With the holy cities of Makkah and Medina attracting millions of pilgrims every year, the bulk of Saudi Arabia’s tourist industry remains concentrated in these two areas. The seasonal nature of many pilgrim visits has historically presented a challenge to the country’s tourism authorities, and as a result, recent years have witnessed various plans and initiatives to drive tourism activities across the Kingdom more broadly, by enhancing existing facilities and developing resort-style tourist centres as well as promoting awareness of the options available for domestic tourists.
Under Vision 2030 there are plans to develop the sector as a major contributor the economy, with reforms to visa issuance and development of historic heritage sites integral to boosting the numbers. Launched in April 2016, the Post-Umrah initiative, which allows Umrah pilgrims to convert their visas into tourist visas, is part of the effort to increase the revenue generated from the sector (see analysis).
Various incentives aim to place private players at the centre of these efforts, with the Saudi Commission for Tourism and National Heritage (SCTH) actively looking for the cooperation of private partners in many of its ventures. The government is pairing a concerted effort to move the economy away from hydrocarbons with a drive to attract more nationals to tourism, following the launch of many training centres and colleges in recent years.
In Figures
According to the latest figures compiled by the World Travel & Tourism Council (WTTC), Saudi Arabia’s tourism industry directly contributed SR59.6bn ($15.9bn) to the economy in 2015, or 2.5% of total GDP. Forecasts from the organisation for 2016 anticipate another slight decline in the dollar contribution, to $15.8bn, but a continuing increase in the share of GDP to 2.6%, as tourism grows in importance and hydrocarbons earnings remain subdued.
When the sector’s indirect input is included, the industry’s total contribution reached 8% of GDP in 2015. The indirect contribution includes all travel and tourism investment spending, such as new aircraft and the construction of new hotels; government collective spending on the sector, including tourism marketing and promotion, and resort area security services; and domestic purchases of goods and services related to the sector, including food and cleaning services purchased by hotels, fuel and catering services purchased by airlines, and IT services purchased by travel companies.
According to figures from the SCTH, the Kingdom’s tourism sector generated direct employment for 882,900 people in 2015. Of these 45,200, or approximately 27% of the total, were Saudi nationals.
Spending
Figures from the Kingdom’s Tourism Information and Research Centre (MAS), the statistical arm of the SCTH, indicate that 17.99m inbound tourists visited the Kingdom in 2015, with receipts from those trips adding up to SR84.1bn ($22.4bn). That same year 54.1m domestic trips were recorded, with total receipts reaching SR47.9bn ($12.8bn).
According to the WTTC, leisure spending accounted for 90.4% of all visitor spending in 2015, while business spending made up the remaining 9.6%.
In 2014 travel and tourism investment reached SR92bn ($24.5bn), or 13.6% of total investment. In its latest report, the WTTC noted that total investment in the sector had declined to SR81.1bn ($21.6bn), 12.1% of total investment, in 2015; however, the organisation forecasts an increase in investment of 4.4% per annum through to 2026, when it will represent 14.3% of total investment.
Regulator
The SCTH operates under the leadership of Prince Sultan bin Salman bin Abdulaziz Al Saud and is responsible for the oversight and regulation of the industry. The commission was originally established as the Supreme Council for Tourism (SCT) by royal decree in 2000 with the directive to boost offerings for domestic tourism, develop investment opportunities within the sector and create new employment opportunities for Saudi citizens.
In 2003 a further resolution was issued by the Council of Ministers providing for the inclusion of an antiquities agency, giving SCT responsibility for everything related to the antiquities sector alongside its responsibilities for tourism. A 2008 resolution was subsequently issued, merging the antiquities and museums responsibilities into SCT, which was renamed as Saudi Commission for Tourism and Antiquities. In June 2015 it was rebranded as the SCTH.
Legislation
The Tourism Law, which was promulgated by royal decree in October 2014, came into force during in May of 2016. The law affirms the SCTH’s monitoring role within the industry, as well as its responsibility for overseeing prices, issuing licences, and supervising and conducting inspections of licensed tourist facilities and destinations.
Meanwhile, all business activities related to the sector will now require appropriate licensing from the SCTH. These activities include tourism accommodation, tour operator organisers, tourism and travel agencies, and tourist guides, as well as timeshare initiatives.
Investment Strategy
In addition to regulation and licensing, the Tourism Law also affirms the SCTH’s strategic role in the sector, driving and overseeing tourism development and investment.
