Sustaining growth: Innovative strategies are being employed to improve offerings

Recognising the important role of tourism in achieving the wider goals of development in Saudi Arabia, including job creation and increased economic diversity, considerable efforts are being made to expand the industry. Under the leadership of Prince Sultan bin Salman, president of the Saudi Commission for Tourism and Antiquities (SCTA), there has been a noted upswing in tourism-related activities. Work to develop infrastructure and address human resources issues looks set to be complemented by increased private sector activity, as efforts to encourage and facilitate its involvement in developing and exploiting Saudi Arabia’s tourism potential bear fruit.

The debate surrounding tourism visas in the Kingdom is ongoing, and overcoming this barrier will be crucial to the industry in the long term. In the short term, however, developing tourism infrastructure for the domestic, business and religious markets has been prioritised as all of these areas have considerable growth potential. The increasing affluence of the domestic population (and efforts to retain them as domestic tourists), along with rising numbers of business visitors, look set to further drive demand, while the growing number of religious visitors, combined with a new visa regulation that will allow them to stay on as tourists after completing their religious rituals, will no doubt bolster the industry.

FOREIGN ARRIVALS: In 2014, the total number of foreign arrivals is expected reach 14.41m. By 2024, international arrivals are forecast by the World Travel and Tourism Council (WTTC) to total 20.65m, generating spending of SR60bn ($16bn), up 5.6% a year from 2014 levels. The SCTA reports that 4.9m GCC tourists visited Saudi Arabia in 2012, accounting for 34% of total inbound visitors. Visitors from other Middle Eastern and Asian countries made up the remainder of arrivals; 2011 to 2012 saw increases of 124% and 190%, respectively.

DOMESTIC TOURISTS: A report from the Information and Research Centre (MAS) at the SCTA suggested that foreign holidays by nationals took 6m foreign holidays over the summer of 2013, up 11% from 5.4m in 2012. It is estimated that around 12m Saudi tourists travelled abroad in 2013, collectively spending SR40bn ($10.66bn). Dubai remained the most popular destination. “In 2013 Dubai received about 900,000 tourists from Saudi Arabia, not taking into account business trips,” Walid Al Subaei, deputy president of the Travel and Tourism Agency Committee at the Riyadh Chamber of Commerce and Industry, told local media in mid-January 2014. Retaining some of these visitors is a key goal of the Kingdom’s tourism growth strategy.

In 2009 it was estimated that around 32m domestic tourism trips (totalling 199m nights) were taken within the country. The SCTA forecasts that domestic tourism will grow to 128m trips and 640m nights by 2019, and much of its efforts to expand tourism offerings and tourism-related infrastructure in the Kingdom are aimed at achieving such figures.

RELIGIOUS VISITORS: In 2013 over 11m Muslim pilgrims from 140 countries visited Saudi Arabia for religious purposes, spending SR62bn ($16.53bn), a 10% increase from 2011. The Hajj season of 2013 saw some 1.38m foreign pilgrims entering the Kingdom, down by 21% from 2012. This was largely due to the reduced number of visas issued by the Ministry of Hajj, due to both construction projects in Makkah and efforts to curb the spread of the MERS virus. With the number of religious visitors expected to rise over the coming years, the authorities are working to expand the Grand Mosque and several areas in Makkah, along with other crucial Hajj-related infrastructure. The number of domestic pilgrims was reduced by 50% for the same reasons.

In 2012 some 5m pilgrims carried out the rituals of Umrah. Often known as the “lesser Hajj”, Umrah is not incumbent on financially and physically able Muslims as the Hajj is, but is highly recommended. Unlike the Hajj, which takes place over a period of five days in the 12th and final month of the Islamic calendar, Umrah can be done for a longer period. The 2013/14 Umrah season ran from early December 2013 through the end of July 2014. The authorities are prepared for some 6m Umrah pilgrims this season, with the month of Ramadan expected to be particularly popular. As a result, the number of visas available during this period was limited to keep the number of pilgrims in Makkah to 500,000 per day. Egypt, Turkey, Pakistan and Iran send the most Umrah pilgrims to the Kingdom.

