Tourism Investment in the Kingdom of Saudi Arabia

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Kingdom of Saudi Arabia

Higher Corporation of Tourism

General Secretarial

Tourism Investment in the Kingdom of Saudi Arabia

Write my Essay on Tourism Investment in the Kingdom of Saudi Arabia for me

A workpaper by

Higher Corporation of Tourism

Presented to

The Fourteenth Annual Meeting of Saudi Economic Association

15-17 Safar, 14 Being 8-0 April 00.

Contents

First Introduction

Second Status quo of Tourism in K.S.A.

-1 Role of Tourism Corporation in Providing Information.

-Contribution of Tourism in Saudi Economy.

-. Trends of Domestic & International Tourists.

Third Fields of Tourism Investment in K. S. A.

-1. Initial Facilities of Tourism.

-. Assisting Facilities of Tourism.

Fourth Environment of Tourism Investment in K. S. A.

4-1. Environment of Tourism Investment

4-. Environment of Tourism Investment

Fifth Role of private Sector in Tourism Investment .

Sixth Finance of Tourism Investment.

6-1. Finance by Banks.

6- Fund of Tourism Development.

6-. Finance of Small & Meduim Firms.

Seventh Recommendations of encouraging tourism Investment.

Introduction

Economy of Saudi Arabia is considered as the biggest economy in the Arab world. The total gross domestic production of the K. S. A. is ¼th of the total gross domestic production of the Arab world. K.S. A. has also the biggest reserve of petroleum whose estimation is 60 billion barrels This figure represents 5% of the worlds reserve of petroleum. The K. S. A. is also one of the most important exporters of oil. Oil sector represents (5-40%) of the total gross domestic production of the country. The K. S. A. endeavors to diversity Saudi economic base and reduce its dependence on oil this can be done through a number of measures and economic reforms.

One of the important measures that have been token in the recent years is the establishment of petroleum higher council, economic higher council and public corporation of investment and higher corporation of tourism. These measure have actually been taken to diversify and rectify Saudi economy. Encourage and its growth. This is in addition to the of efforts toward specialization and Saudization. These measures have resulted in the increase of the licensed foreign investments volume. And Saudi economy has grown in stable rates with the ultimate result of keeping oil price level above 0 dollar per barrel. This step in turn reduced the financial cost of economic reform process contribution of gas, tourism and .

Sectors is expected to enhance Saudi domestic production in the future.

The state pays special care to the role that can played by tourism industry in achieving the goals required to diversify and expand the production base of Saudi economy and consequently enhance work opportunities for citizens. This is apparently manifested in the following view that has been presented to develop tourism industry in the future. Kingdom of Saudi Arabia, the cradle of Islam endeavours to establish permanent tourism development with social, cultural, environmental and economic benefits depending on its Islamic values, originity of its heritage and traditional hospitality. Accordingly , the role of the corporation of higher tourism is determined to encourage development of national tourism as productive sector in so economic, social, cultural and environmental fields. All these objectives can be recognized through of preparation of suitable environment for the purpose of realizing balanced and permanent development. This is in addition to the encouragement of providing institutional support for tourism industry as well as supporting sectors and activities in the kingdom.

The corporation also endeavors to encourage and support the private sector as the basic motivator of tourism development process through encouraging tourism investment in this industry and improving its climate to play the required role. Generally speaking investment climate in general and tourism investment in specify are greatly related to the economic performance and its both present and future possibilities and procedures. In this respect the average domestu production in local present price is 61 riyal bullion in 001 and the average production for individual is 5000 SR. the surplus of the commercial budget is 1,1 Billion SR of 001 which is 4,88 % of the gross domestic production. The whole debit is estimated to be 60 billion SR in 001 (%) while the deficit in budget is 5 billion Sr. the percentage of unemployment in 001 is 15% of the total porulation of the K. S. A.

This paper aims at studying and analyzing tourism investment in the K.S. A. this paper is dirided into 7 sections and introduction. The second section of the paper discussed the status quo to tourism in the K.S. A. depending of information and data provided by the corporation from the supply demand surseys that have been conducted till now. This is in addition of the study of importance of tourism in the K.S. A. by reviening and analyzing trends and opinions. Of local and international tourists. The therd section is dedicated to cover different fields of tourism investment, which is divided into inusetment in initial facilities of tourism investment and subtecilities. The fourth section studies the environment of tourism investment in the K.S. A. with a special concent ration on the difference between the ard hindrances of tourisin investment. The fifth section analyses the role of the private sector in tourism investment. While the sixth section concentrates on views and about financing tourism investment. Firally the seventh section is devoted to the recommendations about investment fourism in general.

Second The status qllo of tourism in K.S. A. Role of Tourism Corporation in providing Information.

In the framework of efforts consecrated by the toursim corporation in preparing national plan for the development of permanent tourism, and for the purpose of enhancing tourism sector, the corporation has made great efferts since its establishment to collect required information and data related to tourism. This is because adequate information provision is the corner stone of planning in tourism industry. This is in addition to the fact that information and data about tourism in the K.S. A. arecontredictoryl for the reason of different sources information about fourism in the K.S. A. also lacks adequacy and coordination in this respect public corporation of tourism undertakes to identify the basic ingredients of tourism sector and analyse expected effects of dereloping tourism . this cor be done through conducting field surveys of demand supply aspect of tourism in the K.S. A.

-1-1 survey of Demand

this servey study aims at identifying reality and the future of the tourism demand in the k. s. a. demand on the tourism products, and the initial and final costs of tourism including infra and super structures tourism . these surveys include domestic tourism survey dts, internal visitors survey ivs and business sector survey bss.

