By Joana Saba
Following the power switchover in 2013, Gulf countries emerged as Egypt’s largest benefactors, with Saudi Arabia, the UAE, and Kuwait shelling out a total of $12 billion (EGP 106 billion at current value) during the Egypt Economic Development Conference in March 2015.
Moreover, in addition to the billions in aid, Gulf countries have for long continued to be among the top sources of foreign direct investment (FDI) in Egypt, commanding some of the top spots in terms of numbers of investors and projects. According to UK-based bank Santander, 10.7% of the FDI in Egypt in 2014-2015 came from the UAE alone, while Saudi Arabia accounted for 5% and Kuwaiti investments constituted 1.8%.
However, according to the same figures from Santander, tourism commanded a measly 0.1% of the total FDI to Egypt, signifying either a lag due to structural issues, or a huge potential for bankable investment in an otherwise untapped and largely unregulated market.
Precisely how much of that 0.1% comes from the Gulf is uncertain, but one trend is obvious; as GCC countries stake out an enormous fraction of their investments into the real estate sector, inevitably, a sizeable portion of that has been invested into touristic projects, with some of the most popular luxury projects bearing a UAE, Saudi or Kuwaiti stamp.
Real Estate Flourishes
As other sectors lag due to lack of foreign currency and political, as well as security, instability, real estate continues to be the safe haven for both local and foreign investors, and nobody has capitalized on this market better than Gulf investors.
Compounding the existing interest in the real estate market has been the launch of numerous large-scale housing, construction and real-estate projects by the Egyptian government, many of them in partnership with Gulf investors. These include the 1 million middle-income housing project with the UAE’s Arabtec, as well as the New Administrative Capital project, which was initially earmarked for development by UAE construction kingpin Mohamed Alabbar, before the deal fell through due to disagreements.
Nonetheless, the announcement of these projects, as well as the introduction of new laws facilitating land ownership by foreigners, signaled a green light for foreign investors to pump capital into the market. Among these laws was Law 17/2015, introduced by President Abdel Fattah Al Sisi himself, which removed the last of the remaining restrictions on foreigners’ land ownership, in addition to allowing the state to directly assign land for free to private investors, through a variety of investment schemes.
Room for Investment in Tourism
However, despite this peak in interest in real estate, tourism has continued to command a far lower percentage of Gulf capital, due to fewer incentives and a largely beleaguered market. Nonetheless, this was not always the case, as was evident in the years directly preceding the revolution, when a number of large-scale Gulf acquisitions characterized a large part of the activity in the hospitality market.
The trend most prominently peaked in the 2000s with the buying out of a number of Cairo’s top luxury brand hotels by Gulf investors; most prominently the Hyatt by the Saudi Egyptian Touristic Development Company (2008), and the Fairmont Heliopolis by Gulf-Egypt for Hotels and Tourism, among others. Both acquisitions raised questions as to how Gulf capital would be reshaping tourism trends in Egypt over the short- and medium-term, but such questions were somewhat curtailed by the events of 2011.
This is in addition to projects that are still in the pipeline, such as Qatari Diar’s upcoming over EGP 6 billion St. Regis Nile Corniche near the World Trade Center, with a total area of 9,360 square meters and 515 keys, set to be delivered soon after its original 2014 due date was postponed.
This project, in addition to the Saudi Nile Towers, which includes a Hilton hotel on the Maadi corniche, evidences the face that appetite is still strong for Cairo’s hotel at present, with room for growth. The project is launched by the Saudi-Egyptian Construction Company, which is also set to launch a project for a four-star hotel in New Damietta—a largely untapped territory for tourism investment.
Residential Tourism: the Marassi Model
Yet, the trend does not end there. While Egypt’s tourism industry has invariably struggled, being among the hardest hit sectors by the political turmoil that resulted from the numerous power changes since 2011, one type of touristic venture has nonetheless gained pace alongside the exploding real estate sector—residential tourism.
As local tourism attempts to pick up slack from the floundering numbers of international tourists, more Egyptians—as well as Gulf citizens—have invested in properties along Egypt’s many beaches, particularly the North Coast.
Hedged from the turmoil of other formerly popular beach areas, such as Sinai and the Red Sea, and with the advantage of proximity to the capital, the North Coast been teeming with more and more developments over the past decade or two, with no signs of slowing down.
One of the largest and most coveted examples of such properties is Marassi, developed by Emaar Misr, the subsidiary of UAE real estate giant Emaar Properties, behind the current highest tower on earth (Burj Khalifa). Nowadays, Marassi has come to resemble a benchmark in luxury residential tourism for both the Egyptian market and the wider Arab one.
