BSAC. The Tourism Sector IN EGYPT. American Chamber of Commerce in Egypt. August WITH THE SUPPORT OF ASSOCIATE SPONSORS

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1 Tourism is Egypt s largest source of foreign exchange and a key engine of growth. The sector witnessed rapid growth during the last decade, with a 25% share of the Middle East market. Despite the recent downturn due to the September 11th attack on the U.S. and political conflict in the Middle East, long-term expectations for tourism remain optimistic. To accelerate the recovery of the sector the Government of Egypt has adopted a series of policies and measures in support of tourism projects and to boost demand to higher levels. American Chamber of Commerce in Egypt SECTOR HIGHLIGHTS Tourism in Egypt attracted 4.5 million visitors and generated an estimated $3.8 billion in The greatest numbers of tourists visiting Egypt are from Europe, representing over two-thirds of all foreign visitors. Tourists visiting Egypt for leisure and entertainment outnumber those visiting for cultural and historical sightseeing. Cairo is the main tourist destination followed by the Red Sea and South Sinai. There are 21 existing and 19 planned national protectorates in Egypt. Tourism education in Egypt was initiated in 192, with private sector participation in tourism and hotel education beginning in Aviation is the leading mode of transport used by international tourists. In addition to the creation of a website to market Egypt as a tourist destination, several information technology activities were initiated in 2001 to increase tourism growth in Egypt. The planned future growth in hotel capacity coupled with increasing hotel privatization offers significant opportunities for hotel management companies. The Tourism Sector IN EGYPT Foreign firms manage the majority of four and five star hotels in Egypt. The U.S. has the largest market share among foreign hotel management companies in Egypt. WITH THE SUPPORT OF August 2002 ASSOCIATE SPONSORS THE AMERICAN CHAMBER OF COMMERCE IN EGYPT Business Studies & Analysis Center 33 Soliman Abaza Street Dokki Cairo Egypt Tel: (20-2) Fax: (20-2) Website: studies@amcham.org.eg BSAC Business Studies & Analysis Center

2 Business Studies & Analysis Center BOARD OF GOVERNORS 2001 / 2003 The Business Studies Series of the American Chamber of Commerce in Egypt provides accurate, timely and concise information on a specific sector or economic issue to the benefit of doing business in Egypt. Potential opportunities are highlighted and strengths and weaknesses are put in perspective. Recommendations are presented as conveyed from sector specialists. 2000/02 PUBLICATIONS The Tourism Sector in Egypt August 2002 Information Technology in Egypt April 2002 The Insurance Sector in Egypt August 2001 Telecommunications in Egypt July 2001 The Egyptian Capital Market June 2001 The Egyptian Pharmaceutical Industry February 2001 Solid Waste Management in Egypt September 2000 The Egyptian Petroleum Industry August 2000 Egypt - U.S Trade Statistics May 2000 Egypt 2000: The Stable Emerging Market March 2000 Egypt - U.S. Trade Relations March 2000 Exporting to COMESA and South Africa February 2000 President Mohamed Mansour, Mantrac Executive Vice President Dan McCarthy, General Motors Egypt Executive Vice President Mohamed Ozalp, Ozone Financial Advisors Vice President, Membership Anis A. Aclimandos, Transcentury Associates Vice President, Program Hamed Fahmy, Allied Corporation Vice President, Legal Affairs Thomas Thomason, Intergen Treasurer Omar Mohanna, Global Protection Members of the Board Raouf Abdel Messih, Technoram Holding Yasser El Mallawany, Commercial International Investment Co. Dr. Hala Helmy El Saeed, DAS International Rodney Eichler, Apache Egypt Companies Spencer King, International Executive Services Corp. Past President Dr. Ahmed Shawki, Mostafa Shawki & Co. Executive Director Hisham A. Fahmy 1999 PUBLICATIONS The Egyptian Banking Sector September 1999 The Dairy Sector in Egypt June 1999 The Egyptian Capital Market June 1999 The Egyptian Insurance Sector June 1999 East Port Said International Distribution Center March 1999 Mega Projects in Egypt: New Horizons for Development February PUBLICATIONS Fertilizer Sector Outlook December 1998 North Sinai Development Project December 1998 Industrial Development in the North-Western Gulf of Suez September 1998 Information Technology in Egypt August 1998 Egypt s Financial Liberalization and The General Agreement of Trade in Services (GATS) August 1998 Egyptian Textile Industry & GATT July 1998 South Valley Development Project (Toshka & East Oweinat) May 1998 PRODUCED BY THE AMERICAN CHAMBER OF COMMERCE IN EGYPT Business Studies & Analysis Center Khaled F. Sewelam, Manager - Business Studies & Analysis Center Research Supervisor Amira A. Sheha Senior Economic Researcher Rasha El Salawy Economic Researcher Georgina S. Sorial Assistant Economic Researcher Deana Elimam Administrative Assistant Rania Sabsouba RESEARCHED BY MONA M. MANSOUR Private Participation in Power Generation Project in Egypt (BOOT) March 1998 AUGUST 2002 Bank Ranking 199 February 1998

