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Tourism Development Effects on the Saudi Economic Diversification March 6 , 2017 Mohammed Al Yousif, A.B.D Ahmed Al Bakr Economic Research Department - Studies Division 1

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Page 1: Tourism Development Effects on the Saudi Economic ... Workshops/First...Tourism Development Effects on the Saudi Economic Diversification March 6, ... the tourism sector for Saudi

Tourism Development Effects on the Saudi Economic

Diversification

March 6, 2017

Mohammed Al Yousif, A.B.D Ahmed Al Bakr

Economic Research Department-Studies Division

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Outlines

SAMA–Economic Research Department

1) Why enhancing the tourism sector is an important strategy for driving the Saudi economy towards more economic diversification?

2) Opportunities and challenges of investment in the tourism sector for Saudi Arabia.

4) Using Leontief’ input-output method to calculate employment, output, and added value multiplier.

3) Direct & indirect economic effects of expanding the Saudi tourism sector.

5) Conclusion

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Goals and Strategies (Saudi Vision 2030)

SAMA–Economic Research Department

General Goal:

To have a diversified economy and stable & sustainable

economic growth.

Key Goals for the tourism sector:

1) Increasing the number of Umrah visitors from 8 million to 30 million

every year,

2) Increasing the number of Saudi heritage sites registered with

UNESCO,

3) Increasing household spending on tourism activities inside the

Kingdom,

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Diversification

Diversification is an important aspect for the Saudi economy for three main reasons:

1) Boosting the economic resilience to withstand economic shocks (e.g. oil shocks).

2) Increasing flexibility of Saudi labor mobility.

3) Building human capital, as well as learning-by-doing.

SAMA–Economic Research Department 4

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20.7%

17.5%16.0%

13.1%

8.7% 8.2%5.8%

3.5%

0%

5%

10%

15%

20%

25%

Jordan Morocco Spain Malaysia UnitedAraba

Emirates

UnitedStates

Bahrain SaudiArabia

Source: World Tourism organization

SAMA–Economic Research Department

Tourism Contribution to GDP

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Employment

SAMA–Economic Research Department

Tourism Contribution to the Saudi Labor Market

Source: Tourism Information and Research Center (MAS)

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The Current Situation of the Saudi Tourism

Sector

SAMA–Economic Research Department

Tourism Contribution

• Value added of the tourism sector is more than SAR 80 billion.

• It is estimated that there are more than 800 thousand direct jobs in

the tourism sector, 28% of which are for Saudis.

Tourism Demand

• Domestic tourism expenditure is SAR 48 billion.

• Outbound tourism expenditure is SAR 84 billion.

Tourists Activity in the Kingdom

• The number of domestic tourism trips is about 46 million.

• The number of outbound tourism trips is about 21 million.

Source: Tourism Information and Research Center (MAS)

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•Training.

•More Job opportunities for women.

•Taking advantage of Holy lands

•Taking advantage of existing infrastructure (roads, airports and other services.)

•Crowd management.•The initial cost is very low.

Opportunities:

•Social and Cultural issues.

• Improving infrastructure.

•Seasonal fluctuations.

• Inadequate investment.

•know-how.

Challenges:

Opportunities and Challenges for the Saudi Tourism Sector

SAMA–Economic Research Department 8

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Direct and Indirect Tourism Activities

SAMA–Economic Research Department

Tourism Sector Activities

Direct Activities (Tier 1):

Transportation, travel agents, hotels

Induced Activities (Tier 3):

Local small businesses, such as grocery stores, hospitals and

schools

Indirect Activities (Tier 2):

Retail, construction, manufacturing and

telecommunications

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Direct and Indirect Influence of Tourist Spending

• Housing (accommodation)

• Foods and drinks

• Clothing

• Tours

Direct Impact

• Employment (Salary)

• Government income

Indirect Impact • Industry sector

• Sales

• Small business

Final return

SAMA–Economic Research Department 10

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Literature Review

Papers Methodology and Data Findings

Albqami (2004) Input-Output / 1997 datafor Saudi Arabia

• the direct and indirect impact

from tourists’ expenditure on

income was about SAR 8,690

million.

