Egypt struggles to recover tourism, investment
Friday, February 10, 2012
Image: Mabuhelwa.
Standard & Poor's downgraded Egypt's currency rating for the second time in four months based on the country's shorfall in foreign reserves and shaky political transition. It's the latest development for a nation facing mounting economic diffuclties.
Egypt's foreign reserves fell by over 50 percent last year to about US$16 billion. Egypt has requested US$3.2 billion from the International Monetary Fund to bolster its reserves and prevent a devalation but that could take months.
Experts say that Egypt's problem of attracting foreign investment and tourists, which are two sources that would increase reserves, has already caused the Egyptian pound to lose 1 percent of its value and if the country doesn't solve the shortfall in foriegn currency, it could even lead to a further currency devaluation within the next two to three months.
The long-term solution is to restore tourism and foreign investments but both are suffering because of the continuing unrest.
Tourism
Image: Schreibkraft.
Egyptian tourism suffered this past year as a result of a revolution, a transition to an elected government, and continuing signs of unrest and instability.
The Egyptian Revolution began on January 25 last year and President Hosni Mubarak resigned over two weeks later on February 11. The protests have continued as Egyptians grew uncomfortable with the military's control over the transition. At the start of this month, 79 people were killed at a soccer event in Port Said.
Tourism in Egypt accounted for US$12.5 billion in 2010 but fell 30 percent, or US$8.8 billion, in 2011, according to Mounir Fakhry Abdel Nour, Egypt's tourism minister. Tourism accounts for 11.6 percent of Egypt's GDP.
Image: Markh.
Last week, two U.S. female tourists and their Egyptian guide were abducted in the Sinai peninsula by Bedouin tribesmen and released shortly afterward.
The kidnapping took place in broad daylight on a busy road while the tourists travelled after a visit to St. Catherine's Monastery. Masked tribesmen stopped their bus, abducted the tourists by gunpoint, and escaped into the mountains. Three other tourists of unknown nationalities were left on the bus. Local authorities organized a search which ended in negotiations with local Bedouin tribesmen. The Bedouin demanded the release of recently apprehended tribesmen, who had been detained for drug trafficking and robbery. The US hostages were released unharmed, Abdel Nour said.
As a location, Egypt boasts ancient pyramids, the Nile River, Biblical sites like Mount Sinai, museums, and Red Sea coastal resorts. Last year the number of tourists plunged from fifteen million people down to nine million, which is a 40 percent drop.
Image: Crashsystems.
The low amount of tourism to Egypt has also affected tourism in other countries. Stas Misezhnikov, Israeli tourism minister, said that Israeli tourism is down because the flow of tourism from Egypt's Sharm el-Sheikh resort is "almost nonexistent right now."
Investment
Egypt's current investment climate is also severely hampered by the perception that the climate is not yet right for investment.
Mulyani Indrawati, managing director of the World Bank, said investors were not ready to get back into the markets of the Arab Spring countries until stability is restored but the situation has also been exacerbated by the precarious state of the regional and international economy.
Egypt's domestic politics is threatening one of the country's largest stable sources of foreign investment. The United States' annual military aid to Egypt accounts for US$1.5 billion. U.S. politicians have threatened to withhold that aid package, however, because of an investigation into pro-democracy NGOs that involve 19 American citizens and more U.S. money. Senator John Kerry said the Egyptian investigation is a "dangerous game that risks damaging both Egypt's democratic prospects and the U.S.-Egyptian bilateral relationship."
Faiza Abou el-Naga, who is the Egyptian minister who distributes Egypt's aid money, a former Mubarak loyalist who survived through the transition, and one of Egypt's most visible female politicians, claims the NGOs are meddling in her country's sovereignty. Both the Muslim parties who won the election and the generals in power are backing those hearings. Her argument that foreigners are meddling in Egypt also has a populist appeal.
The military government's slow transition is also stalling foreign investments. Khaled bin Mohamed al-Attiya, foreign minister of Qatar, said a few weeks ago his government is holding back from making US$10 billion in investments because power has not been transferred to an elected government. The other Middle Eastern countries that pledged investments, such as Saudi Arabia and United Arab Emirates are also waiting.
The Egyptian government announced this week that it was investigating Yasser el-Mallawany, an investment banker with EFG Hermes based in Cairo, for allegedly paying soccer fans to riot at Port Said, a charge which el-Mallawany dismissed and attributed to gossip.
Meanwhile, investors within Egypt are looking for other investment vehicles such as real estate as they fear holding cash in a period of devaluation.
Florence Eid, who is an expert on Middle Eastern economies at U.K. Arabia Monitor, said the situation throughout the Middle East could get worse. "People are frustrated because the reasons that they revolted against to begin with, are still there," Eid said. "Whoever said this was going to be smooth was naive."
Related news
"One year on: Egyptians mark anniversary of protests that toppled Mubarak" — Wikinews, January 25, 2012
Sources
- "S&P downgrades Egypt on politics, currency fears" — The Economic Times, February 10, 2012
- Alaa Shahine and Saleh Sarrar. "News Analysis: Egypt traders seek security in dollar" — Business Day, February 9, 2012
- Patrick Werr (Reuters). "Egypt foreign reserves fall, add to pressure on pound" — The Daily News Egypt, February 8, 2012
- Suleiman Al-Khalidi (Reuters). "Unrest clouds Mideast outlook: World Bank" — ArabNews.com, February 8, 2012
- Ernesto Londono. "Woman behind Egypt's NGO pursuit a Mubarak holdover" — CBS News, February 8, 2012
- Associated Press. "EFG Hermes’s CEO says travel ban is part of the pain of Egypt’s revolution" — The Washington Post, February 5, 2012
- Eva Tasche. "Arab world battles to regain tourism market share after revolutions" — Bikyamasr, February 7, 2012
- Ken Stephens. "Tourism’s mixed picture in ‘11" — The Jewish Week, February 7, 2012
- Ashraf Sweilam, AP. "Gunmen free 2 Americans, Egyptian guide kidnapped near Mount Sinai" — Winnipeg Free Press, February 3, 2012
- "US tourists seized in Egypt's Sinai peninsula freed" — BBC News Online, February 3, 2012
- "Death Toll Climbs After Egypt Soccer Protests" — Channel3000.com, February 4, 2012
- David D. Kirkpatrick. "Egyptian Soccer Riot Kills More Than 70" — New York Times, February 1, 2012
- Al-Masry Al-Youm. "Qatar waiting for 'stability' before launching Egypt investment projects" — Egypt Independent, January 26, 2012
- Ahmed Kamel. "Business: A year of ups and downs" — The Egyptian Gazette, January 25, 2012
External links
Egyptian Pound (EGP) in US Dollar (USD)
