Tourism slump to hit parts of the region hard - Capital Economics
Middle East & North Africa Economics

Tourism slump to hit parts of the region hard

Middle East Economics Update
Written by James Swanston
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Efforts to contain the coronavirus outbreak look set to hit tourism sectors across the MENA region hard. The North African economies, as well as Dubai, Lebanon and Jordan, are most vulnerable and the direct hit will knock at least 2-3% off GDP this year. External positions will also come under pressure.

  • Efforts to contain the coronavirus outbreak look set to hit tourism sectors across the MENA region hard. The North African economies, as well as Dubai, Lebanon and Jordan, are most vulnerable and the direct hit will knock at least 2-3% off GDP this year. External positions will also come under pressure.
  • Confirmed cases of coronavirus have continued to rise and governments across the region have responded with severe travel restrictions. All commercial flights in and out of Kuwait, Qatar, Egypt, Saudi Arabia, Tunisia, and Morocco have been suspended. At the same time, social distancing measures have led to the closure of almost all entertainment and cultural activities across the region.
  • All of this will hit tourism sectors hard over the coming months. Across the region, tourism accounts for an average of 12.5% of GDP through both direct and indirect effects. They are largest in Jordan, Lebanon, Morocco, and Tunisia. (See Chart 1.) Dubai is also vulnerable – according to Mastercard, tourist spending in the Emirate was the largest of any city in the world last year. Tourism is also an important contributor to employment (see Chart 2), hence why many governments have pledged support for the sector.
  • As Chart 3 shows, the share of tourism spending in these countries is predominantly by foreigners. Given the restrictions put in place, foreign tourists are likely to be non-existent at least for the next few weeks and months. And containment measures mean that domestic tourists won’t be able to pick up the slack.
  • The extent of the economic hit from tourism sectors will vary considerably. As Chart 4 shows, the tourism shutdown is taking place at Dubai’s peak time for arrivals. In contrast, it is a relatively quiet time for tourist arrivals in Morocco and Tunisia but they are vulnerable if restrictions remain in place into the summer.
  • On the assumption that travel restrictions are in place until the end of Q2, we estimate that the downturn in tourism sectors will directly knock at least 2-3% off GDP this year. And the hit to service export revenues will cause current account positions to deteriorate. This will raise further concerns over fragile external positions in Tunisia and Jordan, although the IMF will almost certainly maintain its support for both countries. But it adds to the long list of reasons to expect the Lebanese authorities to devalue the pound.

Chart 1: Tourism (% of GDP)

Chart 2: Tourism Employment (% of Total Employment)

Chart 3: Tourism Expenditure (% of GDP)

Chart 4: Tourist Arrivals
(Avg., 2011-2019, Peak Month of Arrivals = 100)

Sources: CEIC, World Bank, Capital Economics


James Swanston, MENA Economist, james.swanston@capitaleconomics.com