Tourism to account for 5% of Saudi Arabia’s GDP by 2021

Tourism will grow in Saudi Arabia to account for 5 per cent of the kingdom's gross domestic product (GDP) by 2021 on the back of recent government initiatives that have made it easier for people to visit the country, the president and chief executive of World Travel and Tourism Council said.

In 2018, travel and tourism, a key component of Saudi Arabia’s Vision 2030 programme, accounted 3 per cent of Saudi Arabia’s economic output. The kingdom aims to increase that to 10 per cent by 2030.

"We will see an interesting growth based on changes they made on visas ... and millions of new jobs will be created," Gloria Guevara told The National on the sidelines of the Middle East and North Africa Leaders Forum in Ras Al Khaimah on Wednesday.

The increase in visitors will come as the kingdom builds major new developments such as the futuristic Neom city, the Red Sea project, entertainment city Qiddiyah, Amaala and Ad Diriyah. This comes as the kingdom’s non-oil gross domestic product grew 2.9 per cent year-on-year in the second quarter, the fastest pace since the fourth quarter of 2015, when Riyadh started putting fiscal consolidation measures in place to counter an oil price slump that began in the middle of 2014.

Last month, Saudi Arabia opened its doors to tourists from all across the world by announcing a new regime allowing visa-free travel for tourists visiting the country from 49 countries. Visas are now available online, on arrival or at Saudi diplomatic missions for about $120 (Dh440), including a health insurance fee.

The country also announced agreements with regional and international investors worth 100 billion Saudi riyals (Dh99.2bn) to develop the tourism sector in the Kingdom.

“They need to work on the products. For instance, a traveller from Europe is looking for something different than a traveller from the US or from Australia. An adventure traveller is looking for something different than a cultural traveller,” Ms Guevara said.

At the same event, Princess Haifa Mohammed Al Saud, vice-president of strategy and planning for the Saudi Commission for Tourism and National Heritage, said the kingdom has already received 5,000 applications for visas in less than a week since the new reforms were announced.

“The new tourism initiatives are positive not only for us but for the entire region," Princess Haifa said.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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Tourism to account for 5% of Saudi Arabia’s GDP by 2021

World Travel and Tourism Council bullish on the kingdom’s tourism sector following recent reforms

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