Domestic tourism survey

This survey tackles the following areas. The objective of visit and the penod of residence type of residence, means of transportation used, the number of traveling groups, activities, evaluation of some tourism prodcts, activities prectised by tourists and the total cost.

International visitor surrey.

The main sbjective of theis survey is to identity the aim of the visit by foreigners, period of residence, type of transportation vsed, etc.

Business sector survey.

Business sector survey aims at identifying views and opinions of businessmen obout tourism industry in the K.S. A., its demand how to develop it. This surrey is designed to complete and support the previdth serveys. It also provides important information about views and opinions of the commercial establishments that work in activities related to the fourism sector. The survey also involves information that covers supply and provision of tourism activities .

-1- Supply survey.

As concerning supply tourism corporation concent rates on tourism investment facilities and the role of the private sector in checking factors affect tourism investnent, obstactes that face private sector in this respect and support small and medium firms.

Supply survey involves general survey of investment environment. World bank survey I, tourism investment clinate, meeting stakeholders, focus groups and identify international best practice in toursm investment .

General Survey of Investment environment.

World bank Survey.

The aim at this survey is to determine the important investment incentives and better under stand the reasons that undermine private sector investment. This survey is designed by the world. Ank with the purpose of guiding the government to the best means and standards to of charging the policies that affect private firm, presenting new plans and programmers that support private firms and enhancing common cooporation between governmentab private sectors.

Toursm investment climate survey .

This survey is one of the most important mechanism and techniques used to indentify incentives and measures that encourage the private sector to invest in the development and service of tourism the climale survey also aims at identifying .

Main factors and incentives that encourage the private sector to participate in the tourism projects to invrease profitability of foursin projects .

Obstacles that face the private sector to invest in the development of the tourism projects in the K.S. A. and the means of overcoming these obstacles.

Areas and sub-sectors of tourism field that atlract prospect investors.

The major role of the higher corporation of tourism and private sector in tourism industry.

This surjey was conducted through personal interviews with the executive managers and decision makers in different establishments. The survy involves the following establishments that work in tourism sector e.g. hotels, different residences, exhibitions, restaurants, travel offices and entertainment places and sports it also involves establishments outside the tourism sector.

Interviews with stakeholders.

Partnership by stakeholder is the main basic pillar of the higher corporation of tourism, as the official authority that supervises encouragement, promotion and development of tourism sector accordingly , anumber of interviews have been conducted to indentity views of leadership in 60 th public and private sectors about tourism activities, tourism components and investment obstacles in general , and toursim investment obstacles in particular.

Interview with focus groups.

As we comprehend the importance of opendiscussion with businessmen and officials of investment sector in general and tourism investment in partiular, this technique has been adopted to provide a wide room for expressing opinions and presenting suggestions this group included a and influencers of investment . this is in addition to the investors in tourism sector the discussion general frame involved.

Identification of general investment climate and components of positive investment climate and their availability in the K.S. A.

Hindrances that face investment in the K.S. A. and inventives that can be offered by the government of encourage private sector and evaluation of wailable incentives.

The role of both governmental and private sectors in providing positive environment for investment, as well as the role of other circles in this respect .

I densification of states experienced tourism investment.

An umber of states that experienced successful tourism investment have been chosen as an ideal example to follow. These chosen states have conditions similar to that of the K.S. a. where tourism industry relatively modern. Or those states owr & strong co-operation between governmental and private sectors to support tourism investment for the purpose of recognizing their experiences in the fields of finance, support and incentives presented to facilitate the role of private sector in tourism investment Egypt, spain, Malaysia, Maldeef islands, Poland, tcheck and Ireland were chosen as experienced countries in this sector discussion covers important arcas including government incentives to develp positive investment chimate suitable to the contribution of the private sector and the role of the governmental sector in encouraging and supporting tourism investment in these states.

- Contribution of tourism in Saudi Econmy

tourism sector plays and increasing role in Saudi economy, as on of the important secters on which the state depend to encourage economic growth diversity sources of income, provide employment opportunities and improve situation of the payment balance.

Contribution of tourism in gross domestic production the results of surveys conducted by tonuses corporation manifest that the total revenue of domestic and international tourists is 54 billion SR. consequently, the contribution of torsion sector to the domest gross production of 001 is 5,5% contribution of manufacturing industry is 7 billion SR. % 5,7 of the gross domestic production therefore, contribution of foursism sector in the K.S. A. equals the contribution of manufacturing industry to the gross production. This evidence proves the importance of tourism sector in the national economy and which comes in the third order after petroleum and manufacturing industry sectors.

On tourism

Spending on tourism is divided into the spending by domestic tourists and spending by international tourists domestic tourists spending is ,44 billion SR. (6,7% and the spending by international tourists is 15,81 billion SR. 6,% the following table (1) shows spending distribution according to the purpose of tourism table I spending distribution on tourism according to the purpose of fourism .

