, they plummeted during that year and investors either cancelled or stalled the construction of new hotels and tourism initiatives.

But things appear to be turning around.

“We lost about 32 percent [in the number of tourists] in 2011, but we gained back 17.4 percent in 2012 and that’s halfway,” Zaazou says.

“I believe that by the end of this year we’ll be almost there [back to 14.7 million] — for sure in 2014. This year I anticipate we’re going to reach a figure of between 13 million and 14 million tourists and that’s very close to the figure of 14.7 million.”

The minister’s attempts to regain his country’s prestige has him so fired up that while the government is still struggling to hold onto power, he’s setting bold new targets as far as a decade ahead. “We know strategically what we want to do in ten years,” he says. “[We want to] double tourists to 30 million and double receipts to reach $25bn by 2022.

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“Egypt will continue to grow because there is suppressed demand, if I may use that term. A lot of people were reluctant to come to Egypt because of the political situation and the upheaval etcetera but I believe with the bettering of the safety and security situation in Egypt... the growth will be humongous.

“The world is recording between four and five percent growth a year; I believe we’re going to be in double-digit growth in 2014 and onwards.”

Observers were unsure whether the Muslim Brotherhood, which took power in Egypt during a post-revolution election, would support keeping the country open to visitors, particularly those from Western countries. But it has since approved a bundle of incentives for tourism investment, including wiping out restrictions on cash coming into the country — “getting money in and out for investors, we know, is the number one criteria” — easing visa restrictions, capping some company taxes at 20 percent and opening up land to be developed for tourism projects.

The Egyptian pound’s hefty fall against the US dollar — it has declined about 20 percent to $0.144 — has also created an attractive exchange rate for foreign investors and visitors. “You can make more money now in Egypt than before,” Zaazou tells a room full of potential investors and tourism operators in Dubai earlier this month.

“When it comes to the loans facilitation the banking community in Egypt is ready to partner with serious investors in Egypt. We, the Ministry of Tourism, even have our investment arm ready to enter into partnership with investors that are interested to build a hotel anywhere in Egypt. We have a payment scheme for this investment of up to ten years.

“Taxes have been capped at 20 percent and we’re trying to even give incentives in other areas for investors like social taxes for the workers, [so we will] postpone it or waive it.

“All these issues could be discussed on a one-to-one basis and I’m hoping any investor who’s interested will call on the Ministry of Tourism; we’re ready to sit down and speak real business and Egypt means business, we’re opening the doors. All the parties in Egypt are adamant to put tourism in the forefront.”

It’s a compelling argument and one that is slowly drawing attention from outsiders, including Hilton Worldwide, one of the world’s largest hotel companies.

“Believe it or not, we’re trying to drive further [into Egypt] by expanding,” Hilton Worldwide president, Middle East and Africa, Rudi Jagersbacher, tells Arabian Business.

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“We have about eighteen or nineteen hotels now in Egypt and we’ve signed three new ones up, because we believe that the political situation will resolve itself one way or another. I think the affordable stays you have in terms of resorts and the activities are such a unique marketplace, in terms of the destination and the time to the destination, that they will always go from strength to strength.

“The only country to compete with this is Turkey, but Turkey runs at a much higher rate versus Egypt. So think of your business opportunity [and] if you’re able to grow the rate with some stability in terms of security. Certainly they have all the facilities in terms of business and we believe it’s going to continue and we’re going to be a driver; we want to stimulate the market.”

Hilton’s new hotels are in Alexandria, a relatively peaceful city in the north, the nearby city of Borg El Arab and Cairo.

“Yes, in Cairo,” Jagersbacher says, pre-empting the surprise. “Kings Ranch [Resort in Borg El Arab] is going to open soon, the other ones in three years.”

Hilton is utilising the massive pool of 30 million customers in its loyalty programme to help sustain its Egyptian hotels during the downturn, offering significant packages to entice them.

“Grants can bring people... we’ve been able to shift people to destinations and we’ve done this really well in the last two and a half years with the resorts in Egypt,” Jagersbacher says. “While Cairo is running at 15-17 percent [capacity], the resorts are between 60-72 percent. The market outside Cairo is doing very well.”

Zaazou also reveals to Arabian Business that the government plans to launch a new project along the Mediterranean coast that would see new hotels and resorts open up on the presently desolate beaches, to create a new riviera.

So far there are only private apartments and villas owned by Egyptians but with four airports within 1,000km, Zaazou says it could become a premier tourist destination accessible directly from holidaymakers’ home countries.

The government would likely begin leasing the publicly owned land in July.

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“We have fabulous beaches, beautiful white sand and turquoise colours in this part of Egypt,” Zaazou says.

“[The strip is] west of a very famous city, El Alamein, which is a historical city. That’s approximately 120km west of Alexandria. We have a stretch of land there that we’re going to offer to investors.

