Egypt's Tourism Hurt by the Global Financial Crisis

UNCLAS CAIRO 000077

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EINV PGOV PREL EG
SUBJECT: Egypt's Tourism Hurt by the Global Financial Crisis

1. (U) SUMMARY: Signs of a slowdown in the Egyptian tourism sector
are beginning to emerge as a result of the global economic crisis
and may have a significant impact on revenues, employment and growth

in 2009. Tourism in Egypt is the top foreign exchange earner and
made up 19% of forex revenues in 2008. Tourism, particularly in the
Red Sea beach resorts, is also being hurt by the crisis in Gaza.
END SUMMARY.


2. (U) Tourism is Egypt's largest source of revenue. Over the last
twenty five years, Egypt has significantly expanded its tourism
infrastructure and diversified its offerings beyond Pharaonic
antiquities to include five-star beach destinations and the breadth
of Egypt's unique cultural heritage. The sector has faced setbacks
before, such as attacks on tourist targets in the 1990's, but it has
recovered and continued growing. Now, as tourism infrastructure
continues to expand, the industry is being confronted by another
significant challenge, the global financial crisis.


3. (U) On January 12, Minister of Tourism Mohamed Zoheir Garanah
announced that 12.8 million tourists visited Egypt in 2008, up 15.3%
from 2007. They spent 129.2 million nights in Egypt, up 15.9%. The
sector generated revenues of $10.98 billion in 2008, compared to
$9.5 billion in 2007. Tourism accounts for 6.6% percent of GDP, and
contributes indirectly to an additional 4.7%. It also accounts for
19.3% of foreign exchange revenues, 40% of total services exports,
12.6% of employment, and 4% of total investment.


4. (U) Egypt's tourism industry is feeling the impact of the global
economic slowdown. This year, hotel bookings are down 30%, and the
media reports that occupancy rates in hotels in the Red Sea and
Aswan during the New Year's holiday dropped to 45% and 65%
respectively. Recently, officials from South Sinai's tourism
development office reported that some hotels in Taba and Nuweiba may
be shut down as a result of falling demand, and others might be
closed until the spring. Some hotels and tourist villages in
southern Sinai and some floating hotels in the Nile between Luxor
and Aswan have had to lay off part-time seasonal workers as a result
of a decline in the occupancy rate. In Cairo, major hotels have
reported to us that occupancy rates are about fifty percent,
compared to a normal rate of 60-70 percent at this time of year.
More recently, we have also heard accounts of cancellations related
to the crisis in Gaza, particularly in the Red Sea beach resorts,
which are popular with Israeli tourists.


5. (U) In 2008, the largest number of visitors to Egypt came from
Russia, followed by Germany, the UK and Italy. All four countries
have recently gone into a recession, and their currencies have
depreciated markedly (10-20%) against the Egyptian Pound over the
last few months. The Minister of Economic Development, Osman
Mohammed Osman, told the Middle East News Agency that Egypt could
lose between $5 billion and $6 billion in foreign revenue in 2009.
Last year, Egypt posted real GDP growth of 7.2%, but declines in
tourism will undoubtedly affect overall growth, which the World Bank
now projects will be 4.5% in the 2008/09 fiscal year.


6. (U) In response, the Government of Egypt has implemented several
measures to address the crisis, including increased marketing,
particularly in new markets in Asia and eastern Europe; efforts to
improve service quality; and incentives for low-cost air carriers
and charter flights. On January 12 the Ministry of Civil Aviation
announced a six-month exemption from take-off and landing fees for
charter flights landing at Luxor, Aswan and Abu Simbel airports,
provided that companies operate flights three times a week.


7. (U) Comment: A slowdown in tourism will have a substantial
negative impact on the Egyptian economy and employment. This,
combined with declining Suez Canal revenues and projected declines
in worker remittances from the Gulf (septel),spells even more
trouble for the economy this year and will present significant
challenges for the government.