Egypt’s tourist industry hit hardest by terror fears

Posted on August 22, 2016

Egypt is bearing the brunt of a slump in tourism to Muslim-majority countries in the troubled Mediterranean region, with the number of foreign tourists tumbling 46.5 per cent year on year in the first quarter of 2016, according to the UN World Tourism Organisation.

The informal boycott will be a deep blow to a country where the travel and tourism industry accounted for 11.4 per cent of gross domestic product and 10.5 per cent of employment — some 2.6m jobs — last year, according to the World Travel & Tourism Council

The heavily indebted north African country saw its current account deficit jump 37.5 per cent year on year in the first quarter, forcing it to go cap in hand to the International Monetary Fund for a $12bn bailout, as the slide in tourism arrivals had contributed to a severe shortage of foreign currency.

The slump in tourist arrivals follows an explosion on a Russian plane which had taken off from the Egyptian resort of Sharm el-Sheikh in October 2015. The bombing, which killed all 224 passengers and crew and was claimed by Isis jihadis, added to the woes of a tourism industry already battered by fears over political instability and violence.

“A lot of airlines are still not flying to Sharm el-Sheikh, particularly the British airlines,” said David Scowsill, president and chief executive of the WTTC, as the data showed an acceleration in the rate of decline of Egypt’s tourism sector, with international arrivals down 28.9 per cent in the final quarter of 2015.

To the west, Tunisia saw tourist arrivals fall 18.7 per cent in the first quarter, extending a 25.2 per cent slide to 5.4m visitors in 2015.

The decline comes in the wake of two terrorist attacks targeted at tourists in 2015, the slaughter of 38 foreign tourists in the resort of Sousse in June and an attack on the Bardo Museum in Tunis in March that left 23 people dead.

Tunisia is even more reliant than Egypt on travel and tourism, with the sector accounting for 11.5 per cent of jobs and 12.6 per cent of GDP last year, despite its contraction, according to the WTTC. The country’s current account deficit has doubled to 9 per cent of GDP since the “Arab Spring” in 2011.

Elsewhere in the region, Turkey has also seen an acceleration in the rate of contraction of its tourism sector.

UNWTO data suggest international tourist arrivals fell 9.9 per cent year on year in the first three months of 2016 (with a 16.8 per cent drop in revenues), exacerbating a 2.6 per cent slide in the previous quarter, as the industry was hit by a catalogue of woes.

However, more timely figures from Turkey’s ministry of culture and tourism point to a 34.7 per cent year-on-year slump in arrivals to 2.5m in May.

“Turkey is probably in the worst shape, with terrorist bombs, the migration crisis, the impact of the Syrian war on its border, the spat with [President Vladimir] Putin and finally the failed coup,” said Mr Scowsill.

The WTTC believes that the economic value generated by Turkey’s travel and tourism industry will fall 3.2 per cent this year, a sharp worsening of the 0.2 per cent contraction it predicted in March.

Nevertheless, Mr Scowsill argued there were reasons to believe Turkey might recover more quickly than either Egypt or Tunisia.

Direct travel and tourism GDP growth 2016

March 2016 forecast (%) July 2016 forecast (%) Difference
Brazil -0.9 -1.6 -0.7
China 6.1 6.2 0.2
France 2.9 1.1 -1.8
India 7.1 6.6 -0.5
Japan 3.7 1.4 -2.3
South Africa 3.9 1.5 -2.4
Saudi Arabia 4.4 2.8 -1.6
Turkey 0.2 -3.2 -3.4
UK 3.8 3.6 -0.2
US 2.8 2.9 0.1
Source: Oxford Economics, World Travel & Tourism Council

First, one big drag was Russia’s decision to ban its people from holidaying in the country after the Turkish air force shot down a Russian fighter jet for briefly encroaching on Turkey’s airspace in November 2015.

Last year Russians accounted for about 5m of Turkey’s 40m international tourists, according to the WTTC. In May, Turkey saw just 41,000 Russian tourists, down 91.8 per cent from the same month last year, according to the Turkish government.

However, the feud between Russia and Turkey now appears to have been resolved and Russian tourists are starting to return.

Secondly, Mr Scowsill said that past experience showed more “random” acts of terror, such as those targeted at the UK, Spain and France in recent years, tend to have less of a long-term impact on tourism than attacks specifically targeted at holidaymakers, as seen in both Egypt and Tunisia.

In the case of London and Madrid, tourism levels “returned to normal quite quickly”, he said, while countries in the same boat as Tunisia and Egypt typically “take two to three years to recover”.

In Turkey’s case, the bulk of the bombings attributed to both Isis and Kurdish separatists have been directed at the Turkish people, military and police in Ankara and Istanbul, although a suicide attack in Istanbul in January, that killed at least 10 people, was directed at foreign tourists.

Nevertheless, Mr Scowsill said “the hotels and beaches in Antalya and Izmir are still in pretty good shape”, with those areas so far, at least, remaining safe. “We expect [Turkish tourism] to rebuild quite nicely next year if there are no bombings in the tourist areas.”

Portugal, Italy, Spain, Malta and Bulgaria are shaping up to be the biggest winners as tourists opt for seemingly safer locations, he added, with each seeing visitor numbers rise by between 20 and 35 per cent so far this year.

Thailand is another country where tourism appears to be holding up well, despite a bomb attack on a Bangkok shrine in August 2015 that left 20 people dead.

Mr Scowsill said that there were “a lot of cancellations from China and Korea” in the two months following the attack, but that by the end of 2015 “inbound tourism had hit record levels”.

Although it is too soon to know for sure, he did not believe a series of bomb blasts witnessed this month would have any meaningful impact on arrivals.

Overall, the WTTC forecasts that global travel and tourism GDP will increase 3.1 per cent this year, below the 3.3 per cent it estimated in March, driven by expectations that global economic growth will slow to 2.3 per cent this year, half a percentage point below the previous forecast, based on analysis from Oxford Economics.

Despite the Olympics, it now sees a 1.6 per cent contraction in tourism GDP in Brazil, worse than the 0.9 per cent fall it pencilled in in March, as a result of political turmoil and the worsening economic backdrop, which is likely to sap domestic tourism revenues.

“The country is in a very deep, dark hole at the moment,” said Mr Scowsill, who believed Olympics-related tourists will simply have displaced other would-be visitors.

Russia is also expected to see a 1 per cent decline in travel and tourism revenues, again because of economic weakness hitting domestic spending, a factor likely to also weigh on growth in Saudi Arabia and South Africa, as the chart shows.

South Asia is forecast to enjoy the fastest growth, of 5.9 per cent, due to “strong economic prospects in India”, Mr Scowsill said, predicting 6.6 per cent growth for India’s travel and tourism industry this year, ahead of the 6.3 per cent likely in China.

The WTTC believes the impact from the UK’s Brexit vote will be small this year, but significantly larger in 2017 when, “given sterling’s weakness and weaker UK macro consumer spending”, it predicts “a much weaker outlook for UK outbound departures”.

Developed countries such as Ireland, Spain and France could bear the brunt of this, given the high share of UK visitors in their tourism mix. Among emerging economies, India, the United Arab Emirates and Turkey would appear to be most vulnerable, with UK visitors currently accounting for between 6 per cent and 12 per cent of international arrivals.

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