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Will Egypt's tourism industry once again prove resilient in the face of a terrorist attack?

Those who masterminded last Saturday's attack on the Red Sea resort of Sharm al-Sheikh aimed to kill and maim the largest number of people irrespective of their nationalities. The majority of the estimated 88 killed and 200 wounded were Egyptians. By placing a truck bomb in the Old Market, their goal was not only to frighten tourists but also to drive Egyptians working in the tourist sector to reconsider their options and rejoin the unemployment lines. Their intent was to constrain Egypt's economic recovery and preserve the misery and discontent that helps ensure new recruits.

By targeting Sharm al-Sheikh, which last year attracted 23 percent of Egypt's 8.7 million visitors, they targeted Egypt's largest single earner of foreign currency:

tourist receipts reached $6.1 billion in 2004 and were expected to bring $7 billion into the local economy this fiscal year. These revenues are essential for financing government spending, including the infrastructure investments needed to produce economic and social development.

Following Saturday's attacks, forecasts of gross tourism revenues for this year dropped to $5 billion from $5.5 billion. These levels are below those of two years ago when the industry was still reeling from the slump caused by the 1997 attack where 58 foreign tourists were killed at a historical temple in the southern town of Luxor.

Moreover, targeting tourism means targeting one of the most important employment generating sectors. The oil sector that accounted for a record export high of $5.5 billion in the fiscal year that ended this June is not labor intensive and employs a relatively small number of people. On the other hand, tourism is Egypt's biggest private employer - estimated to have an effect on the livelihood of 3 million workers. The hospitality sector alone employs over 650,000 Egyptians. Other related sectors such as food stands and motored vendors, taxi and bus transport services, and souvenir trades offer much needed opportunities for the development of small businesses that are classically considered the real long-term hope for growth and jobs.

Of course the attacks will have a serious impact on Egypt's tourism industry - for the next six months at the least. Some 6,000 tourists flew out in the first 24 hours following the bombings, and the resort is partially destroyed. However, it is too early to assess the long-lasting effect and whether this attack will have very serious implications for Egypt's economy. Egypt's main stock index, the best performer among 79 emerging markets tracked by Bloomberg, fell drastically after the attack, with tourism companies leading the decline. However, one has to take into account that following the decline provoked by the April 7th terrorist attack in Cairo, the Egyptian stock market rebounded within weeks and by July 21st was 26 percent higher.

Egypt is in the middle of an economic upswing thanks to tax cuts, rising business confidence, and high oil prices. The economy grew by 5.2 percent in the first quarter of 2005 versus 4.7 percent in the previous quarter, and tourism grew by 34 percent in 2004. There is a feeling that Egypt's economy is in good shape and can absorb the blow. On the other hand, with terrorism hitting Turkey and London along with Egypt this year, and Madrid and Bali last year, the international tourism industry seems to be coming to terms with the new reality that terrorist attacks can happen anywhere - with the result being that it takes less time now for tourist flows to recover after major attacks. One day after the attack, 900 tourists arrived to Sharm al-Sheikh and, according to the Egyptian authorities, the flow of tourists to other areas in Egypt is uninterrupted.

As optimistic as we may wish to be, however, it is a fact that the attack will have serious economic implications. The question is how to recover - and fast.

The Egyptian government seems to be on the right track and placing its priorities correctly by addressing the tourists' security concerns, pushing the investigation forward, and supporting the industry. The decision of slashing plane fares at Sharm al-Sheikh airport by 50 percent - including landing and harboring together with promotional hotel prices - was timely and well thought out. This together with the government plan of providing all the help needed to speedup the rebuilding process could lessen the blow.

However, ultimately much will depend on the travel advice issued by countries such as Germany, Italy, Japan, and the U.S., whose citizens constitute the bulk of tourism to Egypt.

Cairo,08 01 2005
The Daily Star
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