For centuries before the discovery of oil in 1938, Saudi Arabia’s principal source of revenue was the caravans that traded along the pilgrim routes to Mecca. And the number of pilgrims arriving in the holy cities of Mecca and Medina is still growing each year.

Where once long-distance travel was prohibitive to pilgrims, because of the time needed to reach Saudi Arabia, the kingdom’s Hajj Ministry estimates that about 2 million pilgrims made the journey in 2008.

There is also a continual influx of pilgrims for Umrah (the lesser pilgrimage), throughout the year. Until the announcement of its 20-year tourism masterplan in 2002, these religious visitors would have formed the basis of what most in the kingdom would consider a significant tourism industry.

According to the Supreme Commission for Tourism (SCT), pilgrims account for 51 per cent of all visitors to the country, spending about SR10bn ($2.67bn) in the kingdom each year.

Budget increases

The Saudi tourism industry will continue to revolve around domestic tourists and pilgrims, but Riyadh is seeking to widen its appeal, with the budget for promoting tourism increasing each year.

As custodian of the two Holy cities, the Saudi government has pumped billions of riyals into developing the infrastructure around them. But Riyadh is now taking a broader view and injecting large sums into its strategic plan for tourism development throughout the kingdom.

Boosted by large financial reserves accumulated during the days of high oil prices, Finance Minister Ibrahim al-Assaf prioritised the promotion of tourism in the 2009 budget, boosting its allocation by 10.9 per cent to SR385m, following a 56 per cent rise to SR347bn in 2008, from SR222bn in 2007.

Saudi Arabia ranks 82 out of 130 in the World Economic Forum’s Travel & Tourism Competitiveness Index for 2008, which assesses factors that affect the tourist, from infrastructure to visa requirements.

While the kingdom’s business environment and infrastructure scores relatively well, putting it in 55th place in the index, it falls to 106 and 107 for its regulatory framework and human, cultural and natural resources respectively. The UAE, by contrast, comes in at number 40 overall.

Saudi Arabia has good reason to improve its low ranking for tourism competitiveness. The pressure on the Saudi government to find job opportunities for a growing population, as well as non-oil based sources of revenue, are goals that are preoccupying policymakers in Riyadh.

With the financial backing of Riyadh, the tour-ism sector has undergone a major transformation, with statutes creating a new governing body, the SCT, which is responsible for the kingdom’s strategic plan for tourism development. The STC is led by Prince Sultan bin Salman bin Abdulaziz, who reports directly to King Abdullah bin Abdulaziz al-Saud. It is responsible for several sectors including antiquities, heritage, museums and hospitality.

For the SCT, infrastructure development is central to tourism promotion. The body hopes to build on the established religious tourism market by expanding in the non-religious market through both new and existing initiatives.

Upgrading infrastructure

Vital to this growth strategy is the upgrading of infrastructure such as Jeddah airport and
the proposed 444-kilometre-long Mecca-Medina rail link.

“It is imperative to understand that tourism in Saudi Arabia is not limited to religious tourism,” says Abderahman Belgat, general manager of the Saudi French Company for Hotel Management (SFCHM).

“The Saudi tourism industry represents a huge potential with its multi-dimensional diversity - cultural, ecological, archaeological, desert attractions and resort facilities - which encompass the needs, expectations and motivations of today’s traveller.

“Saudi Arabia has many unexploited tourist resources such as the archaeological site Al-Jawf, the Rub al-Khali (Empty Quarter), and the Nefoud Desert. It boasts a beautiful coastline with beaches at the Red Sea and the Gulf of Aden. Saudi Arabia can also offer urban tourism in Riyadh and Jeddah, as well as mountain resorts and natural parks in the Hejaz region.”

Alongside developments in the Holy cities is a push by the SCT to develop the kingdom’s cultural tourism industry. The body is promoting Saudi Arabia’s rich history through the development of cultural sites such as the walled city of Diriyah, the capital of the first Saudi state. In the north of the country is the Nabatean city of Madain Saleh, which is mentioned in the Quran and was added to the UN Educational, Scientific & Cultural Organization’s World Heritage list in July 2008.

The ambitious $38bn tourism development project approved by the Council of Ministers (parliament) in June 2008 takes advantage of the kingdom’s vast Red Sea coastline, where 19 locations are being considered for development over the next 20 years. This is in addition to the $10bn development at Al-Auqair on the kingdom’s Gulf coast.