3 THE TOURISM SECTOR IN EGYPT 2002 Business Studies and Analysis Center, American Chamber Of Commerce In Egypt. All rights reserved. This publication or any part of it may not be reproduced, stored in a retrieval system, or transmitted in any form or by any means without the prior permission of the Business Studies and Analysis Center. All information in this report is verified to the best of the Author s and the publisher s ability. However, the center does not accept responsibility for any loss resulting from reliance on it.

4 ACKNOWLEDGEMENT The researcher would like to express deep appreciation and gratitude to the following experts for their support and valuable comments throughout the preparation of this study: Ahmed El-Maghraby Chairman, the Egyptian Federation of Tourist Chambers (EFTC). Ahmed G. Abul-Azm Head EIA Central Department and Acting Head of Env. Mang. Sector, Egyptian Environmental Affairs Agency. Ahmed M. El-Khadem General Manager, Egyptian Federation of Tourist Chambers (EFTC). Ahmed El-Nahas President, Egyptian Hotel Association; Consultant, Hilton International. Alaa Hafez Chairman, Max Rent Car and Limousine Services. Elhamy El-Zayat Chairman and CEO, Emeco Travel. Essam Abdel-Aziz Sharaf (Dr.) Professor, Faculty of Engineering, Cairo University; Advisor to the Minister, Ministry of Transport. Hussein Abou Seida Managing Director, Egyptian Resort Co. Hussein Badran (Dr.) Advisor, Human Resources Development and Training Studies; Executive Director of the National Skills Standards Project, the Egyptian Federation of Tourist Chambers (EFTC). Ibrahim Dessouki (CHA) General Manager, Rowad Tourism Co. Khaled Khattab Director of Quality and Training, IESC/CBS-Egypt. Mamdouh El-Beltagui (Dr.) Minister, Ministry of Tourism, Egypt. Mark A. El-Awadi (CHA) Area Vice President - Egypt and General Manager - Cairo, Conrad Hotels. Mohamed Hassouna Supervisor of Financial Evaluation and Analysis Department, Technical Department, Public Enterprise Office. Mohamed Ozalp President, Ozone Financial Advisors. Mohamed Sakr (Dr.) Advisor to the Minister, Ministry of Tourism, Egypt. ii AmCham BSAC 2002