• the service sector captured the

most benefit by almost 33%.

Abdel-Rahman (2001) Time series method • a significant relationship between tourism development and economic growth

Sherbini et al. (2016) Descriptive study • Investment in tourism sector has a significant effect on income, output and employment.

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Methodology

The input-output was founded by Leontief for the American economy in 1941.

The I-O is based on aggregate identities that the total output of any sectors of the economy is assumed

to be entirely consumed by other sectors of production and the final demand; internally as input to the

production sectors and directly by the final demand such as household consumption, investment,

government expenditure and export.

The Leontief input–output model could be emphasized in these four equations:

(1) Xi = ai1X1+ ai2X2 + ….+ aijXj + FDi

(2) X = AX+FD

(3) (I - A)X = FD

(4) X= (I - A)-1FD

SAMA–Economic Research Department 12

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SAMA–Economic Research Department

A Simple Input-Output Model

•Raw materials

•Labor

•Information, data

•Finance

Inputs

•Material processes

•Information processes

•Social processes

Process

•Products

•Services

•Inputs to other industries

Output

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Results

Output

On average SAR 1.5

Value Added

On average SAR 1.4

Labor Multiplier

On average 1.4 job per SAR 1

million

SAMA–Economic Research Department

Each riyal spent on the tourism sector would generate 1) direct effect, 2)

indirect effect, 3) induce effect on the total output, value added, and

employment

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Scenario (1): Investment (SAR 100 billion) in Four years

SAMA–Economic Research Department

25 25 25 2537.5

5059.4

66.84.90%

5.30%

5.50%5.60%

4%

5%

5%

5%

5%

5%

6%

6%

0

10

20

30

40

50

60

70

80

2017 2018 2019 2020Investment (billion SR)Value Added (billion SR)The tourism sector contribution to GDP

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Scenario (2): Investment (SAR 150 billion) in Four years

SAMA–Economic Research Department

37.5 37.5 37.5 37.552.5

75 89.06100.3

5.40%

6.50%7.25%

7.80%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0

20

40

60

80

100

120

2017 2018 2019 2020

Investment (billion SR)

Value Added (billion SR)

The tourism sector contribution to GDP

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SAMA–Economic Research Department

Scenario (3): Investment (SAR 200 billion) in Four years

50 50 50 5070

100118.75

133.75

6.10%

7.50%8.50%

9.30%

0%

2%

4%

6%

8%

10%

0

20

40

60

80

100

120

140

160

2017 2018 2019 2020

Investment (billion SR)Value Added (billion SR)The tourism sector contribution to GDP

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National Transformation Plan(NTP 2020)

Key

Performance

Indicators

2020 Target

(SAR bn)

My Empirical Results

Scen. (1) Scen. (2) Scen. (3)(SAR bn)

Total New

Tourism

Investment

171.5 100 150 200

Value Added 118.8 67 100 134

%

Contribution to

GDP

3.1% 5.6% 7.8% 9.3%

Number of

new Jobs

206

(thousand jobs)

140

(thousand jobs)

210

(thousand jobs)

280

(thousand

jobs)

The number of new jobs in SAR 1 million based on my calculation

is 1.4 and 1.2 based on the NTP. SAMA–Economic Research Department 18

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Recommendations

SAMA–Economic Research Department

1. Increasing the share of Saudis’ participation in the tourism sector,

especially in the service activities, such as aviation customer service

agents, tourist guides and tourism information assistants.

2. Designing professional websites that provide updated and detailed

information about the tourism activities in Saudi Arabia.

3. Encouraging research centers to focus on the tourism sector.

4. Providing funds to facilitate the tourism projects.

5. Boosting the development in the Saudi tourism sector by building a public-

private partnership (PPP) such as Saudi Hospitality Heritage Company.

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SAMA–Economic Research Department 20