Tourism outlook for the Middle East.

The growth potential for tourism to the Middle East is substantial, in the view of Hospitality Valuation Services (HVS International). That potential exists despite religious strife, political instability, threats of war and terrorism, and economic turbulence. In a recently issued report, HVS

A chief reason that the region has such potential is that its tourism industry is not highly developed. Although arrivals have increased at an annual average of 6.3 percent since 1983, most of the tourists to the Middle East are also from the Middle East. In 1992, for instance, just 27 percent of tourist arrivals were from Europe and the Americas. Moreover, some destinations are far more developed than others. Egypt is by far the most popular tourist destination, with more than one-third of all tourists, half of them from Europe and the Americas. Israel and Bahrain together attract nearly another third.

Egypt. Despite its potential, the Middle East faces mixed prospects for continued tourist growth. Tourism to Egypt is particularly shaky now, because an insurgent group called Gama'a el-Islamiya is attempting to unseat the moderate government of Hosni Mubarak. The extremists try to discourage tourists, thereby depriving Egypt of foreign exchange. Arrivals declined by 20 percent from 1992 to 1993, reversing a five-year growth trend. While Cairo weathered the storm with modest tourist declines, Luxor, in upper Egypt, saw substantially diminished tourism. In contrast, Sharm el Sheikh, in the Sinai, was little affected. Long a magnet for tourists interested in the Sphinx and pyramids, Egypt has experienced considerable growth in people seeking winter sunshine on its Red Sea beaches. HVS notes that Egypt's strong military presence in the Sinai has discouraged terrorist attacks there, and, moreover, many tourists don't realize that the Sinai is part of Egypt.

Bahrain. The island nation of Bahrain is seeking to diversify its oil-based economy with tourism revenues, which are currently just 4 percent of its GNP. Following the construction of the King Fahad Causeway, which connects the island to Saudi Arabia, Bahrain has enjoyed tourist growth averaging 21 percent per year. More than 70 percent of its visitors entered via the new causeway, but a mere 25 percent of visitors to its capital, Manama City, were leisure travelers. The government is developing such tourist attractions as golf courses and nighttime activities.

Israel. The peace accord between Israel and the Palestine Liberation Organization has created optimism for economic and political stability. After great increases in the 1970s, Israel's tourist growth stagnated in the '80s. With a diverse geography and sites sacred to three major religions, Israel has considerable potential for attracting tourists. Over 40 percent of Israel's visitors are ethnic Jews. A substantial number of Christians also make the pilgrimage to Israel, but few pilgrims are Muslims. Israel has also greatly increased its convention trade.

Saudi Arabia. While the Saudi government has not encouraged international tourism, some two million Muslim pilgrims travel to the holy city of Mecca each year. Faced with reductions in oil revenues, the government has made tentative steps to encourage tourists from neighboring countries. Most Saudi tourism is business related, a situation that HVS does not expect to change. Hoteliers note: the government limits maximum room rates.