Sector spotlight series [Pt 3]: The tourist industry


Business Forward’s “Sector Spotlight” series is a collaboration with the Egyptian Center for Economic Studies (ECES), presenting sector-specific insights based on ECES’s series “Views On The Crisis”: a sectoral analysis of how the outbreak is affecting different parts of the Egyptian economy.

Part three of this series dives into one of Egypt’s oldest and most treasured industries, one which the country is famous for worldwide: tourism. The sector reached a peak in 2010 when it welcomed around 15 million tourists from abroad. Instability and terrorist incidents rocked the sector for the rest of the decade but was set for a massive resurgence in recent years, only to be hit by the COVID-19 pandemic. How was it looking just before the virus arrived on Egypt’s shores and how was it impacted by the crisis? And what does the road ahead have in store?

Before COVID-19, more than half of Egypt’s foreign tourists – who make up 90 percent of the tourism sector – came from Europe, with just under a quarter coming from other Middle Eastern countries. According to the latest available data, the tourism sector employed 9.5 percent of the country’s workforce.

Directly and indirectly, tourism makes up around 12 percent of Egypt’s Gross Domestic Product (GDP). Since 2017, the sector was on its way up, rebounding from years of decline.

In 2017/2018, nearly 10 million tourists visited Egypt, growing almost 50 percent from the previous year, with a 102 percent increase in the number of reserved tourist nights. In 2018/2019, the sector recorded the highest ever revenue in its history, reaching $12.6 billion.

The upward trend continued into the 2019/2020 financial year where the first quarter from July to September, tourism revenues reached $4.2 billion dollars, compared to $3.2 billion the same quarter of the previous year. The sector was expected to achieve a revenue of $16.7 billion by the end of 2019/2020.

Then, from December 2019 to February 2020, “a remarkable boom was observed” in the sector, raking in $4 billion, with half of that coming in during February alone.

During those months “work was going normally. In addition to the return of European airline companies, we expected tourism to continue its upward trend into the rest of 2020,” says Tito, an employee who handles bookings at a small boutique hotel in the South Sinai town of Dahab, a major tourist destination for locals and foreigners.

“But then Corona came and wiped out everything. [Dahab] was empty.”

After the COVID-19 crisis spilled across the globe exponentially, Egypt experienced a decrease of up to 80 percent in new bookings during the second week of March compared to March 2019. Europe quickly became the pandemic’s hotspot, depleting Egypt’s biggest source of foreign tourists. 40 percent of reservations by Spanish tourists alone were cancelled during March.

Flights in and out of the country were then suspended, hotels, restaurants and cafes were shut down and a nationwide curfew was imposed to stem the spread of the virus, effectively bringing tourism to a complete halt. An estimated loss of $6 billion is expected from all revenue for the financial year 2019/2020.

The Central Bank of Egypt (CBE) has taken several steps to financially protect the tourist industry against the COVID-19 shock. One step was a Ministry of Finance-approved EGP 3 billion credit guarantee for tourism financing. Another was a EGP 50 billion support initiative, of which EGP 3 billion will be paid towards salaries and maintenance. Additionally, loans specifically tailored to tourism companies were approved with decreased interest rates.

However, Tito says that so far employees such as himself did not receive any financial help. He reveals that many tourism workers in Dahab were not paid their March and April salaries, while still being employed and working for tourist establishments. “I myself have also not been paid my salary for March and April.”

The government loosened restrictions in mid-May by allowing domestic tourism to resume albeit at a limited capacity, with only hygiene certified hotels opening with a maximum occupancy rate of 25 percent.

Over the Eid holiday, hotels in South Sinai reached average occupancy rates of 8 percent, according to Abdel-Fattah Al-Assi, Assistant Minister of Tourism and Antiquities, in an interview with the state-owned newspaper, Al-Ahram Weekly, adding that the North Coast also saw lows of 4 percent. However, occupancy rates were at the 25 percent maximum in Ain Sokhna.

Abdel-Hamid Abu Youssef, CEO of Orascom Development, also told Al-Ahram Weekly that the partial opening of hotels “was a good start towards the gradual recovery of the tourism industry” but conceded it would not be enough to cover hotels’ operating costs. On a positive note, he saw the reduced occupancy rates as an opportunity to test the new COVID-19 measures hotels are now having to abide by.

By June, around 155 resorts and hotels were granted permission to host domestic tourists and occupancy rates were further expanded to 50 percent.

After taking all the required measures and bringing in the health ministry’s regulations, Tito says his hotel just recently received their official certification to begin welcoming guests again. “Everyone in Dahab, the big hotels and the small hotels have been taking measures” to achieve certification.

He added, however, that maximum occupancy rates cannot apply to all hotels. “It’s okay to impose that on big hotels with 50 or 40 rooms, but how are you going to impose that on hotels with seven or eight rooms?”

The government additionally decided to take a regional approach on where to allow foreign tourism to make a comeback, restricting them to coastal regions such as the Red Sea and South Sinai where infection rates have been very low. Cairo, having the highest number of infections in the country, remains under travel restrictions.

Ali El Manasterly, president of the Egyptian Travel Agents Association, also announced that hotels in Alexandria and the North Coast would be able to have 100 percent occupancy in July and August.

However, the sector is still at the mercy of global demand. Ukraine will not lift a travel ban to Egypt until August, while Germany will not lift theirs until September. Italian tourists might possibly start returning in July.

Nevertheless, the tourism industry will need to guard against slipping into complacency and avoid potential incidents to protect its long-term reputation.

Hamed Shamma, an associate professor at the AUC School of Business and BP Endowed Chair who specializes in reputation management and customer experience management, told Business Forward of the road ahead which the sector must be cautious with.

“We have to be very careful about the opening of touristic destinations and make sure that it will lead to a positive experience for tourists,” he says. “Tourism is about dealing with people more than anything else. Anything that influences how people feel, experience and most importantly their health, will affect the reputation of the tourism industry.”

Shamma believes that so far, the sector is taking all the precautionary measures seriously to ensure they can adequately deliver their services to tourists and are quite aware of the repercussions of a slip-up. “This is important for all stakeholders in the industry as a bad reputation would significantly harm the industry in the long term.”

“Reputations are built over time but can be ruined overnight because of an incident,” he added.

Business Forward asked Tito if restaurants and cafes in Dahab were enforcing social distancing measures. “You want me to tell you the truth?” he asks rhetorically. “The truth is that none of that is happening.” Everyone has been cleaning and disinfecting their premises, but essentially, “everyone will be responsible just for themselves.”

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