Egypt’s tourism industry has been shaken to its core by the downing of a Russian airliner over Sinai in October, killing all 224 passengers and crew members onboard.  While tragic in its own right, the economic implications for the tourism sector, and indirectly the broader Egyptian economy, are massive and have the potential to reverse the progress Egypt has made over the past several years.

Investigations are still ongoing, but a growing number of international officials believe the attack was the work of Egypt’s Islamic State (ISIS or ISIL) affiliate. The militant group has repeatedly claimed it planted a bomb that brought the plane down.

Prior to the crash, Egypt’s tourism industry had been showing signs of a tepid recovery in the wake of the 2011 and 2013 uprisings. While Cairo had seen a smattering of terrorist attacks during this past summer, data from the Central Bank of Egypt suggests that this had not materially impacted tourism. International tourist arrivals in Egypt had exceeded their 2014 totals in each of the first seven months of 2015, doing so by an average of 56,000 tourists, or about 7.3 percent. Additionally, tourist nights (i.e. the total number of nights spent in Egypt by tourists) from March through July of 2015 beat their 2014 numbers by 0.72 nights, or about 7.7 percent.

These numbers had put Egypt on track to break the 10 million tourist arrivals mark for the first time since 2012, when Egypt pulled in 11.5 million international tourists. While still a far cry from the 2010 record of 14.7 million tourists, the sector seemed to be moving in the right direction and efforts by the government to assure foreigners that the country was stable and secure were paying off.

Consequences of the Crash

However, the downing of Metrojet flight 9268 changed all of this. In the days following the crash, the Egyptian Tourism Authority (ETA) stated that if the crash were proven to have been the result of mechanical failure, winter bookings would still be expected to rise 10 percent over the previous winter. Conversely, if an act of terrorism were suspected to be the cause of the crash, bookings would be significantly impacted, particularly among Russian tourists visiting Egypt. According to the ETA, Russian tourism accounts for 35 percent of tourists visiting the country. Following that, statements from government officials in Sharm al-Sheikh stated that airport revenues were expected to fall 40 percent by the end of the year and reports of tourism companies closing hotels and resorts have surfaced more recently.

Sharm al-Sheikh hasn’t been the only tourism locale to revise booking expectations downward. Orascom Hotels and Development, a major player in Egypt’s coastal resort market, has also told media outlets that it expects its revenue from resorts along the Red Sea to fall anywhere between 10 percent and 30 percent. Additionally, the Ministry of Antiquities has reported that the rate of international arrivals visiting various archeological sites around Egypt has already fallen 60 percent in the space of just one week, and revenues are expected to drop 50 percent in the coming months.

While these are only expectations and initial assessments, the fact that sources in both the government and private sector have put their pessimism into hard figures should be worrying. If there were more uncertainty regarding the causes and likely effects of the Metrojet flight 9268 crash, the private sector would be much less forthcoming with their negative revenue projections and announcements of closings, so as not to frighten investors. The same can be said for the Egyptian government. Although the position of the Ministry of Civil Aviation is that the investigation is ongoing and thus far no evidence of criminal activity has been found, the fact that the Ministry of Antiquities and Airports Authority have released negative information about their current and probable future positions suggests that they are more interested at this point in lowering expectations and bracing for impact.

Ripple Effects

In addition to devastating an already weakened tourism sector, the real potency of the Metrojet crash will be seen as its effects spread through the broader economy. According to research from the World Travel and Tourism Council, the direct, indirect, and induced effects of tourism in Egypt in 2014 accounted for almost 3 million jobs, or 11.6 percent of total employment, and resulted in EGP 255.0 billion of economic activity, or 12.8 percent of GDP. Direct contributions from tourism resulted in EGP 117.2 billion, or 5.9 percent of GDP. Given that unemployment in the second quarter of 2015 was 12.7 percent, dropping from the previous year’s 13.3 percent as a result of employment in the tourism and construction centers, and economic growth has been inconsistent at best, Egypt’s future economic prospects are certain to be dismal without a robust tourism sector. In short, it is unclear right now what other sectors will move to fill in the hole that tourism leaves behind.

Tourism has also been a major source of foreign currency, something the Egyptian economy has been in dire need of for several years. The tourism sector pulled in USD 10.6 billion for the government in the 2010/11 fiscal year, but fell off in subsequent years as the security situation dissuaded foreigners from spending their vacation dollars in Egypt. This reached its nadir in the 2013/14 fiscal year when tourism receipts amounted to only USD 5.1 billion. Prior to the Metrojet crash, the tourism sector had been floated as a key component of any recovery from the current foreign currency shortage. Given the impending revenue shock to the sector, however, it is more likely to exacerbate the problem than offer any solutions.

Along with these direct economic effects, the Metrojet crash will also have a more indirect impact on the investment and business environment through heightened scrutiny over Egypt’s general security situation, which has been deteriorating at a disconcerting rate since the beginning of 2015. Over the past year, the number of terrorist attacks in Egypt has reached record highs, with the attacks themselves taking on more sophistication and intensity. Despite this, high profile attacks, such as the assassination of Hisham Barakat, the kidnapping and execution of a Croatian oil worker, and bombing of the Italian consulate in Cairo, had received relatively little international media attention and the lack of mass civilian casualties kept concern at a minimum.

The Metrojet crash changed all this. Widespread media coverage of the incident, which has been revisited repeatedly in the wake of the Paris terrorist attacks, also claimed by ISIS, will keep the crash in the minds of potential international tourists.  Since the crash, Egypt has been working with the UN to review and audit its airport security procedures and Egyptian security officials have interrogated employees of the Sharm al-Sheikh airport. However, international fear of violent extremism will likely keep foreigners away from Egypt for some time to come.

The outlook for Egypt’s tourism sector in the near future looks grim and the effects are likely to spread throughout the economy. The falling value of the pound may lead some to believe that Egypt is becoming a more attractive tourist destination, but cheaper rates will not make up for lost volume. As a critical source of both foreign currency and employment for Egyptians, Egypt needs to get its tourism sector back on track in order to see real, sustainable economic recovery.

Brendan Meighan is an Economic Researcher at the American Chamber of Commerce in Egypt

Image: Photo: A shopkeeper waits for tourists near rows of closed shops at a popular tourist area in the Khan el-Khalili market, at al-Hussein and Al-Azhar districts in old Islamic Cairo, Egypt, November 12, 2015 (Amr Abdallah Dalsh/Reuters)