New regulations and investment aim to place Saudi Arabia among the world's top tourist destinations

The second half of 2019 saw some of the most exciting developments yet for Saudi Arabia’s tourism sector. In a softening of visa regulations, the government created a new visa category for tourists as it looks to grow the industry. Numerous opportunities and tourism experiences are on the horizon as the government opens the country’s vast and varied landscapes, as well as its rich heritage and culture, to foreign visitors and investors.

To raise awareness, the government has launched social media marketing campaigns and investments to expand tourism-related infrastructure in order to establish the country as a regional destination for tourism and entertainment. In one promising development, Saudi Arabia has the fastest-growing hotel segment in the region, and tour operators and event management companies are looking to capitalise on this expansion. While the Kingdom, like the rest of the world, is contending with the near-term impacts of border closures and travel stoppages on the tourism sector in the wake of the global spread of Covid-19, the enabling foundation for robust growth is evident.

Structure & Oversight

The Saudi Commission for Tourism and National Heritage (SCTH) is responsible for the oversight and regulation of the tourism sector. Its mandate includes developing and strengthening the sector, as well as preserving the Kingdom’s national heritage sites and antiquities across 17 regional branches. The organisation is charged with developing tourism destinations, overseeing visa regulations, promoting events and festivals, attracting foreign investment, raising awareness of national heritage sites, and developing local tourism services and expertise.

These responsibilities are divided among sub-entities within the SCTH, some of the most notable of which are the National Centre for Tourism Human Resources Development (Takamul), and the Tourism Information and Research Centre (MAS). Other government bodies relevant to the Kingdom’s tourism sector include the General Authority for Culture (GAC) and the General Entertainment Authority (GEA), both established in 2016 to promote Saudi Arabia’s cultural offerings and develop a local entertainment industry, respectively.

Tourism Law

The Tourism Law, which came into effect in May 2016, sets regulations for the sector and defines 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. Per the law, all businesses in the sector – including accommodation establishments, tour operators, travel agencies and guides – require licensing from the SCTH.

Changes to the Tourism Law in 2019 aimed to relax regulations and increase the number of tourist arrivals to the Kingdom. In October 2019 the SCTH issued Regulation No. 4800, creating a new tourist visa category. Prior to that, foreign travel to Saudi Arabia had been largely restricted to resident workers and their dependants, business travellers and Muslim pilgrims, who receive special visas to visit the holy cities of Makkah and Medina. The new regulation allows citizens from 49 countries to visit the Kingdom for tourism purposes by obtaining an e-visa prior to arrival or a visa upon arrival. To coincide with the new law, the SCTH announced a relaxing of regulations pertaining to single female travellers and unmarried foreign couples, who are now allowed to book hotel rooms.

The spread of Covid-19 is expected to have an impact on 2020 tourist arrivals to the Kingdom and around the world, as international movement slowed dramatically in the first few months of the year. As part of its own precautions, in late February 2020 the government issued a temporary entry ban for Umrah pilgrims. The next month officials suspended tourist visas for travellers from several countries where the disease was widespread, and on March 15 halted all international flights for an initial period of two weeks, with extensions possible. Visa issuance remained suspended as of late April 2020.

Growth Strategy

Under Saudi Arabia’s longterm economic development programme, known as Saudi Vision 2030, the government wants to create an additional 1.2m jobs in the sector by 2030 and increase its contribution to GDP to 10%. It is also aiming for 100m domestic and international tourist trips per year by 2030, up from 67.7m in 2018. To achieve these targets, the government is combining regulatory reforms with major investment in tourism infrastructure. This is not only aimed at attracting foreign tourists, but also encouraging citizens to travel domestically more often. Saudis spend as much as $26bn on travel, shopping and entertainment outside of the Kingdom each year, and the government is hoping to bring at least the same amount back into the local tourism sector.