Tourism market Domestic tourist spending International tourst spending Total spending

Million SR. % Million SR % Million SR. %

Umra 408 18. 45 1.15 655 18.54

Hajj 400 1.78 600 8.11 4000 11.5

Vacation 11066 4. 17 1.6 118 .0

Visits to torelative and friends 447 1.7 4 6751 1.16

Vacations 010 8.6 464 14 4474 1.7

Marketing 114 .51 1481 11.5 158 4.5

Others 5 1.4 66 .08 601 1.71

Total 45 100 1807 100 54 100

Domestic tourists expenditure is % 10,5 of the final consumption of 141 H. expenditure on branch tourism sectors is distributed according to table table toursm expenditure distribution on tourism sectors

Typeoj expenditure Domestic tourist expenditure International tourst expenditure Total expenditure

Million SR. % Million SR % Million SR. %

Residence & housing 478 1.4 07 4. 785 .4

Food & drintes 88 17. 1785 1. 5667 16.1

Transportation 161 14.1 1567 1. 478 1.4

Enter touinment 5 10 65 4. 860 8.1

Marketing 751 . 54 40.8 1475 5.4

Others 1108 4. 50 4.0 1617 4.6

Total 45 100 1807 100 54 100

Expenditure on marketing represents % of the domestic tourists expenditures, and 40, 8% of the international tourist, expenditure of the total touristn expenditure expenditure on housing & residence represents 1,4% of the domestic tourists expenditure, 4,% of the international tourists expenditure and , 4% of the international tourists expenditure and , 4% of the total tourism expenditure.

Tourism expenditure multipliers.

Tourism expenditure multipliers that have been calculated show the ablity the calculation of tourism on production, in come added value and employ ment accounting of tourism mullipliers shows that tourism sector has positive effects on economy in general and on employment sector in particular . table illustrates some indicators of direct and indirect economic effects of tourism sector in the K.S. A.

Toble economic Effects of tourism expenditure of the year 14 H.

Total expenditure on tourism (million Sr) 5.4

Total expenditure multiplier 1.45

Percentage of final domestic supply of the total tourism expenditue %74

The real expenditure multiplier 1.07

Economic standard Direct effect Total effect percentage

Production million SR. 6.000 7.800 1.45

Incomc Million SR. 6.680 8.100 1.

Added value million Sr. 18.700 6.000 1.

Employment work opportunities 44.00 48.000 1.15

The table shows the following facts;

The total tourism expenditure multiplier is 1,45 .

The total final supply of tourism expenditure is 74% the rest 6% represents the outdrop of national economy. Consequently the really expenditure multiplier is 1.07 .

Tourism expenditire has a direct economic effect of 6 billion Sr as direct sales, 7, 8 billion SR as indirect sales, 8,1 billion SR of in come, 6 billion of added value and 48 thousand work opportunities.

The employment multipker in tourism sector amounts of 1,15 and this means that there is a work opportunity agaist every 7 employees work in tourism sector revenue of tourism in hard currency.

The most important revenues in hard currency are those of haj and Umra travelers and other foreign tourists this is in addition to the revenue of sand air company and revenucs of sea transportation.

Toble 4 shows revenues of hajj and umra travelers is hard currency as well as the revenues of air travel agencies as they are estimated by the available bank system information .

Table 4 revenues of tourism activities in hard currency the year 141 H.

Revenue in hard currency Million SR.

Hajj travelers 5.070

Umra Trasellers 5.865

Revenue of air companies .0

Total 1.865

The total revenues of tourism activities in hard currency is 14 billion SR as 6.6% from Hajj travelers, 4, % from Hajj Umra travelers and 1, 1% from the air companies.

Cntribution of tourism in government revenues contribution of tourism sector in government serenues is mainly linked to the revenues of customs dues on imports which are estimated to reach 785 million SR in the year 141 H. this contribution is expected to decrease with the decrease of customs dues and its unification in the future 004 the total revenue of direct taxation on incom of tourisim sector is characterized by reduction in the K. S. A.

- Tends of domestic & international tourists

the results of survey about big market of tourism inside the K.S.A. show that 75% of those who are involued in the survey have conducted tourist visits more than one day. The purpose of tour were diffecnt some of them were for vacation whose percentage was 44% while hajj and umra was 0.5% then the percentage of visits to relatives and friends was 1. the number of tourists from inside and outside the country, as estimated by the domestic tourists survey and international tourists sursey, is 0,8 million tourists. As showr by table 5 the greater part of domestic tourism market is vacation , entertain ment , visits to relatives frieirds and Hajj & Umra.

Table 5. the number of tourists and visitors in the K. S. A. in the year 141 H.

Domestic tourist Regional tourst from gcc & other Arab countries International tourists

No % No % No %

Hajj & Umra 4.440.000 0.5 .47.000 50.7 1.07.000 80

Vacation& entertainment 6.4000.000 44.0 60.000 5.4

Visits to relative & friends .800.000 1. 1.05.000

Business & government 700.000 4.8 44.000 .1

Health,marketing others 00.000 1.4 614.000 1.8 01.000 0

Total 14.540.000 100 4.788.000 100 1.508.000 100

% of total tourists 6.8 7.

Total of tourists 0.86.000

The table shows that the mumber of tourists is 14,54 million of domestic tourists 4,7 million of regional tourists from g c c and other arab countries. And 1,51 million tourists from other countries. Thus, the number of regional and international tourists amounts to 6, million tourists the percentage of hajj and Umra travelers to 0% of domestic tourists and 58% of regional and international tourists while the percentage of vacation and entertainments tourists is 44 % of domestic tourists, the percentage of friends and entertainment visitors is 1% of domestic visitors.

