North African tourism hinges on stability in Europe and at home in 2023

To:

Al-Monitor Pro Members

From:

Francisco Serrano

Journalist and analyst specialized in North Africa

Date:

Jan. 19, 2023

Bottom Line:

After successive years of lockdowns and transport disruptions, the current winter is the first, since the start of the Covid-19 pandemic, in which Morocco, Tunisia and Egypt’s tourism sectors are not bogged down by travel restrictions. Ideally, this would make 2023 the year in which tourism in North Africa returns to pre-pandemic levels. But recession in Europe, social unrest or security threats in any of these countries could push tourism sector revenues below expectations.

Background Facts:
  • Morocco, Tunisia, and Egypt are North Africa’s top tourism destinations. Tourism expenditure has contributed heavily to the three countries’ economic activity and jobs. But since the start of the Covid-19 pandemic, all three have endured lower visitor numbers, prompted by on-and-off lockdowns and travel disruption.
  • The reduction in tourism revenues has impacted businesses operating in the sector, especially over 2020-2021. For 2023, firms and governments will be looking for a significant increase in visitors. A recession in European tourist markets such as the United Kingdom, France, Spain, Italy or Germany might derail these ambitions.
  • After reopening its borders last February, Moroccan tourism has seen an uptick in activity. While still below pre-pandemic levels, the Ministry of Tourism expected visitor figures to surpass 10 million by the end of 2022. In 2019, the country had welcomed some 12.9 million visitors.
  • The Central Bank of Morocco projected tourism revenues to reach a record Dh88.8 billion ($8.7 billion) by the end of 2022, up from Dh34.3 billion ($3.3 billion) in 2021, and from Dh78.8 billion ($8.7 billion) in 2019. Granted they remain stable in 2023, tourism revenues should expand by a further 5.5% in 2024 to Dh94.1 billion ($9.2 billion).
  • In February 2022, the Moroccan government launched a support mechanism to assist hotels with renovations in preparation for the return of travelers. The Dh1 billion ($97.9 million) program allowed hospitality providers to request financial aid of up to 10% of their 2019 sales, to a maximum Dh10 million ($978,000).
  • Tourism accounts for 12% of Moroccan GDP and 500,000 direct jobs.
  • Tunisia’s tourism fortunes have improved, too. Arrivals were projected to reach 6.3 million by the end of 2022, a 159% increase from 2021 figures, according to the Office National du Tourisme Tunisien. This is still 32% below the 9.4 million people who visited in 2019. 2022 tourism revenues reached TD4.2 billion, according to the Central Bank of Tunisia, an 83% increase relative to 2021, but still below the TD5.9 billion reached in 2019.
  • Yet arrivals surpassed government expectations. Under the government’s Relance du Tourisme 2022-2024 strategy, the target was to attract 50% to 60% of pre-Covid-19 tourist numbers in 2022, 80% by the end of 2023, and 100% by 2024. But given last year’s performance, Tunisian authorities now expect to reach these goals ahead of 2024.
  • Tourism accounts for 15% of Egypt’s GDP and 3 million direct jobs. After a record 14 million tourists over the 2009/2010 season, the following decade of instability kept visitor numbers volatile. With the pandemic, tourist arrivals in Egypt collapsed from 13 million in 2019 to 3.6 million in 2020.
  • Egypt’s tourism revenues went down by 70% in 2020, down from $13 billion in 2019. By the end of 2021 revenues had risen back to $12 billion. In the first half of 2022, the number of tourists visiting Egypt climbed by 85.4% to 4.9 million.
  • But for Egypt, Covid-19 has been followed by a second crisis: Russia’s invasion of Ukraine. Both countries were an important source of visitors for Red Sea beach resorts in Sharm el Sheikh and Hurghada, which saw a 70% decrease in occupancy rates after the start of the conflict. Russian and Ukrainian tourists amounted to 31% of tourist arrivals in Egypt in 2021.
  • While a reopening of China might make up for some of the losses, Egypt will have trouble replacing revenues generated by Russian and Ukrainian travelers.

