With millions of Muslims arriving every year to visit the Holy Cities of Makkah and Medina, Saudi Arabia’s tourism sector is characterised to a large degree by religious pilgrimage. However, while significant investments continue to be made to meet growing demand from this segment, the Kingdom’s tourism authorities are also hard at work expanding the tourist economy into new areas. In particular, the growth in demand for domestic tourism is opening the way for investment in resorts and facilities, while new opportunities are also emerging in heritage tourism and business tourism. In pushing ahead with its strategic vision for the sector, the government is looking to build partnerships with private investors, and has recently introduced a new legislative framework to improve this process and raise standards across the industry.
According to the latest figures compiled by the World Travel & Tourism Council (WTTC), a global industry body, tourism in Saudi Arabia directly contributed SR47.5bn ($12.7bn) to the economy in 2013, equivalent to 1.7% of GDP. This was forecast to rise by 5.2% to SR50bn ($13.3bn) in 2014. When the sector’s indirect contribution is also included, the total rose to SR119.8bn ($31.9bn) in 2013, equivalent to 4.3% of GDP. The size of the Kingdom’s tourism sector places it in 33rd position globally in absolute terms; however, when considered relative to the size of the broader economy, Saudi Arabia’s ranking is 166.
The tourism industry generates direct employment for around 168,000 people, equivalent to 1.8% of the workforce. This figure has been relatively stable in recent years, although according to the WTTC, employment in the sector declined in 2005 and 2006, having peaked in 2004 at almost 300,000 workers, or over 4% of the workforce. According to figures produced by the government, internal spending by tourists, which includes both inbound and domestic tourism, reached SR89.9bn ($24bn) in 2012, the most recent year for which figures are available. The WTTC estimates capital investment in the sector as of 2013 to be SR25bn ($6.7bn), a figure which has grown steadily since 2008.
Oversight of the sector is provided by the Saudi Commission for Tourism and Antiquities (SCTA), under the leadership of Prince Sultan bin Salman bin Abdulaziz Al Saud. The SCTA is not only responsible for regulating the sector, but also plays a substantial strategic role in guiding its development. The SCTA’s strategy is based on a 2003 directive, which aims to modernise the sector and encourage the use of tourism as an economic tool; the government hopes that tourism will both create jobs for Saudi nationals and boost the development of small and medium-sized enterprises.
The 2003 strategy was revamped in early 2015, and now contains a working plan for both the public and private sectors regarding tourism development, including programmes and required budgetary allocations from the various stakeholders (including the SCTA). An update to the strategy came at the same time as a legislative overhaul of the sector designed to strengthen the SCTA’s reach and improve professional formation.
As it currently stands, Saudi Arabia remains closed to international leisure tourism. The visa regime limits visits to either business purposes (requiring a letter of invitation) or family visits to resident expatriates. “Saudi Arabia’s travel sector is also influenced by the ever-increasing number of seasonal travellers from across the globe during Umrah and Hajj. However, the lack of a generic tourist visa is a major barrier to inbound tourism in the country,” Nashat Mahmoud Bukhari, the general manager of travel services firm Amadeus, told OBG. Religious tourism is supervised by the Ministry of Hajj, which awards a limited number of Hajj visas to the global Muslim community through a quota system. Owing to maintenance and expansion works on the Grand Mosque, Hajj visas have been limited for the past two years to just under 1.4m. The Umrah pilgrimage, which may be undertaken at any time of the year, is not subject to the same restrictions, and in 2014 over 6m individuals applied for a 15-day Umrah visa.
Religious pilgrims visiting the Kingdom are restricted to the cities of Jeddah, Makkah and Medina. However, a new scheme initiated in 2014 – known as “Umrah plus” – allows nationals from more than 65 countries to extend their stay an extra month when applying for an Umrah visa. This period is covered by a regular 30-day tourist visa, which permits applicants to explore the Kingdom beyond the restrictions of an Umrah visa.
Religious tourism can be a springboard to expand to other types of tourism. “We need to specialise in a niche where we can offer the greatest value,” Abdullah Al Dawood, CEO of Al Tayyar Travel Group, told OBG. “For Saudi Arabia, that means religious tourism and then expanding out from that. For example, we should encourage people visiting Medina to then go visit places such as Mada’in Saleh.”
The Umrah plus visa might be considered as a trial run for the introduction of tourist visas. According to government figures, a system is in place capable of issuing such visas, but the authorities are holding back until standards in the sector meet expectations. Salah Al Bukhayyet, vice-president for investment and development at the SCTA, told OBG, “The offerings and infrastructure are not yet up to the expectations of globe-travelling tourists, who have been to some of the premier sites around the world; once this issue is resolved, the visa switch can simply be turned on.”
Current ambitions for non-religious tourism are primarily directed towards serving the domestic market, including both Saudis and resident expatriates. This market has seen considerable growth in recent years, with spending almost doubling between 2010 and 2014 from SR59bn ($15.7bn) to SR103bn ($27.4bn). To address demand the SCTA has been working with private developers to expand the number of resort offerings within the Kingdom. The first such project, located near the fortress of Al Uqair on the Gulf, is expected to open to tourists in early 2017.