5 Mohamed Souka Chairman, Scorpio Aviation. Mona Kabel General Manger North Africa, KLM. Mostafa Fouda (Dr.) Director, Nature Conservation Sector, Egyptian Environmental Affairs Agency (EEAA). Mostafa A. Saleh (Dr.) Head of Environmental Affairs Department, Environmental Quality International (EQI). Nazmy A. Farag Under-Secretary of State and Advisor to the Chairman, Egyptian Tourist Authority (ETA). Sameeh Sawiras Vice President, Orascom. Tarek Hamdy (Eng.) Marketing and Sales Manager of Marsa Alam Area Development, M.A. El-Kharafi Group. Tarek Nabhan (Dr.) Director, Firm Level Assistance, Center for Business Support (CBS). Ulrich Huth General Manager, Cairo Marriott Hotel and Omar Khayyam Casino. The American Chamber Of Commerce In Egypt would like to thank Dr. Naglaa El-Ahwany, Professor of Economics, Faculty of Economics and Political Science, Cairo University, for her valuable review of this study. AmCham BSAC 2002 iii

6 EXECUTIVE SUMMARY Global tourism has experienced remarkable worldwide expansion over the last half century, despite a slight drop in 2001 due to a decrease in economic growth and the September 11 th attack on the U.S. Tourism in Egypt has witnessed rapid growth during the last decade. With a share of around 25% of the Middle East tourism market, Egypt has witnessed a tourism growth rate of 10%, higher than the world average (7%). In 2000, international tourist arrivals reached 5.5 million, a growth rate of 14.8% from This growth is reflected by an increase in international tourist nights, international tourist receipts, hotel occupancy levels, and hotel capacity, particularly in the Red Sea and South Sinai areas. However, this growth saw a decrease in 2001 because of the political conflict in the region and the September 11 th attacks. Egypt attracts tourists for a range of purposes, mainly recreational, to a variety of destinations, and from a variety of countries, particularly from Europe. The tourism sector makes a significant contribution to the Egyptian economy, representing around 4.4% of GDP and 7% of total employment if only the direct effect is considered. However, when secondary/indirect effects are taken into account, these percentages rise to 11.% and 15%, respectively. Tourism is also the largest foreign exchange earner in the country, with receipts reaching a value of US$4.3 billion. External factors affecting tourism growth include political instability, the impact of the Euro/Dollar relation on hotel prices (especially for Europeans), and foreign competition, including from other Mediterranean countries, such as Turkey. The GATS agreement will result in greater foreign competition, but also in a potential transfer of foreign technology and skills to Egypt enhancing service quality. Internal factors that affect tourism growth include the institutions responsible for tourism development. Institutional obstacles include administrative complexity, financing limitations, and fees and taxes. Policies that impact on tourism growth are the exchange rate policy, tourism regulations, environmental policies, pricing policies, and marketing policies. Human resources, particularly education and training, and tourism-related services, including travel agencies, tourist guides, public tourist establishments, transportation, and infrastructure, are other important factors. In 2000/2001 investment in tourism was worth L.E.99.3 million, representing a significant and growing share (7.3%) of total investment. Investment opportunities are presented by the TDA, specifically in the Red Sea, Aqaba Bay, Ain El-Sokhna, Ras Sudr, and Ras El-Hekma areas. In addition investment opportunities related to privatization, hotels, tourism-related services, and eco-tourism exist. The tourism sector in Egypt is experiencing growth in both supply and demand, creating potential investment opportunities. Despite the recent decrease due to the September 11 th attack and political conflict in the region, long-term expectations for tourism in Egypt remain optimistic. After presenting an overview of the sector, this study presents recommendations regarding responses to GATS, institutional developments, fees and taxes, the reform of key tourism regulations, environmental development, marketing development, appropriate pricing strategies, human resources development, transportation, and some general suggestions. iv AmCham BSAC 2002

