A Domino Effect: Tourism and Egypt’s Reliance on the Informal Economy During the COVID crisis

Abstract

In this thesis, I discuss the domino effect on how the COVID shock’s devastation of the tourism industry may contribute to a rise in political instability and economic inequality in Egypt due to its connection to the informal industry. There is ample research and discussion regarding the large and resilient nature of the Egyptian informal economy, but none that ties in its dependence on tourism and the repercussions of COVID. I find that the collapse of the tourism industry may lead to a domino effect where the informal economy is unable to uphold its role in the strength and health of the Egyptian economy in a time of crisis. Compared to other tourism-dependent MENA countries like the UAE, Egypt is disadvantaged in that most of its tourism related and supporting jobs are informal—they are hard hit and have no access to government funding or support. Tourism in Egypt was one of the country’s fastest growing sectors and largest contributors to GDP and employment. The industry has also suffered some of the largest losses from COVID, due to international travel restrictions and the government mandated closures of tourism sites and other travel and leisure businesses. The reduction in tourism is estimated to be two-thirds of the total impact of COVID on the Egyptian GDP and accounts for more than half of the reduction in household incomes. Official government support measures to aid tourism include allocation of lending to support hotels, financing the payroll of tourism sector workers, postponing dues, easing penalties for loan delinquency, and a handful of fiscal policies to provide relief, spur spending, and support healthcare. To test the efficacy of the government support measures and gauge an understanding of COVID’s unique effect on the Egyptian economy, I conducted a series of interviews with tourism business owners and managers in both Upper and Lower Egypt in December 2020 and January 2021. I wanted to know if the COVID crisis was different from the previously disused periods of loss in the tourism industry, as tourism seems to both help support the economy in times of crisis but also may suffer losses due to lower numbers of arrivals during periods of instability. I found that tourism has never felt an economic crisis as intense as this one, and how, through previous crises, tourism businesses still flourished. I also wanted to test the performance of the government aid described by asking whether the interviewees knew of the measures and whether they provided adequate support. I found a common consensus that government support was completely inadequate and unheard of especially amongst informal workers. Egypt cannot continue to rely on the informal sector as a cushion for economic crises because the informal economy has proved to be vulnerable to exogenous economic forces in a way that it has not previously. COVID-19 has exacerbated the symptoms of Egypt’s persistent reliance on the informal sector because of its sustained impact and lack of programs providing some sort of social protection such as unemployment benefits. Therefore, COVID will cause an unprecedented rise in inequality and political instability. To avoid this domino effect, Egypt should consider immediate measures to create policy that directly aids the tourism industry and informal economy by providing resources to informal firms and ensuring the safety and support of its informal workers.