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Tourism industry in Egypt

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					      Sectoral Survey
Economic Research Division




                             Egypt's Tourism
                                Industry




                                           October 2010

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Sectoral Survey

    Contents
     1. The significance of tourism to Egypt's Economy.

     2. The impact of the global financial crisis on Egypt's

       tourism industry.

     3. Measures taken to support tourism industry.

     4. Egypt's tourism industry positioning in 2009.

     5. Egypt's tourism structure
       5-1 The Demand side
       5-2 The Supply side


     6. Egypt's tourism industry investments.

     7. Tourism sector indices in EGX.

     8. Tourism outlook.

     9. Recommendations .




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Sectoral Survey

                              Egypt's Tourism Industry

    Abstract

         Tourism has become one of the leading sectors in the process of economic
    growth and the highest in terms of generating new job opportunities because of
    being a labor intensive industry and its interdependence with other sectors.
         Although the negative impacts of the financial crisis that has broken out in
    the second half of 2008 on the Egyptian economy in general and tourism sector
    specifically , the state has succeeded in overcoming these impacts thanks to the
    set of policies and procedures it has adopted to support the industry preserving
    its pre crisis levels of performance.
         Moreover, the government is adopting a strategy to develop this industry
    based on the supply side and diversifying tourist products through pumping
    public investments with a relatively fixed percentage of the GDP as a part of the
    consecutive national 5 year plans plus investments made by the private sector.
    On the other hand, the strategy is targeting the demand side through opening
    new markets while keeping the current ones.
         Therefore, tourism is an industry with a good potential for the future;
    however, this potential is subject to the economic recovery in developed
    countries and the end of the existing recession.
           This study includes many axes of which: the importance of the tourism
    industry to the Egyptian economy, the impacts of the financial crisis on tourism
    in Egypt, the measures taken by the state to support this industry, the Egyptian
    tourism strategy on both demand and supply sides, public and private sector
    investments in tourism industry, the performance of the tourism industry in the
    Egyptian Stock exchange, the outlook and recommendations.




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Sectoral Survey

    1) The significance of tourism to Egypt's Economy
      • Over the last two decades, tourism has proven to be a fast growing
         economic sector, with an average growth of 25% per year in arrivals over
         the past 4 years and a 32.5% increase in receipts.
      • Tourism in Egypt has long been a driving engine of growth and one of the
         largest sources of foreign currencies. Its share represent 19.3% of total
         income of foreign currencies.
      • The tourism sector is considered as one of the principal generators of
         employment, accounting for 12.6% of the employed population. Tourism
         as a labour intensive industry creates jobs in almost 70 related sectors.
      • Tourism industry effectively contributed to generating value added, job
         opportunities and enhancing Egypt's balance of payments as well as
         boosting tourism industry-related industries and activities through what is
         known as tourism multiplier.
      • Tourism sector contribution to GDP - at factor cost in constant prices –
         increased in 2009/2010 to 9% from 4% in 2008/2009, and it grew by 12%
         in 2009/2010 from 1.3% only in 2008/2009.
      • The sector is growing better than the economy as a whole in all years
         above except in FY 2008/2009 as it recorded a rate of 1.3% vs 4.7% as
         for the economy.
      • In spite of the serious consequences of the financial crisis, the tourism
         sector succeeded in achieving remarkable tourism revenues in FY
         2008/2009 to reach US$10.5bn down from US$10.8bn in FY 2007/2008
         and the sector continued its growth to reach US$11.6bn in FY 2009/2010.




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Sectoral Survey

                      Tourism contribution to the Egyptian economy
                                           2009/2010      2008/2009   2007/2008   2006/2007
    Tourism revenues (US$m)                 11591.3         10487.6    10826.5     8183.0
    Growth rate (%)                            12               1.3     21.5        13.2
    Contribution to GDP (%)                     9               4.0      4.1         3.5
    Source : Monthly statistical bulletin – different issues.
              Ministry of Economic Development.


    2) The impact of the world financial crisis on Egypt's tourism industry
    Because of the recent global financial crisis, the situation in Egypt was the same
    as in many other countries : fewer tourists and less travel have led airlines,
    hoteliers and holiday companies to lose clients and to earn less, some of them
    going to be bankrupt, as a result. Egypt has already felt the heat of the crisis,
    witnessing the following :
       • Egypt posted an 2.4% annual decline in visitors, falling from 12.8m in
           2008 to 12.5m in 2009.
       • 30% down in hotel booking in January 2009 vs. the same month in 2008.
       • Some resorts reported a 50-60% drop of their high-season average, other
           reported a drop of 25%, operators of Nile cruses reported a 30-40% drop
           in tourist booking, Tourism in Cairo is down by nearly 40.6%.


