Looking for new challenges after nearly 20 years of development work in Cairo, Egyptian businessman Mounir Neamatalla hopped in his car one day in 1995 and drove to Egypt’s western desert. An acquaintance had been extolling the commercial virtues of Siwa, an ancient oasis once visited by Alexander the Great. Walking among its palm groves and gurgling freshwater springs that day, Neamatalla immediately understood his acquaintance’s enthusiasm. “Who could have missed Siwa?” he asks 15 years later. “It was one of the poorest places in Egypt [but] with great natural and cultural assets. All the ingredients [for a traveler’s destination] were there.”
Some would say that fortunately for Siwa, Neamatalla is no typical Egyptian businessman. The environmentally friendly hotels and “ecolodges” as well as the community businesses that his consulting firm, Environmental Quality International (EQI), set up to employ locals turned Egypt’s traditional tourism development model on its head. After all, its USD$350-a-night Adrère Amellal eco-lodge – with guests sleeping on salt rock beds covered with the finest linens in rooms lit by beeswax candles – shows that environmental sustainability and business can co-exist in Egypt.
But Neamatalla’s project and the environmental conservation ideology behind it aren’t without controversy. Notably, Siwa is only accessible by car – an eight-hour journey from Cairo – but town authorities are locking horns with Neamatalla and want to build an international airport to make it easier for more tourists to visit the oasis. It could be that the authorities have been inspired by one of Egypt’s more typical tourist developments, such as the Gouna project on the Red Sea coast, which is home to international hotels, shopping malls and hundreds of enormous villas that provide thousands of jobs. Indeed, Neamatalla faces a faction which believes more economic development to lift Siwans out of poverty shouldn’t be thwarted, even if it means damaging Siwa’s resource-strapped environment.
Neamatalla’s view? “We would be ruined,” he says, when thinking about the proposed development plans.
Whatever side of that debate one falls on, Neamatalla’s Siwa project is a promising way forward for Egyptian tourism, which attracted more than 10 million people and about $11 billion of revenue to the country in 2008. Neamatalla’s proponents say his business model is worth replicating, not only in Egypt, but also other parts of the Middle East.
His initial intention wasn’t for Adrère Amellal and its sister developments to follow a particular sustainability standard, but rather to help attract a controlled number of visitors to experience the local life of Siwa. To that end, his development has been a success. But a number of factors – not only social and ecological, but also political – are important when sizing up the impact of projects such as Siwa.
In It Together
Until the mid-1980s, Siwa was isolated from the rest of the country without even a paved road providing access to the oasis. Because of this isolation, it was a close-knit society underpinned by conservative norms and community-based decision making. It is with – not against – this culture that EQI has aimed to develop its projects.
After all, one of the largest selling points for visitors is the local culture. That’s why Neamatalla has insisted on keeping the architecture of his developments in the local style, while encouraging the development of the local crafts movement and employing Siwans rather than importing employees from other parts of Egypt, even if that may require more training.
EQI directly and indirectly employs 600 locals, and has rolled out programs tailored to women who are unable to work outside their homes because of Siwa’s conservative culture. Neamatalla takes a personal interest in supporting the entrepreneurial initiatives of his employees, most of whom only have a primary school education. That often means nurturing staff with managerial potential, such as the manager of one of Neamatalla’s hotels in central Siwa, whose illiteracy hasn’t stopped him from being able to make the hotel profitable.
The impact on the environment has been mixed. Although its hotels use little to no electricity, are built almost entirely with local natural materials, and have systems set up to deal with biodegradable waste, EQI says some eco-projects – such as recycling programs for metal, plastic or glass – are still works in progress.
Water management is a particularly thorny issue. Visitors to EQI’s establishments have unlimited bathing water and bottled drinking water. “Guests expect a minimum level of comfort. We can’t have them shower with buckets and charge them $300 a night,” says Mounir Nakhla, Neamatalla’s nephew and EQI’s managing director. Some EQI hotels are fortunate to be near springs that flow naturally without the aid of man-made pumps. However, in most of Siwa, diminishing water resources is a highly pressing issue, which EQI has not addressed.