Over $64bn has been earmarked to invest in culture, leisure and entertainment projects through to 2030. Many of these have the backing of Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF). These include the Red Sea Project, slated for completion in 2022 and forecast to attract an estimated 1m visitors per year, in addition to Qiddiya, an integrated destination set to become the Kingdom’s capital of entertainment, sports and arts. Located just outside Riyadh, Qiddiya is set to house the world’s largest Six Flags amusement park, motor racing tracks, a cliff-top stadium and performing arts centres, among other facilities. Qiddiya aims to attract an estimated 14.5m visitors per year by 2030.

Performance & Size

Saudi Arabia has the largest travel and tourism sector in the Middle East, primarily driven by a sustained religious tourism segment. The direct and indirect contribution of the Kingdom’s travel and tourism sector to the economy was forecast to reach $70.6bn in 2019, or 9.3% of GDP, according to the World Travel & Tourism Council. This marks a 7.6% increase from 2018, when travel and tourism accounted for SR244.6bn ($65.2bn), or 9% of GDP. The actual direct contribution of the travel and tourism sector to GDP is smaller, however, at 3%, and supports 600,000 jobs, or 5% of total employment. Although small relative to the size of the country’s hydrocarbons sector, tourism is growing rapidly. By 2021 its direct contribution to the economy is expected to reach 5% of GDP, on track to meet Vision 2030’s goal of 10%.

Within the sector, religious tourism remains the largest economic contributor, with more than 1.8m Hajj pilgrims coming to Makkah and Medina in 2019 (see Makkah & Medina chapter). Due to the absence of any type of tourist visa until late 2019, non-religious leisure tourism to the country has been limited. As a result, leisure tourism spending to date has primarily been driven by local residents travelling within the country on public holidays and has increased at a slower rate, from $23.6bn in 2009 to $26.4bn in 2018. According to the latest data on domestic tourism, there were 47m local tourist trips within Saudi Arabia in 2018, and this is forecast to rise by 8% per year to 70.5m by 2023.

The meetings, incentives, conventions and exhibitions (MICE) segment, for its part, has witnessed solid growth and accounted for 16-20% of all foreign arrivals in 2019. According to a report by Saudi travel and tourism services provider Seera, the number of business travel transactions between January and August 2019 grew by 38% year-on-year to over 1.1m. Business tourism spending – calculated as spending on business travel by residents and international visitors within Saudi Arabia – has witnessed solid long-term growth, increasing by 35.8% between 2009 and 2018 to reach $4.5bn.

Visitors & Source Markets

Given the importance of the holy sites of Makkah and Medina, pilgrims from predominantly Muslim countries have historically been the mainstay of Saudi Arabia’s tourism industry. Of the approximately 19m pilgrims who visit the country every year, the majority arrive from Indonesia, Pakistan, India, Bangladesh and Egypt. Business travellers from within the GCC comprise the next-largest share of foreign arrivals in the country. While other tourist arrivals have remained limited through mid-2019, recent changes to visa regulations and the introduction of a tourist visa category have already had a notable impact.

Saudi Arabia has the largest travel and tourism sector in the Middle East: the direct and indirect contribution of the sector to the economy was expected to reach $70.6bn in 2019 Within the first 10 days of the e-visa coming into effect, some 24,000 tourists had taken advantage of the new regulations to visit the Kingdom. China was the largest source market in these early days, accounting for 7391 visitors, followed by the UK with 6159 visitors and the US with 2132 visitors.

MAS has been crucial in keeping track of various sets of data to determine how the country’s tourism dynamics are changing and applying the results to government decision-making and policy. MAS is responsible for collecting tourism data, as well as conducting research and related studies on tourism at both the national and subnational levels. “Through the work of MAS, Saudi Arabia became the first Arab country to develop a tourism statistics collection system that is consistent with the recommendations and guidelines of the UN World Tourism Organisation,” Abdulhakim Al Babtain, the former general director of MAS, told OBG. “The Kingdom was ranked first among 140 countries from 2011 to 2017 in the World Economic Forum’s Travel and Tourism Competitiveness Index in terms of the competitiveness of its annual travel and tourism data.”

