Despite a decline in Egypt's general tourism trends in recent years, Red Sea resorts have remained relatively insulated with positive numbers. Egyptian Resorts Company CEO, Mohamed Kamel, outlines
why Egypt's tourism offerings are fundamentally strong and how ERC's flagship project continues to be a top performing destination for international visitors.
Tourism revenues post 2011 revolutions fell from $12.5 Billion in 2010 to $5.9 billion in 2013. Recently, we have seen a slight recovery in the tourism sector. How do you see the sector today and what areas do you think have the greatest potential for growth?
You always have to keep in mind that the fundamentals of the tourism industry have not changed, whether you’re an investor or operator in our industry or simply a holidaymaker. First of all, Egypt’s weather alone makes it a brilliant, all-year-round destination. There is always something to do. The Red Sea resorts are phenomenal, with some of the most beautiful beaches and diving in the world — and ample room for new investment without spoiling its unique character. Aswan is a winter resort, and the Mediterranean is a destination nine months out of the year. Equally important is that Egypt is home to about one-third of the world’s antiquities, which gives rise to exceptional opportunities in cultural tourism, whether it’s Pharaonic, Christian heritage or Islamic heritage sites.
What’s more, the price-performance balance you get by vacationing in Egypt or investing in a second home is tremendous. The Red Sea continues to be one of the least expensive destinations in the Mediterranean region and the value for dollar is incredible. And we have no real competition on the Red Sea: Saudi Arabia is difficult to visit and Sudan is substantially under-developed.
We expect a rapid recovery of tourist arrivals and investment in the sector alike now that we have a stable government and a new president in place. We’ve seen this before: In early 2009, we were in New York at one of the investment banking conferences discussing how tourism in Egypt was going to be affected after the global financial crisis. We were betting that the numbers would improve over 2008, and we were right. It turned out that 2010 was our biggest year. People don’t stop taking vacations; they are just going to look for better value for money. Egypt remains one of the top destinations on the global tourism map in that regard.
How do you see the current perception of Egypt abroad for tourists and for investors?
Sentiment is changing and improving. We are seeing a lot of excitement around Egypt and the sector itself. We’re fundamentally a master developer, so while we do develop our own offerings for consumers, our primary focus is on investors and developers, and in the past 4-5 months, interest in Sahl Hasheesh from investors and developers alike has been so high that we have on occasion lacked the staff to show investors around. We are extremely excited about the next few years in tourism.
Perhaps most exciting for us is that every sign points to a rapidly growing economy on the back of strong fundamentals — and that this growth is broad-based. We’re seeing expansion at a rate north of 4% right now and will likely see 5.5% in the next fiscal year starting in July. Part of the key here is Egypt’s population, which creates not just a large labor force but opportunities to provide a large consumer market with fast-moving consumer goods, health care, and education offerings. As the purchasing power of the local population improves, people will spend more on consumer items alongside seeking better healthcare and improved education for their children. I would expect to see very strong investor demand for access to opportunities in these sectors.
The Egyptian logistics sector is another burgeoning industry. The country is developing so rapidly, and the logistics industry is straining to keep up. That’s why you’re seeing companies like Aramex, DHL, and most notably, Agility — a huge regional player — expanding their presence in the Egyptian market. They’re building warehouses and logistics centers, they’re growing their fleets. The market is so fragmented right now that there is a huge opportunity for investment.
The coming years will definitely see significant investment coming into Egypt across multiple sectors.
Your flagship community development is a 32 million square meter mega resort project on the Red Sea. What is it that makes Sahl Hasheesh so unique when compared to other resort towns in Egypt?
Although we are certainly unique, I would hesitate to make that statement at the expense of other developers on the Red Sea: There’s a very tangible sense among us all that we’re better off rising together and building the profile of the mainland Red Sea coast as a destination than we are competing against each other.
As to Sahl Hasheesh itself, we’re a large, gated, water-front tourism or hospitality-based resort community — the largest community on the Red Sea, in fact. At 32 million square meters, it’s large enough to be a city in its own right. To put this into perspective, that’s half the size of Manhattan or equal to 15 times the size of Zamalek in Cairo — and it’s something we’re building and developing to international standards in partnership with our sub-developers.
It may sound immodest, but we believe we have the best beach on the entire Red Sea — combining 12.5 kilometres of beachfront with 9 kilometres of naturally protected bay, so it’s eminently swimmable and protected from the wind. We are fortunate to work with some of the most renowned and successful Red Sea developers and sub-developers inside Sahl Hasheesh. When you have a combination of these developers along with the fundamentals of a resort with beaches, ideal weather, proximity to the airport and a fully-controlled community standard by ERC, you have a winning formula.
