Highlights

On 24 July 2024, the Egyptian Cabinet approved the launch of the Tourism Support Initiative (the “Initiative”), allocating EGP 50,000,000,000 (fifty billion Egyptian Pounds) to support the growth and development of Egypt’s tourism sector. The funding will target key tourism regions, including Luxor, Aswan, Greater Cairo, the Red Sea, and South Sinai. This Initiative is designed to boost Egypt’s tourism infrastructure by providing financial support for the construction, renovation, and expansion of hotel facilities.

On 20 October 2024, the Central Bank of Egypt (the “CBE”) issued a circular outlining the regulatory guidelines for the beneficiaries of the  Initiative (the “Circular”). The Circular sets forth key conditions on the use of funds, the criteria for eligibility, and the financial and operational obligations of companies applying for support.

This publication provides an overview of the Initiative’s key provisions, its scope, and the compliance requirements that companies must meet to benefit from this government-backed support.

Scope of Application

The Circular establishes key parameters for determining eligibility and the allocation of credit under the Initiative. The credit available to each client will be determined based on the size of its operations with a cap set at EGP 1,000,000,000 (one billion Egyptian Pounds) per client. For related parties, the total credit available across all entities is capped at EGP 2,000,000,000 (two billion Egyptian Pounds). The Circular has also limited the funding to a maximum of two (2) banks per client. To monitor compliance with these limits, clients must register their data on the CBE’s electronic system.

In certain cases, the Minister of Finance and Tourism have the authority to grant exemptions from these credit caps for strategically important projects. Such exemption require the submission of a signed letter from the Minister of Finance to the CBE.

The Circular specifies that the Initiative has a maximum limit of EGP 50,000,000,000 (fifty billion Egyptian Pounds) or what is disbursed within one (1) year from its launch, whichever comes first. Additionally, the maximum withdrawal period is set at sixteen (16) months from the date of the first withdrawal or 30 June 2026, whichever comes first. After the withdrawal period ends, there is a maximum of six (6) months allowed to obtain an operating license, either final or temporary, to facilitate the prompt operation and availability of hotel rooms.

Approved Uses of Fund

The Circular stipulated that the allocated funds are to be utilised, subject to the prior approval of the Minister of Tourism and Antiquities, for the following purposes:

1. Building new hotel rooms or the expansion of existing hotel properties.
2. Funding the acquisition and renovation of closed hotel rooms, including replacement and renovation operations, provided the rooms have been closed for at least twelve (12) months before the withdrawal of funds, based on a statement from the Ministry of Tourism and Antiquities. For these projects, the credit cap will be EGP 500,000,000 (five hundred million Egyptian Pounds) per company, EGP 1,000,000,000 (one billion Egyptian Pounds) for related companies.
3. Acquiring a closed building to be transformed into a hotel facility, including unfinished hotel projects that have not previously obtained a hotel operating license.
4. Hotel projects that have started but are not yet completed and have not previously obtained a hotel operating license.
5. The rooms funded by the Initiative will be within the following regions in a priority order: Luxor, Aswan, Greater Cairo, the Red Sea, South Sinai (Sharm El-Sheikh, Taba, and Dahab).

Requirements for Benefiting from the Initiative

To qualify for and benefit from the Initiative, companies must comply with several key operational and financial requirements:

1. Operating License: Obtain either a final or temporary operating license within six (6) months from the date of the first withdrawal.
2. Foreign Currency Revenue Commitment: The beneficiary companies must commit to selling at least 40% (forty per cent) of hotel revenues in foreign currency to the participating banks, starting from the date of hotel operation. The foreign currency revenues  must continue from the start of hotel operations through the entire support period.
3. Related Parties: If there are related entities operating in the same hotel sector, they must also commit to selling 40% (forty per cent) of their revenues in foreign currency to the participating banks, beginning from the date of hotel operation.
4. Total Foreign Currency Sales: The total foreign currency sales, from the beneficiary company and any related entities, must at least be equal to the total loan amount and returns over the years of benefiting from the Initiative.

Interest Rate and Repayment Terms

Beneficiary companies under the Initiative will be subject to a reduced interest rate of 12% (twelve per cent) decreasing. The Ministry of Finance (the “MOF”) will cover the difference between this rate and the applicable CBE credit and discount rate + 1% (one per cent), ensuring that the effective interest rate remains at 12% (twelve per cent) decreasing. The interest rate compensation will not include any other expenses or commissions.

Beneficiary companies must repay installments and interest based on the CBE’s credit and discount rate + 1% (one per cent). The MOF will compensate the difference in interest rates as follows:

1. One-time payment: For the period from the first withdrawal until the company meets the conditions outlined in the Initiative.
2. Quarterly payments: For the remaining loan period, up to a maximum of five (5) years.

Beneficiary companies will be responsible for covering any difference in the credit interest rate if it exceeds the current rate at the time the Initiative is implemented.

Exclusions and Monitoring

A client might be excluded from the Initiative and the interest rate will be adjusted under the following cases:

1. If the client reschedules or settles the credit facilities provided under the Initiative, or if the client is classified as non-compliant.
2. If the client fails to meet the conditions set for benefitting from the Initiative.

The beneficiary companies must also submit an annual audit report from accredited accounting firms to verify compliance with revenue commitments. Moreover, the use of the allocated credit for settling any other debts is strictly prohibited

Objectives

The above Initiative comes in light of the Egyptian government’s approach to stimulate the tourism sector by injecting significant financial support for the development and renovation of hotel facilities. By targeting key regions, the Initiative aims to boost tourism and drive foreign currency generation.

Furthermore, the Initiative establishes clear guidelines and requirements for beneficiary companies to ensure accountability and effective use of funds. These include securing operating licenses, generating foreign currency revenues, and adhering to favorable repayment terms with a reduced interest rate.