SHARM AFTERMATH UPDATE

C O N F I D E N T I A L SECTION 01 OF 03 CAIRO 005945

SIPDIS

NEA FOR FO, NEA/ELA

E.O. 12958: DECL: 08/02/2015
TAGS: PTER ECON ASEC PREL EG
SUBJECT: SHARM AFTERMATH UPDATE

REF: CAIRO 5650 AND PREVIOUS

Classified By: CDA Stuart E, Jones for reasons 1.4 (b) and (d)

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Summary
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1. (C) Resilience among tourists and shock-absorbers in the
economic system may be calming initial fears regarding the
economic fallout of the July 23 Sharm El Sheikh attacks, but
near-term pain is still expected. Security forces reported
on August 2 that they had killed a prime suspect in the Taba
bombings of last October, Mohamed Ahmed Salih Fulayfel. Some
are linking him to the July 23 attacks. Security in Sharm
has been visibly increased, with new barriers and screening
points in and around the hotels. Hotel bookings are off, but
some recovery is anticipated in October with the traditional
arrival of Russian tourists and a campaign by Egyptian
celebrities to make Sharm a Ramadan destination for Arabs.
The GOE is partnering with state-owned enterprises and the
private sector to coordinate and fund rebuilding and to avoid
mass layoffs. Minister of Tourism El Maghrabi called on the
Charge July 31 to personally express his condolences for the
death of Amcit Kristina Miller. The official GOE death figure
stands at 64,however it likely underestimates the number of
British dead. The family held the funeral for Ghaleb
Tappouzzada, son of Embassy Cairo LES Ramy Tappouzzada,
August 1 in Cairo. End summary.

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Security Situation
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2. (C) Egyptian security forces reported on August 2 that
they had killed a prime suspect in the October 2004 Taba and
Nuweiba bombings, Mohamed Ahmed Saleh Fulayfel, during a
clash near Mount Ataqa (11 miles west of the town of Suez).
According to reports, security forces were conducting
investigative operations in connection with the Sharm attacks
when the clash ensued. Fulayfel's wife was reportedly
wounded and was transported to a nearby hospital. Fulayfel
was being tried in absentia for his suspected role in the
2004 bombings. Some sources have been linking Fulayfel to
the July 23 bombings. Authorities announced on July 28 that
forensic evidence identified what is believed to be the lone
suicide bomber in the Sharm attacks as Yusuf Badran, a known
Islamist militant from the Northern Sinai.


3. (C) Minister of Tourism El Maghrabi told Charge that
security in Sharm and other tourist destinations was being
scrutinized and enhanced where necessary. Tourism contacts
and local press reports confirm increased physical security
barriers around hotel car parks and the broader
implementation of vehicle access restrictions, such as a
requirement to surrender of one's drivers license upon entry.
Additional security measures have also been put in place to
restrict lobby access.


4. (C) ECPO LES employees report that many of their contacts
accuse Minister of Interior Habib Al Adly of incompetence,
saying that, even in light of the October 2004 bombings, Al
Adly's attentions have been more focused on confronting
political demonstrations than counterterrorism preparations.
Those who expected his firing shortly after the bombings --
as happened to his predecessor after the 1997 Luxor massacre
-- now believe that Mubarak doesn't want to risk any
instability in the MoI in the run-up to elections this fall.
The MoI has been on a 24/7 "state of alert" since the blasts
and all employee leave has been cancelled indefinitely. Some
contacts in Ministry circles still believe Al Adly is on his
way out, and mention the names of Assiyut Governor Ahmed
Hammam and Kafr El Sheikh Governor Salah Salama as potential
replacements.

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Economic Impact
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5. (U) Tourism is Egypt's largest foreign exchange earner,
directly accounting for 10 percent of GDP and employing 10
percent of the workforce.


6. (U) Although it's still early, the overall economic impact
of the attacks seems to be less than initially feared. The
Ministry of Tourism estimates a 10 percent drop in tourism
revenues for 2004-2005, from USD 6.5 billion to USD 5.85
billion. A July 25 EFG-Hermes study of previous negative
shocks to the tourist industry finds that the periods of
decline in tourist arrivals subsequent to a shock have been
relatively short, with a recovery usually occurring within
six months.


7. (U) The study also offers two aftermath scenarios: one
based upon a 14 percent drop in tourism revenues in 2004-2005
to USD 5.5 billion and one assuming a 35 percent drop to USD
4.2 billion. In both cases, the current account balance is
forecast to drop from pre-attack estimates of 4.2 percent of
GDP to 2.8 percent (optimistic) and 2.1 percent
(pessimistic). The study also posits that Egypt's status as a
net exporter of liquified natural gas, a comfortable level of
reserves at the Central Bank (USD 19.2 billion as of 6/05)
and of net foreign assets in the financial system (USD 13
billion as of 5/05) will serve as shock absorbers for the
overall economy.

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Hotels
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8. (C) Fergus Stewart, the general manager of the Hyatt
Regency Sharm El Sheikh (please protect) painted for us a
challenging, but not bleak, picture of the months ahead. He
noted that his hotel is still 60 percent booked for August
(down from 92 percent prior to the blasts),but he expects a
weak September. According to press reports, hotel occupancy
rates overall in Sharm have dropped from nearly 100 percent
occupancy to about 60 percent.