The movement of tourists in the K.S. A. is characterized by us concentration on the western province around the two holy mosques in holy mekhah and madina the number of tourists domestic is 44 % while the percentage of foreign tourists in was tern province is % the number of tourists who visit eastern province is % and most of them from gcc countries while the percentage of domestic tourists to the province is 8% the so uther province attracts 16% of domest tourists who visit the area during the summer. The percentage of international tourists who visit he southern province is 6% trends of domestic and international tourists show the big tourism market in the K. S. A. and its potential that dictate investment decisions in fourism sector higher corporation of tourism works to complete its different tourism projects for example, conduction of surreys about providing requirements of tourism demand, completion of data pertaining to the tourism expenditure and nature of visitors. This through conduction of extra sureys about domestic tourism and international tourism and business sector expenditure.

Third Areas of tourism investment in the K. S. A.

Tourism investment is defined as investment in one of the areas that are covered by tourism sector, these areas include initial tourism facilities and supporting tourism services most of information about the reality of tourism investment is obtained from surveys and studies that have been conducted by the higher corporation of tourism to cover demand in the following presentation the reality of investment in tourism is reviewed according to the importance of priorities of tourism sector, through data and information available to the tourism corporation .

-1. initial tourism facilities;

if includes investment in tourism housing facilities (hotels, and furnished apartments, facilities of erhibitions, conferences, tourism travel agencies, services of tourism information guidance, and restanrants supplies facilities.

- Housing and Residence Services.

It includes investment in housing and residence sector e.g. hotels and furnished apartments during the post 1 years hotels sector has been developed comsiderably . supply of hotel rooms increased from ,000 room in 140 H. to 5,000 rooms in 141 H. most of hotel rooms are of 1st nd class rooms distribute to all kingdoms parts by 7,% in makhah, 8,6% in Madinah, 7,5% in Riyadh and 10,6 % in the rest of the K. S. a.

Anumber of domestic and in grational hotels established housing services in the K. S. A. all these hotels are 5 and 4 star hotels. Most of these hotels have been working in the K. S. A. for more than 15 the number of rooms of these hotels is 10,600 rooms ie 11,1% of the hotel rooms in the K. S. A.

Investment in hotel sector is first class domestic investment hotels. Are organized by concession agreements. Some of Saudi companies started to develop series of domestic hotels. A though the presence of these companies is still in its first steps.

On the other hond development of furnished apartments in the k. S.a. is not well organized instead of some successful attempts made in this respect some of little in formation and and statistics about furnished apartments were collected from the ministry of commerce though the system applied in the ministry docs not present data about the number of rooms, beds or licensed furnished apartments higher corporation of futurism has collected some data about the furnished apartments through telephone contacts or internet. The number of furnished housing companied is estimated at 56 in the year 14 h. in the K. S. A. including 1.700 housing units with different sizes each unit contains or 4 bedrooms as the two typed room spreads in the k. s. a. the potential number of bedrooms uill be 7,400 room and 54,800 beds housing compounds are distributed according to their class with ,6% tist, 7,5% second class and ,5% third class.

The number of furnished rooms distribute unequally in difterent geographical locations ot the k. s. a. in the two holy cities mekkah and madinah the number of furnished apartments is 0 units with the 7 % of the total .

-1-- Exhibitions & conferences facilities.

There are no spcipic classifications or standards applicable to the exhibitions confecences facilities with the exception of neath and safcty precautions with are put forward by the civil detence administ ration, ministry of health and municipalities this is in addition to the work circumstances recommended by the ministry of labour.

There are reles and requlations to license andorganize domestic and internatonced exhibitions and good work markets. There are three types of exhibitions and conferences facilities in the k. s. a. these are exhibitions centrg specialized conference centers and hotels meetings.

Exhibition centers in clued all areas of auditable show in the k. s. a. also include small percentage of auailable areas prepared for conferences. Data shows that in 141 H. there were 000 square metres of exhibitions area and 61000 square metres of areas prepared for conferences and meetings.

Performance of exhibitioncentres is measured by the number of show days I generally speaking the rate of using exhibition centers is between 5% and 40% for the most busy exhibitions the rate of using these exhibitions pertains to the number of lvents and occossions that held every year and their continuity. The high irate of using these exhibitions is usually related to the balanced planning of eventy and occasions but its rewrrevce leads to decrease of their use to as aresult of periods of preparation or discontinuation.

system ensures hat the workers should not do compulsory and the age of work is 14 .

4'1 Wages and prices

The K.S.A. adopts the policy of free economy which does not justify interference in fixing the prices without need for that This is what is required by Sharia teachings . Prices of commodities that produced by public sector are subsided . These goods are sold with less prices than that of the market and are of less cost . Most of the food commodities are subsided at the wholesale level.

4-1-10 Contribution of Governmental Sector

Governmental sector contributes effectively in the Saudi economy . The government sector consumes about 4 to % of the gross domestic production . The government generates most of the gross domestic reduction from its petroleum returns . Thus oil and public sector are the basic pivots of the Saudi economy and for its ability to develop and investment .

4--1-11 Development of the Banking System and Financing Capabilities

Saudi banks are characterized by their being the best banks in the area and they are among the best 00 banks in the world . The commercial banks work in the Kingdom have 10 branches and devised with the best and most recent technology These banks offer a variety of investment services and provide opportunities for investment in both domestic and international markets through the different funds deal with the domestic and international stocks ,.

Saudi economy is also characterized by having financing abilities which allow it to get the capital required in reasonable commission . Saudi industrial development fund offers easy loans to finance industrial projects of whose total expenditure is 15 % that can be redeemed after 15 years Arab Saudi fund establishment supervises the baking system and stock market which started in 185 . Saudi stock market is the biggest one in the middle East as far as the market value of the registered 70 companies . The total number of their stocks is 55 million dollar in the year 000 . It is worth mentioning here that the stock market in the Kingdom does not play its role efficiently in providing required funding . It works fundamentally only as secondary market to provide liquidity for smaller investors .