Hotel Infrastructure

The number of hotel rooms is expected to see a significant increase throughout the country as the tourism sector continues to expand and gains a foothold in areas outside the main urban centres. “There is currently a shortage of supply of hotel rooms in the Kingdom,” Sultan Al Otaibi, CEO of Dur Hospitality, a local residential real estate development company, told OBG. “Given the uptake of both business and leisure tourism in the country, the capacity will have to be dramatically increased in the next few years.”

According to a report by global consultancy firm PwC, there were some 78,000 hotel rooms across the Kingdom’s major cities as of 2018, the last full year for which data is available. This represents a 13% increase from 2017. An additional 9000 rooms in three-, four- and five-star hotels were expected to enter the market throughout 2019.

Hotel supply in Riyadh reached 119 properties with 16,441 rooms in 2018, while Jeddah’s inventory stood at 92 hotels with 11,276 rooms. Growth over the past few years has been strong, with 1700 rooms added to Riyadh’s stock in the three-, fourand five-star categories in 2018 alone. The pipeline for hotel infrastructure across the country is even more encouraging. In early 2019 there were 187 hotel projects in the planning stage or under construction, which would add 64,000 rooms, marking a 76% increase. Remarkably, these accounted for a 37.9% share of all rooms under construction in the Middle East at the time, underlining the efforts to develop Saudi Arabia’s tourism infrastructure.

Accomodation Metrics

While increases in accommodation capacity will be a boon to the sector in the long term, average daily rates (ADR) and occupancy levels at hotels have come under pressure from the increased supply, yet this pressure has been partly offset by an increase in the average length of stay by foreign travellers. A 2019 report by global real estate services provider Savills attributed this to a 30-day visa extension made available to Umrah pilgrims. According to the most recent data from MAS, hotel occupancy rates in Riyadh in the first half of 2019 averaged 69.1%, and the ADR stood at SR385 ($103). Occupancy rates in Makkah and Medina were higher, at 86.9% and 83.6%, respectively, but the ADRs were slightly lower, at around SR368 ($98) and SR352 ($94).

Marketing

The year 2019 saw the SCTH launch a two-pronged tourism marketing campaign focusing on social media and its Saudi Seasons annual festival and events calendar. In September 2019 the SCTH launched its Visit Saudi brand across social media platforms Twitter, Instagram and Facebook, as well as on a new website. Using various slogans and hashtags, Visit Saudi has begun showcasing both iconic and less well-known natural landscapes and cultural sites across the country. It comes as the government looks to attract a wider array of foreign travellers and encourage locals to spend more money on domestic tourism. “Destination branding is on the rise, both in the Gulf region and worldwide,” Josh Brash, founder and CEO of Brash Brands, a marketing agency, told OBG. “In Saudi Arabia, for example, the Amaala wellness tourism project where luxury, experience and destination will be combined represents a great opportunity to create a successful brand for the country.”

Saudi Seasons – a new initiative being undertaken by the SCTH, the GEA, the GAC, the General Sport Authority, and the Saudi Exhibition and Convention Bureau – features a programme of annual festivals and entertainment events that take place across the Kingdom’s different regions. In its first cycle – for 2019/20 – 11 festivals were hosted around the country that highlighted the Kingdom’s culture and heritage. The events proved to be a success. The Riyadh season, which stretched from October 2019 to January 2020, generated more than $270m in revenue for the GEA, attracted some 10.3m visitors to the capital region and created over 37,000 seasonal positions in tourism.