    3) Measures taken to support tourism industry
       • With the aim of protecting the market from the negative impacts of the
           global economic crisis, the Ministry of Tourism agreed to exempt tourism
           transportation companies from promotion fees paid to the government, as
           the industry runs around 12,000 buses and vehicles, which pay EGP50 /
           seat in large buses and EGP100 / seat in smaller vans.
       • Also, hotels would be exempted from paying contributions to the
           country's tourism promotion authority, besides a new fund was set up to
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Sectoral Survey

          support the tourism industry during this crisis. Furthermore, new start-up
          charter flight providers would be supported through cutting fees for
          landing and take off at the Egyptian airports by 50%.
       • The Ministry of Tourism decided to postpone raising the fees imposed on
          floating hotels which use the Ministry's docking stations in Luxor, as the
          Ministry was supposed to increase these fees starting 2009, with the
          current fees ranging between EGP350-550per night.
       • Tourism incentives includes the sale of land at $1 per square meter in
          designated tourism zones.
       • The government doesn't follow a price reduction strategy that already
          adopted by other countries since prices in Egypt were already very
          affordable and any extra reduction would affect the quality of services
          offered.
       • The government altered advertising campaign to focus more on Egypt as
          affordable holiday destination.


    The measures taken succeeded in achieving remarkable performance, this
    can be shown in the performance of tourism sector during Q1 2010 as
    follows :
       • An increase in tourists number by 29% vs a deline of 13% during Q1
          2009.
       • An increase in tourism revenue and touristic nights by 24% vs a decline
          of 18% during Q1 2009.




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Sectoral Survey

    4) Egypt's Tourism industry positioning in 2009
        • Egypt, a country so rich in cultural heritage, ranks a low 64th overall of
            133 countries in the TTCI* and this is despite a number of clear strengths
            beyond      the   cultural   richness.   As   Egypt   has   excellent   price
            competitiveness, ranked 5th overall with low comparative prices overall,
            including fuel prices. Further, the government is prioritizing the sector,
            with relatively high government spending on travel & tourism and
            ensuring the country's presence at major tourism fairs. This level of
            prioritization is reflected in some policy areas such as the favourable
            policy on visa requirements. On the other hand, the country's
            infrastructure is underdeveloped, particularly tourism infrastructure
            (85th). An upgrading of the quality of the country's human resources
            available to work in the sector, ranked 69th, would also improve the
            country's overall travel and tourism competitiveness.
        • Egypt Occupied the seventh place among African countries in terms of
            competitive index according to the Africa competitiveness report 2009
            issued by world economic forum.
        • Egypt represents 4% of the annual increase in international tourist flows.
            Besides the Egyptian tourism represents 1% of the world tourism market.




      ---------------
      * Travel & Tourism Competitiveness Index




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Sectoral Survey

    5) Egypt's tourism structure
    5-1 The Demand Side
        - Number of tourist arrivals amounted to 12.3m. in FY 2008/2009 vs the
            same No. in FY 2007/2008.
        - Number of tourist nights declined by 3.1% from 127.4m night in FY
            07/2008 to 123.4m night in FY 2008/2009.
        - Number of tourist arrivals amounted to 10.3m during the first nine months
            of FY 2009/2010 vs. 9.3m in the counterpart period with a growth rate of
            11%, while it increased by 17% in Q3 of FY 2009/2010 compared to the
            corresponding period of FY 2008/2009.
        - Break-down of Number of tourist nights (in million nights) from the top 10
            markets can be represented as follows :
    Market                            2007/2008        2008/2009        Change %
    Russia                               16.6            13.4             (19.3)
    Germany                              13.4            13.6              1.5
    Britain                              11.3            12.3              8.8
    Italy                                9.3              9.7              4.3
    France                               5.2              6.0              15.4
    Libya                                5.1              5.5              7.8
    Saudi Arabia                         5.6              5.5             (1.8)
    Poland                               3.8              4.0              5.3
    Sudan                                3.2              2.9             (9.4)
    Neitherlands                         3.2              2.9             (9.4)
    Total                                76.7            75.8


    Source : Ministry of Economic Development.




