The devaluation of the Egyptian pound has a positive impact on the tourism sector in Egypt as it creates a good value for money, providing affordable services to tourists, which are the keys to attracting tourism into a country, said Fillippo Sona, Head of Hotels (MENA) at Colliers International.
Daily News Egypt sat down with Sona to discuss Egypt’s tourism sector, and the main obstacles and opportunities being faced by the sector. He further highlighted new business models that can be exploited by developers in Egypt in the upcoming period, that are innovative and attractive for investors.
How do you view the hotel industry in the past years and what is your outlook for it?
I think if I define the hospitality industry for the past three years, taking into account the year 2013, there are three keywords; consistent, confident and growing, and the reason behind this is because if you look at the performance of hotels, since 2013 it has been growing year-on-year (YoY), particularly if you take the main cities of Egypt, including Cairo, Alexandria, Sharm El-Sheikh, Hurghada and Luxor.
From 2014 to 2015, the number of people staying at hotels overnight has grown by 13% YoY, however if we talk specifically about Cairo, they’ve grown by 39%, so we’re talking very big numbers. The growth is organic, meaning it is slowly growing upwards so there is genuine growth not just a momentum, and we expect that in the next five years (until 2020) it will grow at 7.5% on an annual basis. Thus, eventually the government will be able to reach its target of 9.6 million inbound tourists.
What is the impact of bringing international brands into the market?
By bringing international brands you extend the network of the global distribution system, which is used by operator agencies to book travel, thus it will help in bringing additional tourists into the market. As a matter of fact, we’re expecting to see six new hotels with international brands entering the market. Those include family of Marriott, family of Hilton, Starwood, Ritz Carlton, Nile Plaza and Mena House.
How will the Suez Canal Axis development affect tourism?
The creation of the Suez Canal is a catalyst to create a new tourism hub, and in particular, in the immediate future, I’m talking Ain Sokhna. The road towards there is smooth and straightforward, and its already an established market, as there is already Porto Sokhna, La Vista, Mountain View and all the way to Zaafarana there are quality resorts on the sea side, with new projects to be established as well in the area.
In which other parts of Egypt do you expect to witness growth in the coming period?
We expect to see growth in the northern part of Egypt, all the way from Alexandria to Marsa Matruh and Burj Al-Arab; this area is very important and is excellent for medical tourism, which is a very important aspect for the tourism market. The good side is that all the key ingredients needed to be successful are already available in the area, that being facility, accessibility or infrastructure.
What about the challenges facing the tourism sector?
The number one obstacle is the currency, so we need more government initiatives, such as that between Egypt and Russia, where they allowed Russian tourists to pay with their own currency. This is a great initiative, because let’s not forget that 38% of the currency export into the country comes from tourism, and the more tourism activity we create, the more currency exports and the more wealth we create.
Another challenge is that some of the national roads are not adequate. This is however one of president Al-Sisi’s objectives.
What does the tourism sector need to be enhanced?
Well, new business models need to be created in the sector; for instance four star resorts need to be established for the domestic market.
Also, more lifestyle boutique hotels need to be developed in Cairo and Alexandria. Both governorates have fantastic architecture, but more often we find beautiful hotels in a street that does not deliver what I would call a world-class destination, so we need to address urban planning in a more sophisticated manner, as there are hotels here in Egypt with great architecture and history.
Moreover with corporate businesses locating their offices in areas such as New Cairo and 6th of October City, new hotels need to be created in those destinations. Some have started to do so, like the Kempinski in New Cairo, but again it’s a five star hotel. More mid market hotels that are affordable need to be established.
What other opportunities can hotel developers seize?
The growth of the residential market is unprecedented, it is very fast, prices are duplicating in some areas, so there’s an opportunity for developers to create a new business model, which is the condo business model. It means you create a building of furnished apartments, operating under an international brand. The way these units operate is based on seasonality and length of stay, the same pricing strategy as hotel business, so this will create a new business model, which brings in fast returns on investments, and thus becomes attractive for foreign investors.
