URP6541 - Economic

development planning
Final Project
LED- Saudi Tourism Sector
AMMAR NAJI

2010
Introduction:

Travel and Tourism is one of the world’s most important economic industry. It employs over

235 million across the world – 8.2% of all employment, and generated US$ 5,751 bn 9.4% of the

world’s GDP in 2009. Travel and tourism export, service and merchandise represent 10.9% of total

world exports. The total capital investment in this sector equals US$ 1,241bn equivalent to 9.2% of

total world investment

Generally, the Travel and Tourism Economy is forecast to grow by 4¼% per year between 2010 and

2020, creating more job opportunities by 2020 - around 9.2% of all jobs and 9.6% of global GDP.

This could show the importance and significance of this sector- (2010 World Travel & Tourism Council).

The Middle East is considered one of the fastest growing regions in the tourism sector with current

Market share 6% and with Average annual growth of 6%. In the first half of 2010, international

tourist arrivals worldwide increased by 7% compared to the same period last year, led by a strong

performance from the Middle East with 20% growth, Asia and Pacific 14% and 6% by advanced

economies. Saudi Arabia recorded 66.4% growth in international tourist arrival in the first half of

2010, and ranked as 25th in International tourist arrivals by country of destination in 2009-

(UNWTO).

Trends (%) in international tourist arrival

Why Tourism in Saudi Arabia:

The Tourism industry contribute to a nation’s overall attractiveness, by driving growth as an

independent sector, through supporting and related sectors; and as an enabler of competitiveness

for firms, clusters, and the economy as an entire. With oil prices rising since 2006, and young

national demographics, as a one of the fastest-growing populations in the world, the country’s

economic development assures the future growth.

The Saudi Arabia economy heavily depends on the oil sector which contributes more than

48% of total GDP, therefore changes in the price and production each year create a big impact in

total GDP. In 2009 due to the economic recession the total GDP declined from US$476billion in

2008 to US$375billion in 2009. An economy that is dependent on one sector will not help to build

sustainable economic development, therefore focusing on other sectors with high potential is

essential.

NON-OIL GDP BY MAJOR ECONOMIC ACTIVITIES –Million US$ 2006 2007 2009 changes 06-09 Contribution employment
Agriculture , forestry and fishing 10,333 10,524 10,595 3% 9% 7%
Manufacturing ( include oil refining) 24,635 26,047 27,602 12% 23% 20%
Public utilities( electricity, gas and water) 3,368 3,505 3,738 11% 3% 2%
construction and building 14,549 15,146 15,368 6% 13% 14%
wholesale and retail trade, restaurants and hotel 16,797 17,838 18,990 13% 16% 38%
Transport and communication 12,043 13,271 14,886 24% 12% 5%
Finance, insurance, real estate and business services 26,277 27,285 27,942 6% 23% 15%
Total 108,002 113,617 119,121 10% 100% 100%
The importance of the tourism sector resulted from the high contribution in the non-oil GDP which

represent 16%, in addition it is the 2nd growing sector after the communication and Transportation

13% growth between years 2006-2009.

Why Not other sectors?

1. Why not Transportation and communication sectors? Both has limited multiple effect

Transportation sector subsidized and controlled by the government and the privet sector

cannot compete in a subsidized sector , while communication sector dominated by 3

companies and market capacity cannot allow new entry competitors.

2. Why not manufacturing and Construction sectors? Both will not help to reduce the

unemployment rate of Saudi workers who are not interested to work in this sector due to

the low wages

Despite the fact that this country is considered culturally conservative and the tourism

sector in such an environment faces many policy and social barriers, this sector is growing rapidly.

The Saudi tourism information and research center (MAS) indicated that the size of the tourism

sector is expected to rise to US$18billion by the end of 2010 from US$16.7 billion in 2009, with

3.9% contribution to total GDP. Looking to the tourism contribution to the world total GDP (9.4%),

the tourism sector in Saudi Arabia has the potential to grow. Increasing the GDP contribution

generated by Tourism will have higher impact on total GDP, since Tourism is a multifaceted industry

which connects with a large number of other sectors. As a result we will have greater contribution

in the development of other economic activities like car rentals and restaurant industry. In addition

tourism will increase the foreign currency reserve and reduce their outflow.

Inbound Tourist Trips by Purpose of Visit and Quarter 2009

 Tourism statistic summery 2009 source (MAS)

Direct and indirect economic effect of tourist spending (Input-Output Analysis):

Input-output analysis is a method of measuring the structure of an economy by outlining the sales

of one to all other sectors. It helps to find out the linkages among sectors. To explain the effect of

tourism spending on the economy, will be used the Multiplier effect to determine the direct and

indirect effect of tourism spending on various economic activities. For example when tourists spend

on accommodation, tours and other activities, this will create another, more wide round of a

secondary indirect spending through tourism which will lead to a third final round through tourism

multipliers. The multiplier effect factor used represents the developed tourism countries (sources:

world tourism organization).

From the table we can find out that the growth in the total effect at this industry in Saudi Arabia

between year 2006-2009 is equal to 123%, which explain the great potential in this industry,

another factor that could show the importance of the tourism industry the indirect effect which

represent more than 50% of the total effect of tourism spending on the economy.
Demographics:

1. Saudi Arabia's population as of July 2010 is estimated to be about 27,136,977, including an

estimated 8.5 million resident foreigners
 2. Saudi Arabia is a country of the young, around 70 percent of the population is made up of
people less than 30 years of age. Due to the high population growth 3.2%
3. GDP per capital in Saudi Arabia grow up from US$9128 in year 2000 to US$14094 in 2009
and expected to be over US$16000 in 2010

Area 2,149,690 sq km
Population growth rate among the population 3.20%
Total Population 2010 27,136,977
Foreigners population 8,429,401
Per capita GDP at current prices in 2009 (US$) 14,094
Average Household 5.8
Saudi Arabia -Census 2010

Bothe the young population and the Foreigners population could easily post the local tourism in the

country, while foreigners will be more interested to visit historical area and old cities young

generation will be interested in outdoor activities, however not all outdoor activities are affordable

under a culturally conservative environment which creates some challenges in this sector.

