A key element of Vision 2030 is the development of the tourism industry in Saudi Arabia. The aim is to attract more foreign visitors to the kingdom and to provide locals with increased tourism and entertainment options to reduce the need for overseas travel. Tourism development should help diversify the economy away from oil, create much-needed jobs for Saudi nationals, and have a positive impact on the country’s current account balance.

Important reforms have been introduced over the past five years to develop the tourism sector. While Saudi Arabia has been welcoming visitors for religious purposes for many years, nonreligious tourists were more limited until the introduction of tourist visas in 2019. The subsequent expansion of the availability of e-visas and visas on arrival has further facilitated travel to the country. Significant investments are being made to develop or expand tourist destinations in the kingdom, including Al-Ula, Diriyah, and the Red Sea. Entertainment options are also being expanded through sports and cultural events, concerts, and the “Saudi Seasons” program.

Big Economic Impact

The growth of tourism in the kingdom has been rapid. Spending by nonresidents visiting Saudi Arabia was four times higher in 2023 than in 2018. Meanwhile, spending by Saudi residents overseas is still below the peak of a decade ago. As a result, the net balance in the travel account of the balance of payments swung from a deficit of $3 billion in 2018 to a substantial surplus of $13 billion in 2023.

More visitors are traveling to the kingdom for nonreligious purposes. According to the Ministry of Tourism’s “Annual Statistical Report,” 58% of the 27.4 million arrivals in 2023 came for nonreligious purposes compared to 44% in 2019. About 40% of visitors in 2023 were from four countries – Bahrain, Egypt, Kuwait, and Pakistan. Tourists from North America, Western Europe, China, and Japan accounted for a small share of arrivals.

The cost of developing the tourist infrastructure and the spending associated with providing more entertainment options is, however, affecting Saudi Arabia’s current account position, although it is not possible to put an exact number on the impact. While the current account remained in a healthy surplus of $34 billion in 2023, this surplus was half the size of that recorded in 2018 despite oil revenue being higher in 2023. This is because imports have grown rapidly in recent years and remittance outflows have increased with the influx of foreign workers. These trends have more than offset the improvement in the travel balance. The International Monetary Fund forecasts that the current account balance will move into deficit this year and remain there over the medium term.

The annual “Tourism Establishments Survey” shows that the tourism sector has been an important source of job creation. In 2022 (latest data available), 880,000 people (6% of total employment) were engaged in tourist-related activities compared to 550,000 (4.5% of total employment) in 2018. While around two-thirds of the new jobs created between 2018 and 2022 were filled by nonnationals, most of the remainder (95,000) were filled by Saudi women. Indeed, employment in the tourism sector accounted for 7% of Saudi women’s employment in 2022, up from less than 1% in 2018.

Precise numbers on the contribution of tourism to the Saudi economy are hard to come by. Data for gross domestic product only contains a broader industrial classification for the “retail, wholesale, restaurant, and hotels” sector, which captures some tourist-related spending but not all (and some spending that is not tourism-related at all). While an imprecise measure, this category is suggestive of a strong contribution to growth from the expansion of tourism. Since 2018, “retail, wholesale, restaurant, and hotels” has been the second-fastest growing sector of the economy, expanding by 28% in real terms (i.e., after accounting for inflation) compared to 16% for total nonhydrocarbon activities.

Not All Smooth Sailing

Tourist arrivals are likely to keep rising in the coming years. New tourist attractions are being announced and developed; connectivity to major markets should improve as Riyadh Air, the airline backed by the Public Investment Fund, launches in 2025; and the planned introduction of the Gulf Cooperation Council unified tourist visa (“GCC Grand Tours”) should make travel within the region easier for non-GCC citizens. The large tourist markets of North America, Western Europe, China, and Japan are still relatively untapped and provide substantial potential growth opportunities.

Nevertheless, challenges remain that could slow tourism growth going forward. The global tourism market is very competitive with many other countries strongly competing to attract tourists. Potential visitors may be deterred by uncertainty and conflict in the broader Middle East region, the negative perceptions of Saudi Arabia in some parts of Europe and the United States, and the alcohol restrictions and different social norms present in the kingdom. Another unknown is how climate change will affect tourism in Saudi Arabia. Hotter and longer summers and the increased risk of extreme weather events may deter foreign visitors and encourage Saudis to increase their travel overseas, although other popular destinations face similar issues and contend with climates that do not encourage year-round tourism.

Lasting Impact?

The opening of Saudi Arabia to tourism has provided an important boost to the economy in terms of external revenue, jobs, and growth. However, surging imports and higher remittance outflows, both at least partly related to the development of the tourism sector, have more than offset the positive impact on the current account balance.

Ultimately, whether tourism contributes to a current account that is less reliant on oil in the longer term will hinge on three factors: the ability to attract an increasing number of tourists to Saudi Arabia; the willingness of Saudis to limit travel overseas as domestic options for entertainment grow; and whether spending on the importation of goods, services, and labor for tourism-related projects proves temporary or longer lasting. On the latter, it seems reasonable to assume that investment to develop tourism infrastructure will be “temporary” – once projects are completed, spending will end except for routine maintenance. It is also true, however, that many existing projects will take years to complete, and new projects for the 2030 World Fair, the 2034 World Cup, and other planned events will come on stream. These events will bring new visitors to the kingdom but will also entail large upfront costs and will mean that high levels of spending will likely be sustained for most of the next decade.

Tourism has the potential to make a significant contribution to Saudi Arabia’s diversification efforts, but the full benefits in terms of generating a current account that is less reliant on oil revenue may be years away. Indeed, in the intervening years, the current account may become more vulnerable to swings in oil revenue given the scale of the spending on projects that is envisaged under Vision 2030.