4 Obstacles of Tourism investment

These obstacles include a number of hindrances and difficulties that constraint the development of tourism investment in the Kingdom . These obstacles can be classified as following institutional and organizational obstacles . financing constraints , market problems , framework and social constraints .

4 institutional and Organizational Hindrances

These include absence of transparency , bureaucracy , deficit of organization and procedures of exhibitions .

A Absence of Transparency

Absence of transparency in Saudi economy is one of the most important obstacles that face investors from two points of view first, ambiguity of rules an regulations . Second , deficiency of statistical information and data . The consensus conducted in 11 for example did not cover all housing aspects and its information distributed after a along period and consequently its information are outdated and could not be used now because they are not modernized .

Because of ambiguity of rules and regulations , dangers and costs of investment increase . Thus , investors prefer to invest outside the Kingdom 0 for the reason of the rise in the costs of investment and reduction of its profitability and consequently this leads to refrain of investment in general and tourism investment in particular .

B- Bureaucracy

Bureaucracy is considered as the most important factors that constrain investment in general and tourism investment in particular in the Kingdom . Managerial transactions need a long time to be done and because the time is a very important element in cost , investment become very expensive . and of less return . Thus , the profitable and attractive projects in other countries become the target of investor to save his time and money . Difficulties of obtaining licenses as a result of administrative complexities lead some investors to refrain from investing in the tourism sector . and transfer to other countries .

It is also observable that there are two active seasons for work in the K.S.A. i.e. autumn and winter . but the rest of the year is characterized by many vacations and this leads to the reduction of administrative work .

c- Rules and Regulation of Organizing Exhibitions

Deficiency in rules and regulations lead to reduction of planning level in organizing exhibitions and consequently render them failure . Results of surveys and studies conducted by the higher corporation of tourism show the great deficiency in the marketing of tourism exhibitions in the Kingdom . A number of tourism exhibition are not marketed in an efficient way . . For example invitation of participation does not reach to companies . This is in addition to the absence of coordination between the exhibitions organizers and commerce & industrial chambers . Failure of organizing exhibitions causes great losses to the participants as a result of expenses of their participation in these exhibitions . This eventually leads to their refrain from participating the next exhibitions taking into consideration the cot of participation is increased by the chambers of commerce and industry year after year .

-- 4 Market Obstacles

They include inappropriate work market conditions of tourism investment , difficulty of obtaining modern market information . Work conditions is considered as one of the most important obstacles of tourism investment in the Kingdom from many points of view

A Difficulty of Recruiting Foreign Skilled Workers

Difficulties of recruiting foreign skilled workers increased for the follow of quota policy in choosing these workers regardless of qualification and skill . Investor always chooses a team of foreign workers who don't necessarily have ideal experience and consequently the quality of work is reduced considerably The use of unskilled workers affects the performance of tourism service that is offered to the consumer . Freedom of workers movement may lead to the facilitation of choosing the most skilled workers who increase the quality of work .

B- Saudization

Investors tend to employ foreign workers because of availability of qualification and training with the relative reduction of their costs and salaries compared to the Saudi workers . On the other hand there is no available skilled Saudi workers for incompatibility of their scientific qualifications to perform satisfactorily . . This is in addition to the absence of specialized training institutes in the Kingdom . Moreover, Saudi always refrain from working in tourism services sector that required by the tourism industry e.g. hotel servants and maintenance workers .

Because of high cost of Saudi workers and their poor tourism qualifications compared to foreign workers , investors are oriented to employ Saudi workers in the future investment projects to render investment in the Kingdom more attractive . this represent an obstacle I both short and medium runs . In this respect the importance of distinction between different economic activities in Saudization policy has become a must specially in the field of services activities that are not desired by Saudis e.g. restaurants and maintenance work .

C Costs of Training Saudi Workers

Some companies train and qualify Saudis to perform their work efficiently 0 Results in this respect show that leaving Saudis work to occupy their vacancies in companies for just obtainment of better work opportunity force companies to burden costs of training these workers before they cover the cost spent on them . Thus training cost represents a great loss for investment companies and this consequently leads to increase in the cost of work and reduces revenues of investment .

Services required by tourism sector need specialized , qualified and well trained workers to perform tourism services and activities . Opportunities of employment in tourism sector require institutes to qualify workers who will be employed in the future in tourism sector . Observation shows that there is a gap between the output of educational institutions and the requirements of tourism sector from workers . Institutes do not graduate well qualified workers required by tourism for the shortage of specialized tourism institutes . . For this reason investors of tourism sector resort either to the foreign qualified workers or to train Saudi workers . And because training of Saudi workers id more expensive than that of foreign workers or their recruitment , appropriate training framework is not established and this forms an obstacle for tourism investment .

D- Complexity of Work and Residence regulations

Administrative complications concerning issuance of Iqamas , its renewal are both expensive and complex to the extend that they affect returns of foreign workers and in turn affect performance of work . The ultimate result of all this is the increase of services costs and reduction of investment revenues .

Issuance of entry visas requires long waiting . . and because the qualified and skilled workers have a number of choices and alternative work opportunities , they do not wait these long procedures of issuing entry visas to the Kingdom . They move to other countries of less cost visas and recruitment procedures . It is of great importance to view work element as a significant production access for any investment projects as well as raw materials , to utilize it by maximum rate .

