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TOURISM FORGES AHEAD
Over the last quarter century or so, tourism in Egypt has expanded from a small industry focused mainly on antiquities to a significant contributor to the national economy offering a variety of attractions for travelers, from the sun and beaches by the Red Sea to awe-inspiring monuments and desert safaris. The sector has faced setbacks before, such as militant attacks on tourist targets, but it has recovered and kept on growing. Now, as tourism infrastructure continues to expand, the industry is being confronted by another significant challenge: the global economic downturn.
BY LOUIS WASSER
While the worldwide economic slowdown will affect numerous segments of the domestic economy, arguably one of the most impacted sectors will be the tourism industry. In essence, Egypt is exporting services when travelers visit, and demand for these services is tied up in the economic fortunes of those abroad.
The top markets for tourists visiting Egypt are facing tougher economic times at best, and recession at worst. The largest source of tourists, Russia, is beginning to experience economic troubles, while Germany, the UK and Italy, the next three largest markets, respectively, have all gone into recession.
This is a potentially serious problem for Egypt, since tourism constitutes a significant part of the local economy. In recent years, the sector has been one of the leading earners of foreign exchange for Egypt. The industry generated $9.5 billion in revenue in 2007, Minister of Tourism Mohamed Zoheir Garana told Business Monthly in a December interview, noting that it directly and indirectly employs 12.6 percent of the workforce. A slowdown in tourism would be just one more bad piece of news for an economy that will invariably suffer other blows as a result of the global downturn.
While local tourism will certainly face a rockier road ahead, the variety of services that Egypt has to offer travelers bodes well for the industry, at least relatively. "Anybody with money to spend on a holiday has got a lot of options, so I suppose everywhere is competition," says Kevin Brett, general manager of the luxury 617-room Conrad Cairo Hotel. "But nobody actually has the blend of the history, the sheer number of sites, the sheer size of the country and good beaches [that Egypt does]."
From Sphinx to sun
But not all of these attractions were always available to travelers. Tourism in Egypt has moved from an industry centered on antiquities to a much more diverse sector today, featuring beach destinations alongside its unique cultural heritage, as well as more accommodation and a largely expanded infrastructure.
The range of antiquities available to tourists is massive, even if a few big-ticket attractions - the Pyramids of Giza and the Valley of the Kings, for example - garner much of the attention. Egypt's extensive history spans ancient to modern times, and with it comes a multitude of antiquities, from Pharaonic temples and tombs to beautiful churches and mosques, and everything in between.
"From the cultural point of view, it's irreplaceable," says Simon Cooper, president and CEO of The Ritz Carlton Hotel Company LLC, which operates one hotel in Sharm Al Sheikh and recently signed a contract to take over the management of the Nile Hilton. "There's no alternative."
Then, of course, there's the ever-present sun, a natural advantage for Egypt. "When you go down to Sharm Al Sheikh or Hurghada, you have absolutely guaranteed great weather," says Cooper, who points out that in the winter months of December, January and February, this is quite an asset. "If it's January, I'm not going to go to Nice. I'm not going to risk the southern coast of Turkey."
The focus on beach vacations in Egypt has grown exponentially in recent years. "The total number of rooms in Egypt was only 18,000 [in 1982], and we were only depending on one product, which was the culture part," explains Garana. In the same year, development of the leisure tourism sector in the Red Sea coastal area and the Sinai peninsula took off, explains the minister, leading to one of the largest shifts in the industry's recent history. "These two areas had only 200 rooms in each area. Now actually they are dominating over 66 percent of the total capacity."
This variety of attractions ensures that visitors have an ample number of options to choose from while designing their trips, and of course, needs and desires vary. "I think more tourists are interested in comprehensive round trips in Egypt; these include beach, cultural, religious, as well as desert tourism," says Daniyah Darwish, a vice president of equity research at EFG-Hermes. "But of course it depends upon the interests of tourists and their nationalities," she adds, arguing that tourists from eastern Europe are more likely to seek a beach vacation, whereas those from Asia often seek more comprehensive packages.