Another area of attention is heritage tourism. The Kingdom is home to three UNESCO World Heritage sites: the ancient Nabatean ruins at Madain Saleh ( listed in 2008); the former Saudi capital at Diriyah (listed in 2010); and the historic centre of Jeddah (listed in 2014). Renovation works have been under way at Diriyah – located in the west of the current capital of Riyadh – for several years, and are expected to be completed by mid-2017, while Jeddah’s historic centre has also undergone significant restoration in recent years, with 640 buildings currently targeted for intervention.
In an effort to expand the Kingdom’s current offerings in the heritage tourism segment, the SCTA recently established the Saudi Hospitality Heritage Company. The company’s remit is expected to involve the establishment of joint ventures with the private sector to increase the provision of hotels and tourist infrastructure in and around the Kingdom’s UNESCO World Heritage sites. Historic Jeddah is seen as having potential for the development of heritage hotels, with the SCTA looking to establish a permanent office in one of the quarter’s renovated buildings to coordinate efforts.
According to Al Dawood, the creation of the Hospitality Heritage Company by the SCTA in partnership with the private sector is an excellent move. “This company will develop hospitality assets and create a fuller experience for travellers to the Kingdom’s destinations by also encouraging the development of things such as entertainment and cuisine,” Al Dawood told OBG.
The SCTA, in combination with the various regional Tourism Development Councils (TDCs), has already had some success in driving domestic tourism in the Kingdom’s heritage sites, thanks both to regeneration efforts and the growing popularity of heritage-inspired festivals. The latter are proving especially popular among locals and expatriates during the annual school vacation period, and the SCTA was collaborating with local TDCs to put on 29 festivals across the Kingdom in early 2015, with an expected turnout of 5m visitors.
Among the most popular events is the Historic Jeddah Festival, the second edition of which was held in mid-January 2015 and attracted around 1m visitors. The festival, which is attempting to build on attention garnered by Jeddah’s recent UNESCO listing, featured special markets, traditional handicrafts and cuisine, and a specially commissioned operetta performed by 100 local artists. Other destinations with their own tourist festivals include Makkah, Taif, Riyadh and Al Ula.
According to government figures, there were 184,833 hotel rooms and 89,681 furnished apartments registered throughout the Kingdom in 2012, the most recent year for which figures are available. A more recent unofficial estimate by Crescent Rating, a travel consultancy, placed total rooms at 308,000 in 2014. The majority of the Kingdom’s tourist accommodation is concentrated in the regions of religious pilgrimage. Makkah Province contains 65.7% of all rooms, followed by Medina with 22.9%; the capital, Riyadh, by contrast contained just under 5% of rooms, though a larger share (16.1%) of furnished apartments. Almost half – 47.3% – of the Kingdom’s hotel rooms fall into the four- or five-star categories, though owing to the religious pilgrimage market, as of 2012 a significant share of accommodation (20%) was in the unclassified category. This share is likely to have fallen in the past three years, as redevelopment of central Makkah has seen a significant amount of older accommodation replaced by branded hotel facilities.
Occupancy and revenue in the pilgrimage centres is highly seasonal – although the larger swings have levelled out in recent years with the extension of the Umrah season to the whole year. Nonetheless, average occupancy rates and room revenue across the Kingdom are robust, and in general are following an upward trend. According to STR Global, a tourism benchmarking company, average occupancy across the Kingdom reached 69.2% in January 2015, a slight fall of 1.5%, although average daily rate (ADR) and revenue per available room (RevPAR) both rose, by 3.5% to SR727.86 ($194) and 1.9% to SR503.59 ($134.20), respectively.
For 2015, sector performance is anticipated to vary somewhat across the Kingdom. Colliers International, a real estate consultancy, forecasts the highest occupancy rates will be achieved in Jeddah, with 76%, followed by Makkah (65%), and Riyadh and Medina (both 61%). RevPAR, meanwhile, is anticipated to be highest in Jeddah ($200), followed by Riyadh ($145), Makkah ($143) and Medina ($96). In terms of year-on-year RevPAR growth, however, these figures will make Medina the strongest performer (up 5%), followed by Riyadh (up 3%), Jeddah (up 2%) and Makkah (up 1%).
In light of the hospitality sector’s potential, Elizabeth Randall Winkle, STR Global’s managing director, recently singled out Saudi Arabia and the UAE as “stars” in the MENA region, with investors showing increasing interest in both. According to local media reports, $11.6bn worth of tourism and hospitality projects are under way across the Kingdom (almost double the WTTC estimate for 2013), while MEED, a Middle East business intelligence publication, identified a total of 55 projects in the sector either planned or under development, including 39 hotels and resorts.
