BMI View: While we expect tourism activity in the MENA region to accelerate in 2013, the sector will become increasingly polarised. GCC countries will receive increasing foreign visitors and investment from international hospitality companies, while modest industry growth in countries in North Africa and the Levant will have a detrimental impact on the economy .
According to data from the World Travel and Tourism Council, the total value of the travel and tourism sector was US$75.5bn in North Africa and US$180.8bn in the Middle East in 2011, equivalent to a total contribution to GDP of 12.4% and 8.1%, respectively. In terms of the entire Middle East and North Africa (MENA) region, tourism activity declined significantly in the same year, mostly due to the uptick in political instability resulting from the Arab Spring.
|Tourism Activity In North Africa Declining|
|MENA - Foreign Tourist Arrivals, mn|
We expect tourism activity to have rebounded, albeit moderately, in 2012, and the sector's expansion will accelerate this year. That said, the industry will become increasingly polarised. On the one hand, GCC countries (with the exception of Bahrain) will continue to benefit from political instability elsewhere in the region as well as robust investment in the domestic tourism sector. On the other, several countries in North Africa and the Levant will see the industry expanding slowly, if not contracting, in 2013, as elevated political risks will continue to dampen visitor inflows.
|GCC High On The List|
|MENA - BMI Short-Term Political Risk Rating, Scores out of 100.|
Underperformers: Political Instability Is Key
Tourism activity in Lebanon, which accounts for approximately 10.0% of GDP, is largely dependent on perceptions of political stability in the country. Indeed, hotel occupancy rates in the capital Beirut fell 46.6% in October 2012 compared to the same month in 2010, as political risks have increased steadily due to the civil war in neighbouring Syria. As the conflict will continue through 2013, political instability in Lebanon will remain elevated. As a result, tourism activity will unlikely expand at a rapid clip this year, compounding our view that the economy will grow only 1.9% in real terms in 2013.
|Unlikely To Spike In 2013|
|Tunisia - Non-Resident Entries, mn|
Tunisia's tourism sector was hit hard by the 2011 Jasmine Revolution, with non-resident entries declining 30.7% that year. While tourism activity rebounded in 2012, monthly entries remained 9.7% lower over the first nine months of the year compared to their average in 2010. As political instability in the country is on the rise ( see our online service, February 7, 'Political Assassination Undermining Transition'), we expect tourism activity to remain modest in 2013.
Elevated political instability following the overthrow of former ruler Hosni Mubarak in February 2011 is hitting Egypt's tourism industry hard. However, while hotel occupancy rates in the capital Cairo fell 41.1% in October 2012 compared to October 2010, rates in the coastal resort of Sharm El Shaikh fell only 8.7%, with occupancy rates coming in at 84.0% in the same month. While civil unrest in the capital will remain elevated, a dramatic uptick in political violence along the Red Sea is unlikely in our view, and the ongoing divergence in performance will persist. That said, the overall picture remains bleak, especially given that average room rates, which have declined significantly in the entire country, will continue to trend lower.
|A Tale Of Two Countries|
|Egypt - Hotel Occupancy Rates|
With the popular uprising that begun in 2011 showing no signs of abating ( see 'No Quick Resolution To Political Deadlock', February 12), Bahrain's tourism sector is being hit hard. Hotel occupancy rates declined 24.2% y-o-y in October 2012, and the cancellation of the Formula 1 Grand Prix in 2011, due to political violence in the country, triggered a double-figure decline in air passengers in the same year. Indeed, air carrier Bahrain Air announced on February 12 that it will file for voluntary liquidation and suspend its activities due to the slowdown in visitor arrivals. As the Emirate's reputation for stability will deteriorate further over the coming quarters, the tourism sector will continue to suffer.
