Egypt to bet on tourism, energy sectors in 2018
Cairo - Developments at the end of 2017 indicate Egypt could face much rosier economic prospects in 2018 than had been expected, economists said.
The signing of a protocol for security cooperation between Egypt and Russia heralds the resumption of direct flights from Russia to Egypt, an important milestone as Cairo seeks to restore the country’s flailing tourism industry.
“This would be a huge development for the recovery of the national tourism sector,” said Elhami al-Zayat, the former head of the Federation of the Chambers of Tourism, the national guild of tourism investors and workers. “The return of Russian tourists will help the sector pick up, which will positively affect economic conditions in general.”
Russia suspended direct flights to Egypt following the bombing of one of its passenger planes over Sinai in 2015. Several other Western countries, including Italy, the United Kingdom and Germany, followed suit.
The resumption of direct flights between Russia and Egypt is expected by February.
Egypt had seen a dramatic drop in foreign visitors since 2010, when 14.7 million tourists visited the country, bringing in around $12.5 billion in revenue. More than 10% of Egypt’s workforce is estimated to work in the country’s tourism industry.
Egypt saw a decline in tourism following the 2011 revolution, a drop exacerbated amid security concerns, particularly following Russia’s decision to halt flights.
Egypt lost approximately $10 billion in tourism revenues over the next two years as travellers shunned it for regional rivals Turkey, Greece and Israel, Zayat said.
“This exposed the vulnerabilities of the economy and deprived it of an important source of income,” he said.
The drop in tourism revenues was accompanied by a decline in remittances from millions of Egyptians working in other countries. Cairo borrowed $12 billion from the International Monetary Fund (IMF), a loan that came with strict restrictions that led to Cairo cutting subsidies and enforcing a controversial currency flotation that resulted in a huge devaluation of the Egyptian pound.
Egypt also went on an international borrowing spree that raised its foreign debts dramatically over the past two years. They rose to $79 billion by the end of 2017 from $48 billion two years earlier.
Potentially driving the economic growth in 2018 will be the energy sector, which witnessed a major development before the end of 2017 with production from Egypt’s largest Mediterranean natural gas field, Zohr, coming online.
The field produces 350 million cubic feet of gas every day. While this is only a fraction of Egypt’s daily consumption of 5.9 billion cubic feet a day, it is an important addition to the country’s total daily production of 5.2 billion cubic feet.
The field’s production, experts said, would help Egypt save $750 million a year, money that would have gone to outsourcing Egypt’s energy requirements.
“This will automatically reduce pressure on the national budget,” said Osama Kamal, Egypt’s former petroleum minister. “More importantly, it will be a step on the road to achieving self-sufficiency in natural gas.”
Egypt expects to achieve self-sufficiency in 2019 when the second phase of the development of the field is to be completed with production reaching 2.7 billion cubic feet per day.
That would allow Cairo to start exporting natural gas and secure a new and important income stream. This comes as part of a broader plan to transform Egypt into a regional energy hub.
Egypt possesses multibillion-dollar refining facilities that it wants to use to process oil and gas produced in the region for markets in Europe and Asia.
Saudi Arabia and Iraq had agreed to send part of their oil production to Egypt for refining and export to international markets. Greece and Cyprus will also send production from recently discovered gas fields off the Mediterranean coasts for processing in Egypt and export to Europe.
“This opens up new vistas for the Egyptian economy, ones in which new revenues from gas exports and refining can propel national development,” Kamal said.
Possible positive effects from the tourism sector revival and production from Zohr coincide with improving economic indicators at the end of 2017, which will potentially affect the performance of the economy in 2018.
Additionally, Egypt’s annual urban consumer price inflation fell to 26% in November from 30.8% in October, to the Central Agency for Public Mobilisation and Statistics (CAPMAS) said.
Core inflation eased to 25.5% in November, compared to 30.5% a month earlier, Egypt’s Central Bank said.
“The good thing about these indicators is that they portend strong improvements in the economic performance in the coming months,” said Fakhry Elfiky, an economics professor at Cairo University. “These improvements will be felt by the majority of the population as commodity prices stop rising and start going down, albeit gradually.”