The Kingdom of Saudi Arabia’s economy is dominated by the oil, which accounts for around 40% of gross domestic product and over 80% of exports. To ensure its economy has a future beyond oil, the Saudi government is promoting diversification. Its ambitious plans include the construction of six new economic cities and the development of the mining, manufacturing, tourism and defense industries.
Growth slowed to 1.7% in 2016—from 4.1% the year before—as falling oil prices hit government revenues and forced spending cuts. Saudi Arabia’s compliance with OPEC oil production cuts means its economy is unlike to grow at all in 2017.
Inflation is at its lowest level since 2001. But any rise in the purchasing power of Saudi consumers is likely to be eroded by cuts to energy subsidies in 2017, and by the introduction of a 5% value-added tax in 2018.
Nonetheless, economists predict growth will return in 2018, as oil production rebounds and the government completes spending cuts. The Saudi economy is forecast to expand by 3.2% next year. Fiscal austerity will continue to weigh on future growth, however, as will further cuts in price subsidies and restraint over government hiring and pay. GDP is expected to remain at 3% per year through 2020.
International travel grew more than 8% per year, on average, between 2010 and 2016. Arrivals increased by 9% annually during this period. But outbound Saudi travelers are expected to drive growth through 2020, as momentum returns to the country’s economy.
Saudi Arabia shares land borders with eight countries, which together account for 48% of inbound and 66% of outbound trips. Kuwait, Bahrain and Egypt are the top originating markets. The United Arab Emirates stands out as the most popular foreign destination for Saudi travelers, and it continues to grow in popularity. Qatar had been another popular destination, but its prospects have been damaged by a recent dispute with its Gulf Cooperation Council neighbors.
The Saudi business travel market was worth almost US$11 billion in 2016. Between 2010 and 2016, total spending grew on average by 7% per year. Spending is expected to slow to 6% through 2020. Domestic travelers will drive spending growth, averaging 9% per year.
State-owned Saudia is the country’s largest airline, and it has a strong position in most major markets. To access smaller Saudi cities, international travelers typically connect via Jeddah, Riyadh or Dammam.
Travelers have a choice of Saudia and low-cost carrier Flynas on most domestic routes. New entrants Saudi Gulf and Nesma Airlines started flights in 2016, increasing competition from Jeddah to both Riyadh and Dammam. Saudi Gulf plans to launch its first long-haul services within three years, which would add competition to international routes, too.
A steady influx of new hotels puts the Saudi market at risk of oversupply. This risk is most pronounced in Riyadh, where the number of hotel rooms could increase by a third this year, if all properties open as planned.
With a portfolio of 27 upscale “aparthotels,” local company Boudl is one of the largest chains in Saudi Arabia. It faces competition from IHG, Marriott and AccorHotels, and each of these international chains has something different to offer. IHG has a strong offering of luxury and midscale hotels; Marriott’s strength lies in its upper upscale properties; AccorHotels has the most mixed portfolio, ranging from midscale to luxury hotels.
Some travelers might consider a smaller, local chain, such as Casablanca Hotels or Mena Hotels. These properties are typically geared toward meeting the needs of Middle Eastern customers.
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