The wave of madness continues, as the once-peaceful resort of Sharm El-Sheikh joins the list of senseless terror destinations. Oula Farawati and Wajih Halawa look at the potential impact of these repeated attacks on business in the Arab world.
With Egypt relying extensively on tourism as the country's largest private sector employer and employing some two to three million Egyptians, the attacks on its flagship tourist destination on July 23 could deal its faltering economy a crippling blow. Sharm Al-Sheikh has always been known for being a place away from everything else, a somewhat surreal vacationing spot for Arabs, Europeans, Americans, and Asians, as well as being a favored location for Israeli-Palestinian summits and a winter home for the Egyptian President.
Now, the peace and quiet has been shattered, and tourists have fled Sharm El-Sheikh en masse on special evacuation flights, while flights to Sharm from places like Rome and Amsterdam were leaving almost empty just after the news broke. After months of intensive marketing for the country's tourist destinations by the Egyptian government, tour operators panicked as major European countries were advising their citizens to cancel all planned trips to the Sinai Peninsula and its resorts.
Just eight months ago, a triple bombing took place in the resorts of Taba and Nuweiba further north, killing 34 people. This was followed by predictions that the Egyptian tourism sector would fall into deep recession, as it did after 58 tourists were shot dead in Luxor back in 1997. Instead, tourism remained resilient and actually picked up more steam, thanks to the Egyptian government's aggressive marketing and public relations response.
Although many have chosen to cancel their vacations in Sharm El-Sheikh, a large number of tourists have been steadfast in their insistence on continuing their lives. Some vacationers who escaped the carnage at Sharm El-Sheikh had already experienced the recent bomb attacks in London just two weeks before, expressing an adamant refusal to give in to fear from further attacks. Additionally, the head of Egypt's airport authority, General Mohammed Zamzam, told Agence France Presse (AFP) that more than 6,000 tourists had flown to Sharm El-Sheikh on the day following the bombings, and in spite of what had transpired. Despite the governmental warnings, some tour operators, like the French Ceto, reported low cancellations, signaling a possible "immunity" being built into public consciousness vis--vis the psychological impact of terror.
So where does this latest attack leave the Egyptian economy, and who else is at risk? The benchmark stock exchange index fell 4.5% within the first ten minutes of trading on Sunday morning, but it eventually stabilized at a 3% decrease. Egypt may have rebounded quickly after the Taba and Nuweiba bombs, but this latest episode is creating a pattern of succession that could succeed in destabilizing Egypt's tourism sector, as attempted by al-Jihad al-Islami in the mid-1990s.
Given that Egypt's economy grew by 5.3% in 2004, its best performance in years according to U.S. analyst Juan Cole, this pattern of succession is a plausible scenario, with the country's reliance on services being greater than ever and its oil revenues declining over the past decade. Tourism in 2004 was valued at more than $6 billion, increasing by 34% over 2003. Since 1992, hotel room capacity has increased from just 52,000 to around 144,000 this year, with another 100,000 still under construction as the sector was expected to continue its healthy expansion.
As far as other countries are concerned, there does not seem to be much impact yet from this episode. Whether European and American tourists will choose to redirect their holidays to alternative destinations in the Middle East - like Dubai, Aqaba, and Eilat - or simply avoid the region altogether is still not clear. The World Tourism Organization downplayed expectations of a decline in global tourism, claiming that only the targeted Red Sea area would be noticeably affected.
With more tourists flocking to Aqaba and a series of major development projects just kicking off there, some have expressed concern that the violence which has hit Egypt, Turkey, and Spain could also come here. This is not an attempt to scare anyone or elevate any concerns, but merely a realization of the grisly realities that surround us. Jordanian authorities, already among the most security-conscious in the region, may have to take a close look at how security in Aqaba is managed in the future, in order to protect both tourism and investment in this prized territory.
Significantly, while terror has proven for many years its ability to send economies into decline, it is also the case that sound governmental policies and a robust economic infrastructure - including proper corporate governance, diversified sectors, a stable currency, a healthy stock market, visionary long-term planning, and a functioning taxation system - all play a significant role in protecting the economy from sudden external disturbances.
© Jordan Business Monthly 2005