Indeed, various incentives are currently in place in this regard. A recently signed agreement between the Ministry of Finance and the SCTH authorises the commission to receive loan applications for up to SR100m ($26.7m) for new hotel and resort-style developments. All applications are reviewed by the SCTH, with the commission then advising the Ministry of Finance on viable applicants. “We announced this initiative almost six months ago,” Hamad M Al Ismail, vice-president for investment and tourism development at the SCTH, told OBG in February 2016. “Since then, we have received almost 40 applications. We have already managed to expand the umbrella to include other tourism projects.”
Six other agreements are additionally in the works with different government agencies aimed at providing financial support of up to approximately SR8m ($2.1m) to small and medium-sized enterprises looking to establish themselves in the sector.
Another area that has been addressed relates to the length of time investors receive on leases for developments built on state land. In order to make such investments more feasible, the SCTH has successfully doubled the length of leases for developments in the sector to 50 years. “As a result of increasing and diversifying incentives, we expect many more investors – both local and international – to come into the market,” Al Ismail said.
Site Development
Another of the SCTH’s strategic goals for the sector focuses on enhancing and developing the quality of tourist amenities available at some of Saudi Arabia’s natural attractions. The SCTH has developed a database of sites it deems suitable for development and broadly divided them into three classifications: desert resorts, sea resorts and mountain resorts. As of February 2016, the SCTH had plans for 19 projects on the Red Sea coast, as well as several on the Gulf coast and in the central areas of Saudi Arabia. In a bid to develop these largely remote sites, the SCTH is engaging in pilot projects to fund basic infrastructure investments such as electricity, water and sewage systems, while at the same time inviting the private sector to provide additional capital for the development of tourism facilities.
Additionally, there are plans to develop six of the Kingdom’s roughly 70 Red Sea islands. Two pilot projects have already been completed on the Farasan Islands. “We have developed two resorts on Al Faqwa and Dimsek islands, the first with overnight accommodations and a number of services and facilities, and the other for day use,” Osama Saeed Khlawee, general director of the General Directorate of Tourism Sites Planning and Development, told OBG. “We are now asking the private sector to join in taking over operation of those two islands and eventually expand the development as visitor demand increases.”
The Saudi Heritage and Hospitality Company, created in association with the SCTH, has received $250m from the Ministry of Finance to develop heritage sites. The organisation is in charge of building heritage-style hotels – one is to be constructed in Al Oula and another is under way in Diriyah, the historical district of Riyadh. These investments are hoped to lead to private sector interest in similar projects.
Attracting Expertise
Meanwhile, the SCTH has significantly restructured the Kingdom’s hospitality segment, introducing rules and regulations aimed at bringing it into line with international standards. “Five or six years ago the segment was not as structured or organised as it is today,” Al Ismail told OBG. “Many hotels were operating without obtaining the required licensing and using rankings that did not reflect their true quality. This situation discouraged international brands from working in the Kingdom. Since then, we have completely restructured the sector and encouraged investment with the result that today a number of international hotel brands are now present all over the Kingdom.”
Indeed, an international presence plays into broader government strategy of attracting international players across many sectors to benefit the Kingdom’s knowledge-transfer drive. Locals looking to establish hotels in the country are increasingly being encouraged to partner with international brands. “When people are filing applications for hotel development they are asked about international partners,” said Al Ismail. “We want to stimulate developers to partner with international expertise, especially if they are also applying for loans.”
Hajj & Umrah
The Kingdom remains closed to international leisure tourism, with the current visa system limiting visits to either business purposes, which requires a letter of invitation from the Ministry of the Interior, or family visits to resident expatriates. As such, religious tourism accounts for the bulk of international visits. The Ministry of Hajj and Umrah oversees Hajj and Umrah visa applications, with a quota system in place for the Hajj pilgrimage, which takes place in Makkah from the ninth through to the 13th day of Dhu Al Hijjah, the 12th month of the Hijri (Islamic calendar). Every Muslim, provided he or she is physically fit and financially able, must perform the Hajj – one of the five pillars of the Islamic faith – at least once in their lifetime. The lesser Umrah pilgrimage, meanwhile, can be performed at any time of year.
