In 2004, a reform cabinet was appointed led by Prime Minister Ahmed Nazif. The economic reforms implemented represented in tax and tariff reform, financial sector restructuring, a solid privatization program, and a stable controlled free-float exchange rate environment stimulated economic activity as it demonstrated policy activism, improved political credibility, and has shown greater transparency.

The Current and Capital Accounts moved to surplus territory backed by global market recovery, Egyptian tourism market recovery, higher Suez canal receipts and oil price hike, and higher commodity exports. This led to Foreign Direct Investment recovery and mounting Foreign Exchange Reserves.

Over the last 3 years, Real GDP growth rates recovered from 3% in 2003 to almost 7% in 2007 fueled by political and economic reform, progressive fiscal policy, and an improved investment climate.

The Egyptian Stock Market performance mirrored positive investor sentiment as the Egyptian Stock Exchange (EGX) outperformed Emerging Markets by 288% since July 2004. The EGX demonstrated increased depth and liquidity, especially with the privatization of landmark public sector enterprises via IPO’s, such as AMOC and Telecom Egypt. The performance was backed by a well-developed liquid market with attractive relative valuations, strong EPS growth, and improved economic conditions.

The Egyptian government’s plan of reaching 14 million tourist arrivals by 2012 is becoming a reality. In 2006/07, the number of arrivals reached approximately 10 million tourists, almost double the 2002/03 figure of 5.2 million. The market saw the Number of Tourist Nights almost triple over the same period to more than 96 million nights with an average stay of almost 10 nights. Responding to this explosive growth and to meet the anticipated demand, investments in hotels more than doubled over the period to EGP 4.6 billion. The World Travel Council estimates that total demand on the Egyptian tourism market will maintain a healthy average growth rate of 5.4% per annum, in real terms, between 2008 and 2017.

Egypt currently accounts for 25% of MENA tourist arrivals and 33% of African tourist arrivals. Of all tourist arrivals into Egypt, almost 50% are Western European and over 50% go directly to the Red Sea, ERC’s development destination.

The Egyptian government is focused on ensuring that the tourism sector remains robust and in growth mode as it is the second largest hard currency earner representing 16.1% of foreign exchange earnings and accounting for USD 8.0 billion in 2006/07. In addition, the sector represents 39.3% of all service exports receipts, employs 13.7% of the Egyptian workforce, and is the third largest contributor to GDP growth.

We believe that the current world economic slowdown especially coming from the Western world as commodity and oil prices maintain their current strength is only a shift or repositioning in the overall inbound arrivals market of Egypt. Resource rich countries from Eastern Europe, China, South East Asia and Australia will easily fill, if not surpass, any gaps created by higher commodity and fuel prices in some international markets, and hence as long as Egypt maintains steady growth and reasonable inflation relative to the region, tour operators will continue to look to Egypt to provide, more and more, reliable and resilient vacation alternatives to satisfy all types of foreign markets.

Currently, Eastern and Western Europeans account for approximately 70% of total tourist arrivals into Egypt with unprecedented growth in Eastern Europe and an amazing emerging market from China, hence the growth in airline traffic to and from South East Asia. Egypt remains to be a less expensive alternative to other Mediterranean destinations and the Red Sea maintains its status as one of the most attractive year-round resort destinations in the region. As a result, we strongly believe that Egypt will be able to maintain at least a 10% growth rate from approximately the 10 million arrivals base in 2006/07 and hence meet or beat its target of 14 million tourist arrivals by 2012. It should be also noted that with the policies of Gulf Airlines and the current capacities in the Gulf, many airlines are now looking to Egypt as the next best and most service oriented Hub, especially with the soon to open new international terminal in its last months of construction.

ERC’s customer, the sub-developer / investor, is enjoying unprecedented growth in the industry. Hotel rooms are in great demand and investors are responding quickly.

There is also a new market forming in Egypt – the second-home residential market on the Red Sea. Historically, this market was non-existent as during the summer months Egyptians were drawn to their local tourist destination, the Northern Mediterranean. In addition, existing products did not cater to European or Western second-home buyers’ needs.

Today, some developers are responding to the demand on Egypt’s pristine coasts, its turquoise waters, and unmatched year-round weather coming from the Western world by creating attractive products and marketing them in Europe. The supply however remains no match for the demand and the temporarily captive audience of 10 million tourists per year remains untapped. This is why, we believe that ERC is at the heart of this changing dynamic, and although performance to date has been nothing short of impressive, the real performance is yet to come.