ECONOMIC CONTRIBUTION: The total contribution of tourism and travel to the Saudi economy in 2013 was SR119.8bn ($31.94bn), or 4.3% of GDP, according to the WTTC. This was forecast to rise by 4.9% in 2014, and then to grow by 4.6% a year for the following decade, reaching SR197.7bn ($52.71bn) in 2024. In 2013, leisure spending accounted for 75% of travel and tourism’s total contribution to GDP, with business spending making up the remainder.

The WTTC reports that domestic travel spending generated 56.9% of the sector’s GDP input in 2013 compared with 43.1% for visitor exports ( international tourism receipts). In 2014 domestic travel spending is expected to grow by 4.9% to SR45.6bn ($12.16bn), and to rise by 4% year-on-year to eventually reach SR67.3bn ($17.94bn) in 2024. The report further forecasts visitor exports will grow by 6.1% in 2014 to SR34.9bn ($9.30bn), and rise by 5.6% annually thereafter to SR60bn ($16bn) in 2024.

REGULATION: The SCTA, headed by Prince Sultan and founded in 2000 as the Supreme Commission for Tourism before incorporating antiquities and museums in 2008, is formulating and implementing a strategy to drive growth and investment in the industry, focusing on increasing the number of offerings, as well as facilitating tourism through human resources development and infrastructure upgrades.

The SCTA continues its work as the regulator of the industry on a “lead and recede” basis, whereby it establishes bodies and organisations, but also encourages the formation of associations that can take on many of the SCTA’s roles as the industry matures. Proposals have been submitted to establish professional groupings for accommodation, travel and tour agencies, among others.

The move to establish internationally recognised criteria for ranking hotels under the auspices of the SCTA in 2010 affected the market, as large numbers of establishments were downgraded or even closed down. The longer-term effect of this, however, has been positive, boosting confidence in the industry and paving the way for big-name brands such as Hilton, Wyndham and Starwood to enter or expand their operations in the Kingdom (see analysis).

INVESTMENT: According to figures from the WTTC, travel and tourism investment in 2013 was SR25bn ($6.67bn), or 3.8% of total investment. It should rise by 5% in 2014, and then grow by 4.4% a year over the next 10 years to reach SR40.2bn ($10.72bn) in 2024, or 3.9% of total investment in the Kingdom.

Increasingly, the government is turning to private sector investment to achieve its strategic goals for tourism, particularly through the use of public-private partnerships (PPPs), which are facilitated by state moves to reduce bureaucracy and ease access to funding. This is being done by setting up a number of holding companies, such as The Saudi Tourism Development and Investment Company (see analysis). Other entities are also being established to direct funds towards specific areas of development, such as cultural heritage. The King Abdullah Project for the Care of Cultural Heritage, for example, was announced in early 2014 and looks set to make private participation in such areas possible.

ACCOMODATION: The year 2013 was somewhat mixed for the hospitality industry, with occupancy rates varying over the 12-month period. In February occupancy in Saudi hotels was 73.7%, up 6.6% over February 2012, but after this strong start, rates decline considerably by year-end, with occupancy in December standing 12% lower than in February.

Despite this, the general trend in the sector is one of expansion. Data from the Jeddah Chamber of Commerce and Industry suggests the hospitality sector registered 127% growth over the 10 years to 2013. Indeed, the overall upward trajectory in the number of tourists visiting the Kingdom, along with continued efforts from the government to encourage this, are making Saudi Arabia an attractive destination for investors in the hospitality sector. According to the SCTA, in the 18 months from January 2014 a total of 214 hotels will come on-line.

PIPELINE: The December 2013 “STR Global Construction Pipeline Report” stated that there were 6927 rooms in the pipeline in Makkah, 5804 in Riyadh and 2569 in Jeddah, and a total of over 29,000 rooms throughout the Kingdom. One of the most notable changes to the hotel offering has been the increase in the number of branded three-, four- and five-star hotels in operation locally – a shift seen as largely resulting from the SCTA’s regulation of the sector.

Hilton Worldwide has a development pipeline of 18 properties in Saudi Arabia, while Starwood Hotels & Resorts Worldwide has confirmed plans to open six new hotels. Wyndham Hotels’ pipeline includes luxury five-star facilities as well as developments in the budget and economy sectors, with its Days Inn and Super 8 brands. Wyndham intends to open 10 Days Inn hotels in Saudi Arabia over the next seven years, and 20 Super 8 properties within five years.