The planned developments will include 557,000 hotel rooms, creating 413,000 jobs, of which 165,000 direct jobs are expected in the first five years. For each destination, the SCT expects an investment by the chosen developer of at least $2bn, covering infrastructure and project construction costs. The expected annual revenue is estimated at $2.6bn.

Improving hospitality

The sector is already moving in the right direction. Demand for hotel accommodation throughout the kingdom is far outstripping supply. According to local investment bank Shuaa Capital Saudi Arabia, overnight visitors to and within the kingdom rose by more than 74 per cent to 11.5 million in 2007, from 6.6 million in 2000.

The number of hotel rooms increased to 50,000 rooms over the same period. Further deregulation and a boom in the airline industry are also likely to increase the number of visitors from current forecasted levels.

French hotel group Accor operates 11 hotels in Saudi Arabia, with more than 3,000 rooms. Six of the hotels are in Mecca, three in Riyadh, two in Jeddah and one in Khamis Mushayt, in the southwest of the country. Accor said in November 2008 that it intends to be the leading hotel group in Saudi Arabia by 2012.

SFCHM will be managing more than 20 hotels in total by 2010, employing 4,500 staff, half of whom will be Saudi nationals.

Job opportunities will arise from the development of the sector, but significant steps will also be taken in the field of education and training. The SCT has teamed up with Accor and the local General Organisation for Technical Education & Vocational Training to establish hotel schools in the kingdom. A memorandum of understanding was signed in June 2006 and construction of the first school began in June 2008.

“This will guarantee the future of job opportunities for numerous professions in the hotel and service industry,” says Abderahman Belgat, general manager of SFCHM.

In keeping with the government’s commitment to create more job opportunities for young Saudi nationals, Riyadh is also seeking to encourage more Saudis to explore their own country and will focus on domestic tourism rather than the harder-to-reach markets of Western Europe and the US.

Cultural push

“Religious travellers will be encouraged to stay longer and add other leisure activities to their stays,” says Rohit Talwar, chief executive officer of UK-based research consultant Fast Future, which is conducting a major study for the Saudi government on the future of tourism investment. “Cultural and heritage promotion will receive a strong push, as will some aspects of leisure and adventure tourism, such as deep-sea diving off the Red Sea coast.”

There is little concern in Riyadh about the impact of the current financial crisis on the tourism sector in Saudi Arabia, and the government is committed to its plans for expansion. In December 2008, as the global economy slowed, the Saudi Finance Ministry increased public spending to $131bn in its budget for 2009.

To achieve this, the kingdom will run its first budget deficit since 2002, calculated on an oil price of $37 a barrel for Saudi oil.

“The future carries so many opportunities that this current market downturn appears a small obstacle within the bigger global picture,” says Fouad Anbari, senior manager for business development and investment analysis at investment bank Siraj Capital, which has joined the Arab Tourism Organisation to establish the Arab Tourism Bank.

Some segments of the tourism industry may even benefit from the downturn as Saudis turn away from foreign travel.

“Low-cost air travel carriers and lower-cost hotels, such as the Holiday Inn Express, which is owned by Siraj Capital in Saudi Arabia, will see an increased demand versus the higher-end, more luxury services,” says Anbari.

The prospects for projects such as the multi-billion-dollar Al-Rayis, Saudi Arabia’s first resort town, and the development of the historic eastern port of Al-Uqair, remain good, with sources saying interest is strong enough for the projects to go through.

“These projects have been announced and are going through the process of tendering and review of bids,” says one source in the tourism commission. “There has been strong interest and given that Saudi Arabia has such strong potential, it is likely that the projects will go ahead.”

In 2007, visitor numbers to Saudi Arabia increased by 23 per cent to almost 13.5 million. The largest number came from the Middle East, followed by tourists from South Asia - both regions with large Muslim populations. According to Talwar, even assuming a modest average growth rate of 5 per cent a year, visitor arrivals to the kingdom could reach 25 million by 2020.

Tourism revenues also rose in 2007, by 5.4 per cent, reaching SR19.6bn, he says. With 2 per cent annual growth, Talwar expects revenues will reach SR25bn by 2020.

But it is tapping into the established domestic market that represents the clearest opportunity for Saudi Arabia. An estimated 5 million Saudis travel abroad on holiday each year, a market estimated to be worth $15bn, which the government would like to stay within the local economy.

In his role as secretary general of the SCT, Prince Sultan reminded Saudi nationals in 2007 that it is their duty to travel within their own country and explore its cultural heritage. But perhaps more importantly, to spend their riyals to boost local economies across the kingdom.

Key fact: Value of Red Sea tourism projects announced in 2008 - $38bn