7 TABLE OF CONTENTS List of Figures List of Tables List of Maps List of Acronyms PART I: Global Outlook Global Market Regional Highlights PART II: The Tourism Sector in Egypt Market Profile Market Size International Tourist Arrivals (ITA) International Tourist Nights (ITN) International Tourist Receipts (ITR) Hotel Occupancy Levels Hotel Capacity Market Segmentation By Purpose of Visit (Attraction) By Tourist Destination By Country Tourists from the United States Economic Importance Impact on GDP Impact on Employment Impact on Income Impact on Taxation Impact on Investment Impact on BOP and Foreign Exchange PART III: Factors Affecting Tourism Development in Egypt External Factors Political Stability Demand-Side Factors Supply-Side Factors The September 11 th Attack on the U.S. The Euro/Dollar Relation External Competition The General Agreement on Trade in Services (GATS) Negative Impact Positive Impact Internal Factors Role of Institutions Ministry of Tourism Tourism Development Authority (TDA) Egyptian Tourist Authority (ETA) Conference Centers Authority (CCA) Egyptian Federation of Tourist Chambers (EFTC) Institutional Obstacles Administrative Obstacles Financial Obstacles Fees and Taxes Policy Implications viii ix x xi AmCham BSAC 2002 v

8 TABLE OF CONTENTS Exchange Rate Policy Regulations Environmental Policy Pricing Policy Marketing Policy Human Resources Educational Background Obstacles Programs Tourism-Related Services Travel Agencies Tour Guides Public Tourist Establishments Transportation Infrastructure PART IV: Investment in Tourism Investment Opportunities TDA Investment Opportunities Red Sea Area Aqaba Bay Area Ain El-Sokhna Area Ras Sudr Area Ras El-Hekma Area Privatization Investment Opportunities Background Information Investment Opportunities Investment Potential in Hotels Investment Potential in Eco-Tourism Investment Opportunities in Tourism-Related Services Infrastructure Public Establishments U.S. Participation in the Tourism Sector PART V: Recommendations GATS Provisions Institutional Development Fees and Tax Regulations Regulations Adjustments Environmental Development Marketing Development Pricing Suggestions Human Resources Management Infrastructure and Transportation Development General Suggestions PART VI: Conclusion SWOT Analysis Future Outlook vi AmCham BSAC 2002

9 TABLE OF CONTENTS Selected References Appendix One: Application for a Preliminary Approval of Site Allocation for the Establishment of Tourism Project Appendix Two: Procedures and Stipulations for Limited Tourism Development Projects Appendix Three: Procedures and Stipulations for Integrated Tourism Development Projects Appendix Four: Vocational and Managerial Levels in the Tourism Sector Appendix Five: National Protectorates in Egypt Appendix Six: Transportation Maps Appendix Seven: Tourist Development Area Maps AmCham BSAC 2002 vii

10 LIST OF FIGURES Figure 1 Figure 2 Figure 3 Figure 4 Figure 5 Figure Figure 7 Figure 8A Figure 8B Figure 9 Figure 10 Figure 11 Figure 12 Figure 13 Figure 14 Figure 15 Figure 1 Figure 17 Figure 18 Figure 19 Figure 20 Figure 21 Figure 22 Figure 23 Figure 24A Figure 24B Figure 25A Figure 25B Figure 2 Figure 27 Figure 28 Figure 29 Figure 30 Figure 31 Figure 32 Figure 33 Growth in World Tourism ( ) International Tourist Arrivals ( ) Tourist Nights in Egypt ( ) International Tourist Receipts ( ) Hotel Occupancy Levels by Tourist Destination ( ) The Growth of Hotel Capacity ( ) Annual Average Growth Rate of Capacity (Existing Room Numbers) for the Main Tourist Desitinations ( ) Hotel Capacity by District (2000): Existing Hotel Capacity by District (2000): Under Construction Tourism by Purpose of Visit (2000) International Tourist Arrivals by Quarter ( ) Tourist Share by Destination (2000) Growth in Tourist Arrivals to Main Tourist Destinations ( ) Tourism in Egypt (2000) Tourists from the U.S. ( ) Nights Spent by U.S. Tourists ( ) Economic Impact Analysis: Components and Steps Effect of Political Instability on International Tourist Arrivals Euro Appreciation Against the Dollar ( ) The Contribution of the TDA to Growth in Hotel Capacity in Egypt ( ) The Share of Tourist Districts in the Existing Number of Rooms Average Annual Growth Rate for the Main Tourist Destination ( ) Public Tourist Establishment by Tourist Destination (2000) Modes of Transportation Used by International Tourists (2000) The Four Types of Flights: Percentage of Flights (1999) The Four Types of Flights: Percentage of Passengers (1999) Planned Capacity and Associated Investment Cost for TDA Tourist Destinations (2017): Capacity Planned Capacity and Associated Investment Cost for TDA Tourist Destinations (2017): Investment Planned Capacity for Current Centers in the Red Sea Area (2017) Planned Capacity for Planned Centers in the Red Sea Area (2017) Planned Capacity for Centers in Aqaba Bay (2017) Planned Capacity for Centers in Ain El-Sokhna (2017) Planned Capacity of Centers in Ras Sudr The Numbers of Rooms by Hotel Classification (2000) Economic Class of International Tourist Arrivals to Egypt (199) Cost of Infrastructure for Planned Hotel Capacity in TDA Destinations viii AmCham BSAC 2002