H- Need for organizing temporary work

One of the main problem is the absence of regulations organizing temporary work which mean to give workers special mission for shorter period without commitment to provide permanent work for them to evade the cost of work and lessen their importance . As tourism activity is seasonal , the work conditions in this respect should suit the nature of temporal work in tourism field . Of course, regulations of foreign workers are not appropriate with the nature of temporal work which requires the work to stay longer periods without work or forces him to transfer his Iqama during the idle tourism seasons . 0 It is therefor necessary that regulations of tourism work and activities should include appropriate regulation to suit seasonal work for both Saudi or foreign workers .

4-- Finance Obstacles

Finance obstacles include budget deficits , foreign investments constraints of financing tourism projects shortage of financing small and medium projects and reduction of hotel investment returns .

A Budget Deficits and foreign investment

Accumulated deficit in balance since 18 has led the government to borrow from local sources to cover deficit . This is at the expense of the account of available local investment and consequently resort to o the foreign investment to move the wheel of economy and increase its development . The government encourages and attracts foreign investments although this is done without intended orientation as the government desires access of investment to limited fields . but there should be more flexibility as far as foreign investment is concerned .

B- Obstacles of Financing Tourism Projects

Observation shows that investor refrain from investing in tourism sector and this is due to the high risk rather than inviolability of capital .Banks impose restriction conditions and commissions to secure their loans specially for foreign companies and real estates investments . This measure is due to disqualification of legal rules for securing payments of loans and prophesy of changes in rules and regulations .

Deficit of Financial Support for small and medium Projects

Small and medium firms projects suffer from big problems and hindrances like that face other firms in the Kingdom . These projects lack government financing and support that go to the big companies in other fields . In other countries these projects receive enough financing and full support and constancy . these project contribute by 80% of the gross domestic production . This is applicable to tourism sector . which depends much on cases of the existence of this type of projects .

In the Kingdom the government encourages the establishment of the big industrial projects and this will be at the expense of the small and medium projects that suffer from difficulties of obtaining loans from commercial banks because these banks need warranties which sometimes are unavailable .

4--4 Framework Obstacles

This kind of obstacles include ambiguity of future orientation of Saudi economy ,disqualification of infrastructure in some areas , concentration of investment to the areas of real estates & technology inadequate information of investment in the Kingdom and reduction of hotel investment revenues .

A - Ambiguity of Future Orientations

As the economy of the Kingdom depends on oil revenues and because these revenues fluctuate according to the fluctuation of the prices of oil , oil revenues considerably affect the future orientations of the Saudi economy and consequently leads investors to hesitate to in taking decision in investment field .They turn to other countries that have more clear orientation . This is in addition to the fact that entering into tourism projects investment requires a precise knowledge about the government policy concerning tourism . This is in addition to their need for the stability of the present policy and avoid sudden changes that constraint present investments.

On the hand investment decision making depends much on studying market situation from available statistics and information . Relevant government authorities do not provide adequate and modern information about market situation . Absence of this information increases the rate of risks of investments and ultimately force investors to hesitate to take investment decisions and may deviate their investments to other countries .

B Incompleteness of Infrastructure in Some Areas

Major cities of the K..S.A like Riyadh , Jeddah , Makkah, Madinnah and Dammam are characterized by developed infrastructure . But other areas suffer from big shortage in infrastructure e.g transportation , water sewage , electricity etc. . The real problem is that this shortage sometimes exists in the places of tourism possibilities and this shortage raises a great obstacle in facing tourism in these places .

c- Investment in Real Estates Technology

Investors in the Kingdom prefer to employ their money in real estates investments because they consider it as the best kind of investments and is of less risks . Saudi investor also is inclined to invest in technological fields as attractive sector for investment as inevitable rapid international changes in technology on one hand and little government interference in investment on the other hand .

Restriction of investment to real estates and technology prevents other sectors from making use of investments specially tourism sector . as investors are convinced that there is no suitable investment sphere featured by trust and stability .

D- Investment Conditions in the Kingdom

The K. S. A is considered as one of the most stable countries in both political and security fields. This state of stability should constitute a factor of attraction for tourism investment . But actually this factor does not play its real role for the ignorance of both domestic and foreign investors about conditions and circumstances of investment in the K. S.A . and its different parts , on one hand and shortage of government public relations that improve the picture of the Kingdom's polarization of investment , on the other hand . Therefore domestic investors hesitate to establish investment projects and consequently may undertake risks of transferring it to other countries . Foreign companies may also hesitate to invest in the Kingdom because shortage of information about conditions of investment increases investment risks and costs, and decreases its returns .

H- Reduction of Hotel Investment Revenues ;

Hotel investment is one of the tourism investments desired in the Kingdom . According to the attraction of this type of investment , hotel sector is considered as the most sector crowded with investments specially in the western province of the Kingdom . In Makka and Madina and Jeddah hiring of hotels decreases in seasons other than that of Hajj and Umrah . Fore example of occupation of hotels in Jeddah in this year is 5% and its expected to decrease more next year . This may lead to the reduction of revenues in some hotels and loss for others . This is also due to the long period of restoration of hotel investment The result of all these investment obstacles investors transfer to invest in other neibouring countries where investment positive atmosphere is prevailing to finance hotel projects with Saudi capitals in partial rate and this prevent Saudi economy from these investments.

5--4 Social and Cultural Obstacles

Saudi society is governed by social and cultural values that have their tangible effects on tourism industry and consequently on the volume of investments in this industry . On one hand families do not enjoy many opportunities to spend their leisurely time outside houses in the tourist places . On the other hand some individuals of Saudi society view that tourism is not a fruitful family activity because it is a loss of time and money which should be directed to the other economic activities of the family .

