Economic Fallout Reaches Arab States

Ramadan Ibrahim counts himself among the casualties of the Iraq war as he looks out at the pyramids at Giza. The surrounding parking lots are empty, the tourist shops deserted. In his stable, all 45 of his Arabian horses are idling away the day in their stalls.

“Where are the tourists?” he asks, before answering himself: “Far away. In their homes. The war makes everyone think of nothing but war. We are not Iraq, but people think they will get shot if they come to Egypt. Will they ever come back? Only God knows.”

Usually in March and April, the height of Egypt’s tourist season, Ibrahim’s guides would be leading 15 to 20 riders through the desert on a sunny, cool morning like this. Hotels from Cairo to Luxor would be full. Restaurants along the Nile would be turning away customers. Flights in and out of Cairo would be oversold.

But these days one of the world’s great tourist destinations has been all but forgotten, and economists estimate the war could cost Egypt up to $8 billion in lost revenue from several sources, including tourism, Suez Canal traffic and exports.

Egypt’s troubles reflect economic concerns facing the Arab world overall. A United Nations agency previously estimated that the 17 Arab countries could see $400 billion in lost productivity and the loss of 2 million jobs in the next decade because of the war.

Most estimates projecting the war’s catastrophic impact, including the U.N. estimate, were made before the U.S.-led campaign was launched March 20. Because the war ended up being short, did not spill over Iraq’s borders and resulted in the ouster of Saddam Hussein, economists believe the losses may have been overstated. They say it will be impossible to accurately tally the costs and assess the long-term economic effect until Iraq’s future is clearer and the regional implications of Hussein’s overthrow are apparent.

“There is an enormous amount of uncertainty as to what institutions, what form of governance, is going to emerge from the postwar situation,” Jean-Louis Sarbib, a World Bank vice president, said in Washington just after Baghdad’s fall this month. “The situation is too unclear for us to say which way the chips are going to fall.”

While reconstruction of Iraq could give an economic boost to the region, in the short term analysts expect declines in tourism, investment, trade and transport.

Iraq was Jordan’s major export market, and it was one of Egypt’s largest trading partners. Iraqi oil, some of it smuggled, was an underpinning of the Syrian economy. Egypt, Jordan, Lebanon, Tunisia, Morocco and Dubai, a member of the United Arab Emirates, are expected to suffer the most because they are heavily dependent on tourism.

In Egypt, tourism is a $5-billion-a-year industry that employs 2.2 million people and is one of the country’s major sources of foreign exchange. Last year, tourism hit record levels in several Middle East countries as many Arabs, particularly those from the Persian Gulf states and Saudi Arabia who traditionally vacation in the West, decided to stay closer to home. The reason: security concerns and fears they would receive a hostile reception in the U.S. in the aftermath of the Sept. 11 terrorist attacks.

“The problem isn’t cancellations, it’s no new bookings,” said Riyad Lotfi, general manager of the Sheraton Royal Gardens hotel in Cairo. “People check out and no one’s coming to replace them. That’s left hotels with about a 20% occupancy rate.”

Industry officials say that because of war-related concerns, Egypt will be lucky to attract 3 million tourists this year, compared with 5.2 million in 2002. Tourist revenue may fall by nearly half.

Reduced hotel rates and an international advertising campaign using CNN and other media have apparently done little to reverse the downturn.

“We don’t believe lower prices will do much to help,” said Ali Chiati, co-director of Travco, one of Egypt’s major travel wholesalers. “Right now, people don’t seem to have the intent to travel. They are not in a mood to enjoy themselves. They know the mood on the Arab streets isn’t healthy, with a lot of anti-American and anti-British feelings.

“So people would rather stay home. They’re waiting for the mood in the streets to improve and the chaos in the Middle East to subside before they start thinking about coming back.”

The State Department has issued no travel warning for Egypt, a security-conscious nation that is home to 15,000 Americans. Nevertheless, the Iraq war marks the fourth serious setback for the tourist industry here in 12 years, following the 1991 Persian Gulf War, the killing of 58 foreign tourists by Egyptian Muslim extremists in Luxor in 1997 and the Sept. 11 attacks in the United States in 2001.

When war jitters first hit the region early this year, Egypt began stockpiling grain and worrying about its 1.3 million workers in Iraq and other gulf states, whose remittances are an important economic pillar. Jordan passed an emergency 2003 budget envisioning a 4.3% deficit, wiping out earlier projections that its economy would grow 5% to 6%.

Sweetheart oil deals Hussein offered Syria and Jordan as a means of finding renewed acceptance in the Arab world were placed in jeopardy.

The Arab world’s war-related uncertainty is particularly worrisome in an economically troubled and woefully underdeveloped region with little industry -- not even a single auto assembly plant. Egypt’s economy has been in a downturn for three years. Saudi Arabia, another major economy in the region, has seen its per capita income tumble since the oil boom, and the quadrupling of oil prices, in the 1970s.

One in five Arabs lives on less than $2 a day, and in 1999 the Arab world’s gross national product of $531 billion was less than Spain’s, a U.N. study found.

“Whether we benefit economically from the outcome of the war or lose big time will depend on how America’s reconstruction of Iraq goes,” said Abu Bakr Mustafa, an Egyptian market analyst for London-based Euromonitor International.

Although U.S. and British firms are likely to win the major reconstruction contracts, Mustafa said, “the market is still open.”

Much of the work will be farmed out to subcontractors, who will need a large work force and an armada of transport vehicles and equipment. The massive project could provide a significant economic injection for countries such as Egypt and Jordan.

Meanwhile, countries that offered the U.S. support in the war -- even if that support was primarily discreet silence -- are looking to Washington to help them overcome short-term problems.

Funds that Congress will provide allies to help cope with the effect of the war are sometimes tied to a cooperative political posture toward the U.S. and economic reform.