Egypt Daily 15 May 2004 The alleys of Cairo's Khan el-Khalili bazaar are even more cramped than usual, thanks to a tourism boom that has persuaded economists to revise upwards their forecasts for growth in the sluggish Egyptian economy.

The purveyors of papyrus and plastic pyramids are cashing in on the bonanza, filling order books for the hundreds of tiny workshops in the back streets of the old city.

"Germans like to buy mother-of-pearl boxes, Japanese like to buy perfume bottles, Italians like buying copper plates and the Americans buy everything," said shopkeeper Adel Mogawari.

In the shadow of a medieval Cairo minaret, souvenir maker and merchant Abou Taleb says his sales are rising by seven or eight percent each month. He has taken on more staff over the past year to meet the rising demand.

Egypt's tourist industry, the country's largest private sector employer, shrugged off the start of war in Iraq in 2003 to notch up a record 6.04 million visitors.

Even if tourism alone is not enough to drive the economic growth needed to absorb a growing pool of young Egyptian jobless, economists say the visitors are making a difference.

The sector is also forecast to earn more hard currency for Egypt, where the pound has lost more than one quarter of its value against the dollar since January 2003.

The weakness of the pound is one of the main factors drawing tourists away from competing resorts in Greece and Turkey to the Pyramids and the Red Sea reefs, said Yara Salib, marketing and public relations director at Egyptian tour operator Travco.

James Murray, on holiday from Germany, said relative proximity to home and guaranteed sunshine had drawn him to the Red Sea resort of Sharm el-Sheikh.

"It's definitely better value for money than the Canary Islands or some place like that," he said after a snorkelling trip to the coral reefs, which divers consider some of the best in the world.

Egyptian tourism suffered from the outbreak of Israeli-Palestinian fighting next door in 2000 and the September 2001 attacks on the United States, blamed on Arab hijackers. But it has bounced back quickly from another dip caused by the start of the U.S.-led invasion of Iraq in March 2003.

"Egyptian tourism is remarkably resilient, all things considered," said Daniel Hanna, regional analyst for Standard Chartered in Dubai.

The industry was dealt a serious blow in 1997 when Islamic militants massacred 58 foreign tourists in Luxor's Valley of the Kings, where British archaeologist Howard Carter unearthed the tomb of boy-king Tutankhamun in 1923.

Road blocks and armed security guards outside the Egyptian Museum, which usually houses Tutankhamun's golden mask, show how seriously the state takes the safety of tourists. There have been no militant attacks on foreigners in Egypt since 1997.

"We were quite worried, but when you arrive here, you see security with machine guns everywhere so I was convinced it was safe," said Cindy Khan, on holiday in Cairo from London.

Travco, which owns and manages resorts around Egypt, said it expected the number of customers it handles to rise more than 130 percent in 2004, from 312,000 in 2003.

It was increasing capacity at its hotels and adding two new Nile cruise boats, Salib said.

HC Brokerage said in an April report it expected tourism receipts to rise to $5.3 billion in the year to July from $3.8 billion the year before.

Together with strong revenues from the Suez Canal, the main sea route between Europe and Asia, economists say tourism could help the economy to grow by up to 4.8 percent in the year that ends in June. The government says it grew by 3.2 percent the previous year.

But even with tourism booming, HSBC economic analyst Taher Gargour said weak domestic demand was holding growth back.

"Tourism is not enough to drive the kind of economic growth Egypt needs to have," Gargour said. Economists say the economy needs to grow by six percent each year to absorb the jobless in the country of 70 million. Higher import prices created by the weaker pound have created inflation which has hit domestic consumption, Gargour said.

Hani Samir, who sells tourists alabaster vases in Khan el-Khalili, grumbles that even if tourist numbers are up, his quality of life has been hit by the rising cost of living.

Although the government subsidises some types of bread and other basics, the prices of other goods have gone up.

"You spend all your money just to live," Samir said, pointing at a packet of the imported cigarettes he smokes.