6--4 Other Obstacles

It is generally thought that event of September 11, 001 have adverse effects on the development of the international economy and demand of petroleum and consequently on the government revenues , government expanses of the oil countries that much related to their oil revenues. According to role of oil revenues and government expense , domestic investment in general and tourism investment in particular are expected to decrease also . And because of the decrease of the international growth as the result of that events , foreign investment (including tourism investment ) is also expected to decrease . Political instability in the Middle East plays an adverse role in this respect .

Fifth Role of The Private Sector in Tourism Investment

Private sector represents the axis of permanent tourism development in the K.S.A as it enjoys administrative proficiency , investment experience , and competitive ability which helps it in providing goods and tourism services low prices . This is in addition to the fact that it owns a considerable capital 0 the percentage of forming capital is 64% in 1 and accordingly the role of he private sector in developing tourism industry and diversifying sources of income in the Kingdom is complementary to the role of government represented in the establishment of higher corporation of tourism to prepare a plan for encouraging development of permanent tourism on one hand and providing infrastructure required for the development of tourism industry on the other hand .

Instead of availability of tourism components and possibilities , and investment opportunities in tourism sector , but the percentage of capital invested in tourism sector compared to the total private investment is only ( 7,1 ) according to the estimates of the international council of tourism in 000. As tourism sector includes a number of companies and establishments working directly or indirectly in tourism industry , the role of the private sector in implementing permanent development planning for tourism sector requires comprehensive understanding of permanent development concept by all private sector units related to the tourism industry in order to contribute effectively in executing this plan ands doing so the following can be achieved

- Inclusion of permanent tourism development concepts in the objectives of administration and clarification of its positive effect on the profitability and performance of work .

- Encouragement of investment in tourism work and provision of suitable environment and atmosphere required for it .

- Increase of the competitive capabilities of tourism firms and increase of production through the development of tourism products competitive and appropriate for the development of permanent tourism .

- Dependence on the national work force as far as that is possible to develop tourism sector to secure participation of citizens in developing the sector .

- Distribution of investments in a way that helps in developing different areas and avoid concentration on main cities pressure on infrastructure .

The private sector undertakes the responsibility of providing the superstructure for the tourism sector which consists of firms and services necessary for the establishment of competent tourism industry including hotels , restaurants , marketing centers and entertainment cities . In this respect the results of survey about works sector conducted by the higher corporation of tourism show that the private sector should undertake the great responsibility of providing tourism investment financing k contributing to promote national human cadres in the field of tourism . and contribution to tourism market in the Kingdom .

Increase of the role of the private sector in developing the tourism sector requires availability of suitable investment atmosphere and this include

- Facilitation official procedures pertaining to tourism investment , availability of information , follow clear price policy in fixing service prices with a positive reflection on the expected profits .

- Review of systems and procedures relevant to tourism preparation of suitable investment environment including reviewing the system and procedures concerning investments in the field of tourism 0

Sixth Finance of Tourism Investment

Availability of capital is not considered as the main obstacles to the investment in the Saudi economy with the justification that 750 million are invested abroad . But the real problem is the absence of appropriate channel for financing investment projects in general and tourism investment in particular . This is applicable to the individuals and small & medium projects but not necessarily to the big companies The available means of financing tourism projects are self financing of the owner of the companies and establishments throw savings and reserved profits from past activities . or through participation in issuing new stocks or through borrowing from banks . The means of financing depends on the volume of investment .The more small tourism project , the more possibility for its financing . While in the big investment projects other means of financing are sued e.g that depend on partnership or borrowing . On the other hand the rate of risk in the project determine the means of finance . . If there is great rate of risk investor resorts to the means of partnership with other investors or to the self-fund means . They try to avoid borrowing which result in the failure of these projects .Tourism sector may constitute a strong base for the attraction of foreign investment specially in the big tourism projects whether in form of partnership or foreign one . Costs of operating big tourism investment projects reflect two sides first , the concern of high costs of direct operation e.. g services . Second , the concern of indirect costs that related to some organizational and institutional constraints that increase the cost of tourism from the point of view of domestic tourist

6-1 Finance by Banks

The traditional means of financing investment projects are done through a complexity of debits and stocks . Statistics show that industrial projects in the Kingdom have been financed since their first stages with ( 70% ) of debits and (0% ) of stocks . Banks and government funds played a great role in financing many of industrial investment projects through industrial development fund which is considered the first source of finance 0. Real estates development fund has also played and important role in developing real estates investment sector and the commercial banks represents the second source of achieving required financial balance .

As far as tourism sector is concerned the role of the commercial banks restricted to the finance of hotel sector and in limited form . The main reason of this is due to the fact that banks are not allowed to have enough guarantee for financing e.g. bid . Difficulty of obtaining loans is considered as one of the obstacles that are above-mentioned because banks tend to restrict loans with some difficult conditions and high rate of commission . As banks are forbidden from bidding they are not able to facilitate financing projects that by their nature contain a number of real estates e.g. tourism projects . As loan market is characterized y its concentration off short and medium loans and these requirements do not apply to the tourism sector because its projects are long term ones . No doubt the solution of problems that face financing by banks requires along time K and consequently a study about alternatives is conducted now to solve the problems of financing for the purpose of developing the tourism sector to reach maturity and change the system of work in banks .The best mechanism of achieving this goal by establishing tourism development fund . This is in addition to the increase of the role of small and medium projects fund .

