Revival of travel and tourism will boost GCC economies

Professor Ajit Karnik is a Professor of Economics at Middlesex University Dubai. He teaches across areas spanning Econometrics, Introductory and Advanced Economics, Marketing Research, Trade and Multinational Enterprises and many more. He is a Fellow of Wolfson College (Cambridge University, UK) and is a Life Member of the Institute for Social and Economic Change, Bangalore, the Indian Economic Association, and The Indian Econometric Society.

The travel and tourism sector, which makes a vital contribution to the GCC economies, was badly hit by the COVID-19 pandemic. Now, with the opening up of the countries, mega sporting events like the Dubai Expo, Indian Premier League, Qatar's FIFA World are set to revive the sector

  

The World Travel and Tourism Council points out how badly the travel and tourism (T&T) sector has suffered as a result of the COVID pandemic. In 2019, the sector accounted for over 10 percent of world GDP which declined to 5.5 percent in 2020. Since the sector is labour intensive, job losses were equally massive. GCC countries – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE – were not immune to the ravages of the pandemic and the T&T sector was badly affected here as well:

  • The contribution of T&T to the total GDP of GCC countries decreased from 9.5 percent in 2019 to 5.6 percent in 2020
  • Employment fell from about 3 million to 2.5 million
  • Total visitor spend fell from USD 91 billion to USD 31 billion

Importance of T&T in the GCC

Proir to the shock of the pandemic, the T&T sector played a vital role in the economies of the countries in the GCC, as seen in Figures 1-3.

Figure 1 shows that Bahrain has the highest contribution of T&T to GDP followed by the UAE, Qatar and Saudi Arabia. Clearly, the importance of this sector is beyond doubt and it is to be expected that, as and when this sector recovers, it will make a significant contribution to the GDP and to the recovery from the pandemic.

The big two as far as employment is concerned are Saudi Arabia and the UAE. Both these countries (and, indeed, others in the GCC) depend on foreign labour and a revival of T&T will bring in more workers into these countries, having beneficial knock-on effects on other sectors of the economy, such as real-estate, rental markets, and transport.

The UAE towers over all other countries in the GCC in terms of international visitor spend, although Saudi Arabia is ahead in terms of domestic tourism.

There is a close relationship between the number of tourist arrivals, tourist spending and the GDP of a country. I used the concept of elasticity to measure this. The results for the GCC show that, for every 10 percent increase in tourist arrivals, tourist spending increases by 14 percent. This computation gives much hope for the GCC countries: as soon as normal international travel resumes, the beneficial effects of international tourist arrivals will be felt very strongly in these economies. For the UAE, the elasticity value is even greater: if tourist arrivals increase by 10 percent, tourist spending increases by 20 percent. As discussed below, this is of huge significance for the UAE in light of the forthcoming Expo 2020.

Exploring the above discussion further, we find that tourist spending has a beneficial impact on the GDP of GCC countries. A 10 percent increase in tourist spending leads to a 2.9 percent increase in the GDP. This clearly demonstrates how intricately tied to each other are tourism and the economies of GCC countries.

Prospects for the Near Future

The mega event of Expo 2020 to be held in Dubai for six months from 1 October 2021 onwards represents a huge opportunity to boost tourisim in the UAE. If past Expo exhibitions are any indication (Figure 4), tourists in huge numbers can be expected to visit the exhibition.

Despite the pandemic and the delay of one year, Dubai still expects to attract 25 million visitors, of which about 11 million are expected to be foreign visitors. In a scenario where tourism has been very sluggish, a boost of about 11 million foreign visitors to the Expo 2020 will have a massive economic impact as indicated by our elasticity computations above.  

In addition, there are three mega sporting events scheduled in the GCC. These include the rescheduled Indian Premier Leagure of cricket and the T20 Cricket World Cup in the UAE. Both of these events are likely to draw a large number of overseas cricket enthusiasts. In 2022, Qatar will be hosting the World Cup of Soccer. The previous World Cup in Russia attracted over 5 million tourists providing a huge boost to spending. It remains to be seen how Qatar will be able to take advantage of this opportunity. Finally, Saudi Arabia, after restricting Hajj pilgrimage to only citizens and residents in 2021, will look to open up in 2022. Over the three years from 2017-2019, the average number of foreign pilgrims has been about 1.8 million and it is to be expected that these numbers will be matched in the near future.

Conclusion

Despite the gloom of the past, prospects for the revival of regular tourism to the GCC countries look promising in the near future. In addition, the planned mega events are likely to provide a huge boost to tourism in some of the countries. It seems possible to hope that the ravages wrought by the pandemic might be abating and to expect that T&T will once again play a prominent role in the GCC countries.

© Opinion 2021

Any opinions expressed in this article are the author’s own

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