Last week’s Arabian Travel Market event in Dubai shone the spotlight on a sector that has registered tremendous growth after the Covid-19 pandemic, and which is a core part of long-term plans for economic diversification across the GCC.
Saudi Arabia reported more than 106 million tourists in 2023, up 12 per cent from 2022 and an astonishing 56 per cent higher than 2019. Of this 106 million, slightly more than a quarter, or 27.4 million, were international visitors.
Dubai attracted a record 17.2 million international visitors last year, up by about 20 per cent year on year, while the other emirates also reported strong growth in both domestic and international visitor numbers in 2023.
Hospitality was the fastest-growing sector in both Dubai and Qatar in the first nine months of last year, posting double-digit growth. In Bahrain, hospitality was the second fastest-growing sector after transport.
Hospitality (defined as accommodation and food services in official statistics) is a very narrow measure of tourism’s contribution to the economy, as travel to and from the country, as well as spending on goods and other services such as entertainment and leisure are not captured in this component of gross domestic product.
While some of the growth in tourism over the last couple of years was undoubtedly due to the reopening of international travel after the pandemic disruptions, reforms to make travel to the region easier were probably a key driver of growth, particularly for Saudi Arabia.
These fundamental changes to the “openness” of the kingdom to visitors, as well as continued structural reforms to develop infrastructure, improve the business environment and attract investment could remain key drivers of tourism and business travel over the medium and long term, even as international passenger air travel returns to a more modest pre-pandemic trend growth rate in the low single digits.
Most GCC countries have ambitious plans to grow the tourism and hospitality sectors significantly over the next decade and beyond as part of their long-term economic diversification strategies.
As relatively labour-intensive sectors, tourism and hospitality could be key sources of job creation in a region where increasing numbers of young people will be entering the workforce over the next decade. The tourism minister said at the end of last year that Saudi Arabia had already added 250,000 jobs in this sector since 2019.
Saudi Arabia has plans to double the number of international visitors to the kingdom by 2030, to 70 million, while boosting overall tourism to 150 million by the end of the decade. This growth is expected to create another 1.3 million jobs in the sector.
Similarly, ambitious plans for tourism have been announced in the UAE and Oman. At last week’s Arabian Travel Market, details of a new Schengen-style unified GCC visa were announced, which will allow travellers to visit all six GCC countries with one permit. The initiative is expected to boost regional tourism to 128.7 million by 2030.
To accommodate the expected growth in both domestic and foreign visitors to the region, a significant amount of investment in infrastructure will be required.
Currently, Saudi Arabia’s hotel room supply is less than Dubai’s, according to data from the STR. The government recently announced plans to add 320,000 hotel rooms in the kingdom – double the existing number of rooms in Dubai – by 2030.
It is not only accommodation that needs to be built, however. Transport infrastructure including airports, roads and trains will need to be expanded to move these visitors around; and leisure, entertainment and retail capacity will have to be built so that they have something to do while visiting.
Saudi Arabia has estimated investment in tourism infrastructure at $800 billion over the next 10 years. Dubai recently announced the expansion of Al Maktoum airport, which is estimated to cost $35 billion and is also scheduled for completion in 10 years.
Investment of this scale will create jobs and drive GDP growth even before the visitors arrive. As tourism grows, the associated spending will further boost economic growth in the destination country.
In Saudi Arabia last year, total visitor spending (both domestic and international) exceeded 250 billion Saudi riyals ($67 billion) and was about four times the level of spending before the pandemic.
Besides the obvious benefit of boosting aggregate demand within the kingdom, and diversifying the economy away from oil and gas, growth in tourism will help to diversify the exports of GCC countries, which are still disproportionately skewed towards hydrocarbons.
In Saudi Arabia, for example, oil and gas exports accounted for two thirds of goods and services export receipts, more than double the 31 per cent share of the oil and gas sector in the economy last year.
However, the growth in tourism in the kingdom has already started to yield benefits in this area – the travel services balance on the current account moved into surplus for the first time in 2022 and the surplus widened to $48 billion in 2023.
In the UAE, the travel services balance moved into surplus in 2015 and has grown steadily since, reaching $12.7 billion in 2021, the latest available figure.
The region’s tourism plans are ambitious and the sector has the potential to be a driving force in broader economic diversification, as GCC economies seek to reduce their reliance on oil and gas in the coming decades.
Delivery of tourism infrastructure will underpin investment and growth over the medium term, while growth in both domestic and international visitor numbers will create jobs and drive spending in domestic markets, as well as diversifying export receipts away from hydrocarbons.
Khatija Haque is chief economist and head of research at Emirates NBD
