Saudi may cancel haj but risks gutting economy

      Published on Wednesday, 17 June , 2020      2061 Views     
Saudi may cancel haj but risks gutting economy

  • Business

Saudi Arabia is planning to cancel the haj season for the first time in modern history, as COVID-19 infections exceeded 100,000. According to various reports, a formal decision will be taken within a week.

Were the haj to be scrapped this year, or at least massively reduced in scale, it would be a huge setback to the kingdom’s economic diversification plans. Here’s the article Zawya posted last month on how suspending haj will massively hit Saudi’s revenue and tourism.




Before the exploration of oil, religious pilgrims were the biggest source of income for the fledgling Saudi Arabian state and the kingdom’s rulers must soon decide whether to suspend the 2020 haj due to the coronavirus pandemic.

Were the haj to be scrapped this year, or at least massively reduced in scale, it would deal a devastating to blow to the tourism sector, which is a key component of Crown Prince Mohammed bin Salman’s economic diversification plans and a sizeable contributor to Saudi’s non-oil GDP.

The haj, one of the five pillars of Islam, is due to be performed from July 28 to August 2. Yet moves by Saudi’s authorities to limit the spread of the coronavirus suggest that the world’s largest annual religious pilgrimage is unlikely to be held as normal this year.

Saudi Arabia suspended umrah, in February. In March, it halted all inbound and outbound international flights, enforced a curfew in the kingdom’s major cities and closed its mosques. The curfew in Mecca and Medina was extended to 24 hours a day from April 2 and all entry and exit to the holy cities was halted.

On April 26, King Salman eased curfew restrictions in much of the kingdom but kept the 24-hour curfew in Mecca in place.

Ahead of Ramadan, King Salman reiterated a ban on worshippers attending the two holy mosques, while Mecca’s local government has been sterilising the city’s streets.

“Saudi wants to make sure they have 99.9 percent of the cases at least quarantined before they make a decision about the holy cities,” said Theodore Karasik, Senior Advisor at Gulf State Analytics.

Last year, 2.49 million pilgrims attended the haj, of which 1.86 million came from abroad. Such mass-scale hajj are a relatively new phenomenon; in the mid-1950s less than 100,000 pilgrims would participate, and returning to a smaller hajj is one option for 2020.

“With international travel restrictions, many would-be hajis probably wouldn’t be able to attend anyway, so were the haj to go ahead it would likely be more of a domestic affair, which might be something more powerful for Saudi Arabia as it emerges from this pandemic,” said Karasik.

“The Saudis are in charge. It’s their decision and any outside opinion will not be listened to.”

Mohsin Tutla, chairman of Hajj People which organises the annual World Hajj and Umrah Convention (WHUC) in Jeddah, said the haj could be restricted to the people of Mecca only, or just for Saudi residents or small numbers of pilgrims could be permitted to travel from abroad. A more likely outcome will be cancelling it altogether.

“From a religious perspective, health is the priority because in Islam it says if you save one man’s life it’s like you saved the whole of humanity,” said Tutla, whose organisation is working with academics to model how hajj could be held.

“What is a successful haj? That’s the first question we had to ask. A successful haj would be one with zero Covid-19 fatalities and zero Covid-19 transference. This could be achieved.”

Historically, Mecca has been struck by multiple epidemics due to the convergence of people from across the Muslim world. During the 1821 haj, 20,000 pilgrims died from cholera, according to the medical journal The Lancet. Another cholera outbreak in 1865 killed 15,000 of the 90,000 haj pilgrims that year, plus a further 200,000 people worldwide as the outbreak spread. The haj has been suspended about 40 times in its history, most recently in the 1850s due to a series of epidemics.

Saudi’s National Transformation Program says the kingdom will invest 171.5 billion riyals ($45.7 billion) in tourism infrastructure by 2020, setting a target to raise tourism spending to 174.8 billion riyals this year.

“Infrastructure work in Mecca around haj has been a constant in Saudi Arabia. Almost every king has worked on the expansion,” said Yasmine Farouk, Associate Professor at Cairo University and Visiting Scholar at the Carnegie Endowment for International Peace.

“Even if the financial return isn’t immediate, this is one sector where you can bet on the future because you know it’ll always be a source of revenue unless you have exceptional circumstances like right now.”

Mecca had around 41,100 hotel rooms as of the first quarter of 2020, up from 27,000 at the end of 2012, according to data from hospitality research firm STR. From 2012-19, annual occupancy levels have ranged from 59.4 percent to 66.1 percent, falling to 52.3 percent in the first three months of this year. These figures suggest that a sizeable portion of rooms lie idle for much of the year, with such large capacity only really required during the haj. Average room rates have also declined as more mid-market hotels were completed.

Saudi’s government is spending more than $25 billion expanding Mecca’s Grand Mosque and Medina’s Prophet Mosque, according to MEED. Mecca’s under-construction metro system will cost a combined around $11.5 billion, MEED estimates. In 2018, the $6.7 billion high-speed Mecca to Medina railway opened.

Saudi tourism plans

“Expanding tourism – religious and secular – is a key part of Saudi’s plans to reduce its reliance on hydrocarbons,” said Monica Malik, Chief Economist at Abu Dhabi Commercial Bank.

“Now with lower oil prices, we can expect to see slower progress in building of new tourism infrastructure, but religious pilgrims have always been the key driver of tourism and demand for associated services.”

In 2018, tourism revenue totalled 141.5 billion riyals, official data shows, and accounted for 7.3 percent of Saudi’s nominal non-oil GDP that year, according to Zawya calculations.

Religious tourism revenue provided 78.9 billion riyals, or 55 percent, of total tourism revenue. Of this, foreign pilgrims arriving from abroad generated 68.8 billion riyals, underlining the importance of the haj and umrah to Saudi’s hospitality sector.

“The symbolic effect of cancelling the haj would be huge, but from an economic perspective tourism plays a relatively small part in Saudi’s GDP,” said Christopher Payne, Chief Economist at Peninsula Real Estate. “The case for mass tourism in Saudi has yet to be proven.”

Yet the sector is a major employer, with a workforce of 552,556 as of 2018. And cancelling the haj would further reduce state revenue and worsen Saudi’s swelling budget deficit. In the first quarter of 2020, government income fell 22 percent year-on-year to 192 billion riyals, according to a note from Jadwa Investment. Jadwa forecasts Saudi’s 2020 budget deficit will be 422 billion riyals, or 15.7 percent of GDP.

Reporting by Matt Smith



 

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Category Business, Government, Saudi News | 2020/06/17 latest update at 10:39 AM
Source : Zawya | Photocredit : Google
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