Working to a different model for Saudi tourism

16 April 2010

The kingdom aims to entice more Saudis to holiday at home and boost employment opportunities to meet its ambitious 2020 goals

Worldwide tourism was hit hard last year, with the global recession forcing many to stay at home. Those that did venture abroad or took holidays in their own countries kept their money in their pockets, spending much less they had in the previous years of plenty.

In numbers

  • 41 per cent - Drop in tourist arrivals in first half of 2009
  • 43 per cent - Share of religious tourism in the kingdom’s travel industry
  • 1.1 million - Number of locals employed by the tourism industry

Sources: MEED; SCTA

Global tourist arrivals fell by 7 per cent during the first six months of 2009, but recovered during the second half to finish the year down by 4 per cent, according to the Madrid-headquartered UN World Tourism Organisation.

Drop in numbers

Saudi Arabia was not so lucky. Government figures show that total tourist trips to the kingdom by foreigners decreased by 41 per cent during the first half of 2009, while overnight stays by inbound visitors dropped 45 per cent.

Final figures for 2009 have yet to be collated, but a 15 per cent slump in tourist numbers has been projected, while expenditure is expected to be down by a third.

The downturn in the tourism sector had a knock-on effect on the wider economy. Saudi imports fell by 12 per cent to about $89bn in 2009, down from a record $100bn in 2008. This marked the largest annual decline in 15 years as falling consumer demand deterred traders from replenishing their stock.

In normal circumstances, Riyadh could have counted on a strong recovery during the second half of 2009, with the Islamic holy month of Ramadan beginning in late August followed by the Hajj in November, when millions of pilgrims flood into the kingdom from across the world.

On top of the global recession, however, the kingdom was also hit last year by concerns over an outbreak of swine flu among visitors to the country’s holy sites.

As a result, the number of Umrah pilgrims during Ramadan fell by a quarter and the number of Hajj pilgrims fell by about 500,000 to some 2 million. Some Hajj licensing agencies reached only 60 per cent of their quotas. Hotel operators in Mecca slashed their prices to boost occupancy, but reported decreases of up to a third in visitor numbers.

Nonetheless, the tourism industry remains a key plank of the Saudi economy. The sector contributed 6.7 per cent of the country’s gross domestic product (GDP) in 2008, and remains a central part of the government’s efforts to diversify the economy.

Last year, the Supreme Commission for Tourism and Antiquities (SCTA) announced a plan to create 900,000 new jobs in the industry by 2020, almost doubling the 1.1 million currently employed by the sector. Those plans made little progress last year, but the commission is working from a solid base.

“Last year was a difficult year, as it was everywhere, but the 2020 plan remains in place. Tourism is crucial to the national economy. We have a responsibility to the pilgrims who visit the holy sites and to our local workforce, to continue our investment in the sector,” says an official at the SCTA.

The kingdom will never compete with Dubai, Egypt or Jordan’s Dead Sea resorts for leisure tourism. However, Saudi Arabia’s position as custodian of the two Holy Mosques in Mecca and Medina and the country’s emergence as an economic powerhouse in the region are sufficient grounds to build a thriving modern tourism industry.

Conservative tourism

Religious tourism makes up 43 per cent of the Saudi travel market, with business travel contributing 25 per cent, and it is catering for both these markets that will be key to achieving the 2020 goal.

“The focus will remain on religious tourism. There is huge untapped potential if they can persuade more people to stay at home,” says John Sfakianakis, chief economist at the local Banque Saudi Fransi.

“The industry will retain a conservative lifestyle. Tourism will have to abide by the cultural norms - you will never see people in bikinis on Saudi beaches, but the kingdom can count on more than 1.2 billion muslims as potential visitors.”

Tourism is still not a major employment sector for Saudi nationals, but the SCTA hopes that public investment, along with help from the private sector, can draw more of the local workforce into the industry.

If most of the 900,000 jobs to be created in the next decade go to foreigners, the strategy will have failed in its task. The kingdom’s population is growing rapidly at about 2 per cent a year and the government needs to create new opportunities for its young workforce.

This will include persuading them to take up work in the service sector, which will be critical to supporting the expansion of the tourism infrastructure.

“The service sector has big potential for economic diversification, but still predominantly hires foreigners. Things have started to change in the past five years - you have begun to see Saudi nationals on the front desk in hotels, but this needs to accelerate. Tourism is the future for the Saudi economy,” says Sfakianakis.

One oblique benefit of the economic downturn was that many locals were dissuaded from taking their customary holidays outside the kingdom. In previous years, when the economy was booming, some 5 million holidayed abroad each year, spending an estimated $15bn.

“This year has seen an interesting swing. The government has seen the benefits of an increase in domestic tourism. During the school holidays, more people are staying at home because of the economy, instead of going to Dubai or Bahrain,” says Sfakianakis.

The benefits of increasing domestic tourists should already be clear. In 2008, there were more than 30 million domestic trips within the kingdom, with Saudi tourists spending an estimated SR37.6bn and staying 199 million nights in the kingdom’s hotels.

Central to SCTA’s tourism strategy is the plan to persuade more Saudi nationals to take short breaks on the coast and weekend stays within easy driving distance of the kingdom’s main cities. Once better economic times return, it will be difficult to persuade them to give up their longer holidays to cooler climes during the hot summer months, however, the continued investment in transport and hotel infrastructure across the country should convince some local travellers to spend a portion of their money at home on short trips.

Annual hotel occupancy rates in Saudi Arabia have remained stubbornly at 50-51 per cent for the past five years.

Evidently there is plenty of spare capacity, but much of the sector has suffered from years of underinvestment; modern, affordable hotels remain scarce.