HERITAGE OFFERINGS: As part of the drive to increase the number of tourist destinations in Saudi Arabia, the authorities are turning to the Kingdom’s rich cultural heritage. Madain Saleh, a pre-Islamic archaeological site similar to that at Petra in Jordan, was proclaimed a UNESCO World Heritage Site in 2008 and is known as Saudi Arabia’s “Capital of Monuments”. Two museums at the site are examples of the type of facilities that will be developed at other historic and archaeological destinations throughout the Kingdom in line with efforts to increase the accessibility of such attractions to tourists.

Recognising the costs associated with rehabilitating historic sites, and the long periods required to recoup investments, the SCTA is working to provide extra support for investors. As SCTA’s vice-president, Salah Al Bukhayyet, told OBG, “We have no problem with deep pockets. If a site offers a viable investment opportunity, the government and the SCTA are happy to leave it to the private sector, but for heritage and cultural sites where a more longterm investment is required to create an appealing product, we are more than capable of helping out.”

Examples of government support include extended leases on such sites (50 or 60 years rather than 25), as well as access to the recently established King Abdullah Project for Urban Heritage Development. Through this new project, and other efforts, the SCTA will work to develop and rehabilitate archaeological sites, museums, historical areas and buildings; register antiquities; and carry out a number of other tasks to develop sites of importance for Islamic and Saudi heritage. Significant Islamic sites such as the Hira Cave and Tuwa Well in Makkah, the Jabal Uhud region in Medina and sites of famous battles are set for major overhauls, along with some 40 other archaeological sites and six historic Hajj routes. A number of historically important palaces will also be developed and rehabilitated, as will some nine heritage villages throughout the Kingdom.

Plans are also being finalised to set up joint stock companies to launch heritage hotels and hospitality projects, under the Saudi Heritage Hotel Company. Facilities are planned for the Samhan district in Al Diriyah in Riyadh, Al Ula in the north-west, Al Ahsa in Eastern Province, and most notably in Jeddah’s old historic area, where a specific management plan is already in place and a file has been submitted to UNESCO for inclusion on its World Heritage list.

MIXED USE: The SCTA’s efforts are not just focusing on heritage; mega-projects are also under way to build a number of modern, mixed-use, leisure tourism resorts. Al Uqair is the most prominent and far along of these, but the SCTA has plans at some 19 other sites, mostly on the Red Sea coast, including at Al Rais and Al Lith, but also inland, for instance at Taif. These projects are at varying stages of planning and construction, and will mainly be developed using the PPP model (see analysis).

BUSINESS & MICE: Business tourism is another segment targeted for growth, as it is seen as key to boosting non-religious foreign arrivals and retaining Saudi nationals who would otherwise travel abroad. One of the areas with particular potential is the meetings, incentives, conferences and events (MICE) niche. As the largest economy in the GCC, the Kingdom has a distinct advantage in this area.

Tariq Al Essa, the executive director at the Saudi Exhibitions and Conference Bureau (SECB), told OBG, “It is imperative to host conferences and exhibitions in Saudi Arabia, where it makes most sense for business. The markets in Saudi Arabia are of such size and maturity that it makes sense to have them here over other places, which will eventually reduce the economic leakage from the country.”

The SECB, formed in late 2013, is currently collecting information and creating an inventory of the Kingdom’s MICE offering to guide growth, aid investors and develop the product at Saudi conferences. The findings will be put into a new database and will be published through the bureau’s website when it is launched. “By carrying out this inventory, we will show areas where there is a lack of supply but plenty of demand, and in doing so, pinpoint areas for potentially lucrative investment,” Al Essa told OBG. The SECB is also collaborating with other government agencies to overcome some of the major barriers to growth in the industry, such as the limited participation of women and restrictions related to the current Customs and visa processes.

Saudi Arabia hosted 13 international events in 2013, up from nine the previous year, while the SECB had granted 194 conference licences for 2014 by early January. Many of these are currently taking place in hotels, as there is an undersupply of specific MICE venues. However, there are plans to expand the Kingdom’s offerings. The Riyadh International Conference and Exhibition Centre is currently undergoing an expansion to increase its area by 10,000 sq metres, for example, and there are several new projects in the works as well, including at King Abdullah Economic City, Prince Sultan Cultural Centre and as part of the Heart of Jeddah project.

