Starting to Roll

Nov. 9, 2017

Lebanon's tourism industry was shaken by regional strife. Now, the sector is making a slow rebound, and it is expected to reclaim its enviable numbers and reputation as a premier tourist destination within the next 10 years.

With its proximity to Syria and a political crisis that only recently ended, it may seem Lebanon would be a country seldom thought of by a prospective traveler. While the country did experience a significant decline in its number of visitors recently, Lebanon has been hard at work with a tourism strategy that has allowed for a quick recovery and has promoted regionally unparalleled business and industries geared toward tourists.

Starting in 2011 and bottoming out in 2013, Lebanon's tourism industry took a serious hit, a drop almost entirely attributable to the outbreak of war in neighboring Syria. As quickly as it fell, however, it began to rise. The investment arm of BLOM Bank, Blominvest Bank, called 2016 the best of the past six years and a definite sign of respite. Though the preceding six years may have been a little rough, the signs of recovery are evident.
According to the Ministry of Tourism, the number of tourist arrivals dropped by nearly a quarter in 2011 compared to 2010, falling from a little less than 2.2 million to 1.66 million. The country saw its lowest numbers in 2013, approximately 1.27 million tourists, losing nearly a million visitors in two years. The country's rebound began in 2014, and since 2015 numbers have grown by double digits. In 2016 Lebanon welcomed just under 1.7 million visitors, representing an 11.23% increase from 2015. Though 2016's rise was slightly lower than 2015's YoY growth of 12%, amounting to 1.5 million arrivals, the tourism sector has seen a decidedly positive annual growth rate since the most recent decline.

Among the decline in tourist arrivals were high-spending visitors from Arab countries such as Saudi Arabia, Kuwait, and the UAE. The Ministry of Tourism reports that visitors from these three countries decreased by 63.8% for Saudi Arabia, 58.5% for Kuwait, and a staggering 93.4% for the UAE from 2011 to 2016, reducing tourist numbers by 111,701 to 40,391, 61,756 to 25,653, and 32,058 to 2,114, respectively. The dramatic fall in visitors from Saudi Arabia and the UAE can be explained by a diplomatic spat between the two countries and Lebanon. In February, the UAE issued an outright ban on travel to Lebanon for all its citizens, while also reducing the number of diplomatic staff in the country. Shortly after, the foreign ministry of Saudi Arabia released a statement strongly advising its citizens not to travel to Lebanon and asking those residing in the country not to stay unless it was extremely necessary. Both countries cited security reasons as the purpose for issuing the bans or warnings.

Ironically perhaps, despite the decrease in high-spending tourists, Lebanon witnessed an increase in visitors from countries with lower purchasing power, specifically Egypt and Iraq. Visitor numbers from Iraq increased from 129,294 in 2011 to 236,013 in 2016, while the number of Egyptian visitors grew from 62,825 in 2011 to 83,337 in 2016. Overall, Arab tourists have showed signs of coming back, albeit very slowly; like the overall number of visitors, numbers began to increase in 2014, growing by a little under 60,000 to 460,822, and reaching 522,922.

Though the number of high-income Arab visitors is not yet on its way to a full comeback, increases in visitors from Europe and North America have, for the most part, been able to mitigate the effects of fewer regional visitors. Lebanon saw an increase of American visitors by approximately 33.3%, bringing up the number to 296,831, while the number of Europeans visiting increased by 16%, with 564,499 visitors from the continent. In an effort to appeal to more Europeans and North Americans, the country has seen an increase in unconventional leisure activities and accommodations; specifically, boutique hotels, bed and breakfasts, and guesthouses or home stays that are outside of Beirut have been on the rise. Surprisingly, these types of accommodations have proved increasingly popular among local tourists who are seeking a domestic option to get out of the congestion of the city.

The Ministry of Tourism has been hard at work to boost tourists for holidays. The ministry was able to claim success in September 2016; in this month the Muslim world celebrated Eid el Adha, and the country saw the highest number of visitors for September since 2013, numbering 164,605. The Christmas and New Year holidays also showed promising signs that the ministry's strategy is working. According to Ernst & Young's Middle East Hotel Benchmark Survey Report, hotel occupancy rates for Beirut in December 2016 rose to 64%, just under the 65% achieved in December 2010.

Though promising, this achievement may not be entirely thanks to the ministry's strategy. The average price of hotel rooms was also much more attractive; the average nightly rate significantly decreased, from USD242 in December 2012 to nearly USD100 cheaper at USD148 in December 2016. In addition, the revenue per available room fell at a relative rate; whereas revenue per room in December 2010 sat at USD159, by December 2016 that revenue declined to USD95 per room, which, according to E&Y, is an indicator of less spending per room. A number of special festivals in the peak summer months of June, July, and August also positively affected tourist arrivals, bringing the country an increase in visitors of 8% YoY, totaling 562,000.