As one of four gated, fully-integrated communities on the Red Sea, we acknowledge this is a rare model, we look at it as being the future developmental model for tourism in general. I see it as a way of supporting the government in developing new cities as opposed to asking the government to install infrastructure, hire urban planning experts, and begin managing the sell-off of individual pre-designated land parcels to investors who want to build hotels, residences or tourist facilities. It is a huge task which places significant pressure on government resources. ERC complements the development of cities in Egypt.
What stage of development is Sahl Hasheesh currently in?
The first two phases are 12 million square meters, and about 70 percent of that is sold out and under development. We currently have over 3,000 operating hotel rooms, more than 1,300 delivered residential units, and another 5,000 hotel rooms and 1,000 residential units under construction. Our model gives us a much faster rate of development. I’d say in the next five years we’ll have 8,000 operating hotel rooms. On completion in say 50 years, we’ll have almost 30,000 hotel rooms and 30,000 residential units.
What has been the market reaction to the project in terms of sales? How much of it is sold out and how much of it is pre-purchased?
As with the broader residential market in Egypt, we’re marketed and sold off-plan. The market reaction to Sahl Hasheesh has been outstanding: Jamaran, our sea-front villa development, sold out in record time last year. Also, a combination of new, market superior hotels with an active calendar of community events gave us an average occupancy rate of about 80 percent last year, the highest on the Red Sea..
Palm Hills, which is developing Old Town Apartments, is one of the premier luxury developers in Egypt – what does this partnership with them say about their confidence in Sahl Hasheesh and its future growth potential?
Palm Hills already owns a very attractive plot of land in Sahl Hasheesh and they are one of the most successful developers in Egypt. They have a client base of outstanding quality. We view this partnership as highly strategic for us, because it will help us attract home owners and vacationers from Egypt. So far, 85-90 percent of Sahl Hasheesh has been sold to overseas residents. That’s phenomenal, of course, but we see an outstanding opportunity now to inject new buzz and a new level of activity into Sahl Hasheesh by tapping the right segment of the domestic market. This is why we wanted to partner with a strong local player: to create a local base of owners and vacationers for Sahl Hasheesh. Palm Hills’s partnership with us on a second project shows the level of confidence they have in Sahl Hasheesh.
What markets are traditionally your most attractive markets?
It depends. For residential units, our market is primarily Italians and Britons. Our hospitality market is comprised mostly of Russians, Germans, Italians, Britons and some Scandinavian countries.
Another project you are working on is the Sawari Marina Project. Can you comment on this? Additionally, is the project with Orascom Development still going on?
The Sawari Marina Project in partnership with Orascom Development was delayed as the launch date was January 2011, which was a challenging time for Egypt. We have not stopped, but have proceeded more slowly through the approvals and permitting process. We have all of our approvals in line pending the Tourism Development Authority’s approval. Once this is in hand, we will re-launch the project.
The first phase will be 1.1 million square meters, centering on a large-scale marina development with 330 berths for boats and almost 1,000 residential units along with three hotels with approximately 1,000 hotel rooms.
If you are speaking to an audience who is looking to invest in Egypt for a holiday destination or purely for investment sake, why should they choose Sahl Hasheesh versus anywhere else?
Simply put, it’s about Egypt’s outstanding fundamentals, which add to the quality of the investments that you’d be making. Take Ibiza or Mykonos: They’re amazing destinations, of course, but they operate only for about 3-4 months of the year. We have 1,000 kilometers of coast on the Red Sea, and our weather is perfect year-round. And while we have been very insulated from the challenges Egypt faced in recent years, Sahl Hasheesh offers ease of access with an upgraded international airport. The location is tremendous at 3.5-4 hours from most European cities. As a community, we are by far, the best master-planned and managed community in terms of design control and infrastructure. Investors know exactly what they are getting and what is being built because there are strict design guidelines and we have a strict compliance team. On top of all of that, building in Sahl Hasheesh means you’re not dealing with a government, but with ERC, a corporation that exists only to make this community a success. This is very important for many investors who do not have extensive experience operating in Egypt. We are responsible for everything. It’s a very attractive formula.
What are your priorities right now? What is the focus of 2015?
It is about capitalizing on the recovery: launching new projects, capturing the excitement and positive sentiment from consumers and investors alike. We’re ready: all businesses have had a tough four years, but our business model has really helped us weather the storm. We are debt-free and we have a singular focus on a single resort community.
How are you promoting the project and attracting investment?
For us, the biggest marketing opportunities are at the largest trade shows. This is how we attract the tour operators and spread awareness of the destination. Sahl Hasheesh is quite loud and visible at every trade show it attends. We go directly to investors that we would like to have develop Sahl Hasheesh, and we’re very good at listening to what investors are looking for and where. We try to be the first person knocking on their doors catering to their strategy with the attractiveness of Sahl Hasheesh and the investment there in a very scientific, quantitative manner. In the end, you are asking an investor to part with anywhere from 300 million to a couple of billion Egyptian pounds, a significant sum. ERC has been quite successful, which lends to our credibility that this is the right place to be and the right place to invest.