CHALLENGES: Transport remains a major barrier to retaining domestic tourists. Plans to spend a total of $30bn on airports by 2020 should help to ease some of the congestion caused by the 18.6m tourist departures, 14.3m arrivals and 33m domestic air journeys in 2012. Indeed, demand for domestic flights continues to outstrip supply. Efforts to increase capacity have continued, with Qatar Airways’ subsidiary Al Maha and Saudi Gulf set to take off in 2014. Their entry to the market will be welcomed, as finding a seat on a domestic flight, especially around religious or school holidays, can prove much more difficult than booking a ticket on a flight out of the Kingdom – an issue that needs to be addressed to meet the government’s goals for domestic tourism.

Similarly, the religious tourism market is eagerly awaiting the completion of the Haramain high-speed rail line, which will ease transport between Jeddah, Makkah and Medina (see Jeddah chapter), while other infrastructure upgrades throughout the Kingdom also look set to facilitate domestic travel.

VISAS: While visas are often viewed as a major barrier to the expansion of both business and leisure tourism in Saudi Arabia, restrictions are slowly being relaxed. A number of different visas are now available, and the SCTA and the SECB continue to lobby for a visa programme for conferences that is based around an invitation to the conference, rather than an invitation from a Saudi company, a move seen as crucial to enabling the Kingdom to become a real competitor in the MICE industry.

The leisure tourism industry received good news in late 2013, with the announcement of a new “Umrah plus” visa that would allow pilgrims, having completed their religious rituals, to travel freely throughout the Kingdom for up to 30 days, a potentially huge shot in the arm for tourism (see analysis).

HUMAN RESOURCES: In 2012, 751,000 people were employed in the tourism industry, making it the second-largest employer in Saudi Arabia, Prince Sultan told local media in January 2014. Some 27% of these workers were Saudi nationals, compared to the 12% in the private sector as a whole. The sector’s capacity to create jobs for Saudi nationals is one of the major drivers behind the government’s support for expanding the tourism industry.

While the demographics of Saudi Arabia mean there will be plenty of people entering the workforce each year, and expansion of the labour-intensive tourism industry will create jobs, ensuring that young Saudis are appropriately trained, as well as willing, to take up these jobs is another issue. Responsibility for bridging this gap falls to the SCTA, which has been working to ensure that both state and private education providers are producing graduates with the applicable skills for the industry.

At the same time, these bodies are also trying to change popular perceptions about working in the service industry among both students and parents. The SCTA runs several workforce development courses, and has signed memoranda of understanding with a number of colleges and universities to establish courses, vocational colleges and departments to train Saudis to work in tourism.

The Technical and Vocational Training Corporation (TVTC) intends to establish four colleges to train tourism sector staff. The first of these was established in Riyadh in August 2013, followed by a second in Medina in December of the same year. In addition, two more will be established in Taif and Al Ahsa in 2014. A number of universities, including the King Saud University (KSU), King Faisal University and universities at Hail, Jizan and Taif, have specific departments offering tourism training. Two more tourism colleges in Jeddah and Abha have also been established. Further, Al Hokair Group runs an institute of hospitality and hotel management, King Abdulaziz University is home to a tourism institute, and the country also has an international academy dedicated to tourism and hotel management.

The SCTA is also working to develop the capacity of existing tourism employees by offering tour guide training and accreditation, with training for those in the accommodation industry to follow soon. The National Project for Tourism Human Resources Development (Takamul), which is responsible for carrying out such courses, trained some 30,000 people working in tourism-related industries in 2012.

OUTLOOK: Given the perennial draw of Makkah and Medina, Saudi Arabia is sure to have a steady flow of religious visitors in the coming years. Allowing a considerable number of these pilgrims to travel more broadly within the country will doubtless give the local tourism industry a welcome boost. Efforts to improve tourism-related infrastructure and increase the number of offerings available, in combination with the rising wealth and disposable income levels of the domestic and regional population, seem set to drive growth in the sector.

The demographic and economic strengths of the Kingdom do not mean that unlocking this potential is without its challenges though, and the availability of human resources could be a major barrier to meeting potential future demand. However, efforts are being made to overcome these issues, and as such, the Saudi tourism sector looks to be in a strong position as it continues to move forward and mature.