The two holy sites of Makkah and Medina currently attract close to 9m Muslim visitors per year, whose total spending was SR47.8bn ($12.7bn) in 2015. The largest concentration of such visitors occurs during the five-day Hajj in Makkah. In 2015 an estimated 2m pilgrims performed the Hajj. Of these, more than half came from other GCC countries, while about 30% came from South Asia. As of early April 2016, some 3.7m pilgrims had arrived in Saudi Arabia since the Umrah season started in late October 2015. Of these, approximately 2.6m arrived via King Abdulaziz International Airport in Jeddah, 740,000 landed at Prince Muhammad bin Abdulaziz International Airport in Medina and 200,000 arrived over land. The Vision 2030 strategy calls for increasing the number of Umrah visitors from 8m to 30m by 2030.
In September 2015 Bandar Al Hajjar, then minister of Hajj, announced that expansions to the Grand Mosque in Makkah were drawing to a close. As a result, pilgrim quotas for foreign countries, which have seen reductions in recent years due to safety concerns while construction was ongoing, are set to start rising again from 2016. “Starting from next Hajj season, the number of pilgrims will increase to 5m,” the minister told local press.
Complementing the physical expansion is the establishment of a unified electronic system for pilgrims coming from outside the Kingdom. All contracts for packages of services offered, as well as details of transport and accommodation, and the names of the pilgrims will now be executed and documented through this electronic system.
According to Farooq Al Jeraisy, founder and CEO of the online hotel booking portal, Almosafer, electronic processing of travel details is the way for the industry to retain revenue during the economic downturn. “Given current economic conditions, we are not expecting to see travel sector growth in 2016,” he told OBG. “However, the opportunity will lie in a shift from traditional methods of booking to online.”
Meanwhile, in a bid to boost tourist stays, the Post-Umrah visa will be introduced, which will allow pilgrims to extend their stays and travel more extensively throughout the Kingdom (see analysis).
Hospitality Performance Figures
According to data by MAS, there has been a significant increase in the number of hotels in the Kingdom. As of May 2016 the total stood at 1746, housing some 299,480 rooms. This figure is up from 1098 hotels in 2012. The vast majority of the country’s hotels are geared towards pilgrims, with 63% of the total located in Makkah Province in 2012, followed by Medina Province at 19.3%. Riyadh Province, meanwhile, is home to 6% of the Kingdom’s hotels.
Occupancy
The average occupancy rates generally peak during the Hajj season. Although occupancy rates and revenue per available room (RevPAR) have levelled out in recent years thanks to the extension of the Umrah season to the whole year, seasonal fluctuations still represent a challenge for hotels in the holy cities of Makkah and Medina. Hotels experienced a 62.4% occupancy rate in 2015, down 2.6% on the previous year, according to tourism benchmarking company STR Global. However, the average daily rate witnessed an increase of 3.6% in 2015, while RevPAR was up 0.9%. Real estate consultancy Colliers International anticipates sector performance will vary in 2016. It predicts that the highest occupancy rates will be achieved in Jeddah (75%), followed by Makkah (64%), Medina (62%) and Riyadh (56%).
Moving forward, the Kingdom’s hotel supply is forecast to continue growing steadily, with 48 hotels in the pipeline as of April 2016. Makkah topped STR Global’s January pipeline report for the number of rooms under construction across the MENA region, with a total of 21,068 rooms. Branded hotel development, meanwhile, will continue to play a significant role in driving growth, with a compound annual growth rate for branded hotels of roughly 24% expected between 2015 and 2018 across the Kingdom’s main cities. These developments include the Abraj Kudai hotel in Makkah which, when complete in 2017, will reportedly have 10,000 rooms and 70 restaurants, making it the largest hotel in the world.
MICE
The meetings, incentive, conferences and exhibitions (MICE) segment has experienced strong growth across the GCC in recent years, backed by an increasing number of facilities and the pro-business policies being introduced by governments across the region. According to the International Congress and Convention Association, the number of MICE events in the Middle East has doubled in each of the last five decades, and more than tripled in the last 10 years. Saudi Arabia is home to approximately 600 conference or meetings venues, with significant expansion of the Riyadh International Convention and Exhibition Centre (RICEC) now under way.
According to some industry professionals, the expansion is urgently needed for Riyadh to remain a competitive MICE destination. “RICEC is currently the only professional exhibition centre in Saudi Arabia, so given the size of the Kingdom the market is definitely underserved,” Fahad Noah, CEO of RICEC told OBG. “However, new facilities are being planned for Jeddah, Medina, and Riyadh.”
Raising Standards
In 2013 the Saudi Exhibitions and Conferences Bureau (SECB) was established to help drive development of the business events segment in the Kingdom, while also acting as the sector’s regulator. In this capacity the bureau is responsible for issuing and governing licences for sector-related events held in the Kingdom; for issuing licences to event organisers; and for establishing classification standards for events, organisers and venues.
