Saudi 2020 and the plan to attract tourists – will it work?

Photo: Western tourists walk through a market in Nuayriyyah, Saudi Arabia on February 8, 2007. Picture taken February 8, 2007. REUTERS/Hamad Mohammed 

The likes of Bhutan, Namibia and Guatemala have long featured on intrepid travelers’ to-do lists, but a new destination could soon rival those far-flung locales as an unlikely tourism hot-spot: Saudi Arabia.

The kingdom hopes it can extend its tourism industry beyond the religious pilgrimages of haj and umrah, in December announcing it will start issuing tourist visas in the first quarter of 2018. Other reforms specifically targeted at easing socio-cultural restrictions support this decision that will directly open up the conservative country to visitors: women will be allowed to drive by June this year, the 35-year-old ban on cinemas was lifted last month, and for the first time in Saudi Arabia, just last week women were allowed to attend a men’s soccer match.

As part of sweeping changes, the tourism sector is a central tenet of Crown Prince Mohammed bin Salman’s “Vision 2030” and 2020 National Transformation Program, which constitute unprecedented plans to wean the country off its oil dependence, shrink the importance of the state and create millions of new private sector jobs to meet the demands of its young, expanding population.

“The idea to diversify the economic base is gaining momentum and tourism is a great way to do that,” said Asim Bukhtiar, Head of Research at Saudi Fransi Capital. “Saudi has a lot of tourist potential, not just religious visitors, but there are a lot of other heritage and historical sites, which up until now have been closed to international visitors.”

The huge tourism targets laid out in the NTP appear impossible to achieve without extending the sector beyond religious pilgrimage; Saudi will invest 171.5 billion riyals ($45.7 billion) in tourism by 2020, NTP states, which will boost sector jobs to 1.2 million from 830,000. The plan envisages creating five new destinations by 2020, while also increasing the number of museums to 241 from 155 and archaeological sites open to visitors to 155 from 75.

Total tourism spending should reach 174.8 billion riyals in 2020, up from a baseline of 104.8 billion riyals, NTP forecasts, which would increase tourism’s contribution to total GDP to 3.1 percent from 2.9 percent.

A larger tourism sector would also boost many other industries including building materials, transportation, hospitality, banks and telecommunications. The Saudi Commission for Tourism and National Heritage (SCTH), did not respond to requests for comment.

“Given the ambition of tourism targets, we see risks that despite good progress, the government will fall short of its objectives,” said Raphaele Auberty, MENA Country Risk analyst at BMI Research.

Photo: A woman checks a weapon exhibited at an event to celebrate the selection of Abha as the capital of Arab tourism for the year 2017, in Abha, Saudi Arabia April 20, 2017. Picture taken April 20, 2017. REUTERS/Mohamed Al Hwaity

VISAS

Issuing non-religious tourism visas, which will ease procedures to enter the kingdom, will be a prerequisite to attract leisure tourists.

“In order to see a significant boost to tourism, the visa process will need to be easy,” said Auberty.

As of this writing, Saudi authorities have said that visitors from 65 nations would be eligible for tourist visas through travel agency packages.

At this first stage, the kingdom seems unlikely to offer visa-on-arrival, a system that helped the United Arab Emirates’ tourism sector flourish albeit with such privileges restricted to visitors of certain nationalities.

“Once there’s some traction in number of visitors, then restrictions might loosen,” said Saudi Fransi Capital’s Bukhtiar.

The investment firm identifies three key strategies the authorities should target to boost domestic and inbound tourism: attract a greater number of short-haul visitors from the Gulf, woo international visitors and extend pilgrims’ stay in the kingdom.

Saudi’s 2020 targets include increasing the number of haj pilgrims to 2.5 million from 1.5 million and umrah visitors to 15 million from 6 million, so if one-fifth of these 17.5 million tourists were to stay an extra three days it would generate 5.8 billion riyals in extra revenue annually, Saudi Fransi Capital estimates.

Pilgrim numbers are already on the up: 2.35 million haj pilgrims arrived last year from 1.5 million in 2016 after quotas were reinstated to pre-2013 levels with the completion of the expansion of facilities at Masjid Al Haram in Mecca, and 6.75 million umrah visas were issued during the hijri year 1438 that ended on September 20, 2017.

However, an attempt to increase tourism through a ‘post-umrah program’ visa that was launched in 2016 only attracted around 3,000 out of 6.7 million pilgrims last year. The visa allows pilgrims to extend their stay for up to 30 days to visit places other than the holy cities of Mecca and Medina, providing they are part of supervised tours.

“Religious tourism will continue to grow in the country as capacity at key religious shrines is expanded and visa restrictions are eased,” BMI Research wrote in a January 2018 report forecasting tourist arrivals in Saudi Arabia will rise from 20.1 million in 2016 to 29.9 million in 2021.