Tourism’s employment:

Tourism’s direct employment was estimated at 493,165 in 2009 and represented 6% of the

total kingdom employment which amounted to 7.1 Million workers. In addition the employment

growth in this sector during the period of 2004-2009 over-achieved the total kingdom’s

employment growth-(MAS).

Tourism employment vs.Total employment

Due to the limited job opportunities for the female under a culturally conservative environment

women currently working only in the education and health sectors, expanding the tourism sector

could create great opportunity to reduce the Large gap exists between male and female

unemployment rates, as the female rate rose to 19 %, while 78.3% of unemployed women are

university graduate, However women’s contribution rate in the Saudi national labor force has

closely tripled, from 5.4% in 1992 to 14.4% in 2009. As a step to move away from the culturally

conservative environment new rules announced In January, 2008 allow women to stay in standard

mixed-gender hotels without a male family member in tow, the tourism industry can be considered

as one of few industries that public will comfortably welcomes woman to work in.

Religious tourism is a main advantage:

Kingdom is the homeland of the two Holy Mosques. Most Inbound tourists visiting Saudi

Arabia and domestic tourists are interested in religious tourism; Muslims are required to undertake

the pilgrimage to Mecca once in their lifetime if possible. There are around 1.6 billion Muslims in

the world. Due to the current capacity of Mecca, the city is only able to accommodate about 2.5 to
3 million pilgrims each year in the Hajj seasons. Millions more visit Mecca and Medina the “2nd holy

city after Mecca” throughout the year. Due to the religious fact the growing cost will not have any

impact on demand, therefore any new capacity launched to the market will be directly covered. For

example The Hotels in Mecca and Medina regions represent 71% of the total hotels available in the

country. Most visitors go for a minimum of two weeks and some for up to two months.

High amount of investment in the infrastructure and the accommodation sector were

invested to increase the capacity of the two holy cities, which will help in the future to increase the

inbounded tourism and the income generated by this sector along with Government soft loan

program one of which considered one of many initiative taken to increase the investment in the

tourism sector.
Domestic government soft loan program(US$1= SR3.75)

Mecca and Medina Tourism output share represent 56% of the total output of the country,
Source: 2008 Tourism indicators-MAS
 Futuristic projects in Mecca

Medina after the latest expansion

Other Advantages compared with Neighbors country:

Huge undertaken improvement in the infrastructure at the neighbors countries and cites, as

example Dubai and Doha and with the advanced polices launched compared with Saudi Arabia will

impact negatively in other tourism activity. The Saudi Arabia policies and infrastructure needs to be

upgraded to capture bigger part of the growing demand in the Middle East tourism, in addition to

the religious tourism the country has another 4 advantages that can post other tourism activities

which can be summarized as following:

1. The demographic structure young population- High population growth and the foreigner

population which can feed the demand in the low season compared to the Neighbor GCC

countries.
 2. The enormous numbers of Cultural Heritage Sites which cannot be founded in Neighbor

countries could increase the investment in tourism and help to Decreasing the ratio of

internal migration to big cities.

3. The massive area of the country, lead to a diversity of Environment & Wild Life, however

this sector need many marketing tools and investment to attract the inbound tourisms.

4. Ongoing expansion for the current railway network, new airports and commercial airlines

which will help to connect and make old villages accessible to the tourist.

Exports, Services & Merchandise

Proposal LED strategy- Tourism industry:

The proposed LED is interactive since it is based on the existing religious tourism and the

undertaken steps by government to improve the investment environment in this sector in both

holy cities Mecca and Medina, The LED here proposed to create a link between the religious

tourism and the Cultural & Heritage tourism , which will create greater impact on other regions,

create more jobs for young Saudis and female , and develop small regions instead of focusing on

main cities , in addition this link will post the shopping tourism since the government don’t apply

any type of taxes on the imported products, therefore the shopping tourism can benefit from this

advantage compared with others countries in the region . Therefore our LED strategy is locality /

business base.

Four main steps need to be taken to achieve the proposed strategy:

The LED role in this strategy will be dealing more with coordinator / stimulator aspects

1. Preparing a good environment to encourage the private sector to undertake the principal

role in the implementation of the tourism development process.

2. Identifying the area that can attract tourism investment such as culture &heritage program,

environment and urban development program, and human resources program.

3. Marketing strategy :Gain market identification and attract the tourism

4. Minimize the influence of the religious party to the related economic activities, and activate

some of the approved polices in the last 3 years, such as Tourism visa which still limited. And

women driving.

In the end expanding the tourism industry will lead to Main key consequences:

1. Contribution to diversifying the economic base and supporting regional development, and

improve the small businesses sector and achieve local economy stability.

2. More investment in different areas of the Kingdom, and more regional economic growth.
References List

 The supreme commission for tourism, economic p rogram. (2001).

The importance and economic impact of tourism sector, case of
saudi arabia . Riyadh,Sauid Arabia :N.A

 The supreme commission for tourism, Tourism information and

research center. (2010). Saudi tourism outlook Retrieved from
http://mas.gov.sa

 The supreme commission for tourism, Tourism information and

research center. (2010). Main tourism indicators 2004 -2009
Retrieved from http://mas.gov.sa

 Kester, j. (2009). Tourism trends and outlook. Proceedings of the

4th UNWTO/PATA Forum on Tourism Trends and Outlook ,
www.unwto.org