The government has made efforts to promote the beach aspect of Egyptian tourism, Darwish says, although she notes that this process could have been more effectively executed. "The government has launched a promotional campaign and is trying to promote Egypt as a sun and beach type of destination, but I'm not quite sure that this campaign was very effective," she argues. "Of course, tourism has boomed... but I think if the Ministry of Tourism puts the right advertising image, the right finances and resources into these campaigns, we can attract more tourists and the right target markets as well."
Zahi Hawass, secretary-general of the Ministry of Culture's Supreme Council for Antiquities (SCA), believes that concentrating on Egypt's sun is not such a bright idea, and isn't shy about expressing it. In his view, Egypt's culture is the draw, and what he perceives as the Ministry of Tourism's focus on the beach aspect of Egyptian tourism is flawed. "[The ministry] should just try to have a strategy [focusing on] how Egypt is safe, and not talk [about how] Egypt has the sun," he argues. "This is stupid, because the sun is everywhere... Egypt has other things to offer that tourists should know [about]."
The emphasis on beach tourism, however, seems to be working. The Ministry of Tourism stopped releasing monthly arrival figures at the end of 2007, but the numbers before then show a large influx from eastern Europe in recent years - from 733,000 in FY 2002-03 to 2.187 million in FY 2006-07 - in a development paralleling the continued rise of tourism in Egypt's coastal areas. "I think beach tourism is gaining on cultural [tourism], as evident by the room supply available in beach destinations such as Hurghada and Sharm Al Sheikh versus cultural destinations such as Luxor and Cairo," Darwish states.
Whatever the reasons, the tourists just keep on coming. In 2007, 11.1 million tourists visited Egypt, according to Garana, who said in his December interview that he expected arrivals to reach 13 million tourists in 2008. And revenues have been growing alongside arrivals, climbing from the tourism ministry's figure of $9.5 billion for 2007 to an expected $11.2 billion for 2008.
Revamping and expansion
Although the sector has already undergone significant growth, it is continuing to enlarge and refine itself. In terms of its cultural heritage, Egypt is exerting great effort to increase what it has to offer visitors, with the accompanying work comprising a lengthy list of attractions being either constructed or upgraded across Egypt, from Roman ruins in Alexandria to the Egyptian Museum in Cairo. "When you strengthen [culture], you strengthen the income from tourism," Minister of Culture Farouk Hosny told BUSINESS MONTHLY.
Through the SCA, the Ministry of Culture is striving to construct new museums and renovate existing ones; 19 new museums are being built at the moment. Currently under construction, among other things, are the Grand Egyptian Museum, which is located in Giza and is expected to be completed in 2012, and the National Museum of Egyptian Civilization, which is slated to be finished in two years and is located in Cairo.
At the same time, the SCA is working to upgrade archaeological sites that are frequented by visitors. "Almost more than 60 percent of the archaeological sites that are visited by tourists have been improved," Hawass says, pointing to work to fence in and protect the site of the Pyramids, as well as improvements to the Citadel and Al-Moez Al-Din Allah Street in Islamic Cairo, in addition to a multitude of other locations.
Hosny explains that there is a spectrum of museums available in Egypt. "These museums give a variety and are all over Egypt, which of course excites tourists," the culture minister says.
As the government is striving to increase the infrastructure surrounding cultural sites, it is also increasing its capacity to handle more arrivals. While there were 182,000 rooms available at the end of 2007, a total of 211,000 were expected to be ready at the end of 2008. Furthermore, Garana points out, there are another 158,000 rooms under construction expected to be operational over the coming three to four years.
"[Infrastructure expansion is] happening all over Egypt, although the government is focusing on increasing the investment and FDI in the Red Sea [area], as well as the North Coast," says Darwish, who notes that expansion is also happening in Cairo. According to the tourism minister, 70 percent of the rooms currently under construction are in coastal areas.
[The revamping of antiquities infrastructure] will attract more people to come to the cultural sites, because it's a unique product," says Garana. "But when you're [talking] about the leisure [aspect of tourism], definitely you're competing with the rest of the world, and this is where you have to really work very hard." He notes that this entails improving the value of services and products in the leisure-related parts of the tourism industry, as well as increasing the efficacy of the marketing of the sector.
