The October 31 downing of Russian Metrojet Flight 9268 over Sinai claimed all 224 lives on board, dealing another blow to Egyptian officials who have been trying to convince the world that Egypt is safe and open for both business and tourism. Most of the victims were Russian tourists returning home from their sun-and-sea holiday, a form of tourism that makes up 80 percent of the sector in Egypt. Russians make up one-third of visitors to Egypt, and the blanket ban imposed by the Russian government on all flights between Russia and Egypt in the wake of the crash has devastated the tourism sector. Given the importance of tourism in the wider Egyptian economy for jobs and foreign currency, authorities are struggling to find new approaches to boost the sustainability of the sector.
Egypt’s tourism sector peaked at 13.8 million visitors in the fiscal year (FY) ending June 2010, before the 2011 uprising. The low point was in FY 2013–14, when fewer than 8 million tourists visited Egypt and revenues were half pre-uprising levels. The 2014–15 fiscal year saw a rebound to 11.6 million tourists, indicating the tourism sector was on track for a significant recovery. However, reactions to the plane bombing all but brought tourism to a halt again. Latest official estimates expect tourist arrivals to drop to 9 million in the current fiscal year.
Since the Islamic State claimed responsibility for the bombing, questions have been raised about Egypt’s control over security in Sinai. Russia and the West agree that a bomb caused the crash, and even though Egypt’s preliminary investigation ruled out foul play, the county is taking a cautious approach and is planning to put in place better security measures at its airports. Still, several countries, including the United Kingdom and Germany, issued travel warnings against transit through Sharm el-Sheikh airport soon after the Russian airliner was brought down, setting off a string of cancellations for Egypt-bound travel. The quagmire for Egyptian authorities was compounded on December 7, when the Russian airline announced that it would claim compensation from Egypt.
Egypt is no stranger to attacks against tourists. In February 2014, a tourist bus was bombed in Sinai, killing two South Koreans. In September 2015, eight Mexican tourists were killed when the Egyptian military mistook their tourist convoy for militants. Popular tourist destinations like Sharm el-Sheikh and Luxor have been sites of several attacks over the years. In addition, a series of attacks in Cairo this year—including the assassination of public prosecutor Hisham Barakat in June—have also presented a challenge to security forces.
This is being felt in tourism’s large contributions to employment and foreign currency reserves. One in eight workers in Egypt is directly or indirectly engaged in tourism, which generates 11 percent of the GDP. In a country where unemployment has been hovering around 13 percent for the past couple years, the loss of tourism jobs will deal a heavy blow to a government that has prioritized tackling unemployment.
Furthermore, tourism revenues are a large source of much-needed foreign currency. Tourism receipts halved from $9.8 billion in FY 2012–13 to $5.1 billion in 2013–14, representing 12.7 percent and 7.5 percent of foreign currency earnings respectively. The 2014–15 fiscal year saw an improvement to $7.4 billion. However, revenue recovery has stalled since then, with the third quarter of 2015 showing a 15 percent decline compared to the same period the previous year. A steeper drop is expected as the industry reels in the aftermath of the Russian plane disaster. In September, Minister of Tourism Hisham Zazou set a 2016 revenue target of $10 billion, a figure that will likely be revised downwards in light of the crash.
Along with remittances, foreign direct investment, exports, and Suez Canal receipts, tourism is one of Egypt’s largest sources of foreign currency. As the Central Bank struggles to maintain Egypt’s ability to import strategic goods such as energy and wheat while defending the Egyptian pound and guarding against inflation, steady sources of hard currency are needed. While gifts and loans from the Gulf have alleviated pressures on the Central Bank, Egypt’s tourism sector, if restored, would provide a more sustainable form of foreign currency.
One option to reinvigorate the sector is to diversify the sources of tourism. Together, Russian and British tourists to Egypt once numbered about 4 million per year and represented two-thirds of the arrivals to Sharm el-Sheikh. Already wary of putting all their eggs in one basket—especially as a weaker ruble led to a decline in Russian visitors—tourism officials launched the “Egypt is Close” media campaign in March in the hope of drawing more Arab tourists, who formed between 12 and 23 percent of visitors to Egypt—compared to Europeans who made up 60 to 70 percent of visitors—before the 2011 uprising. Just days before the Russian plane crash, Egypt was set to launch a broader campaign to explore new tourist markets. Authorities decided to postpone this initiative indefinitely in light of the tragedy.
Diversifying source markets for tourists not only hedges risk, it allows Egypt to attract new tourists who spend more and stay longer. Officials aimed for tourist expenditures of $81 per day this year compared to $74 last year, but expenditures per tourist have not risen because operators cut fees to attract more tourists. This is compounded by a weaker Egyptian pound, meaning fewer dollars spent. Rather than slashing prices to retain market share, tourism authorities can help operators consider new approaches, offering different products to encourage longer visits and deeper spending. Long-haul tourists, who tend to spend more, primarily come to Egypt from countries outside the Middle East and Europe looking for the once-in-a-lifetime cultural experience. Marketed appropriately, refreshing existing historical sites and exploring new ones spurs such cultural tourism.
Around 80 percent of Egypt’s visitors come for beach holidays, and most of the rest come for antiquities and cultural tourism. But Egypt has a lot more to offer than these two areas. For example, the desert and the coast offer abundant opportunities for ecotourism. Several unique eco-lodges already exist but mainly host Egyptian residents. Egypt’s 27 protected areas—covering 15 percent of the country’s landmass—offer plenty of room to develop an ecotourism subsector. In addition, sea and river cruises such as ones between Cairo and Abu Simbel can be developed and upgraded. With 2,450 kilometers of coastline on the Mediterranean and Red Sea, 44 specialized ports, and an unparalleled array of historical attractions along the Nile, Egypt has the potential to become a hub for marine tourism. Finally, Egypt has great potential to develop medical and wellness tourism by marketing treatment with relaxation.
By looking outward at new markets and inward at harnessing Egypt’s tourism potential, the government will simultaneously tackle two major economic priorities: jobs and currency. At the same time, securing the country and working to prevent acts of terrorism are critical to prevent the sharp fluctuations that the Egyptian tourism sector has seen.
Mustansir Barma is an international economic and business policy analyst. He was previously Senior Economic Researcher at the American Chamber of Commerce in Egypt and currently does investment policy and promotion work for the World Bank.
