How airport cities could provide a new economy

With the Arab Spring of 2011, tourism in Egypt has suffered and as a result the GDP has substantially declined. The development of airport cities and cargo cities could be a powerful approach for the civil aviation sector to stimulate growth in Egypt: by Alexander Manakos Associate Partner

During the ten years to 2011 Egypt showed stable GDP development in a range between 4 and 8 percent per annum. But when the political and civil revolution of the Arab Springs arose in 2011, the economy was severely hit. Since 2011 GDP growth in Egypt has significantly slowed down and although there was a slight recovery in 2012, growth rates at around 2 percent are still far below previous levels.

Egypt's GDP is strongly linked to tourism, accounting for approximately 11 percent of the total GDP of the country. One in seven jobs directly or indirectly depend on tourism, a sector which represents 40 percent of the country’s non-commodity exports and accounts for nearly 20 percent of Egypt’s foreign currency revenues. So it is obvious that any developments in this segment have an impact on the national economy of the country. As pictures were broadcast around the world during the days of the Arab Spring, tourism slowed and the economy suffered.

Considering Egypt’s civil aviation sector as a whole, tourism is of course only one element. Although passenger numbers to and from Egypt declined between 2011 and 2013 compared to the previous years, the reduction is not as dramatic as one might have expected from the total market perspective. From the perspective of the home carrier, the picture does not look bright, since the airline’s market share has been shrinking underlining its dependency on tourism related travel.

A key question is: what other options are available for civil aviation to contribute to the development Egypt’s national economy?  A further strengthening of competitiveness of the national carrier, addressing the needs of segments other than tourism is an obvious step, and focusing on marketing successful aviation business activities to third parties, like maintenance and training services that are provided under the umbrella of the national airline group. Such measures contribute to the stimulation of direct and indirect GDP effects, related to the civil aviation sector.  

Typically, the contribution to the national economy can be clustered into four types of effects:

  1. direct effects – contribution to GDP and employment that is directly attributable to the aviation business like airlines, airport, ground services
  2. indirect effects  - resulting from businesses outside the aviation sector which are part of the aviation sector supply chain
  3. induced effects – stimulated by spending of those employed by the aviation sector
  4. enabled effects – enabled by the activity of the aviation sector, providing (transport) infrastructure, market access, connectivity, etc. at a location and thus, enhancing the attractiveness of a location for businesses.

While some options focus on direct and indirect effects, the induced and enabled effects seem to provide much more potential for the Egyptian economy as a whole and should be targeted. 

Accordingly, concepts of special economic zones, airport and cargo cities could be a strong tool to unlock such potentials.  Providing infrastructure and developing airport cities will attract businesses which are not just directly related to the civil aviation sector. The logistics, packaging, light manufacturing, financial services, information technology, training, entertainment sectors will find this an attractive location for establishing their businesses. Accordingly, growth in (foreign) investments can be stimulated, and the attractiveness of the business location increases. Cairo Airport, as in international hub, offers appealing connectivity to the rest of the world, in particular to Europe, Africa, and the Middle East.

But the appeal of airport cities is not only triggered by the attractiveness and connectivity of the location. There are specific benefits inherent to the concept of an airport or cargo city itself. Firstly an airport city provides economic benefits by improving synergies between major stake holders of relevant businesses and allowing them to benefit from economies of scale and from the attractive mix of businesses located at the airport city.

From the perspective of logistics and operations, cargo cities in particular, benefit from a one campus approach. All options for time saving and flexible operations are available, as well as the links to different modes of transport, and the possibility to create value through ancillary services. In turn these benefits create value for the consumer by delivering better service quality within shorter time frames through a less error-prone supply chain. Finally, there are environmental benefits resulting from reduced needs for transportation, better organization of waste management and improved allocation of resources.    These all lead to an enhanced image and fuel the attractiveness of a special economic zone – either an airport city or a pure cargo city – as a business location.

The development of an airport city in Cairo is not the only approach to encourage economic growth in Egypt. The favorable geographic location of Cairo, the continuously improving infrastructure provided by Cairo International Airport and the national airline group have helped to make the civil aviation of Egypt a positive example for the neighboring region.