The tourism minister says that only a little over 20 percent of the tourist arrivals in Egypt come for the antiquities, and hints that an increase in this percentage would not be overwhelmingly significant in light of antiquities' overall importance in attracting visitors. "When we're talking about the cultural part, [about] how much it represents from the global number that we have, it's 20 percent. That means we're talking about 2.6 million [visitors]," Garana states. "Even if I have a growth of 10 percent, it's 260,000. When I say a total growth of 10 percent of 13 million, that's 1.3 million."
Hawass strongly disagrees with the contention that only slightly over 20 percent of tourists come to Egypt for the antiquities, and emphasizes the point that culture is, in his mind, the most prominent feature of Egypt. "I come to swim in Sharm Al Sheikh, maybe, but in my mind Egypt is the Pyramids, the mummies, the Sphinx and the Valley of the Kings," he says. "Cultural tourism, in my opinion, is the most important thing for any tourist who comes to Egypt."
In what is arguably a reflection of the growing prominence of beach tourism, the government is working to build museums in the coastal resort areas of Hurghada, Sharm Al Sheikh and Marsa Alam.
Counter-intuitively, all of this expansion of tourism infrastructure may hurt the sector. The skills of those working in the industry are in need of constant improvement, a job that becomes more difficult the quicker it expands. "Definitely our biggest concern always lies with the human resources. [We're working] to upgrade the existing workforce," Garana explains.
There has been improvement over time in the quality of services that the Egyptian tourism sector offers to visitors, says Ahmed El-Askalani, country manager for Egypt at American Express Travel Services, an Egyptian-Bahraini joint venture operating as a franchise of American Express. "I've been in this industry for the last 25 years and I believe that it is getting better day by day and year after year," he argues.
But the speed at which the sector is growing is outpacing the ability of the tourism industry to upgrade the skills of those it employs, the tourism minister says. "Definitely the momentum is going much faster than [the speed at which] we can have a workforce that's measured by international standards to be very good," Garana says. "If I am going to rate it, we are... around 80 percent capable of handling the growth."
Turbulent times
Maintaining the quality of service is not the only difficulty facing tourism in Egypt. With the global economic downturn, the reality is that the sector is in for a rough ride. However, it isn't alone. "I believe there is going to be a slowdown globally," Garana says.
Although the economic downturn is sure to impact the growth of tourism worldwide, different aspects of the industry will likely be touched in different ways, says Cooper. "I think that hotels that have relied on corporate business and corporate groups will be the most impacted," he argues. "Hotels that rely upon leisure will be the least impacted because when you research consumers, the last thing they'll give up is their vacation." Although consumers may pass on three-day weekends, he says, it is much more difficult for families, especially those from Europe, to forsake an annual vacation.
"Definitely people will not stop traveling," Darwish states. However, she says that patterns of travel will be affected, arguing that people will take shorter trips to closer locations, as well as "look for trips offering more value for money and try to reduce the non-room revenue, basically anything not included in the package they paid [for]."
"Traveling is a way of living, and I don't think people will stop," concurs the tourism minister. "They will cut down definitely on the number of trips, and they'll be very choosy in their destinations. Quality is going to be a major factor, [as well as] price and proximity." While Garana says that Egypt has an advantage in these three respects, he acknowledges that the industry will still suffer.
The anticipated local impact of these global changes seems stark when compared to the expansion the industry has experienced in recent years. "I don't expect growth [in 2009]," Garana says, and when asked if the sector will shrink, he replies affirmatively. What exactly will happen, though, is another story. As to any speculation about this year, the tourism minister says, "It's going to be an uneducated guess... Nobody knows."
But it appears that the slowdown has already begun. Some observers note that the Christmas season should not have been heavily affected because many tourists book in advance and thus would face penalties for cancellation. However, it appears that there were hotel operators that felt the pinch, explains Dr. Ahmed Abdel Alim, a dentist and owner of the 72-bed Dahab Hostel, which is located in downtown Cairo. Pointing to his conversations with people at other hostels in both Dahab and downtown Cairo, he says: "Everyone is talking about [the fact] that this season is not a good season at all, and [this is] probably because of the financial crisis."
