FEATURE-Bomb attack adds to tourism woes in Egypt

By Alaa Shahine and Sarah A. Topol

CAIRO, Feb 24 (Reuters) - Tarek el-Sayyed had no customers at his gift shop in a 14th-century Cairo market where he sat contemplating a difficult future.

Instead of buses ferrying tourists to the Khan el-Khalili market, the plaza outside Sayyed's shop on Monday was filled with police officers, a day after a bomb attack in the area killed a French teenager and wounded at least 20 people.

"Of course it will affect us," he said in front of his shop that sells replicas of ancient Egyptian artefacts. "At this time of the day buses would be bringing tourists here ... but today things are as you can see."

Tourism in Egypt was already feeling the pinch of the global financial crisis as tourists have stayed home.

Across the country, hotel revenues and occupancy rates have fallen, forcing some establishments to dismiss workers or close, according to analysts and industry sources.

The prospect of rising unemployment is daunting for a government that depends on tourism to provide direct and indirect jobs for 12.3 percent of the workforce and to contribute about 7 percent of gross domestic product.

Analysts say unemployment could fuel the same type of social unrest, protests and labour strikes, that Egypt has seen over the past three years when fast economic growth pushed inflation to 24 percent, a 16-year-high.

"We can see that a lot of hotels are laying off employees," said Daniyah Darwish, vice president of equity research at investment bank EFG-Hermes, which forecasts the number of tourists would fall by 18 percent in 2009 to 10.5 million.

Occupancy rates are also expected to drop below 50 percent, she added.

Egypt is home to some of the world's most famous historical sites, such as the Pyramids of Giza. It also boasts sandy beaches and spectacular coral reefs along the Red Sea coast. The majority of visitors come from European countries such as Russia, Britain, Germany and Italy.

In Khan el-Khalili, where narrow alleys teem with shops selling everything from jewellery to leather products and belly dancing costumes, merchants said business has been slow in 2009.

"We are used to haggling, but people used to buy stuff in the end," said Ibrahim Mahmoud, who like Sayyed had no customers in his shop the morning after the bomb attack. "Now they haggle but (many) ... leave without buying anything."

Vassili Tawadros, who runs the Ding Dong bazaar near the Egyptian Museum in downtown Cairo, said his business had slowed by about 40 percent since the financial crisis started to hit Europe. He is also worried about the impact of the bomb attack.

"We work our whole business with tourists. These things happen and it's very bad for our business and for Egypt."

EURO, POUND HIT

Analysts said Sunday's bomb attack, the first deadly attack on tourists in Egypt since 2006, was unsophisticated and unlikely to signal a wide resurgence of Islamist militancy.

Bomb and gun attacks that have hit Cairo sporadically over the years have often been linked to Nile Valley militants. But the largest two such Islamist militant groups in Egypt halted attacks after the killing of dozens of foreign tourists at a pharaonic temple in Luxor in 1997 caused a public outcry.

That attack drove tourist arrivals down by 13 percent in 1998, investment bank CI Capital said in a report. The industry soon recovered and militant attacks elsewhere in the world caused the impact of instability on Egypt "to lessen and to have a shorter time span," the bank added.

Tourism executives say the financial slowdown has hit the resort towns on the Red Sea, such as Sharm El-Sheikh, Hurghada and Marsa Alam, owing to the decline in the value of the euro, the Russian rouble and the pound sterling against the Egyptian pound.

Elhamy El-Zayat, chairman of Egyptian travel group Emeco, said one Russian agency that used to bring 20,000 customers a week to the country "was now down to 1,000 customers a week".

"When the number of Russian tourists dropped there was panic among the hoteliers," he said.

In Marsa Alam, which depends on Russian, British and Italian tourists, three hotels shut down because they were unable to cover their expenses, said Ahmed Balba', head of the Hotels Association of South Sinai.

He said hotel revenues have also slumped because of the decline in the value of European currencies.

EFG-Hermes expects revenue from tourism to decline by 15 percent to $9.2 billion in the fiscal year that ends in June and by a further 15 percent in the following year.

Some tourists, however, said that with a treasure of antiquities, such as the golden mask of the Pharaoh Tutankhamen, Egypt remains an attractive and affordable destination despite the financial crisis and security threats.

"This is a historical place, that's why we are here," said Raghu Ramaraju, a 35-year-old Indian who works for an oil company in the United Arab Emirates. "Everybody ... wants to see the Pyramids". (For analysis: Egypt bomb unlikely to signal resurgence of militancy, click on [ID:nLN428437]; For a factbox on previous attacks in Egypt, click on [ID:nLN213772]) (Writing by Alaa Shahine; Editing by Janet Lawrence)