11 LIST OF TABLES Table 1 Table 2 Table 3 Table 4 Table 5 Table Table 7 Table 8 Table 9 Table 10 Table 11 Table 12 Table 13 World s Top 15 Tourism Destinations (2001) International Tourist Arrivals (ITA) by Region (1999 & 2000) International Tourist Arrivals (ITA) and International Tourist Receipts (ITR) for Africa (1999 & 2000) International Tourist Arrivals (ITA) and International Tourist Receipts (ITR) for the Americas (1999 & 2000) International Tourist Arrivals (ITA) and International Tourist Receipts (ITR) for East Asia and the Pacific (1999 & 2000) International Tourist Arrivals (ITA) and International Tourist Receipts (ITR) for Europe (1999 & 2000) International Tourist Arrivals (ITA) and International Tourist Receipts (ITR) for the Middle East (1999 & 2000) International Tourist Arrivals (ITA) and International Tourist Receipts (ITR) for South Asia (1999 & 2000) Hotel Capacity for Different Tourist Destinations (2000) Hotel Capacity for TDA Tourist Districts (June 30 th 2001) Privitized Tourism Companies (as of February 28 th 2001) EGOTH Assets Offered for Sale Future Tourism Growth to AmCham BSAC 2002 ix

12 LIST OF MAPS Map 1 Map 2 Map 3 Map 4 Map 5 Map Map 7 Map 8 Map 9 Map 10 Map 11 National Protectorates in Egypt Existing and Planned Airports in Egypt River Transport Network and Seaports in Egypt Current Main Road and Highway Network in Egypt Future Main Road and Highway Network in Egypt Tourism Development Projects Red Sea Tourism Area Aqaba Bay Tourism Area Ain El-Sokhna Tourism Area Ras Sudr Tourism Area Tourist Areas and Investment Priority Zones in Egypt x AmCham BSAC 2002

13 LIST OF ACRONYMS CULTNAT National Center for the Documentation of Natural and Cultural Heritage EEAA Egyptian Environmental Affairs Agency EFTC Egyptian Federation of Tourist Chambers EGOTH Egyptian General Organization for Tourism and Hotels EAHC Egyptian Aviation Holding Company EHA Egyptian Hotels Association EIA Environmental Impact Assessment ETA Egyptian Tourist Authority GATS General Agreement on Trade in Services HTC Holding Company for Housing, Tourism and Cinema IFAO Institut Français d Archéologie Orientale IRD Institut de Recherche pour le Development ITA International Tourist Arrivals ITN International Tourist Nights ITR International Tourist Receipts MCIT Ministry of Communications and Information Technology RCA Revealed Comparative Advantage SITA Société Internationale de Télécommunications Aéronautiques TDA Tourism Development Authority WTO World Tourism Organization WTTC World Travel and Tourism Corporation AmCham BSAC 2002 xi