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The Effect of Investing in Tourism Sector on the National Oncome of Saudi Arabia

The tourism sector of the Kingdom of Saudi Arabia is among the most prospective and potentially lucrative sectors of the nation’s economy. Although the country is the largest oil exporter in the world, it is important to point out that such a heavy reliance on one source of national income carries major risks and vulnerabilities, which evidently makes Saudi Arabia highly dependent on global oil price values. Therefore, it is critical for the nation to diversify and shift its economy to be comprised of a wide range of economic segments, and tourism is one of these aspects, which need to be regarded with a high degree of prioritization.

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Research Background

Saudi Arabia is the largest oil exporter in the international arena, and it has massive amounts of oil reserves. It is stated that 40% of the kingdom’s GDP accounts for oil exports, and another 40% is made private sector (Saudi Vision 2030). In other words, there is a heavy reliance on oil as it comprises almost half of the national income. However, the government is recognizing the given fact, which is why Vision 2030 was established in order to advance the position of Saudi Arabia, where it will no longer depend on oil as its primary source of income. The strategy revolves around shifting focus from oil exports towards a more sustainable form of economy, which accentuates the importance of the private sector (Saudi Vision 2030). The development of tourism is directly tied to the private sector since an influx of tourists will result in oil-independent sources of national income. In other words, the state, through Vision 2030, is focusing on “opening up new investment opportunities, encouraging innovation and competition, and removing obstacles preventing the private sector from playing a larger role in delivering national services” (Saudi Vision 2030). Therefore, the incentives are based on shifting away from fossil fuels towards a more sustainable economy.

Investing in tourism is the most crucial step, which needs to be done early, despite the current conditions of the worldwide pandemic. The research suggests that sustainable growth of a nation can only be done in a non-oil context, where the key components art renewable energy sources and tourism (Waheed et al. 49). The government needs to undertake a number of actions, such as developing new tourist spots, improving infrastructure, and create a tourist-friendly environment (Ali 417). In addition, it is important to note that historically, tourism in Saudi Arabia was primarily based on religious pilgrimages due to the sacred cities of Mecca and Medina (Abuhjeeleh 2). However, the tourism development of the kingdom needs to encompass non-Muslim tourists in order to expand the global interest in the nations and ensure the influx of foreign capital. Thus, tourism among the most relevant and prospective sectors of Saudi Arabia’s economy.

Variables

The current situation within the country shows that the national income is primarily driven by two economic sectors, which are oil exports and the private sector. Both the former and the latter segments account for 40% of Saudi Arabia’s GDP each (Saudi Vision 2030). Vision 2030 entails that in the future, the kingdom will no longer rely on oil and will gain most of its national income from the private sectors, which also includes tourism.

The tourism sector was selected for the research because of three main reasons. First, Saudi Arabia can already be considered an attractive tourist destination due to its richness in culture, religious destinations, and appealing geographical location. Second, the direction of Vision 2030’s strategy shifts toward investing massively in the private sector of the economy, which means that tourism will grow as an integral part of the given economic segment. Third, the global pandemic is gradually subsiding due to the emergence of vaccines and other safety protocols, which means that when borders are fully opened, the tourism sector will be revitalized. In other words, there will be a stark increase in interest in tourism on which Saudi Arabia can jumpstart its Vision 2030 goals.

Although the given subject has relatively limited literature, the research evidently indicates the prospective and potentially lucrative aspects of tourism. One study strongly emphasizes that investments in the private sector need to primarily go towards tourism and renewable energy sources, as these are the most critical drivers of the kingdom’s economic growth (Waheed et al. 54). Another study indicates that although tourism revenue pre-COVID19 was increasing, its relative proportion to the country’s GDP value was declining (Ali 421). In other words, the tourism sector is not growing as quickly as other sectors, which means that more investments are required in order to boost the selected segment.

Opening borders, improving transport services, for example, charter flights, ferries, and bus lines will ensure that tourism will become truly massive. This means that companies working in tourism will have to be ready to make new proposals in order to arouse the interest of more and more target groups of the population. Investments will start in the construction of hotels and bases necessary for a normal rest. The regional authorities are also involved in this process, to the budget of which tourists bring significant money. Tourist firms themselves pay more and more attention to tourism, but the existing potential for tourism development in the country has not yet been realized. To reach a new stage of development, additional funds and ideas are needed.