Hotels investment

“We have some hotels of the right standard, but we need more. If a Saudi tourist wants to have a weekend away, but cannot find a good hotel room for less than $700, they will just take a cheap flight to Dubai or Bahrain,” says the SCTA official. “We believe they will stay if we create the right environment with quick travel and affordable accommodation.”

International hotel groups also see great potential in the Saudi travel market. In the past year, branded names have continued to invest in the kingdom despite the downturn. Rotana opened a new hotel in Mecca, Hyatt Hotels & Resorts opened a new Park Hyatt in the centre of Jeddah, and Accor Group opened a Sofitel in Al-Khobar. In 2010, the Raffles Hotels & Resorts group will unveil its first property in the kingdom, the Raffles Makkah Palace, in the holy city. Other ambitious multi-billion dollar developments are planned with Mecca the focus. The $1.6bn Abraj al-Bait development, including the Mecca Clock Royal Tower and a 76-storey five-star hotel, is due for completion at the end of 2012. Local construction giants Saudi Binladin Group and Saudi Oger have joined forces to build the $2.7bn Jabel Omar project in Mecca, featuring six five-star hotels. The first phase is scheduled to open next year.

In another development, Malaysia-based Tabung Haji is building a 30-floor hotel about 200 metres from the Masjid al-Haram (the Holy Mosque) in Mecca. Costing SR1bn ($267m), it will have 1,650 rooms.

The logic of building new hotel capacity in Mecca, with its guaranteed annual influx of tourists, is obvious. However, analysts feel further investment in other cities is also required to encourage the nationwide travel that the SCTA has pinned its strategy on.

“Saudi needs more hotels and greater variety, particularly in the Eastern province and Jeddah. During conference season, it is a nightmare getting a room in Riyadh, there is so little choice for decent hotels,” says Sfakianakis.

“Most of the country’s five-star hotels were built in the 1990s or at the turn of the last decade, and the country needs three and four-star hotels for business travellers and families who do not want to pay the earth for a short visit. Greater variety will create competition and improve the entire sector.”

A better spread of hotels nationwide will also encourage tourists to look at the other sites that the SCTA wishes to add to the itinerary for any visiting tourist. The kingdom has so far done little to capitalise on its other ancient sites and areas of natural beauty.

Mada’in Saleh, the kingdom’s answer to Petra, lies 400km northwest of Medina. Like the world-famous site in Jordan, Mada’in Saleh - also known as Al-Hijr - is a pre-Islamic settlement dating back to the Nabatean kingdom in the 1st century BC.

But unlike its Jordanian counterpart, the site is relatively unknown with the government having done little to promote it until recently. While Petra draws close to 600,000 visitors from across the globe each year, generating millions of dollars in revenue, Mada’in Saleh is comparatively undiscovered. The ancient city was only declared a Unesco World Heritage Site in 2008, 23 years after Petra.

Untapped potential

The Saudi government is aware that this and other sites will be a huge draw for tourists if they can be promoted and made accessible. Since last year, the SCTA took on responsibility for the heritage, antiquities and museums sector, along with hotels and tour agencies. Previously these various fields were scattered among a number of government ministries. The new commission should ensure a more comprehensive approach to the industry.

Riyadh’s available funds and willingness to spend are not in doubt. However, two major obstacles must be overcome if the kingdom is to realise its full potential as a global tourism attraction.

Most fundamental is whether Saudi citizens can be persuaded to work in the new service sector that must be created to support the industry. The years of easy oil wealth over generations have fostered a disinclination to enter such professions among much of the local population.

The Saudisation policy, imposing employment quotas of locals on companies, has met with only uneven success, and the country’s youthful population will place ever-growing pressure on the job market in the coming years. It is a matter of urgency for the government to find work for this new generation.

“Attitudes are changing. As the tourism sector expands and revenues increase, we believe more Saudis will move into the industry. By using the public and private sector, we will increase job opportunities for locals,” says the SCTA official.

The second difficulty is the kingdom’s old nemesis, bureaucracy. Specifically, the visa application process, which remains as slow-moving and impenetrable as ever. Although the SCTA’s main target is persuading Saudis to stay at home, the visa systems needs a dramatic overhaul if the country is to realise its 2020 plans.

To Western eyes certainly, the kingdom can appear a forbidding place to visit, but Arabs also find the visa process just as laborious and the rundown interiors at the airports just as unwelcoming.

Business visitors across the region complain about the slow speed and poor communication that accompanies a visa application, regardless of its urgency.

Consortiums bidding for work in the kingdom frequently find that they arrive in Riyadh with some of their number missing because their permission did not come through in time. “You often wonder if they really want you there at all,” says an Arab consultant-based in Dubai.

Cautious welcome

The kingdom has justifiable reasons for being cautious about those it gives visas. Every year, hundreds of pilgrims abscond after visiting the holy cities. Illegal immigrants are blamed - fairly or otherwise - for much of the crime in Mecca, Medina and Jeddah.

However, if the 2020 strategy is to succeed, Riyadh must work at making the country a pleasant place to visit, rather than rely on every muslim’s obligation to come. And if the Saudi tourism sector is to persuade visitors to part with more of their money, the kingdom will have to learn to act as if those visitors are truly welcome.

Improvements to the service sector can help make the country a more welcoming place without emulating Dubai’s open door policy. The kingdom is working to a different model, but investment in human resources will go a long way to underpinning the billions being poured into the national infrastructure.

Combined, these two elements should ensure Saudi Arabia achieves its aims of enticing locals to stay at home and explore the holiday opportunities in their own country, and boosting employment opportunities for its own citizens.

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