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BMI's Egypt Tourism Report analyses the investment potential which Egypt offers to large tourist industries - particularly global hotel groups - as they seek to harness the growth opportunities being offered by the local market over the long term. However, over the short term, still-high political risk will continue to act as a clear suppressant to tourism demand.
The past quarter has seen a significant increase in political uncertainty in Egypt, with the country likely to remain in a state of political flux for the foreseeable future, following the popular uprising and military intervention that removed President Mohamed Morsi in July 2013.
In August 2013, the situation turned more violent, with the Egyptian army's dispersion of pro-Morsi protestors at the Rabaa al-Adawiya
and Nahda sites in Cairo leading to the deaths of more than 600 people, according to government sources, but over 2,500 according to the Muslim Brotherhood. This is one of the highest death tolls Egypt has experienced, possibly surpassing the bloodiest days of the overthrow of President Hosni Mubarak in 2011.
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More worryingly, the actions of the army could pave the way for an uptick in domestic terrorism - a situation that would have profound negative implications for the country's tourism sector. Moreover, prolonged uncertainty and instability would be negative for economic reform, potentially undermining Egypt's appeal as an investment and tourism destination.
Against this backdrop, the short-term outlook for the Egyptian tourism sector has worsened significantly. As of end-June 2013, inbound tourist arrivals were up by 13% year-on-year, at 5,924,360. However, despite this strong H113 performance, we now believe that the situation on the ground has now shifted dramatically and that a downward revision to our 2013 inbound tourist arrivals forecast is necessary.
We are now forecasting a 2.0% rise in full-year tourist arrivals, to 11,762,500, down from a previous forecast of 9%. This figure could be subject to further downward revision, dependent on how the security situation unfolds over the coming months.
Looking at inbound tourism flows by region, Europe is the largest source market for Egypt, accounting for 69.0% of the total forecast for 2013 - a figure we see remaining largely unchanged over the forecast period to 2017. However, it remains to be seen what impact the recent political unrest will have on arrivals from this key source market, with the Associated Press reporting in August 2013 that France's Association of Tour Operators had 'suspended tours to Cairo, the Red Sea and all other cities until further notice'. The same report also stated that Italian cruise company Costa Crociere has also cancelled all Red Sea cruises and port calls in Egypt for its 2013-2014 winter season.
If the significant security challenges facing Egypt can be overcome, and there are no guarantees that they can be over the coming months, then there are still reasons to be cautiously optimistic on the longer-term outlook for the tourism industry. The country boasts extensive tourist infrastructure and well-regarded resort destinations, with a weak outlook for the Egyptian currency also likely to see the country favoured as a 'low-cost' destination by tourists from the US and Europe.
Among new hotel openings scheduled for 2013 and 2014 are Accor Hotels' 265-room Novotel Marsa Alam, which would be the fifth Novotel property in Egypt, and Marriott Hotels' 335-room Courtyard by Marriott Mirage City.
Marriott Hotels' independently-operated Ritz-Carlton division is also undertaking extensive renovation works ahead of its assumption of management for the former Nile Hilton, owned by local partner Misr Hotels. The new 331-room Nile Ritz-Carlton, Cairo is scheduled to open in 2014 and will mark Ritz - Carlton's debut in the Egyptian capital.
In 2016, Hilton Hotels and Resorts is set to open the 257-room Hilton Cairo Nile Maadi, in what would be Hilton's sixth property in the Egyptian capital.
Egypt maintains its Industry Risk/Rewards Rating score of 48.81, putting it in eighth position in the Middle East and North Africa (MENA) region, behind Saudi Arabia and ahead of Lebanon. However, we caution that downside risks to Egypt's rating are growing significantly.
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