9. (C) He added, though, that October brings hopes for
recovery with the arrival of what is traditionally a big
season for undeterred Russian tourists. Egyptian actors and
other public figures have launched a campaign to promote
travel by Arabs to Sharm during the upcoming Ramadan season
(roughly October 4 - November 2, 2005). The Hyatt GM,
although admittedly optimistic as compared to many of his
colleagues, anticipates occupancy rates to be back to normal
by November. The outlook for hotels catering to
Egyptian/Arab tourists is gloomier, however, with business
having "dried up" for August. Occupancy rates in Cairo,
Luxor and Aswan are reportedly at normal levels.


10. (SBU) Anecdotal evidence suggests that hotel
cancellations are trending along national lines. Italians
left en masse after the bombings while hoteliers describe the
British market as "strong as ever." The Coral Reef Hotel,
which caters primarily to Italian clients, is fielding only
10 percent occupancy at present. (Press reports indicate
Italy lifted its travel warning August 2.) The fact that UK
tour operators allowed fully refundable cancellations only in
the first week after the attacks may have aided the British
tourists' resiliency.


11. (SBU) Local government has stepped in to try and prevent
any mass layoffs of hotel workers. According to hotel
managers, the South Sinai governate issued a circular to all
hotels and businesses instructing them not to lay off workers
or they would face "penalties," and providing a hotline for
any workers that are let go. Hotels, some of which have
transferred labor to extra maintenance duties, may be forced
to begin layoffs barring an October recovery. Press reports
indicate that some hotels are assigning mandatory leave and
reducing salaries.

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Transport
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12. (U) Egypt Air Chairman Sherif Galal reported on July 31
that "bookings have returned to their levels of before the
attacks," due perhaps in part to 30 percent discounts on
Egypt Air's Sharm-bound flights. The Holding Company for
Maritime and Inland Transport reduced rates on bus services
to Sharm from Cairo and Alexandria by 35 percent in an effort
to attract tourists to the resort city.


13. (C) Caltex Egypt Country Chairman Ehab Eissa (please
protect) told Econoff he is keeping a close eye on what
effects fewer tourists will have on his downstream petroleum
sectors such as aviation fuel. Caltex focuses primarily on
retail products here and is a major concessionaire for
aviation fuel to Egypt's airports, including enjoying a 100
percent concession at the Marsa Alam airport which services
Egypt's southern Red Sea coast. He noted that, as of last
week, flight numbers had not decreased, but the passenger
numbers were heavily skewed towards departures. (Marsa Alam
is served primarily by charter flights from Europe.)

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Coordinated Response
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14. (U) Minister of Investment, Dr. Mahmoud Mohieldin, has
formed a delegation, including the heads of some of the
state-owned insurance, contracting, and tourism companies, to
visit Sharm and provide rapid assistance to the commercial
sector there. Private companies in the construction,
tourism, and other sectors have donated cash, expertise and
free materials to assist in the rebuilding effort. Public
pharmaceutical companies allocated LE 2 million (USD 350,000)
to aid the cause. The Egyptian press has reported that most
businesses in Sharm do not carry terrorism insurance.

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Minister of Tourism Pays Condolence Call
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15. (C) Minister of Tourism Ahmed El Maghrabi and a
delegation of Egyptian Tourism Federation (ETF) officials
visited the Embassy July 31 to express the GOE's condolences
on the death of Amcit Kristina Miller in the Sharm bombings.
Charge thanked the delegation for the gesture, reiterated
U.S. condolences for the loss of Egyptian life, and commended
the GOE's emergency response efforts. Charge relayed the
appreciation for the GOE actions expressed by Kristina
Miller's father following his visit here. El Maghrabi said
that the GOE and the ETF will reach out to the Miller family,
possibly inviting them to return to Egypt. The tour "would
not be a publicity event" but done quietly as a "humanitarian
gesture."


16. (C) El Maghrabi observed that if a silver lining did
exist in this tragedy, it is that Egyptian civil society has,
for perhaps the first time, gone beyond relativism and
strongly denounced terrorism.


17. (C) Regarding the Embassy's July 23 Public Announcement,
El Maghrabi said the GOE was "very understanding" and there
would be "no pressure" to rescind the announcement. He also
noted that the traveling public "reads advisories in a
realistic fashion" and, given the presence of President
Mubarak in Sharm and the upcoming Arab summit there, he feels
that people will perceive Sharm as a safe destination.
Charge explained our announcement/advisory system and said
that the U.S would work proactively to monitor the security
situation in the South Sinai governate and would amend the
announcement as the situation warranted.

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Casualty Update
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18. (C) State Security sources reported that there are 64
identified remains plus an additional 10 - 13 unidentified
partial remains. Officially, there are 15 foreigners dead: 6
Italians, 5 Turks, 1 Amcit, 1 Czech, 1 British and 1
unidentified foreigner. However, British Consul Mark
Rakestraw (please protect) told ConOff that they are
operating with the number of their dead at 10. Of those,
Rakestraw said that they have five with good identification,
two others that they will likely be able to confirm shortly,
and three that will have to await DNA results. Thus, the end
figure is likely to be higher than the current official
count. British forensic teams are on the ground in Sharm
solely to ID British victims; GOE has appreciated offers of
British assistance but has yet to accept any. Official
estimates put the number of injured at 107 with 20 of those
being foreigners.

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Condolences for Ramy Tappouzzada
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19. (U) The family of Embassy Cairo Human Resources LES Ramy
Tappouzzada held the funeral on August 1 for his 16 year old
son, Ghaleb, who was killed in the attacks.


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JONES