In particular, Riyadh, Jeddah and Makkah have been successful recently in attracting new investment in hospitality, with all three featuring prominently in the regional pipeline benchmarking studies. According to figures compiled by STR Global in mid-2014, Jeddah’s current pipeline of 7396 rooms under contract represents growth of 115.7%, placing it first regionally. Riyadh, meanwhile, is in second position with 10,095 rooms currently under contract (representing a marginally lower growth rate of 113% owing to its larger existing base.) Similar figures compiled at the end of 2014 showed Makkah in third place regionally in absolute terms (behind Dubai and Doha) with 5936 rooms currently under construction.
In recent years Makkah has seen significant investment to improve and expand facilities for religious pilgrims. Osama Al Bar, Makkah’s mayor, told local press in 2013 that ongoing projects in the city – including transport, utilities and accommodation – had an estimated total value of SR300bn ($80bn). A significant portion of this sum has been invested in hotel developments, concentrated in two large projects in particular. The Abraj Al Bait complex, located south of the Grand Mosque and home to the Makkah Royal Clock Tower, has hosted several international five-star hotel chains since 2010, including Fairmont, Mövenpick, Rotana and Raffles. The Jabal Omar complex west of the Grand Mosque has seen five hotels open since 2012, managed by Marriott, Hyatt, Hilton and Conrad.
The past two years have witnessed a renewed effort from the government to enhance the Kingdom’s meetings, incentives, conferences and exhibitions (MICE) capacity. In 2013 the Saudi Council of Ministers created the Saudi Exhibition and Convention Bureau (SECB), a dedicated organisation focused on developing the business events sector. The SECB’s current strategy follows a three-pronged approach. First, it aims to address the Kingdom’s events infrastructure through the establishment of a comprehensive database of facilities across the country, which will be used to compare current levels of demand and assist in the creation of feasibility studies for new investments. Current venue developments include the convention centre at the King Abdullah Financial District in Riyadh and the Prince Sultan Cultural Centre in Jeddah, while additional venues are under consideration in King Abdullah Economic City, Jeddah and Medina.
The second pillar relates to professional capacitybuilding within the events organisation industry. The SECB is engaging with event organisers to help them assess their internal capabilities and market competitiveness, with classification standards being established to categorise event organisers based upon their experience, structure and certifications. As part of this pillar, the SECB is also working with local stakeholders to develop the Saudi Academy for Events, Exhibitions and Conventions, which will assist in training the workforce. It is hoped the academy will help increase the Saudiisation of the sector, though the SECB is committed to working with local and international organisers to bring international best practices to the Kingdom.
The final pillar is the development of events in the meetings and exhibitions categories. The SECB tracks events in 22 categories targeted by the Kingdom’s economic development strategy. This information is then shared with event organisers to focus development on categories which are currently underrepresented in the market. By doing this, the SECB hopes to have a direct impact in helping the Kingdom achieve its goals in developing a sustainable and diverse economy. “Saudi Arabia’s leadership has invested in the development of business events to increase collaboration, education and research in key economic sectors across the Kingdom. These events drive trade and foreign investment by establishing a foundation for the exchange of information and development of relationships,” Tariq Al Essa, executive director of the SECB, told OBG.
According to the SCTA’s own figures, tourism generates direct or indirect employment for some 751,000 people in the Kingdom, with 27% of these Saudi nationals. This figure is significantly higher than the private sector average of 12%, and for this reason the government has targeted tourism as a strong potential driver of job growth among locals.
To achieve this goal, the SCTA runs programmes in collaboration with industry and educational bodies to train locals. For instance, the National Project for Tourism Human Resources Development (Takamul), which offers accreditation in tour guiding and hospitality, trains some 30,000 people annually, while in Makkah the FRHI hotels group recently ran a campaign in collaboration with the Prince Sultan College for Tourism and Management in Jeddah to recruit 1000 Saudi workers.
Alongside these projects, several private and public educational facilities have also expanded into the tourism training market. The Technical and Vocational Training Corporation established its first centre to train hospitality and tourism sector workers in Riyadh in mid-2013, followed by a second in Medina later that year, and two more in Taif and Al Ahsa in 2014. Meanwhile, a number of universities (including King Saud University, King Faisal University and King Abdulaziz University) have specific departments dedicated to tourism.
The focus on human resources is well placed. “There is a need to expand the tourism training infrastructure given the massive amount of demand that will be generated by all the new hotels opening in the Kingdom,” Al Dawood told OBG. “The market may struggle to provide properly trained staff to support this growth.”
The Kingdom’s tourism sector is expected to see stable growth, as new investments aimed at broadening supply beyond the traditional basis of religious tourism enter the market. The jump in domestic tourist spending demonstrates the potential of this market and authorities will likely judge the response of domestic tourists to new developments as a bellwether for opening up the Kingdom to international tourism.
While major, long-term investments are being made in resort developments such as Al Uqair, it is also clear that the SCTA is keen to attract investment across a diverse range of new channels. Thus, not only is investment in heritage tourism being encouraged, but there have also been recent developments in agro-tourism and nature tourism (such as desert safaris and mountain resorts), with farmers in Riyadh Province, for example, being granted tourism licences by the SCTA. The Kingdom is a blank canvas in these areas, offering opportunities for investment and collaboration for international partners with experience in the sector.
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