Egypt has long been a destination well suited to holiday goers. The country has the Mediterranean’s soft white sand beaches, the Red Sea’s aquatic life, history and culture spanning centuries from Alexandria in the far north to Aswan in the far south, and a reasonably cosmopolitan setting in major cities.
That has boded well for the country in the post-COVID-19 travel craze (known as “revenge travel”). In the first half of 2023, government figures show hotel occupancy rates nationwide reached 80% compared to 65% the year before. Research by AmCham Egypt shows the high point was during the European spring break in April, when occupancy rates in Hurghada (the biggest Red Sea coastal city) reached 100%, while Cairo was 80% to 85%.
Tourist numbers likely will continue increasing to unprecedented levels. In March, CNN Arabia reported the government estimates 15 million foreigners will visit Egypt by the end of this year, up 28% from 2022. Egypt’s all-time high number of tourist arrivals was 14 million in 2010.
Such rapid growth poses a problem, as accommodations for those travelers are not growing fast enough. Fitch expects Egypt to have 1,700 hotels by 2027, up from 1,300 last year. In January, however, Tourism and Antiquities Minister Ahmed Issa said the country needs 2,500 hotels to meet the government’s 2027 demand estimates.
Egypt has an opportunity to achieve that ambitious goal. For one, hotel FDI potential in Africa is high. “We continue to see opportunities to expand … across Africa,” said Karim Cheltout, Marriott International’s regional vice president for development in Africa, in November 2022, The 2023 Hotel Chain Development Pipelines in Africa report, published in March by W Hospitality Group, a think tank, said Egypt and Nigeria are the top two destinations witnessing new hotel investment on the continent.
However, in a September paper, Zurab Pololikashvilli, secretary-general of the U.N. World Tourism Organization (UNWTO), stressed the importance of first creating a business-friendly environment. “To ensure the long-term sustainability of the tourism value chain, concerted policy action is required to attract, promote and mobilize FDI in the sector,” he said.
New landscape
UNWTO’s September report said, “Both FDI project numbers and job creation rates in the tourism cluster grew by 23% [from 2021 to 2022]. Job creation [due to] tourism FDI also increased by 24% over the same period … Almost two-thirds of all [those] projects … were in hotels.”
According to the UNWTO, the top 10 hotel FDI investors in the post-COVID-19 world were from North America, Europe and Asia, and they are accelerating their hotel construction plans. Jacopo Dentti, the editor of fDi Intelligence, a think tank, told the UNWTO in September that “with COVID-19 behind us, the sector has no time to waste.”
One reason fueling that acceleration is overseas travel recovering from its 2020 slump. “International arrivals reached 80% of pre-pandemic levels in the first quarter of 2023,” said the UNWTO. That is “more than double” the number of travelers during the first quarter of 2022.
The Middle East and Africa are two attractive regions. The former “saw the strongest performance as the only region exceeding 2019 arrivals,” the UNWTO said. “The Middle East also was the first to recover [to] pre-pandemic numbers.” Meanwhile, Africa reached 88% of pre-pandemic levels, ahead of the Americas and Asia-Pacific and just behind Europe (90% recovery).
Growth to all-time highs means more demand for hotel rooms. The UNWTO report said Greenfield hotel projects must accelerate in top tourist destinations because of “inadequate investment in the sector, which is vital for long-term sustainability and innovation.”
Those new hotel FDI investors prioritize sustainability, including eco-friendly construction and infrastructure. “By prioritizing investments aligning with [SDGs], policymakers can accelerate the transition toward more environmentally friendly practices,” the September UNWTO paper said. That “encompasses initiatives such as the development of green builds, retrofitting projects and the adoption of sustainable technologies.”
Long-term challenges, today
One of the top factors affecting decisions of hotel investors is infrastructure. “Host countries often face limitations in terms of financial resources and expertise required for the creation of the necessary infrastructure to attract and accommodate tourists,” according to research from the University of Rajshahi in Bangladesh,
The report says the least foreign hotel investors expect is “basic infrastructure, such as transport, utilities, and telecoms,” to meet international standards of the hotel chain building and operating the facility.
Historically, having the required infrastructure has markedly transformed any country’s tourism industry. “In Dubai … investors from various countries have made substantial investments in the construction of luxurious hotels [and] iconic structures,” the paper said. “The resulting infrastructure has been critical in attracting millions of tourists annually.”
The other challenge is to have enough sufficiently skilled workers to operate all those new facilities, which remain labor intensive. Their skills need to align with international standards. “[Upskilling would] ensure the growth and competitiveness of the sector,” Pololikashavili of the UNWTO noted. Such training should target the “upskilling of the professional workforce and implementing vocational and technical programs.”
He cited “rising interest rates and geopolitical tensions” as non-tourism-related factors directly hindering new hotel investment.
Government factor
The research paper from the University of Rajshahi stressed the importance of governments in attracting hotel FDI, “employing various strategies, policies and incentives … to create a conducive environment for FDI and make the host country an appealing destination for [hotel] investors.”
Offering incentives is “one of the primary strategies,” the paper said. That includes tax and customs exemptions or holidays and allowing hotel investors to quickly write off their hotel assets by allowing “accelerated depreciation” and “financial subsidies” or funding initiatives.
The other attractive factor for hotel FDI investors is having “simplified regulations,” including allowing “single window clearance” to bypass bureaucracies; “transparent regulations,” making it “easier for investors to understand the requirements;” and “minimizing unnecessary regulations.”
Governments seeking those investors also need to have sufficient and effective communication channels. “Marketing and promoting the host country as an attractive destination for tourism-related FDI is another critical strategy,” the university research said. That includes attending and organizing investment summits and conferences, advertising and promotion campaigns, opening dialogue via investor relations, and having an effective online presence.
Risky business?
Governments need to be wary of the negative “cultural and environmental impact” of building too many hotel facilities to maximize tourist visits. Problems that will likely arise include “overcrowding, pollution, and overdevelopment” that would ultimately harm the environment or heritage sites.
The government also needs to ensure no “leakage” of foreign currency revenue to foreign companies that divert that income before it enters the host country, according to the University of Rajahashi paper.
The research also warns against “overdependence on tourism” to generate most of a country’s foreign currency inflows. “Over-reliance on tourism, especially when driven by FDI, can make a host country vulnerable to economic fluctuations and income disparities with the benefits concentrated in specific regions.”