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Sectoral Survey

       • The Top ten markets represented 61.4% and 60.2% of the total number of
           tourist nights in FY 2008/2009 and FY 2007/2008 respectively.
       • FY2008/2009 witnessed a slight drop of 1.2% in the number of tourist
           nights from those markets.
       • The Russian market topped the list of visitors and registered a dramatic
           drop of 19.3% in FY 2008/2009 compared to the previous year. This drop
           attributed to the recent huge devaluation in the Russian currency.
       • Some markets achieved a positive growth rate. These markets are Britain,
           Libya, France, Italy, Germany and Poland.
       • The other markets achieved a negative growth rate. These markets are
           Sudan, Saudi Arabia, Neitherlands and Russia.


    Tourist Nights Breakdown as percentages by region
                         Region                   2007/2008 %          2008/2009 %
    European countries                                 73.8                74.2
    Middle East countries                              13.6                13.6
    African countries                                   3.2                3.5
    America                                             3.9                3.9
    Asia & the Pacific                                  5.3                4.5
    Other countries                                     0.2                0.3
                                                       100%               100%


    Source : Ministry of Tourism.


    The Break-down above indicates that there is no tangible change in the structure
    of tourist nights by Region.




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Sectoral Survey

     5-2 The Supply Side
       •   On the supply side, the Egyptian tourism sector has seen numerous
           developments in different areas, such as marketing, ICT infrastructure and
           human resources.
       •   New tourism niche areas – such as sports tourism, health and therapeutic
           tourism, shopping tourism and residential tourism – have evolved as a
           result of on going efforts to upgrade the quality of the sector.
       •   Tourism development strategy adopted by the government qualitatively
           and quantitatively aims at affecting both tourism demand and supply
           sides. In other words the strategy aims at realizing tangible increase in
           tourists flow movements along with suitable increase in the supply of
           touristic services without negative effects on price levels, service quality
           and visitors segments.
       •   Fixed and floating hotels and touristic resorts in Egypt amounted to 1486
           with accommodation capacity of 213 thousand hotel rooms in 1/7/2009.


     6) Egypt's tourism industry investments
       •   Tourism investments in 6 consecutive 5 year plans amounted to
           EGP49.5bn, of which 86% were private sector investments. Egypt has
           lately become an attractive investment option, due to the favourable
           policies adopted by the government and the improvement of the
           investment environment in general.




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Sectoral Survey

     The following table shows developments of the implemented investments in
     Egypt's tourism industry, during the different 5 year plans.
                                                                                         (In EGP)
                 The Plan                    Public       Private               Total
                                          Investments   Investments       EGP        Of Total of
                                                                                    all Economic
                                                                                        Sectors
     - First 5 year plan FY 1982/1983 –   255.1         1619          1874.1       3.3
     1986/1987
     - Second 5 year plan FY              450           3600          4050         3.0
     1987/1988 – FY1991/1992
     Third 5 year plan FY1992/1993 –      994.8         7393          8387.8       3.5
     FY1996/1997
     Fourth 5 year plan FY1997/1998 –     2246.8        7941          10187.8      3.2
     FY 2001/2002
     Fifth 5 year plan FY 2002/2003 –     1956.9        12508         14464.9      2.8
     FY2006/2007
     Sixth 5 year plan FY 2007/2008 –     979.5         9533          10512.5      3.5
     FY2011/2012*
     Total                                6883.1        42594         49477.1
     Source : Ministry of Economic Development.
     * Includes FY 2007/2008 & 2008/2009.


         • All 5 year plans above have a relatively stable share of the implemented
             investments in Egypt's tourism industry as a percentage of total
             implemented investments in all Economic Sectors.
         • The fifth 5 year plan has the biggest amount, EGP14.5bn, among all 5
             year plans but as a percentage it has the lowest share of 2.8% among all 5
             year plans.
         • The targeted touristic investments in the sixth five year plan is estimated
             to be EGP44.5bn of which EGP41.8bn is the contribution of the private
             sector.