“Furthermore, we anticipate that growing disposable spending powers in neighbouring religious source markets will bode well for the industry over the medium term.”

Photo: Muslim pilgrims take a mobile photo at Mount Al-Noor, in the holy city of Mecca, Saudi Arabia August 28, 2017. Picture taken August 28, 2017. REUTERS/Suhaib Salem

MEGA PROJECTS

A series of mega projects has been introduced to expand Saudi leisure options. Among the most notable is the Red Sea tourism project, which will develop 50 islands off Saudi’s western shores between the cities of Amlaj and al-Jawh and will include a nature reserve, coral reef diving and heritage sites, plus supporting infrastructure such as an airport, marina, hotel resorts and residential accommodation. Slated to generate 15 billion riyals in annual revenue, work will begin in 2019, with a first-phase completion target of 2022.

Another project, the new 18 billion riyal Jeddah Downtown, will re-develop the city corniche to create parks, resorts, beaches, museums and shopping areas. Work on the 10-year project is slated to start in early 2019, with the first phase to be completed in late 2022, while Riyadh’s sports and entertainment city will feature a safari park and cultural and recreational facilities across a 334-square kilometre site. Both schemes are under the auspices of Saudi’s state-owned Public Investment Fund (PIF).

BMI’s Auberty warned Saudi faced a tough task to make these plans reality.

“Significant financing will be needed, which relies on foreign direct investment in the kingdom and the PIF raising sufficient funds through privatisations,” she said. “Saudi Arabia has a fairly weak track record in the implementation of mega-projects, underpinning our caution.”

Projects in the holy cities include a metro network in Mecca, a high-speed railway connecting Mecca and Medina and the construction of sprawling accommodation facilities to house more pilgrims.

“Given the fiscal constraints, attracting foreign investors and local private investors is critical,” said Monica Malik, Chief Economist at Abu Dhabi Commercial Bank. “Given what Saudi’s objectives are and where the country is right now, it’s going to be a medium- to long-term process.”

Photo: Britain's Prince Charles (C) and Saudi Tourism Minister Prince Sultan bin Salman visit a historical site under reconstruction in Al-Diriyah February 19, 2014. REUTERS/Fayez Nureldine/Pool

STAY-CATIONS

By developing Saudi’s tourist facilities, the government hopes to convince residents that were otherwise visiting the likes of nearby Bahrain, Dubai and Abu Dhabi to instead remain in the country.

An estimated 12 million Saudis visited these three cities in 2016, with daily spending ranging from $204 in Bahrain to $584 in Dubai, according to Saudi Fransi estimates. Two-thirds of Saudi visits to Bahrain were for only one night.

“Even if only a fraction of them decide to spend their holidays or short vacations locally, this will have a significant impact on the hospitality sector, from hotels to restaurants and entertainment facilities,” said Kamel Ajami, Hilton’s Vice President for Operations in Saudi Arabia and Levant.

Regional competition will be fierce, warned Saudi Fransi Capital’s Bukhtiar.

“Dubai has done a fantastic job in building out an entire tourism ecosystem,” he said. “To convince visitors to spend money in Saudi as opposed to Dubai, that's going to be a tough sell. It all depends on the ease of visas, the whole experience, from arriving at the airport to the time you depart.”

Hilton seems convinced by Saudi’s plans, with the U.S. firm set to open 30 new hotels in the kingdom over the next 3-5 years in addition to the 10 already in operation in the likes of Mecca, Riyadh, Jeddah and Medina.  Once complete, this expansion will raise its room count to 10,800 from 3,100 at present.

“I think new visa rules will bring in a lot of extra tourists. It will probably start with visitors from the Gulf, then expand to other regions – Saudi Arabia has a lot to offer,” said Ajami. “Outside of the holy cities, most of our customers come from within Saudi Arabia, followed by nationals from other Gulf countries – it’s easier for them to travel to the kingdom - and then business executives from other regions.”

The hotel industry is in constant communication with the tourism ministry and other development agencies, joining forces to recruit more Saudis into the industry.

“One of the challenges is finding the people who want to work in the hospitality industry,” said Ajami. “This is a relatively new sector for Saudi, so we’re working with the government, schools and universities to create programs so people can better understand the hospitality industry.”

In 2016, 9.7 percent of all Saudi jobs – 1.14 million - were directly and indirectly employed in travel and tourism, according to World Travel & Tourism Council. This will increase to 1.59 million jobs, or 10.3 percent of all Saudi jobs by 2027, the council forecasts, providing much-needed employment in an era of lower-for-longer crude prices.

“Even if oil prices were to increase substantially, the energy and government sectors cannot absorb Saudi’s youth population,” added ADCB’s Malik. “Tourism is also one of the easier sectors to develop in terms of the skills requirement and is also employment-heavy.”

(Reporting by Matt Smith; Editing by Emmy Abdul Alim emmy.alim@thomsonreuters.com)

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