While the sector generally has been making a comeback, Blominvest Bank suggests large-scale investments will take longer to reappear. According to figures from the Central Bank of Lebanon, the annual growth rate for loans directed toward tourism complexes was at its lowest since 2012. Though investment had been increasing in double digits, as high as 28.3% in 2014, it fell to 16.2% in 2014, before falling to 5.9% in 2015 and 2.2% up to October 2016. The most recent figures from the Central Bank put the value of loans granted for tourism complexes at USD259 million for 2016 up to October. Blominvest Bank speculates that investors will take some time in reengaging in long-term investments.

Though the country may indeed be going through a turbulent few years, many expect the country to rebound in time and reclaim its reputation as one of the top international tourism destinations. Tourism research firm World Travel and Tourism Council (WTTC) ranked Lebanon at number 35 internationally in terms of long-term contribution to national GDP, meaning contribution over the next 10 years. The short-term outlook, however, is not as promising. WTTC placed the country 140th for growth of GDP contribution in its 2017 forecast. While Lebanon ranks 64th for absolute tourism contributions to GDP, its relative size bumps it to number 39. In the Levant region, Lebanon's tourism industry contribution t GDP is surpassed only by Israel, and is the leader in terms of the sector's contribution to employment.

In 2016, the tourism industry's direct contribution to GDP sat at USD 3.3 billion, or approximately 7% of GDP, growing by just USD100 million since 2015. The WTTC estimates this percentage to rise by 2.9% in 2017, bringing the total to USD3.5 billion. According to the organization's forecast, direct contribution is set to grow to just under USD8 billion by 2027, accounting for 8.8% of GDP with an average per annum growth of 5.8%. These figures are compiled based on money generated through related services and industries, such as airlines, hotels, travel agents, and other activities directly supported by visitors.

Total contribution of the sector to GDP, which includes factors such as induced income and effects of investment, was much greater. In 2016, the total contribution of the industry to GDP sat at USD9.2 billion and accounted for a massive 19.4% of GDP, up from USD.9 billion and 19.2%, respectively, in 2015. WTTC's forecast for 2017 will see the total contribution increase by 2.8% to USD9.6 billion and making up 19.5% of GDP. Predictions for the next 10 years have the industry accounting for nearly a quarter of GDP; a 5.8% per annum increase will bring the sector to provide 24.3% of GDP, or nearly USD22 billion.

With tourism accounting for such a massive portion of the economy, its relative contribution to employment is significant. In 2016, the industry directly created approximately 123,500 jobs, equating to 6.9% of total employment. According to WTTC, 2017 is going to be an incredibly bleak year, with growth forecast to be a weak 0.1%, adding only 500 jobs. Though growth is set to be meager this year, the country did see a promising growth spurt between 2014 and 2015, when the sector grew by 21%, adding more than 21,000 jobs. Predictions for 2027 will see the number of direct jobs rise to 147,000, riding on an annual increase of 1.7%.
The sector's total contribution to employment, though on the whole much larger, shares a similar fate for 2017. While the number of jobs grew by just under 18% in 2015 to 340,300, the number actually declined by 0.5% in 2016 to 338,500, and is expected to shrink another 0.1% in 2017 to 338,000, ultimately equating to 18.9% of the country's jobs. The outlook over the next 10 years, however, is much more promising than in the short term; according to the WTTC, the sector will contribute approximately 392,000 jobs, or just under a quarter of total employment, by 2027, growing per annum at 1.5%.

While investment is expected to remain somewhat stagnant in the coming years, the outlook for the future is positive. WTTC reports the country attracted approximately USD1.2 billion in capital investment in 2016, with 2017 investments expected to increase by 4.2% to USD1.3 billion, and increasing at an average yearly rate of 6.2% through to 2017, arriving at USD3 billion. The country attracts considerably more leisure tourists than business travelers, and they spend proportionally. According to WTTC figures, both domestic and international leisure tourists accounted for 90.5% of the industry's contribution to GDP, some USD7.3 billion, in 2016. For 2017, leisure spending is expected to grow by 2.6%, and then increase by 5.7% per year to 2027. Business spending, coming from only 9.5% of travelers, made up just USD800 million, though is expected to grow strongly by 8% in 2017 and maintain its momentum at 7% per annum until 2027.