This model is adopted in Dubai and is working well. The condo business model became the innovative solution and it can be created in Cairo, where you’ve got all the key ingredients to succeed.
So we’ve got the ingredients and potential; how can we market this, to bring in more tourists into the country?
Working on the visa system is vital, to make the process faster, particularly for target markets.
Further, Egypt needs to start cutting down the red-tape for FDI. There are a lot of assets that are stuck in the bureaucracy and they tend to go out on public tender and foreign investors don’t want to get involved in public tender. The government needs to enable foreign investor to come and do a normal commercial process and then invest in the assets. That way, investors will be encouraged to come in and invest, and thus bring in Egyptian jobs.
Moreover, they need to proactively promote specific destinations in Egypt, such as Alexandria, Marsa Allam, Sharm El-Sheikh, Hurghada and Ain Sokhna as safe destinations. In the last five years, they have been extremely safe. Particularly Marsa Allam has never been mentioned once in the international media in the revolution, so it’s a super safe destination and the best scuba diving destination. We need to start promoting those areas that basically are the true stars of the last five years.
But how can Egypt promote those safe destinations when tourists look at the situation in the country as a whole, so they see what’s happening in Sinai and hear about incidents such as the accidental killing of the Mexican tourists and so forth?
These incidents are what we call extraordinary events that can happen in any country; for instance, there was the London bombing (in 2005) but that didn’t affect the number of tourists. These events can be acceptable by the global audience, as they could happen anywhere. This is not going to stop people from coming to Egypt.
Marketing as a way of communicating with people should highlight specific areas, such as Marsa Allam, as a safe destination. Further, you promote for the beach, the scuba diving, the Egyptian hospitality and the relaxation, and if you look at the geography of the place and how you go to Marsa Allam, you see it is a safe trip and the security is very intensive. Marketing is very significant and must come from the public sector, from the Ministry of Tourism, they need to promote this area as widely safe, giving people reasons to come. Egypt is a very big nation; we need to clarify that and not generalise that Egypt is not safe.
So do you believe that tourism has been reviving in Egypt?
Well, a good indication was when a lot of countries lifted the travel ban to Egypt. In August, Germany lifted the travel ban and German tourists exceeded 800,000 tourists, and more than EGP 2.2bn.
The number of tourists in Egypt is going up. From January to June 2015, compared to the same period in 2014, the number of tourists increased, which means more people are coming to the country. Tourism in Egypt also has good value for money; if you look at the Gulf, places like Dubai, they lost a lot of Russian tourists to the Red Sea coast in Egypt because Russians and Europeans in general have problems back in their countries with the economy; there is not much disposable income. The fact that the Egyptian pound is deflated created good value for money, tourists can have a great holiday, with world class facilities at affordable prices. Affordability and good value for money is the key to attract people.
Does this mean the devaluation of the Egyptian pound has a positive effect on tourism?
I’m sure that people who work in the trade, banks and commercial sectors see that as an issue, but from a tourist’s point of view, if $1 equals EGP 7.8, that can do a lot. This makes great value for money. For tourism the devaluation helps, as the tourist would shop more and spend more in restaurants, which will generate local economic development on a micro level. It is a negative aspect for the banking and commercial sector, however it has a very positive outcome on tourism.
What are the destinations that the government should focus on developing, and what are the most attractive destinations in Egypt?
The real new and main destinations are going to be Ain Sokhna and the North Coast. Further, the most attractive destinations in Egypt for sun seekers are at the Red Sea coast; Hurghada, Sharm El-Sheikh and Marsa Allam are more attractive for international tourists. As for the domestic market, Ain Sokhna will always be the weekend getaway as well as the North Coast.
I would say that Ain Sokhna is the most attractive destination due to the Suez Canal extension and the commercial development that will be created within the Suez Canal master plan. Marsa Allam would be the second most attractive destination, as it has tremendous potential, and a number of resorts on the sea front. These are the new hot destinations that will be more developed in the next five years.
What about Luxor and Aswan?
Luxor and Aswan represent a short period attraction, that’s why in the future an air hub needs to be created to welcome more tourists from several destinations. Regional airports also need to be more developed.