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The main reason for the problems of travel companies is a decrease in the profit received from entrepreneurial activity. Quite often, the question of selling a business may arise if an entrepreneur owns several companies, and in order to obtain funds for the development of one, he sells another. This reason may be the most common, as it becomes more and more difficult to develop several projects at once. Those who work in the field of hospitality prefer to buy existing enterprises rather than create new ones since the most profitable locations of hotels and travel companies have already been taken.

The rationale for the Study

The rationale for the study is manifested in the fact that tourism is a key strategic target of the government, and it will experience a drastic increase in demand due to the surge of tourists. However, there is little to no data on the effects of investing in the tourism sector on the national income of Saudi Arabia. Although the existing literature strongly emphasizes the importance of such actions, there is no precisely known relationship between investment in tourism and national income values. By shedding light on this dynamic of capital exchange, the government will be able to more strategic and less wasteful in regards to resource allocation and tourism development, which will ensure that Vision 2030 will be executed in the most optimal and effective manner. The implications of the research can be translated into government policies and programs, such as Vision 2030’s practical implementation in the kingdom. In addition, it will open new and more in-depth research directions for further studies. Such a measure will ensure that investment activities will be conducted effectively and with the highest Return on Investment values.

The research will aim to the correlational and causational relationship between investments in tourism sectors and their impact on national income alterations. The accentuation will be put on identifying critical points of change, which will be directly reflected on research objectives. The objectives will focus on assessing the influx of tourists, typology of tourists, the most sought out tourist attraction, the need of tourists, real estate value changes, tourism-related small and medium-sized businesses, and national GDP. Therefore, the objectives:

  1. Identifying the rate of tourist influx, their typology, and sought-out destinations.
  2. The needs of tourists visiting the kingdom.
  3. Real Estate value changes due to tourism.
  4. The market size of tourism-related small and medium-sized businesses.
  5. Tourism-related national income changes.

Conclusion

In conclusion, it is important to note that tourism is one of the most prospective and potentially profitable sectors of Saudi Arabia’s economy, which requires a serious focus and prioritization. The governmental programs and strategic directives indicate the nation’s eagerness to move away from fossil fuels towards a more sustainable economy through the private sector. However, there is a lack of sufficient data on the effect of tourism-related investments on national income., which is why the given research will focus on an array of variables, such as real estate value, tourists, and tourism-related private sector.

Works Cited

Abuhjeeleh, Mohammad. “Rethinking Tourism in Saudi Arabia: Royal Vision 2030 Perspective.” African Journal of Hospitality, Tourism and Leisure, vol. 8, no. 5, 2019, pp. 417-427.

Ali, Anis. “Travel and Tourism: Growth Potentials and Contribution to The GDP of Saudi Arabia.” Problems and Perspectives in Management, vol. 16, no. 1, 2018, pp. 417-427.

Saudi Vision 2030. ” Investing for The Future.” Vision2030.

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Waheed, Rida, et al. “The Role of Non-Oil Exports, Tourism and Renewable Energy to Achieve Sustainable Economic Growth: What We Learn from The Experience of Saudi Arabia.” Structural Change and Economic Dynamics, vol. 55, 2020, pp. 49-58.

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StudyCorgi. (2022, July 17). The Effect of Investing in Tourism Sector on the National Oncome of Saudi Arabia. Retrieved from https://studycorgi.com/the-effect-of-investing-in-tourism-sector-on-the-national-oncome-of-saudi-arabia/

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StudyCorgi. "The Effect of Investing in Tourism Sector on the National Oncome of Saudi Arabia." July 17, 2022. https://studycorgi.com/the-effect-of-investing-in-tourism-sector-on-the-national-oncome-of-saudi-arabia/.

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StudyCorgi. 2022. "The Effect of Investing in Tourism Sector on the National Oncome of Saudi Arabia." July 17, 2022. https://studycorgi.com/the-effect-of-investing-in-tourism-sector-on-the-national-oncome-of-saudi-arabia/.

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StudyCorgi. (2022) 'The Effect of Investing in Tourism Sector on the National Oncome of Saudi Arabia'. 17 July.

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