Investment

  • A rebound of tourism activity in North Africa in 2023 is also visible in the increase in sector investment. After settling at Dh1.8 billion ($177 million) over 2020 and Dh2.9 billion ($286 million) in 2021 — the two worst years for pandemic-related tourism restrictions so far — investment in tourism reached Dh8.5 billion ($838.4 million) in 2022, surpassing the Dh7 billion ($690.5 million) in 2019.
  • Egyptian authorities are expecting government tourism investments will increase by 19.4% from EGP6.2 billion ($209.8 million) in the 2021/2022 fiscal year,  to EGP7.4 billion ($250.4 million) in 2022/2024. But a worsening financial crisis will curtail government spending capacity over 2023

Devaluation: good for travelers but not businesses

  • Currency devaluation in Tunisia and Egypt is also impacting the economics of tourism activity. The value of the Tunisian Dinar against the US Dollar has gone from TD1: $0.35 in mid-January 2022 to 1TD: $0.31 in early January 2023. The Egyptian pound has decreased from 1EGP: $0.063 in mid-January 2022 to 1EGP: $0.036 in early January 2023.
  • Devaluation makes those destinations cheaper for travelers coming from Europe and the United States. But weaker currencies negatively impact the businesses in those countries.
  • Foreign exchange generated by tourism is increasingly important for North African governments to stem currency devaluation. Businesses, which have faced difficulties trying to secure foreign currency for their day-to-day operations — especially in Tunisia and Egypt — will be hoping for a re-injection of foreign exchange into the market.
  • As of 2023, foreign tourists in Egypt are required to pay for train tickets in Euros or Dollars. The Ministry of Transport needs these revenues to pay foreign creditors. A scarcity of foreign exchange over 2023 might encourage more tourism businesses and state services to charge for services in foreign currency.
Alternative Scenarios:

Scenario 1: Tourist numbers rebound significantly, beating governments’ expectations.

Key European tourism markets and the United States avoid an economic downturn, and consumers opt for vacations abroad to counter years of Covid-19-related restrictions. The re-opening of China fuels a rise in tourist numbers, especially in the second half of 2023. This will likely benefit Egypt more than Tunisia or Morocco. However, the two Maghreb countries benefit significantly from European visitors, as well as the regular return of nationals for vacations and family visits. This scenario requires that no large-scale social disturbances or terrorist attacks impact the region over 2023. A sufficiently high uptick in income for hospitality businesses allows firms connected to the sector to invest and increase employment numbers for the 2023-2025 period.

Scenario 2: Tourism in North Africa fails to mount a comeback in 2023.

A recession in European countries prevents them from contributing significant visitor numbers into the region, leaving revenues and visitor numbers below expectations. Cheaper tourism products, such as Tunisia’s beach offerings and parts of Egypt and Morocco, will especially be affected. Higher-end tourism offerings, especially in Egypt and Morocco, will still attract some visitors. Bar any security concerns, Egypt is still able to attract significant visitor numbers due to its unique tourist attractions such as the pyramids. But overall, the sector fails to move away completely from the pandemic-induced recession. This reduces business for tourism-linked companies in these three countries, and lowers both direct employment as well as informal activities that benefit from the inflow of tourists.

Conclusion - Most Likely Scenario:

2023 will most likely yield mixed outcomes. Overall, all three countries are able to return or moderately surpass pre-Covid-19 tourism results. Due to political stability and proximity to Spain and France, Morocco is the best positioned country to enjoy a rebound in tourist numbers. Due to its historical heritage, Egypt will attract more visitors from around the globe, while Tunisia’s affordable beach resorts will once again be the choice for segments of European travelers impacted by inflation at home. The potential for political and social instability in Tunisia will prevail throughout the year, but final approval of a loan agreement with the IMF in the first quarter of the year would allow the country to take advantage of spring and summer months. All three countries benefit from stronger foreign exchange earnings generated through tourism, although some state-sponsored financial support mechanisms will be necessary to fully allow tourist infrastructure and private operators to recover.

Hotels, transport and tour companies in all three countries will see the benefits of a return of tourists starting from the second quarter of 2023. But only the more resilient will see an adequate improvement in their revenues that will support investment to expand capacity and employment for the 2023-2025 period.

Contributor Background:

Francisco Serrano is a writer and analyst who focuses mainly on North Africa. He has been published in several outlets, including Foreign Policy, World Politics Review and the Middle East Institute. His second book, "As Ruínas da Década," about the past decade in the Middle East, was published in March 2022.
 

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