Air crash deals another blow to Egypt’s economy

Third airline incident in less than a year undermines country's efforts to boost much-needed tourism revenues following years of political turmoil.

A tourist shops at the Khan Al Khalili market in Cairo on May 20, 2016. AFP

Cairo // Egypt’s latest air disaster is another crushing blow to a country whose tourism-dependent economy is struggling to recover from years of extremist attacks and political turmoil, analysts say.

The crash is the country’s third airline incident in less than a year, undermining efforts to attract tourists and their much-needed revenues.

Officials said it was too early to know whether technical failure or terrorism caused the EgyptAir plane to plunge into the Mediterranean on Thursday with 66 people on board during a flight from Paris to Cairo.

But it follows the bombing of a Russian passenger plane minutes after it departed from an Egyptian Red Sea resort in October, an attack claimed by ISIL.

Whatever the cause of the latest crash, it is certain to have an impact on Egypt’s economic recovery, analysts said.

“Egypt’s return to international news headlines in the context of a plane crash at its national carrier, no doubt this is very harmful,” said Amr Adly, an economist with the Carnegie Middle East Centre in Cairo.

“This will prolong the stumbling of the tourism sector.”

The key industry has been hit by a series of disasters.

A 2011 uprising that unseated president Hosni Mubarak triggered years of political turmoil that kept many foreign visitors away.

The military removed his Muslim Brotherhood successor, Mohammed Morsi, in 2013 and launched a bloody crackdown on the group’s supporters.

Since then extremist militants have killed hundreds in attacks, mostly members of the security forces but also tourists including those aboard the Russian airliner which ISIL said it had downed with a bomb hidden in a soda can smuggled into the hold.

The security forces themselves have also killed tourists by mistake.

Eight Mexican tourists died in an air strike in September after they were mistaken for militants while picnicking in the desert.

And in March, an Egyptian man who wanted to see his ex-wife hijacked an EgyptAir flight and forced it to divert to Cyprus.

No one was harmed and the man surrendered to police – after allowing hostages to take selfies with him. Cairo has requested his extradition to face trial in Egypt and a court in Nicosia began proceedings on Friday after receiving all the necessary documents.

“All this is adding to the negative sentiment towards Egypt’s tourism sector,” said Hany Farahat, senior economist at CI Capital in Cairo.

“And definitely, it postpones any potential for recovery in 2016 as far as tourism revenues are concerned,” he said.

The number of foreign visitors to Egypt peaked at 14.7 million in 2010, an almost three-fold increase in 15 years as the country invested in airports, seaside hotels, and cultural tourism. That figure fell to to 9.8 million in 2011, the year Mr Mubarak was overthrown and revolutions swept the Arab world.

Egypt is also suffering from a foreign-currency crunch that has slowed economic activity and kept investors away. Foreign currency reserves are under intense pressure, falling to US$17bn in April from more than $36bn in 2010. The country can no longer rely unequivocally on the generosity of its oil-rich Gulf allies, who have provided billions of dollars in aid since 2013 but are now reining in spending amid the slump in crude prices. The drop in tourism revenues further complicates the task of bridging a US$12 billion (Dh44bn) annual funding gap expected in the coming few years.

The central bank’s effort to curb the black market for dollars and attract investments are yet to bear fruit. In March, it devalued the pound, promised a flexible exchange, and raised interest rates – moves that earned investors’ praise, but not their money. The current-account deficit, meanwhile, more than doubled to $8.9bn in the six months to December, as tourism and remittances plummeted.

Tourism directly employed 1.3 million people, or 5.2 per cent of Egypt’s workforce, in 2014, according to the World Travel and Tourism Council. “But its indirect contribution exceeds multiples of that,” said Mr Farahat.

The crash could “affect unemployment, consumption and other sectors linked” to the tourism industry, he said.

The holiday industry now accounts for about 3.5 per cent of GDP, central bank data show, compared to 5 per cent before 2011.

Tourism revenues slumped 15 per cent in 2015, while tourist arrivals in the first quarter of 2016 were 40 per cent lower than a year earlier, according to the government.

The recent incidents have dashed hopes of a recovery in the sector, which had seen signs of improvement.

“Arrivals from key markets plummeted in 2011 and started gradually to recover until 2015. But those never achieved the performance from prior to the events,” said Kinda Chebib, senior analyst at Euromonitor International.

“We believe that the recent events will slow down the ambitions of the local government to achieve the target of 20 million foreign tourist arrivals by 2020,” she said.

* Agence France-Presse and Bloomberg