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Sectoral Survey

     The following table shows the touristic activity targets in the current sixth 5
     year plan (2007/2008 – 2011/2012)
                                     Unit         Target FY     Target FY       Average
                                                  2007/2008     2011/2012   growth rate of
                                                                              the plan %
     No. of visitors         m. tourists      10              14.0          9.4
     No. of tourist nights   m. nights        100             140.0         9.4
     Tourism revenues        US$ bn.          8.5             12.0          9.2
     Hotel capacity          Thousand room    190             240.0         7.0
     Source : Ministry of Economic Development.


     The Ministry of Tourism plans to achieve the above – mentioned indicators
     beside creating some 1.2m new job opportunities at a rate of 200 thousand
     annually.
     To boost Egypt's Tourism industry the Egyptian government is upgrading the
     transportation networks such as railways, underground, Road Networks, high
     ways, river transportation, marine transportation and air transportation.
     According to the sixth 5 year plan, the holding company of airports and air
     navigation and its affiliates action plans include conducting many Mega projects
     of which :
       - Completing the new passenger building in Hurghada airport to absorb 7.5m
         passenger annually and widening the airport apron to absorb 29 aeroplanes.
       - Launching new passenger building in Bourg EL-Arab and widening the
         airport apron to absorb 1.0m passengers annually and 5 aeroplanes.
       - Finishing the passenger building No. 3 in Cairo airport.


     As for Egypt air and its affiliates, their action plans include conducting many
     projects of which :
       - Increasing No. of aeroplanes of Egypt air to reach 72 aeroplanes by the end
         of the sixth 5 year plan.

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Sectoral Survey

      - Purchasing 12 passenger scales for Egypt air ground services, 12 tractors and
        4 pallets to load goods.


     7) Tourism Sector indices in EGX
                - The travel and leisure sector has 16 companies listed in EGX.
                - The sector surged by 14.7% in Q1 2010 vs. negative growth of
                      10.1% in Q1, 2009. In addition the sector came in the fifth place in
                      terms of volume traded registering 687m shares worth EGP2bn.
                - The sector has an average P/E ratio* in March 2010 of 13.85% that
                      is better than those of other important sectors such as Banks, Real
                      estate and personal and household products.
                - The strong performance above indicates that the sector successfully
                      weathered the negative consequences of the financial crisis.


     8) Tourism outlook
     The long-term forecast for the tourism industry looks promising, as the sector
     showed double-digit growth in 2007 and 2008. Some 200,000 new hotel rooms
     are currently under construction, with the aim of increasing the country's room
     capacity by around 5% per year, reaching a total of 240,000 by 2011. Marsa
     Matrouh on the Mediterranean coast has been targeted for development- as of
     March 2010, there were 29 tourism projects under way in the area. Government
     anti-crisis stimulus packages targeting large infrastructure projects will help to
     improve the tourism sector's long-term competitiveness. While most visitors
     come to Egypt on package tours, the number of independent travelers is rising,
     expanding route networks of low-cost carriers such as Air Arabia and Easy Jet.
     --------------
     * P/E is the ratio of price to earning which is known as earning multiplier.



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Sectoral Survey

     The Ministry of Tourism has increased efforts to attract travelers from high-
     income Middle Eastern countries, while Asia and Eastern European markets are
     also being targeted. It is believed that Egypt will continue to be the region's
     largest tourist destination.
     It is worth mentioning that the rate at which the global economy picks up will be
     a deciding factor in whether Egypt's tourism industry makes a full recovery. The
     fact that an estimated 50 million workers lost their jobs worldwide could not be
     underestimated since a considerable number of these were potential travelers.

     9) Recommendations
        • Promoting the awareness of the importance of tourism as an export
           industry.
        • Encouraging and facilitating the foreign investments. Given incentives
           and tax break will attract rich investors from around the world to invest in
           Egypt.
        • Enhancing investments in infrastructure projects that support tourism
           industry.




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 Sectoral Survey

        Sources

             • World Economic Forum – Africa Competitiveness Report, 2010.

             • http://www.mop.gov.eg/investment htm.

             • http : //www.egyptse.com/ arabic/listed stock.aspx.

             • Country Business intelligence reports : Egypt 2010.

             • Amcham BSAC, Business Studies and Analysis Center, "Tourism sector

                  developments in Egypt", 2008.

             • Al-Ahram weekly / Egypt / Bolstering tourism. http://weeekly-

                  ahram.org.eg/print/2009/933/eg3htm/

        •           World Economic Forum, the travel & tourism competitiveness report, 2009.



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        Serial No. : 68/2010                                                    Date : 10/10/2010



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