Tourism potential remains untapped

06 April 2015

The Saudi authorities have long said they are keen to attract more tourists and draw attention to the country’s heritage sites. So far, however, little is being done to expand the industry

Saudi Arabia has one of the largest tourism industries in the Middle East, but also one of the most unusual.

In 2013, more than 13 million visitors came to the kingdom, spending close to SR48bn ($12.8bn). There were a further 23.8 million domestic tourism trips made. But unlike other countries, where tourists go to relax or perhaps for sightseeing, most people go to Saudi Arabia with a spiritual rather than recreational purpose. Of the SR47.9bn spent by international tourists in 2013, about SR37.3bn was from people visiting the country for religious purposes, mainly to take part in the hajj or umrah pilgrimages.

Most visitors come from within the Middle East. The region accounts for 8.6 million of the overall total, with 4.2 million coming from the rest of the GCC. The other major source market is Southeast Asia, which provided 3.3 million visitors in 2013, the most recent year for which statistics are available.

Religious tourism

Other types of tourism pale in comparison. According to data compiled by the Saudi Arabian Monetary Agency (Sama), the central bank, about SR3bn was spent by people coming for business, SR2.8bn by those visiting friends and relatives, and SR2.1bn by those coming for shopping or a more general holiday.

A similar pattern is evident with domestic tourism. Some 23.8 million domestic trips were made by Saudi nationals in 2013, with 10.4 million of them to Mecca. No other part of the country comes close to that figure. The capital Riyadh was the next most popular destination, with 3.1 million trips.

In one sense, the unusual nature of the market is a strength, as spending on religious tourism is not as volatile or as susceptible to competition from other destinations as tourism spending in general. But it also means the country is not really making the most of its potential.

Key fact

The SCTA received less than 0.1 per cent of the overall government budget of SR860bn for 2015

SCTA=Saudi Commission for Tourism & Antiquities. Source: MEED

Efforts to put the tourism industry on a more normal footing have been made on many occasions over the years. A national tourism development strategy was first prepared by the Saudi Commission for Tourism & Antiquities (SCTA) in 2002 and approved by the cabinet two years later. That set some broad targets, including boosting the number of tourists from 20.8 million in 2000 to 45.3 million by the end of the plan in 2020. Most tourists, 34.4 million, were expected to be domestic, with most of the rest to come from the GCC and other Arab states.

Saudi Arabia may well hit its 45.3 million target by 2020, based on the number of tourists in 2013, but there is still a marked reluctance by the authorities to open up the country and issue tourist visas. While citizens of other GCC states can freely move in and out of the country, the authorities do not encourage many others unless they are coming on pilgrimage or to do business.

As a result, those working in the Saudi tourism industry do not find life easy. Abdul Latif
al-Afaliq, chairman of the national tourism committee of the Council of Saudi Chambers of Commerce, says there are plenty of issues with which the industry is only slowly getting to grips.

“Tourism in Saudi Arabia is a new industry and, as with any new industry, there are some difficulties at the beginning,” he says. “The infrastructure for tourism is not yet mature. They have started to open up to external tourists, but they are keeping it only for GCC tourists for a certain period, we think for the next five to 10 years.”

Another issue is access to finance. According to Al-Afaliq, local banks are still wary of providing support to tourism developments, which makes it hard to raise capital to develop new schemes. “Projects need financing and the private banks think it is a risky business, so they don’t finance tourist projects,” he says. “They give finance for real estate, but they don’t finance tourism projects.”

Government support

One suggestion for how this problem might be solved is for the government to step in and provide more financing directly, in a similar way to the support it offers to industry through the Saudi Industrial Development Fund.

The diversity of cultural heritage would be a very good element to attract tourism, but there are still some challenges

Zaki Aslan, Athar Regional Conservation Centre

Some schemes have already been set up, including one in which projects approved by the SCTA are able to access funding from the Saudi Credit & Savings Bank. This is primarily aimed at helping small and medium-sized projects, but Al-Afaliq says his organisation has been lobbying for a dedicated entity to be set up. “If [the government] makes a specialist bank for tourism projects, it will understand the climate of this private business,” he says. “This industry needs a specialist bank or fund to finance it.”

Riyadh has also been involved in directly backing some larger projects, most notably a scheme at Al-Ogair on the east coast. Royal approval was given for the Al-Ogair development scheme in 2008 and the cabinet allocated SR1.4bn to upgrade infrastructure in the area in 2011. However, a state-backed development company was only set up in September 2013, and work has yet to begin on the site, although it may start later this year.

Al-Ogair project

The current design for the Al-Ogair project covers an area of 100 square kilometres along a 24-kilometre stretch of coastline. It will include several archaeological sites, as well as hotels, shops, entertainment centres and sport facilities, and will primarily be aimed at visitors from the rest of Saudi Arabia and the wider GCC market.

Regulations approved by the government in November could lead to more such projects being set up in the future. Under the new rules, the SCTA is able to nominate state-owned land for private sector development, depending on approval by the Council of Ministers.

The changes also mandate the SCTA to issue licences for any tourism business and to set basic standards and conditions for tourism operations. Any company breaching those standards could face fines of up to SR100,000 or have their operating licence revoked.

Heritage centres

As well as the creation of new tourism centres, Riyadh has been offering some support for the country’s existing heritage. In early February, Saudi Company for Heritage Hospitality was set up, with backing from the Public Investment Fund and Jeddah Development & Urban Regeneration Company, among others. The new organisation will initially help to set up heritage centres in four sites around Saudi Arabia, with more to follow in the future.

The government also wants to add 10 more sites to the Unesco World Heritage list.

Currently, the country has three – the Nabataean ruins at Madain Salah; the Al-Turaif district near Riyadh, the site of the first capital of the Al-Saud dynasty; and the historic centre of Jeddah. The Al-Ahsa oasis in the Eastern Province is expected to be the first site promoted. According to the SCTA, its credentials should be presented to Unesco before the end of this year.

Challenges remain

There is clearly a great deal of untapped potential in the Saudi heritage sector, which could provide the basis for a more diverse tourism industry. Despite that, the wider environment within Saudi Arabia means it is likely to be a while before that potential is fully realised.

“They have a lot of potential,” says Zaki Aslan, director of the Sharjah-based Athar Regional Conservation Centre. “The diversity of cultural heritage would be a very good element to attract tourism, but there are still some challenges.

“Saudi Arabia has made great advances in the area of heritage management in general. They have the infrastructure and management tools in place. I think they have to work – and they are working – to open up access to the heritage that they have to tourism groups and the tourist industry. It’s on the right track, but they realise they have to work on what they have.”

Sensible development of the Saudi tourism sector, including making it easier for visitors to enter the country, could have useful economic benefits and help to diversify the economy.

In a statement issued following a meeting of the Arab Tourism Ministerial Council in November last year, Prince Sultan bin Salman bin Abdulaziz al-Saud, president of the SCTA, noted that tourism was “an important economic sector contributing to the diversification of Arab economies, and its ability in the creation of employment opportunities for the masses”.

But words need to be followed by actions and in that the authorities appear more circumspect. The SCTA was given a budget of SR814m for this year, a rise of just 2.5 per cent on the SR794m it received the year before and less than 0.1 per cent of the overall state budget of SR860bn for 2015. Given that inflation in the kingdom is estimated by the Washington-based IMF to be 3.2 per cent, it actually marks a cut in its budget in real terms.

That suggests that for all the talk of promoting tourist sites and attracting more visitors, tourism remains an industry Riyadh is not yet particularly committed to developing.

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