Since its arrival in Siwa, EQI has engaged with local political decision-making and seeks stakeholder input. However, there’s concern that if an airport is built and outside developers gain economic power, the political system may shift from responding to local residents’ interests to those of profit-driven resort and hotel developers. Although Siwa’s political process has been one of community consensus, some Siwans fear that with more jobs – not to mention tax revenues – on offer by the developers, the locals will be swayed to support the developers, who in turn will become more empowered to influence life in Siwa.
High Prices, Low Risks
Siwa is attracting the interest of not only developers, but also Egypt’s investor community. Consider business angel Ashraf Zaki. After leaving his job as managing director of investment bank EFG-Hermes, Zaki became a business partner with his friend, Nakhla, after he heard about the Siwa project. “I liked the environmentally friendly product, because it’s an area I was interested in,” says Zaki, an avid environmentalist. “Plus, the numbers made sense.”
He has a point about the numbers. Eco-lodges like Adrère Amellal are relatively low-cost enterprises, and are profitable even with an average yearly occupancy rate significantly below the country’s industry average. “In the Four Seasons in Cairo, you might be at 30% occupancy and you’d be l osing money. Its fixed costs are huge,” says Nakhla. “When we do not have guests, we still pay salaries and we can go enjoy the eco-lodge ourselves. We don’t have high fixed costs.”
With EBITDA of 27% of revenue, EQI’s eco-lodges might at first glance look like an attractive investment with low risks. But that doesn’t tell the whole story. From an investor’s perspective, says Zaki, the big issue is how scalable and replicable its model is, not only in Egypt, but also globally. “Right now, the business is profitable, but can we replicate it elsewhere to make more profit? Can we find a place as magical as Siwa, which enjoys a local culture that travelers are seeking?”
Admittedly, much of EQI’s success in Siwa to date is attributable to the absence of competition. Despite the fact that conventional wisdom says consumers reap more benefits from competitive markets with a lot of competition rather than monopolies, the only way the oasis could be preserved for visitors’ enjoyment is by having no or very limited competition. Low prices driven by competition would increase the influx of visitors and ultimately strain the oasis’ natural resources.
But, Nakhla notes, “I am not against competition. In fact, I welcome it provided our competitors appreciate the [environmental and cultural] sensitivity of the oasis.” Imagine Siwa with 10 Adrère Amellals, he says. "Our occupancy would most likely increase because we would benefit from our competitors’ marketing. It’s like Ibiza or Sharm el Sheikh. Competition isn’t harmful. But building luxury hotels with marble bathrooms or budget hotels at $30 a night and bringing tourists in large buses would not only destroy Siwa’s character but, more importantly, would drain the oasis." As he notes, one way to control mass tourism is to set prices high. It could also require the government to impose new regulations. Yet if Siwa were to turn into a mass-tourism destination, one consolation for EQI would be that it could sell the 74 acres of land it purchased from the government at a very cheap price to build its hotels.
The ability to replicate Siwa’s business models will be critical to environmentally sustainable tourism in Egypt. Even in an eco-lodge market that is expected to grow significantly, success depends on several criteria, many outside the control of an eco-lodge owner: the implementation of zoning laws, low-cost marketing, the trust of the indigenous population and a close relationship with the government.
While countries such as Jordan, Israel and Lebanon are home to eco-lodges, the concept of eco-tourism is less prevalent in the Middle East than in other developing regions, such as East Africa and South America. A feasibility study is crucial to see whether the model can be replicated, although there is currently no commonly used methodology to do so.
According to Neamatalla, the Siwa development is “very profitable…and replicable.” In terms of the latter, he cites two of his new ventures in upper and lower Egypt. Much of the success of his model, he notes, has been based on the availability of cheap land with spectacular natural landscape. In this regard, the government’s cooperation, both local and national, has been vital. Neamatalla purchases land directly from the Egyptian government, which subsequently parcels the land into zones that can be used for commercial tourism.
