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Middle East Tourism

Posted in Middle East Business by thomthumb84 on December 4, 2009
The Holy Kaaba in Makkah, Saudi Arabia.

Image via Wikipedia

At a time when many Middle East business sectors are floundering the tourism industry is booming. Saudi, Oman, and even Iraq are getting in on the action and it seems to be paying off.

Despite the economic crisis it seems that the tourism sector has managed to keep going. According to the Oman Chamber of Commerce and Industry, the value of planned tourism projects in the GCC for the next decade tops $230 billion, indicating that GCC nations are not concerned about a protracted downturn in the local tourism industry. The chamber also says that in 2008 tourism in the Middle East grew at 11 per cent compared to a global rate of just two per cent.

For some markets the continuing success of the tourism and leisure industry was inevitable. Saudi, for instance, was never going to have significant problems. As the birthplace of Islam and the site of the largest annual gathering in the world during the annual Hajj pilgrimage there is never going to be too little demand for hotels.

It is estimated that in November alone over 2 million people from 160 countries will have visited the city. Even excluding Hajj, the number of annual pilgrims coming to Mecca is forecast to more than double to 10 million in five years.

Hoteliers and property developers are tapping new business opportunities in Mecca and Medina as the Saudi government seeks to accommodate even more pilgrims.  Hilton Worldwide, acquired by Blackstone Group LP in 2007, know a safe bet when they see one and have already announced that they intend to open a number of new hotels in Mecca.  Shuja Zaidi, Hilton’s vice president of projects in Saudi Arabia, has said that developers and hotel companies will invest as much as 150 billion riyals ($40 billion) in Mecca over the next ten years.

 “We don’t have enough of a supply of hotel rooms,” Zaidi said. “There is a tremendous amount of money going into Mecca.”

And they are not alone. Over the next 10 years, developers and hotel companies will invest as much as 150 billion riyals ($40 billion) in Mecca, Zaidi said. Kingdom Holding Co., the investment company controlled by billionaire Prince Alwaleed, will open a five-star hotel with 1,000 rooms, restaurants and retail space.  Jabal Omar Development Co., a real-estate developer in Mecca, is building 27 hotels with a combined 15,000 rooms, with the first to open in 2011.

“Every major hotel brand in the world will be present in Jabal Omar,” Zaidi said. “Hilton is a small portion of that.”

More surprising than the continuing success of Saudi is the rise of Oman within the tourism sector. It is becoming an increasingly attractive target for foreign investors. Last year, the Sultanate entered the World Economic Forum’s travel and tourism competitiveness index for the first time. In the latest 2009 rankings it was placed in 68th place out of 133 countries – moving up eight places in just a year.

Designed to measure the level of attractive investment in the tourism sector, rather than the attractions of the country to visitors, the new position could prove a forecast of long term cash flow for the Sultanate which it is embracing it with both arms.

Development of the sector began with Oman taking a strategic approach to administration and infrastructure. Visitor entry to Oman, for example, has been streamlined and travellers from 60 countries can now obtain entry visas at the airport on arrival rather than through time consuming application processes in their home countries.  A multi-billion dollar infrastructure investment program for the sector is already underway and will hopefully raise the number of visitor to 1.2 million in the next decade.

Upgrades to the airports serving Muscat and Salalah are already underway while further expansion plans are being made to increase exhibition space and hotel capacity. Six new airports are also being planned in order to open up the country’s interior, located in Adam, Duqm, Haima, Ras al Hadd, Shaleem and Sohar.

In addition to these more fundamental projects a number of large private projects are continuing to pop up. A new luxury hotel complex, Shangri-La La Jissah Resort, was opened in 2006 and was followed by the opening of the Six Senses Hideaway at Zighy Bay. And the country’s first luxury establishment Al Bustan which also features its own beach, re-opened in September after a refurbishment.

Other projects underway include the Muscat Hills Golf and Country Club, the “Blue City” complex in Muscat designed by Norman Foster and the $2.7 billion “Wave” beachfront development.

Even Iraq is now trying to push itself into the tourism industry. On a recent visit to London in order to promote Iraqi tourism Al-Fayadh, media director for the Tourism Board of Iraq said “We don’t expect planeloads of tourists next year,”

“But the security situation is a lot better now. We’ve already had three tourist groups from Vietnam and several groups from Russia.”

For now the Tourism Board is looking to follow Saudi’s direction in concentrating on the potential for religious tourism.

“For now we count on religious tourism to the Islamic holy sites Najaf and Karballah,” Al-Fayadh stated. “But soon we’ll focus on Biblical sites like Ur, Babylon and Mosul.” Ur is the birthplace of Abraham, while Babylon gained infamy when its Old Testament residents tried to build a tower reaching the sky. Mosul contains the tombs of several Old Testament prophets.

Al-Fayadh points to the success of countries like Vietnam, which have taken advantage of the notoriety of their war-torn locations to attract international visitors.

 “First it was a war zone, but now it’s a tourist destination, especially for Americans. Iraq is well-known; we don’t have to advertise it. I think American veterans will come back and visit us after the U.S. withdraws its forces in 2011.”

A local firm has already started executing a service project that contributes to tourism in Arbil province, with a total cost of around $1.8 million.

While such high hopes will most probably not be realized for several years the fact that such an emphasis is being placed the tourism sector shows that this is one area in which people are still willing to invest throughout the Gulf.

Despite such signs of promise it is not all good news – particularly in the aviation sector. The projected growth in airline passenger traffic has taken a hit. Air passenger traffic for the Middle East grew at seven per cent in 2008, a sharp deceleration from the 18 per cent growth seen in 2007, with much of the slowdown occurring primarily in the final months of the year.

The International Air Transport Association (IATA) believes air passenger growth will remain in the single digits for the next few years at least. Concerns have also been raised about the need to satisfy existing demand in limited capacity airports in Qatar and Kuwait, where the infrastructure does not satisfy current demand and so expansion is not only justified, but also necessary.

As with most infrastructure projects, despite some level of private partnership, the GCC governments normally foot the biggest share of the cost- drawn inevitably from petrodollars. With the global economic downturn, and low oil prices, most governments are expecting significantly lower fiscal revenues. Others have forecast deficits for the coming year. This could potentially hamper expansion plans in the aviation industry.

Circumstances could be even worse for those with larger levels of private sector involvement, especially in Dubai. In light of the current global slowdown, it will become more difficult, not to mention more costly, to secure private sector funding on large scale, long term projects.

It is worth noting, however, that airport projects have a significantly long growth period. This could mean that by the time the projects are operational the downturn could be over. M R Raghu, Head of Research at Markaz, a Kuwait-based investment company, said “The coming few years are likely to see a slowdown in the GCC aviation industry,”

“But capacity expansion plans have a long gestation period and we expect higher growth rates to resume by the time this capacity comes on-stream.”

The question of airline passenger traffic numbers and the continuing concern over aviation investment will certainly leave many countries cautious about future investment in the tourism sector. But the ambitious plans being laid down by Oman certainly indicate that success in the tourism industry is possible, even now amidst the chaos of the recession. The emphasis must lie in providing a suitable infrastructure for investment while also loosening the administrative red tape which so frequently deters would-be tourists.

Published in Issue 9, January 2010, of The Falcon (An Egyptian Gulf Bank Publication)

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