The global situation has affected business, says Ramadan Hassan, manager of the Hotel Vienna, a 20-bed hostel in downtown Cairo. "Of course there is a difference between business before and now."
Garana argues that while tourism will be hit globally, Egypt is well positioned to deal with the fallout. "I believe that Egypt is going to be the least affected by it," he says, noting that domestic tourism has a number of advantages in this more challenging global environment. "Egypt is a year-round destination," the tourism minister notes, also pointing to "the diversity and the variety of products [available to tourists]." He adds that for the cost, Egypt has "good value."
Egypt does have a number of characteristics that make it strong as a potential destination for travelers, Cooper argues. In addition to its unique cultural status, Egypt is "very competitive" as a leisure tourism destination, he says, citing its location, weather and the ease of air travel to reach it. "If you don't have airlift, you're not going to have guests in hotels," Cooper adds. The government has been concentrating on increasing the infrastructure for this type of travel, says Garana, who points out that 80 percent of those visiting Egypt come by air. Just last month, a new LE 3.1 billion terminal at Cairo International Airport opened.
The value that Egypt presents tourists, another oft-cited advantage for what the domestic tourism sector has to offer, is now also under some pressure. While Egypt is still a reasonably-priced destination, the appreciation of the Egyptian pound against the euro and British pound is a potential problem for the sector, as this makes Egypt relatively more expensive. Two of the top four markets sending tourists to Egypt, Germany and Italy, use the euro, while the UK is the third largest exporter of tourists to the country.
"We found a lot of other countries devaluating their currencies 20 to 30 percent," says the tourism minister. "On the other hand, the Egyptian pound is so strong that we're losing a competitive edge vis-à-vis the other countries," he adds, citing Turkey as an example.
Given the gravity of the situation facing the industry as a result of the current global economic situation, a response of some form is certainly in order. The Ministry of Tourism has made moves to deal with the worldwide crisis, says Garana. "We were one of the very first nations in the world to react to the global meltdown," the tourism minister says, pointing out that the ministry has been consulting with stakeholders in the tourism sector in response to the situation.
As for getting the word out about Egypt, "we're introducing a very intensive and aggressive marketing campaign with tour operators," Garana adds. "You have to know that 62 percent of our business comes out of 10 countries," he explains. "We are focusing very much on this, plus of course we're focusing more on the eastern European countries, because I believe that they were the least affected by the economic meltdown."
Garana says that the government is cooperating with tour operators. "They are the best people to relay the message of what they can offer to their clients," he says.
While efforts are being made to keep attracting tourists, confronted with the specter of declining numbers, players in the tourism industry face the temptation of slashing prices in order to lure more customers.
Even before the crisis in the world's financial system that erupted in October, weakness in the global economy combined with increases in room supply was expected to lead to a "softening" in both occupancies and room rates by mid-2009, Darwish explains, with a fall in room rates anticipated by 2010 or 2011. October's conflagration pushed expectations for the timing of this softening forward, she argues. "I think we will really see a decline in room rates and occupancies in 2009," she notes, pointing out that room rates already began to fall in the last two months of 2008.
The danger of cutting prices is that it takes a while to bring them back up, explains Garana. "It has [been] proven that [lowering] prices really affects the industry tremendously, and the country at large, because from what we have seen in the past, [for] the cycle to go back to its normal figures takes between five and seven years," he argues. "That's why we were very much aware of that, and this is one of the main things we reacted to quickly."
But as things slow down, a warning from the ministry is unlikely to be enough to dissuade more players from cutting their prices. The tourism minister points out that a significant portion of the sector, particularly leisure tourism, relies on charter travel, which has three actors: tour operators, suppliers and airlines. In charter travel, the impetus to slash prices is high, Garana explains. "You have to take very quick decisions, because an empty seat will never be replaced when it flies empty; same thing with a bed; same thing with the cost of a tour operator."
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