“This industry has been running without clear rules. Things such as the licensing process for events were very messy at times,” Noah told OBG. “But now there are much better regulations in place thanks to the establishment of SECB.”
In terms of developing the sector, the bureau has adopted a three-pronged strategy. Its first aim consists of successfully developing a comprehensive database of current MICE facilities in the Kingdom to best assess the capacity gaps and identify areas for investment. Second, the bureau aims to develop professional capacity building within the events organising industry. To do this, SECB collaborates with the relevant authorities, developing a related workforce for the sector by preparing and implementing professional standards, designing programmes with university partners and running training workshops.
The third and final pillar of the strategy focuses on the development of events in sectors targeted by the Kingdom’s economic development strategy but which are currently under-represented in the events category. By doing this, the bureau aims to achieve a proportionally even spread of events across the different sectors, thereby contributing to the Kingdom’s economic diversification objectives.
Trade Fairs
According to a 2015 SECB report, Riyadh was set to host the majority of the country’s trade fairs in 2016. In total, 71 fairs were scheduled to be held in the capital, representing 51% of the total; Makkah followed, with 44 fairs (31%), the Eastern Province, with 18 fairs (13%), and the remaining seven fairs spread across the several other provinces.
The trade fairs will cover 17 economic sectors, with a total of 32 consumer goods exhibitions planned, accounting for some 23% of the total.
Of the other exhibitions taking place in 2016, 23 will spotlight the construction sector, 15 will address energy and utilities, 11 will focus on the industrial sector, nine will address the medical sector, and eight will centre on the economy and trade sectors.
Education
With a current Saudiisation rate of 27.8%, the SCTH is keenly aware of the employment growth prospects for Saudi nationals in the sector. As such, the commission has worked to develop the resources necessary for training and qualifying local staff. Tourism colleges have been set up at some of the Kingdom’s biggest universities, including King Saud University and King Abdulaziz University. Dedicated tourism colleges have also been established, including Prince Sultan College of Tourism, with one branch in Jeddah and another in Abha.
The SCTH has also entered into cooperation with Technical and Vocational Training Corporation (TVTC) to establish technical colleges in tourism, and for the past two years has been working with TVTC to establish colleges of excellence in the sector. Some 54 different training packages have been developed by the SCTH in Arabic and English for both trainees and trainers. These packages have been shared with 43 different education and training institutions in both the public and private sector.
In a bid to encourage more students to enrol and participate in these courses, the SCTH is working to double the government allowance for those enrolled from SR1500 ($400) to SR3000 ($800) per month.
Employment
According to the most recent comprehensive figures released by the SCTH relating to employment in the sector, the food services segment accounts for the largest share of tourism-related employment, employing 50% of the total sector workforce in 2012. The transportation sector was the next-largest employer, accounting for 20.8% of tourism-related employment, of which some 45.5% hospitality-related employment accounted for 14.9% of the total, while recreation-related employment in the sector comprised 12.4%, and travel agencies and other reservation services accounted for 2%.
The total number of tourism-related businesses in the Kingdom reached 57,279 in 2015, according to SCTH data, up from approximately 44,000 in 2010, and an increase from around 29,000 in 2005.
“When you show people that there is job security in the sector and that it is becoming more organised, people will start moving towards the sector,” Al Ismail told OBG. “Saudis – both male and female – are becoming aware of the many opportunities available in the sector, while perceptions towards working in the industry are also changing, especially in hospitality, where many former SCTH employees are now working as general managers of big Riyadh hotels.”
Outlook
It is likely that the emphasis on tourism growth in Vision 2030 and the introduction of the Post-Umrah programme will have a major positive impact on the sector. Although religious tourism will continue to be the most significant driver of growth in the sector, with many hotel and infrastructure upgrades and expansions concentrated around the holy cities of Makkah and Medina, the authorities are positioning themselves to fully capitalise on the strong potential for greater tourism activity throughout the Kingdom. With moves now under way to address the paucity of leisure tourism (see analysis), Saudi Arabia, with the largest population in the GCC, is increasingly leveraging the potential of domestic tourism and building up the necessary infrastructure to enhance access to its many natural attractions.
Moving forward, the private sector can expect to play a considerable role, with the government fully aware of the benefits offered by a more vibrant tourism industry, in terms of economic diversification and the employment opportunities it can create for the Kingdom’s rapidly expanding youth population.
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