Kingdom sends mixed messages to tourism industry

Published in MEED, 27 September 2016

A sharp rise in visa fees will make it harder for Saudi Arabia to achieve its visitor targets

Riyadh has big plans for the Saudi tourism market in the coming years. The government wants to increase the number of umrah pilgrims from 8 million today to 15 million by 2020 and 30 million by 2030. It also wants to raise the total number of visitors to the country from 64.5 million to 81.9 million by 2020.

But another increase that is already in the pipeline may undermine those ambitions. In mid-August, the authorities announced that visa fees for non-GCC nationals would increase sharply from 2 October. A one-time entry visa will now cost SR2,000 ($533), while multiple-entry visas will cost between SR3,000 and SR8,000, depending on the length of time covered. Previously, visas cost between $55 and $140. In addition, airline passengers in transit will have to pay a SR300 transit visa and anyone leaving and returning will be charged SR200 for an exit/re-entry visa. First-time pilgrims will see their fee waived, but everyone else will have to pay up.

Such a policy is hardly conducive to a vibrant tourism industry. “It is symptomatic of the fact that within Saudi Arabia there is a large proportion of people who don’t want tourists,” says one industry analyst, who has worked in the kingdom. “It isn’t a good recipe for rapid development of tourism.”

The Saudi tourism industry has always been an unusual one. People wanting to visit historical sites such as the Nabataean ruins at Madain Saleh or ancient rock paintings at Jabal Umm Sanman are not encouraged any more than someone wanting to sunbath is. Instead, most visitors come for religious or work reasons. Yet the potential for tourism to provide a source of income and jobs means the sector cannot be entirely ignored, especially at a time when the government is desperate to find new revenue streams.

According to the Saudi Arabian Monetary Agency (Sama), the country’s central bank, inbound tourists spent SR81.5bn in the kingdom last year. The largest share came from religious visitors, who spent SR33.5bn. Business visitors accounted for a further SR12.7bn and those coming to visit friends and relatives spent SR11.2bn. Just 13 per cent of the total, SR10.7bn, was spent by people coming on holiday or for shopping.

Most visitors come from within the region, with GCC nationals accounting for 8.6 million of the 19 million trips to Saudi Arabia last year, and people from other parts of the Middle East a further 3.2 million trips. Some 3.3 million trips were from South Asia, another region of the world with a large Muslim population.

“[Really, they] are only interested in attracting Muslim markets, although exceptions are made for business visitors,” says Roger Goodacre, a tourism development adviser with Roger Goodacre Associates. “They would like to persuade the wealthier hajj and umrah pilgrims to extend their stay, and spend some time and money in Jeddah and other ‘leisure’ destinations.”

Attracting locals

The country’s tourism industry would also benefit if it could persuade more locals to take holidays at home. Last year there were 51,000 domestic tourism trips, involving an average stay of less than five days and spending of SR47bn. By contrast, the 21,521 outbound trips had an average length of 11.5 days and involved total spending of some SR78bn. The main destinations mirror the inbound tourism market, with 58 per cent of trips to other parts of the GCC, 20 per cent to the rest of the Middle East and 11 per cent to South Asia.

“The reason why so many Saudis take their holidays outside the country, in Egypt, the Gulf, Malaysia and so on, is that the religious restrictions are too tight to allow them to relax fully [at home],” says Goodacre. “The major cities can offer super-luxury hotels and luxury shopping malls, but they still struggle to compete with the rest of the Gulf because of the social restrictions.”

The authorities are at least trying to give locals more reasons to take a holiday at home and to offer visitors something more to do. The government’s National Transformation Programme sets out a series of targets for the Saudi Commission for Tourism & National Heritage (SCTH) to achieve by 2020. These include increasing the number of museums from 155 to 241 and the number of Unesco World Heritage sites from four to 10.

The government hopes such developments will help the tourism industry’s contribution to GDP to rise from 2.9 per cent today to 3.1 per cent by 2020. That looks ambitious, however. The UK-headquartered World Travel & Tourism Council suggests the direct contribution of travel and tourism to the Saudi economy was 2.5 per cent in 2015 and only expects it to reach 2.8 per cent by 2026.

The investment that will be needed to meet all the targets has been estimated at SR10.5bn for the SCTH alone. This includes several large schemes, such as SR861m for the Okaz City development in Taif and SR1.1bn for the development of the Farasan Islands in the Red Sea. In addition, the government will invest SR334m via the Ministry of Haj and Umra to develop facilities for pilgrims.

Important market

The Okaz City project highlights one important potential market for the tourism industry. The first phase of the scheme will include a conference centre alongside a mix of hotels, art galleries and a museum. Business visitors are a more straightforward proposition for the Saudi market than regular holidaymakers and, given the size of the economy, there is untapped potential for conferences and exhibitions.

“Saudi Arabia has the largest economy in the region so it holds a strong proposition in terms of business tourism,” says the industry analyst. “They are starting to realise the potential for building business tourism, based on exhibitions and conferences. People outside Saudi Arabia, particularly from the rest of the GCC, want to access the Saudi market.”

Other sites earmarked for development include the $7bn Al-Ogair project, but it is moving very slowly. Royal approval for the scheme was given in 2008, but it is still only at the initial planning stage. The project covers an area of 100 square kilometres, along a 24km stretch of coastline, and will include several archaeological sites as well as hotels, shops, entertainment centres and sport facilities. A tender for the main contract is not expected until April 2017, according to regional projects tracker MEED Projects.

Some private developments are also emerging. US theme park operator Six Flags is thinking of setting up a park in the kingdom. In late June, it said it had begun discussions with the government, following talks with Deputy Crown Prince Mohammed bin Salman during his tour of the US earlier that month. Such a development would be one way of encouraging more nationals to holiday closer to home, rather than going to the UAE or further afield.

Lack of support

However, the country’s track record of support for tourism projects in the past raises questions about how effective the government will be with its latest plans. Last year, the Switzerland-based World Economic Forum (WEF) ranked Saudi Arabia 133 out of 141 countries when it comes to tourism spending as a percentage of the government budget. In August, Prince Sultan bin Salman, president of the SCTH, acknowledged the sector had suffered from a lack of government support in the past.

“There is a criticism we received about the accommodation prices in some tourist destinations. It is true these destinations are experiencing low supply and high demand. If the funding programme was there in place, then the situation would have been different,” the prince said, on a visit to the Asir province on 9 August. “I would like to say, enough for the delay on our tourism development… enough of the old ways, we need our citizens to find good services at moderate prices to enjoy tourism within [their] homeland.”

But it is not just a question of money. A more deep-seated problem is the country’s approach to outside influences in general. The WEF ranks Saudi Arabia at 138 out of 141 countries for its openness to the world, ahead of only Yemen, Gabon and Angola. And in terms of visa requirements, it is joint last with Angola. The latest steep rise in visa fees suggests that, despite the ambitious nature of the country’s plans, the tourism industry is unlikely to grow at anywhere near the pace that some would like in the years ahead.