Monday, November 9, 2015

Key tourism industry set to slump as Europeans
suspend flights.
It's not grabbing the most headlines, for obvious
reasons, but the Egyptian economy is looking like one of the biggest
casualties of the Metrojet disaster 10 days ago.
If it's confirmed that the disaster was caused by a terrorist bomb (to
which experts now attach a 90% probability, according to Reuters), the Arab
world's most populous nation will likely lose a vital source of foreign
currency and, more importantly, jobs.
That will make the task of healing the
country's political divide after four years of revolution and repression
even harder.
"The damage to the already weak tourist sector could prove the straw that
breaks the camel's back," Emad Mostaque, a strategist at emerging markets
consultancy Ecstrat in London, said in a blog post at the weekend.
Mostaque points out that the central bank has bled foreign reserves in its
attempt to keep the decline of the Egyptian pound against the dollar orderly
this year.So far, the pound is down just 12% in a year when many emerging
market currencies have been battered by the Federal Reserve's drawn-out
shift to a tighter monetary policy.
But reserves have fallen 30% since April
and now barely cover three months' worth of exports.
As such, the central bank may be powerless to stop a sharper decline if the
flow of tourist money dries up.
Tourism accounted for over 17% of Egypt's
foreign currency earnings in 2014, according to the World Travel and Tourism
Council, and every one in nine jobs in the country.
And a sudden stop in tourism receipts now seems all but certain: Russia,
which sends more tourists to Egypt than any other country (around 3 million a
year) has suspended tourist flights to the whole country (the U.K., the
second-most important country of origin, has by contrast only suspended
flights to Sharm-el-Sheikh, the resort from which the doomed Metrojet airliner
took off).
Together, the two countries account for 70% of tourist arrivals,
Tourism Minister Mohamed Yousef said at the weekend.
Russia has so far airlifted 11,000 tourists home from Egypt in a stream of
special flights over the weekend, according to the BBC.
The U.K., which cancelled flights last Wednesday, has meanwhile ferried
3,500 tourists home from Sharm, around a third of the total currently
Both Russian and British tourists are coming home with only hand
baggage, due to safety concerns.
The chaotic scenes are a bitter blow to an economy that had appeared to show
signs of stabilizing this year, after the tumult of President Hosni
Mubarak's ouster in the Arab Spring of 2011, and the susbsequentcoup
d'état against his Islamist successor Mohammed Morsi by the armed
Abdel-Fattah al-Sisi, the leader of the coupwho is now president, has
pursued a brutal repression of Morsi and his followers since 2013.
Before the disaster, the economy had showed tentative signs this year of
putting those four years of instability and repression behind it.
The IMF had
expected the economy to grow over 4% this year, double the average rate since
2011, helped by the opening of a parallel Suez Canal and the revival of
natural gas production in the Nile Delta.
The stabilization of tourism flows,
after a 40% fall from their peak in 2010, had also helped.
Unemployment, too,
had started to come down, albeit from a still-unsustainable rate of over 13%.
Ecstrat's Mostaque fears that, if terrorism is proved in the Metrojet
case, then al-Sisi's reaction to it could just make the problem worse,
making it politically more difficult for western partners such as the E.U.
to give him the economic support his country will need.
"As a key regional country, Egypt needs significant international
support…as it faces complex and increasingly capable enemies," Mostaque
"However, this support must be conditional on a reversal of the
crackdown in civil liberties, which only serves to fuel a growing
insurgency." Egypt is one of Africa's biggest recipients of foreign
direct investment, with around $88 billion in largely European and U.S.
at stake there, according to UN data.
Over two-thirds of that is in the oil and gas industry, which is generally
concentrated off the Nile Delta and far removed from the softer targets of the
tourist resorts.
The one silver lining of President al-Sisi's visit to
London last week (where he was informed of the tourist flight ban as he
stepped off his plane), was the signing of a new deal to develop a major new
gas discovery in the Nile Delta by BP Plc and its partners.
But restoring peace, security and foreign confidence is going to take much
more than that if ISIS' boasts of bringing down Metrojet flight 9268 are
This story originally appeared on Fortune More good reads from Fortune:
• Why Expedia's HomeAway Purchase Could Have a Huge Effect on Travelers
• Lufthansa Flights Hit as Crew Start Longest-Ever Strike

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