But many protectorates where eco-lodges are located can only be leased rather than purchased from the government. Adding further risk to the business model is that in developing countries, governments – pressured by structural-adjustment programs and debt-interest payments – often limit funding and incentives for conservation. Despite this, several Middle Eastern governments, including Egypt’s, have moved environmental protection and sustainability higher up on their agendas, creating new protectorates to safeguard their natural heritage.
Today, Egypt has 27 protectorates covering 15% of the country, with each preserving indigenous populations and wildlife, including mangrove trees, wetlands and whale sharks. Such conservation efforts are a particularly positive sign for small and mid-sized eco-tourism companies.
Another important element of the Siwa model is its pricing. Unlike over the 70% of eco-lodges worldwide that charge less than $50 USD a night, Adrère Amellal rates are on the high end of conventional four star hotels. In addition, more than 80% of the world’s eco-lodges are located in biodiversity hotspots, containing hundreds if not thousands of species of vascular plants and at least 70% of the original habitat. The Middle East has no such areas. Different branding differentiates Siwa from the standard eco-model and elevates its positioning in the accommodation category.
Accordingly, Siwa does not follow the traditional eco-lodge model in that it requires the preservation of an indigenous community, which Neamatalla claims is the oasis’s asset. “Travelers come to see indigenous communities – to hear about their culture, marriages, kinship, tribes and traditions.” EQI’s strong bond with the local workforce also makes it different than other eco-lodges. As Neamatalla notes, “In Siwa, we were one of the very few companies that were able to work with the locals and not recruit employees from Cairo to run the hotel. We trained the Siw[an]s…. It’s not just a professional relationship; it’s more a mentorship.”
It’s hard also for EQI to turn to bigger players in the sector for tips on developing a sustainable model. “Our perception of travel is very different. Theirs is a cookie-cutter [approach],” Neamatalla says, contrasting his lodges with the hotel chains that dominate the region. “If you read the travel books of the 1920s, you see a traveler who is expecting nothing. He’s ready for surprises, for adventures, for the unknown. Today, people travel to the known, and this takes away from the experience…. This is how we differentiate ourselves.”
Marketing at Adrère Amellal simply involves inviting tour operators and other key people to be guests at the lodge and relying on word of mouth. Mass marketing is out of the question for small and mid-sized enterprises like EQI, not only due to prohibitive costs, but also the need to limit the number of visitors in their protected areas.
Barriers to development range from the lack of infrastructure to the public sector’s low understanding of eco-tourism to the high risk of failure. The latter is perhaps the greatest threat: Most eco-lodges are small and mid-sized enterprises that face an 80% failure rate. In addition, tourism is highly correlated with the political stability and security of a region, a particularly tricky issue to address amid the volatility of the Middle East.
Pointing the Way
While Siwa’s environmental impact – negative or positive – is open to debate, it’s hard to argue with the fact that Neamatalla has created a new and sustainable model for tourism development in the Middle East. But how much of EQI’s success is personality driven? The lodge is essentially synonymous with the larger-than-life personality of its founder. Erudite and charming, Neamatalla – who received a PhD in environmental health and quality management from Columbia University – mesmerizes guests in fluent English, French and Arabic with his vast knowledge of philosophy, economics and politics. It’s also not unusual to find him on walks in Siwa or in deep discussion with the lodge’s staff, offering his advice as well as getting their feedback. In addition, he is well-connected, counting ambassadors, billionaire businessmen and artists – Siwa’s target clientele – as friends and associates. In other words, Neamatalla is a tourist attraction in his own right.
If awareness about the environment is slowly changing in the Middle East, Neamatalla, with his extensive network, is surely one of the reasons why. Government and popular support for environmental sustainability in the region must change before Siwa’s success can be replicated. Unfortunately, the oasis is not enjoyed by a broad enough cross-section of Egyptian society to drive meaningful change in public attitudes. But there are signs that these attitudes are changing and that Siwa can be a model for future eco-tourisms ventures.
This article was written by Nadim Alameddine, Nushin Alloo, Claire Johnson and Will Rasmussen, members of the Lauder Institute at the Wharton School