Saudi Arabia’s $16 billion religious tourism at risk with Mers outbreak

Uncertainties related to the spread of Mers in Saudi Arabia may pose further headwinds on the kingdom's economy, Bank of America Merrill Lynch has warned.

Saudi Arabia has urged its citizens and foreign workers to wear masks and gloves when dealing with camels as health experts said the animal was the likely source of the Middle East Respiratory Syndrome coronavirus. Fayez Nureldine / AFP
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Saudi Arabia’s US$16 billion religious tourism industry could be hampered by a worsening of the Mers outbreak, Bank of America Merrill Lynch has warned.

The bank predicted little macroeconomic impact on the kingdom in the near term, but it remained watchful for further developments if the contagion spread further.

“Most of the potential adverse impact is likely to fall on consumption and on export of services related to tourism – religious tourism, particularly,” wrote Jean-Michel Saliba, an economist at the bank.

“Increased uncertainty may pose further headwinds on a recovering Saudi consumer after the labour market reform shock.”

First identified in Saudi Arabia in 2012, Middle East Respiratory Syndrome is a deadly virus that has so far caused 163 deaths in the kingdom. The UAE, Egypt, Jordan, the Netherlands and the United States have also reported cases, mainly linked to people who had visited Saudi Arabia.

A continuation of the recent quickening in reported cases may prove a further headache for the kingdom’s economy, already facing the potential prospect of lower oil prices in the coming years, waning government stimulus spending and an easing in the retail, transportation and construction sectors as a result of a recent crackdown on illegal migrant labour.

Jadwa Investment, the Saudi investment bank, forecasts growth in the non-oil economy to slip to 5.5 per cent this year, compared to an annual average of 7.7 per cent in the years since 2008.

The World Health Organisation has so far not deemed Mers threatening enough to declare a global health emergency, a move that might include travel and trade restrictions. But it is likely to change its assessment if the virus mutates into a strain that transmits more easily from person to person.

Officials are also concerned that a large influx of religious tourists into the kingdom in July during Ramadan and in October during Haj could raise the rate of infection and its geographic reach.

Bank of America Merrill Lynch estimated that Saudi Arabia’s annual pilgrimage revenues were $16bn, which represented 2 per cent of its GDP. The government placed restrictions on travel during last year’s pilgrimage season, pushing tourist levels down to 2 million from 3.2 million the year before.

To gauge the potential economic impact of Mers, the bank drew comparisons with the Sars epidemic, which started in China in 2002 and spread to other countries. Between November 2002 and July 2003, the outbreak of Sars in China caused 8,273 infection cases and 775 deaths in multiple countries, it said.

The Chinese government estimated Sars shaved 0.8 percentage points off annual GDP in 2003. The services sector was worst hit, including tourism, hotels, restaurants, retail and transportation.

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