Cultural History

Saudi Arabia has a rich cultural heritage dating back many millennia, with over 4000 registered archaeological sites. Efforts are under way to develop and promote tourism around these sites. The Diriyah Gate project, located on the outskirts of Riyadh, is currently the largest cultural and heritage tourism development project in the Kingdom. The site consists of iconic mudbrick buildings and served as the Al Saud dynasty’s first capital. The Diriyah Gate Development Authority wants to establish the location as a global cultural and lifestyle destination. With construction slated to start in 2020, the SR64bn ($17.1bn) development will stretch over 7 sq km and host several luxury and lifestyle retail brands, 20 luxury hotels, over 100 cafes and restaurants, eight museums and galleries, a golf course and a racetrack.

Local tour operator Meteb Al Mahmoud, the CEO of Riyadh-based Amazing Tours, is hoping that the development of cultural sites like Diriyah – along with further investment in tourist-related infrastructure and expertise – will be a boon for business and a catalyst for expansion. Amazing Tours has been offering trips to cultural and historical sites and adventure tours to foreign visitors, expatriates and locals since 2010. “We have always offered guaranteed fixed departures on weekend tours to destinations such as the Empty Quarter desert and historical sites like Madain Saleh,” Al Mahmoud told OBG. “We developed a good reputation, particularly among expatriates and solo travellers who want to see the sights and sounds of Saudi Arabia.” With the new tourist visa regulations, tour operators are hoping to attract more foreign visitors to existing weekend tours and to diversify their offerings, in line with public investment. “We hope that the SCTH markets existing tourism routes and builds infrastructure around them, and offers training to tour operators and guides,” Al Mahmoud added.

Entertainment & Sports Destination

Under Vision 2030, the government wants to increase household spending on entertainment and cultural activities within the country from 2.9% to 6% of GDP through the coming decade. Each year around 5000 live entertainment events are held in the Kingdom across more than 55 cities, and these are expected to increase significantly in the years to 2030 in order to reach the goal and increase citizens’ quality of life.

The GEA and its subsidiary, the Development and Investment Entertainment Company (DIEC), are leading efforts to establish and grow the country’s reputation as an entertainment destination by investing in the necessary infrastructure and encouraging private sector involvement.

In January 2019 the GEA unveiled a bold development and marketing strategy that seeks to establish Saudi Arabia as one of the top-four entertainment destinations in Asia and among the top-10 such markets globally. To achieve this, the GEA plans to spend nearly $64bn over the next decade to develop entertainment-related infrastructure while simultaneously creating 224,000 new jobs.

Formed in January 2018 with an initial capitalisation of $2.6bn, the DIEC acts as a planning body and investor in the entertainment industry. Both the GEA and the DIEC have signed numerous agreements with foreign companies in segments such as movie theatres, theme parks, vacation resorts and sports-related infrastructure. For example, in April 2019 the DIEC signed an agreement with US movie theatre chain AMC Theatres to open between 50 and 100 cinemas in 25 cities by the end of 2030.

Meanwhile, in line with goals to achieve a threefold increase in citizen participation in sports, opportunities for private sector involvement in the construction of sporting facilities and managing large-scale sporting events are emerging. In January 2020 the Kingdom hosted the coveted Dakar Rally, following a major international boxing match held in the capital in December 2019, for which a 15, 000-seat purpose-built stadium was constructed.

Outlook

While the full extent of the impact of Covid-19 on Saudi Arabia’s tourism sector was difficult to gauge as of March 2020, it is clear that the pandemic is set to significantly affect tourism numbers not just in the Kingdom but around the world in the first half of 2020. In the long term, however, the prospects for the sector look bright, with recent visa changes opening up Saudi Arabia’s once little-known and undiscovered landscapes, history and culture to foreign visitors.

Tourism and entertainment indeed have some of the best growth prospects of any industry in the Kingdom. The government is working to bring tourism infrastructure up to speed with significant investment from the PIF and other public bodies, though it expects private sector investment to comprise 75% of all new capital injections in the coming decade. Opportunities therefore abound for foreign companies across the entire hospitality value chain, from construction to catering to event management.