With a whopping EGP 10 billion investment approximately, the first villas were completed around May 2012, and despite the tumultuous circumstances at the time, a certain segment of Egyptians was quick on the uptake. Marassi spurned the development of countless more projects like it, moreover convincing Gulf investors to turn their sights to a new type of touristic development.
Emaar has moreover set its eyes on its latest hospitality venture, The Address Hotel, with plans to launch in Marassi in the near future. The developer’s hotel brand has already met with great success on its own soil, and is also set to venture into Bahrain and Turkey.
Broaching New Territory
Meanwhile, several hundreds of kilometers away, on previously untouched pristine beaches south of Hurghada in Marsa Alam, Kuwait’s Kharafi Group essentially created a new beacon for luxury tourism in Egypt with the establishment of Port Ghalib.
Proving that the appetite for five-star R&R was still strong, the company not only overhauled the area’s prospects, it even built an airport, which was inaugurated in 2003. The resort town has since become a prime tourist destination, particularly for Italian tourists looking for a specific brand of luxury.
Moreover, UAE-based HMG similarly entered the luxury resort market in Egypt with the launch of its Sharm Vista Resort in Sharm El Sheikh in 2015, placing its bets on the recovery of South Sinai tourism, despite the recent drop in numbers.
The increasing flow of Gulf investment, both in the real estate sector, and more specifically in tourism projects, is likely to restore confidence among other foreign investors, thereby attracting further investments into both sectors. This, along with the Egyptian government’s concerted efforts to boost construction and infrastructure projects, heralds a potential boom, provided that it is able to overcome current crises and issues.
Meanwhile, though FDI in Egypt has begun to inch upwards, registering approximately EGP 60 billion in the first nine months of FY 2015/2016, according to the Central Bank of Egypt, tourism continues to face many hurdles, with repeated incidents stymying the industry’s recovery.
Investors Face Hurdles
Moreover, investors have complained of a number of obstacles, including the lack of reforms or the sluggish steps taken towards them. Yousry Abdel Wahab, Deputy Chairman of the Saudi-based Al-Tayyar Travel Group Holdings, moreover pointed to the law preventing foreign investors from purchasing land in Sinai, contending that such a law prevents the adequate development of the area.
He further pointed out that Arab investors are eager to develop the area on a macro-level, noting that the capital is available to do so, but existing laws have put the brakes on such hopes, or completely driven them to a halt.
“We have a lot of strategic places in Egypt like Tahrir Square, the Nile and Ain el-Sokhna and this law depriving non-Egyptians from owning lands is not applied [there],” he told Invest-Gate. “We can change this law, put some legislations and adjust it so foreign investors can buy lands in Sinai for development projects related to tourism and industry sector.”
He moreover affirmed that the consequences of preventing such investments are multifaceted. “Since Egyptians investments are low, we must take advantage of our relationships with Arab [investors]. We can start giving Arabs incentives to start investing here.
“Using the Arabs’ capital and investments will lower unemployment rates, create new job opportunities, eliminate Egypt’s debts and encourage Arabs to support Egypt to maintain their investments. This will also encourage foreigners to invest in Egypt, and Egyptians in turn will start investing in complementary industries,” he stated.
Most investors accede to the idea that bureaucracy and time-consuming procedures are the main deterrent for investing in Egypt. “We have to hire people to finish these procedures and all the paperwork for investors without them getting involved,” said Yehia Madkour, President of the Association of Businessmen in the Tourism Sector.
Indeed, most investments are inevitably caught up in a tangle of red tape before taking off. Meanwhile the numerous attempts to address the goliath of bureaucracy in Egyptian investment procedures through a one-window investment system having failed to materialize thus far. Land ownership in particular is a highly contentious issue, with a number of Egyptian authorities—most prominently the army—having de facto rights over large swathes of land nationwide.
However, as evinced by the recent developments in the North Coast, Cairo and other places, Gulf investors have the opportunity to become trend-setters, expanding and recreating the touristic norms in Egypt by developing a largely untapped industry.
The somewhat haphazard and undirected development of Egypt’s tourism industry leaves much room for foreign investors, and particularly Arabs due to proximity, to leave their brand on the market, with enormous potential to diversify into different types of tourism. Though obstacles exist, and a degree of reform is necessary, investors can take advantage of current lulls to innovate into new markets.
Additional reporting by Aya Nader and Leena El Deeb.