Overperformers: GCC Leading The Pack
United Arab Emirates
Ongoing political instability across the MENA region has greatly benefitted destinations which are considered a 'safe haven' for both leisure travellers and investors, such as the UAE. Dubai's international airport reached 50.9mn passenger movements in 2011, an increase of more than 25.0% compared to 2009, and it is expected to rank among the top-three busiest international airports by 2015. Hotel occupancy rates have remained robust, coming in at 79.0% and 87.0% in Dubai and Abu Dhabi, respectively, in October 2012. Given the UAE's relatively stable political risk profile and its strategic position between Europe and Asia, the federation will continue to attract significant inflows of visitors. In particular, the development of large-scale projects such as a US$600bn theme park called Dubai Adventure Studio and the Dubai Art Museum, as well as the planned opening over the next three years of the Guggenheim Museum and the Louvre in Abu Dhabi, will ensure that leisure tourism will increase at a rapid clip. Indeed, BMI forecasts foreign tourist arrivals to the UAE to increase 10.0% in 2013, from 8.5% in 2012 ( see 'Industry Forecast - United Arab Emirates - Q1 2013', January 3).
|Set To Remain Elevated|
|UAE - Hotel Occupancy Rates|
Qatar is expected to increase room numbers by 5,635 this year, the strongest year-on-year growth in the Middle East, with occupancy rates having come in at a robust 70.0% in October 2012. Although the majority of visitors are currently corporate, the country appears well placed to grow significantly in the leisure segment. Qatar is positioning itself strategically in the global sporting arena, as it will host the 2022 world cup as well as the Formula 1 Grand Prix and the HSBC Golf Championship, while the government will continue to invest in ambitious projects such as a semi-submerged resort called amphibious 1000 and the enlargement of the Doha Exhibition Centre. Given the relative underdevelopment of the tourism sector vis-a-vis neighbouring UAE, the industry will see elevated growth rates over the coming quarters.
A combination of leisure, business and religious visitors underpin elevated hotel occupancy rates in Saudi Arabia, which averaged 72.0% and 63.0% in Jeddah and Riyadh, respectively, in 2011. The majority of visitors to Saudi Arabia come from the GCC, espcially the UAE and Kuwait, and, given solid projected economic growth rates in the Gulf, inflows of tourists to the kingdom will remain robust. Moreover, the government plans to invest US$80mn in tourism-related facilities over the next few years, particularly hotels and airports. Although tourism and travel contributed to only 3.2% of total GDP growth in 2011, they accounted for 7.1% of non-oil GDP and 11.8 % of private sector GDP. The bright outlook for the sector bodes well for the government's efforts to reduce the economy's dependence on hydrocarbon exports.
|Levant And North African Countries Will Suffer|
|MENA - 2013 Real GDP Growth, % chg y-o-y|
Tourism Industry Outlook Compounding Economic View...
The growing polarisation in the tourism industry in MENA compounds our view that GCC countries will broadly outperform countries in the Levant and North Africa in terms of real GDP growth in 2013. The economic implications of slow industry growth will be important in Egypt and Tunisia. Tourism accounted for approximately 7.0% of GDP in Tunisia and 11.4% of GDP in Egypt in 2010, and low revenues from the sector will contribute to increasing public discontent. Conversely, the UAE will be the major beneficiary of political instability in the region. The total contribution of travel and tourism to GDP in the country was equivalent to 13.5% of GDP in 2011, and the positive outlook for the tourism industry reinforces our relatively bullish view on the economy in 2013.
|All About The UAE|
|MENA - Development Pipeline, Number of Rooms 2013-2017|
...While Foreign Investment Will Focus On The Gulf
Foreign direct investment in the tourism industry will grow significantly in the MENA region over the coming years. According to HVS Global Hospitality Services' 2012 Middle East Hotel Survey, 84,000 new hotel rooms will be brought online over the next four to five years. Hilton Hotels & Resorts dominates the development pipeline with more than 15,800 rooms planned over the next four years, while Marriott International and Rotana Hotel Management Corporation follow with approximately 12,000 and 9,300 rooms, respectively. Not surprisingly, most of the developments will take place in the GCC. As long as political instability in North Africa and the Levant does not decline significantly, we expect international companies looking to expand in the region to continue focusing primarily on the Gulf.