By: Pranaav Seruwam

Editor | Politics and the World

Download PDF

Saudi Arabia’s reliance on oil exports in the 1970s signalled a change in tide within the global economic landscape. Spurred by industrial advancements, improved communication routes, and the influx of labourers from South Asia and North Africa, the long-term economic framework initiated by their authoritative monarch transformed the once-underdeveloped, barren desert nation into a major player within the Gulf region. However, as the nation plans to expand into tourism as a means to diversify wealth, one begins to wonder whether Saudi’s expansion is a case of unchecked ambition usurping economic feasibility.

Saudi Arabia’s $27 billion investment into the tourism sector in September 2019 was seen as an inevitable occurrence due to the riches and natural beauty encompassing the nation. Saudi Arabia’s General Investment Authority (SAGIA) has stated that multiple entertainment venues, including waterparks and an indoor ski slope, will be built by 2030. Compounded with the billions invested into the development of “smart cities”, the nation’s plans to rival major technological hubs are clear—Saudi is entering their next phase of economic development. While many consider this investment to be in the best interest of the Saudi economy, one should consider the vast implications mass tourism will have on Saudi society and the ulterior motives behind such an unexpected decision.

Saudi society serves as a significant impediment to the nation’s tourism goals due to the inscription of Islamic values within the nation’s constitution. Although Saudi society has begun to adopt Western viewpoints with regards to how women are allowed to be perceived in public, rules and regulations that drastically contrast Western ideologies still remain. For example, alcohol is strictly prohibited in Saudi, homosexuality is illegal, men are advised to not wear shorts, publicly displayed affection is prohibited, and bringing in non-Islamic religious items can result in legal retribution. When these factors are considered, the attractiveness of Saudi Arabia as a tourist destination for non-Muslims diminishes. However, the $27 billion invested in the nation’s tourism implies that Saudi officials have a projected vision for the nation within the next few years. The construction of the Kingdom Tower, which will be the tallest building upon its completion, and multiple entertainment venues within major cities indicate that luxury, status, and retreat are factors that influence Saudi’s tourism marketing strategy.

However, Saudi’s venture into tourism is not uncharted territory for Gulf nations that entrench their legislation with Islamic values. The United Arab Emirates is a prime example of a successful tourism venture within the region. Foreign direct investment (FDI) injected into the economy of the United Arab Emirates (UAE) during the early 2000s paved the way for the Gulf Nation to transcend itself as an infrastructural and tourism marvel. Currently, the tourism sector contributes to 12.1% of the UAE’s GDP, and it is evident that Saudi strives to follow in their footsteps.

Although UAE adopted strict Muslim values into their constitution prior to their economic boom, they began to integrate Western values into their society upon their expansion. However, this is not feasible for Saudi since the nation is situated on “holy land”. Saudi’s title as the “birthplace of Islam” permits comparison to Israel due to the cultural significance the land has within their respective primary religions.

Saudi’s reliance on oil exports is another important factor to be considered upon examining the levels of diversification that will permit the $27 billion investment to prosper. According to the UAE embassy, oil and gas exports account for only 30% of the nation’s economy, while petroleum comprises of 50% of Saudi’s economy. COVID-19 has crushed the oil and gas industry, forcing Saudi Arabia to slash its selling prices and increase production to 12 million barrels a day—an unprecedented amount—after a bid to cut output alongside Russia failed to materialize. The Saudi petroleum industry is projected to take massive blows as the pandemic progresses, with the IMF estimating that the kingdom needs oil at $80 a barrel to balance its superfluous budget.

Saudi analysts are banking on increased demand for crude oil post-COVID-19; however, this is contingent on key suppliers such as Europe and India, who are major markets that are imperative to Saudi’s petroleum exports. Gaining market share in the post-pandemic world will be tricky, with China likely to become the main market that Saudi will attempt to penetrate. However, short-term petroleum boons provided to China would only have a significant impact if Saudi establishes a long-term contract, a task that will be difficult given the projected geopolitical climate post COVID-19.

Should Saudi fail to acquire market capitalization when the dust settles, assets will have to be sold from the nation's Public Investment Fund, foreign cash reserves will be tapped into, and borrowing from allies will commence. The political repression from ultra-conservatives that was triggered due to the loss of major oil markets will put increased pressure on the Saudi government to adhere to domestic values to appease citizens. However, pre-existing societal tensions continue to taint the nation; COVID-19 saw the Saudi Value Added Tax (VAT) increase from 5% to 15% on July 1, and spending cuts have been implemented to counter the economic downturn sparked by the pandemic. Petrol prices have risen by 34%, and the Citizens Account, an economic assistance program servicing 2 million Saudis, ended due to the financial losses incurred by the government. The decision to pursue lavish spending amidst a crisis has angered many Saudis, who feel that excessive spending is unjustified when it comes at the expense of the citizens’ livelihood.

As the tourism industry continues to suffer global losses, pressure is mounting on the Saudi government to reap the benefits of their $27 billion investment. The discontent caused by recent economic shortfalls will be exacerbated by the ultra-conservative majority should the government begin to ease religious freedoms in order to make the kingdom a more attractive and viable destination for travellers. The dilemma faced by those in power is one that could either unite a nation or cause a greater divide.

What is certain is this: Saudi tourism will not flourish with the same religious constraints within its current legislation. A paradigm shift will need to occur within Saudi society for local tourism to reach its full potential. Otherwise, it will prove to be a failed investment of gargantuan proportions.