“The government can [also] offer to partner with investors. We’d like to have a complex of hotels and resorts there [that would be] upmarket with great facilities.

“We have infrastructure to visit directly from anywhere in the world. From southern Europe you can fly into this part of Egypt in not more than two hours, which will bring down the cost of travelling. If you want to go to [Cairo] we have the facility for you [to] go by road or by plane, but if you want to go only for a sand-and-sea product I think this will be a fantastic product.

“There are few hotels there, not more than 7,000 rooms but there are more rooms coming up which will [make it] sort of the Egyptian Riviera.”

According to STR Global, confidence in the market is gradually returning, with a decent pick up in the past six months.

“We’re seeing some of that bounce back in Egypt. 2010 was a very strong year for northern Africa, then there were post-revolution declines and now they’re on the way back, but there’s still a great deal of ground to cover,” STR Global managing director Elizabeth Winkle says.

“It’s still a challenging marketplace. We’re seeing some possible results out of Sharm El Sheikh, where market occupancy is about 62 percent and we’re seeing tour operators return. Across the country, occupancy rates are still in the mid-40s and there’s still some work to be done there.”

Hotel occupancy rose nearly fifteen percent during the first quarter of 2013 and the average daily room rate (ADR) climbed more than 9 percent, outperforming all other Middle East countries.

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However, they remain historically low and Cairo’s performance was the worst of any of the main Arab capitals during the first quarter.

Winkle says the supply pipeline has increased 18 percent, which is a similar level to Amman and lower than all of the region’s other capitals except Beirut, which is experiencing its own political issues.

“Our supply figures show 8,000 rooms in the active pipeline,” Winkle says. “We’re seeing less new supply in that marketplace. There are lot of hotels within Egypt at the moment [that are not reaching] levels that they had easily achieved previously and so unless those demand drivers really come back into the marketplace it’s going to be a challenge.”

Zaazou says if it wasn’t for images beamed around the world during the revolution showing violent street protests and mass rallies in Cairo’s Tahrir Square the devastating impact on the country’s tourism sector would have been far more contained.

“I have to tell you, the media was not too kind to us in Egypt. I mean, summing up 1 sq km that is Tahrir Square or something beside the presidential palace is not really a reflection of the 1 million km of Egypt and it was not very fair of the media,” he laments.

“Maybe that is the reality that [Tahrir Square] is sometimes violent — but the rest of Egypt is safe, secure and ready and open for business. That is reality.”

He intends to showcase that “reality” by placing webcams in some of the most popular tourism spots to broadcast live images across the internet of tourists frolicking in the Red Sea or taking in the wonder of ancient sites, which fortunately were untouched during the violence. The footage may also be aired in public spaces in some key source markets including London’s Tube network and New York’s Times Square.

But the har d work has not been helped by sporadic rioting and instability, which last week spread to Sinai as the Egyptian army moved in to rescue eight kidnapped personnel, and comments by radical Salafi Muslim groups who have taken advantage of the Muslim Brotherhood’s ruling and called for a ban on alcohol and bikinis.

In December, president Mohammed Mursi increased taxes on alcohol — which is banned in Islam — before being forced to back down following complaints from struggling tourism operators.

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Investors also were no doubt deterred by reports of disputes over breaches of contract relating to the former regime. The government responded by beefing up legal protections for investors.

“Maybe some of you heard that there were these investment disputes in Egypt in the past couple of years. This is behind our backs these days,” Zaazou tells the investors in Dubai.

“The government is adamant to sort out any investment disputes and we’re moving down that path very fast. Actually because I’m here there are a number of Arab investors in Egypt who are joining me to spread this word.

“Egypt’s tourism economy is on the top of the political agenda. I was a bit [concerned] at the beginning... that the new government was not going to back tourism enough, [that] it would think of other pillars of the economy [to focus on]. [But] contrary to what I thought is happening.

“Each time the president of Egypt travels he asks me to travel with him [to promote tourism], he mentioned it in his latest speech during the Labour Day... and said tourism ‘is important to us’. Now if the political leader of the country is saying that, that means that the [public] investment should follow.”

Zaazou says “a lot” of resources were being ploughed into “building and selling the right, positive message” of Egypt. The “tactical” approach includes increasing the budget for social media sites, campaigns, television commercials and participating in trade affairs around the world.

“I feel the problem is in the messages that came out of the country in the last year or so,” he says. “So we need to shift this negative impression to the reality that is happening on the ground in Egypt.

“Egypt by definition will always be at the centre of tourism in the world, whether me, or you or anybody likes it or not. Egypt still has the pyramids, it still has the Nile, it still has all the attractions. We have fantastic beaches, we have welcoming people and we have it all.

“It’s not that I’m excited; it’s the realities on the ground.”

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