6- Tourism development Fund

Tourism development Fund is considered as one of the financing in many of tourist countries . The objectives of are different according to the difference of the degree of development of tourism sector in each country The benefits that can be got from these funds are

- Obtainment of required money for the sector to meet the needs of the tourism sector in reduced rates and easy conditions .

- Location of finance to the new tourism projects that investors fear entering into them

- Finance of small and medium projects as in many tourism countries e.g Malasya and Tcheck .

As the tourism sector is young is recently established in the Kingdom and its return is are very meager , the existence of tourism development fund is one of the most important steps that should be taken . With the gradual development and maturation of the sector the need for the fund decreases because of the reduction of risks with the development of the sector and this will lead to the provision of other sources of finance . The way of financing and its source is different according to the degree of risk and the rate of return from the investment project .

Suggestion in this Respect are

- Loans should be offer to the new investment projects as a whole and not to the already established ones .

- Fund should have enough money to finance tourism sector in good way 0 e.g im Malasya , Tcheck and Irland the total amount of the fund is 50 million dollar .

- The finance by the fund should be restricted to project of economically accepted returns

With the exception of hotels, restaurants and travel agencies , many of the tourism branch sectors seem to be semi ignored in the Kingdom . And this leads to diversion of investment to other sectors outside tourism sector . The supervising authorities of the tourism sector the higher corporation of tourism should play its role in removing the nonfinancial obstacles that face the tourism investment in the Kingdom to provide more confidence to the tourism sector . One of the best solutions that the corporation undertakes now is to provide the private sector with the list of projects that need finance . The corporation aims at lessening this role gradually coincides with the development of the tourism sector to restrict it to the facilities of tourism investment and to render the private sector the pioneering role in establishing , operating and maintaining tourism projects

6 Financing of small and medium firms

Small and medium projects constitute a big percentage in tourism sector on the international level . They are expected to have the same role in domestic level . These establishments face many obstacles in finding finance . required for its operation . There is an idea of establishing a fund for financing small and medium establishments . Preparation of such establishments stated few years ago . under the supervision of Saudi Arab fund establishment with the contribution from the commercial banks . The higher corporation of tourism is expected to play the an important role to secure benefit got by the tourism sector from this fund to realize its objectives.

Seventh Recommendations of Encouraging Tourism Investment

These include incentives of tourism investment , procedures recommended by the government to encourage tourism investment . procedures of removing tourism investment obstacles . Tourism corporation should suggest suitable solutions with coordination of the government authorities These recommendations are

1-7 Work Market

Modernization of work regulations to suit the needs of tourism market , requirements of investments systems to secure the rights of contracting parties

Specialized conferences centers are considered as internal exhibitions in which conferences are rou's are held. The center comprises audiovisual rooms for conferences. Statistics show that there are four specialized centers in the K.S.A these centers are essentially used by the governmental departments as special rallies symposium.

Facilities of hotel meetings include all rooms and halls prepared for conferences. They are different from the specialized conferences centers by their big areas and objectives. These facilities are estimated to reach 51 000 square meters in the beginning of the year 14 H. These facilities are distributed among the Kingdom cities as follows Jedah 8,8% Riyadh 16,8, Khobar 8,6% , Abha 8,5% Madina 8,% and 1,7% for the rest of cities .

-1- Travel & tourism agencies and Information and Tourism guidance services.

Tour operators and travel agencies represent all companies agencies and individuals work in buying and selling and distributing cards and tickets for the transportation of passengers, luggage and goods by our mail, and perform registration services of air trans partition , organizing individual, and group flights and anything concerns passenger services.

To obtain a residence or work license by any company Saudi or foreign and subject to the lows and regulations of the ministry of commerce.

According to the ministry of defense, air audition and general Inspection, there are 107 travel agencies work in the K.S.A in 141 .H. Statistics show that these agencies distribute over the areas of the Kingdom as shown by table 6.

Table 6 licensed travel agencies in different areas in 141 H.

Area Mo. (010)

Holy mekka 0 5.5

Riyadh 5 .1

Eastern province 08 18.

Holy Madinah 5 .

Aseer 4 .

Northern Province 15 1.4

Qassim 1 1.

Najran 1 1.

Najran 1 1.

Other Areas 7 .6

107 100

The table shows that 86.5% of travel agencies exist in mekka, Riyadh and eastern province while 1.5% exist in other areas of the kingdom. Umrah Licensed travel agencies in 14 H. are 17 agency, and of them are in Jeddah, 17 are in Makkah and 70 are in Medinah.

Tourism and travel industry requires available of intensive and comprehensive information. Need tourism in formation is necessary for the goods and tourism services.

Consumer and producer before, during and often tourism journey . Flow of tourism information among the different sectors of tourism industry and consumers, is considered as vital concern. Internet is used as a means of spreading information pertaining to the tourism sector Development tourism information organization by the higher corporation of tourism is considered as the suitable means of filling in the gap of deficient tourism information in the K.S.A

Facilities of tourism information and services are not developed in the K.S.A Relative deficiency in tourism information is very big all over the country. But in some areas where tourism industry is given more care tourism information and services have been developed rush Information centers can be established to collect required information about tourists and visitors through preparing main accesses to the major sites e-g supports interesting places and big urban centers where tourism activities are concentrated.

There is also a big shortage in tourism guidance trained specialists in the K.S.A Programmer of human resources in the higher corporation of tourism analyses and salves this problem. It can suggest the best ways of recruiting tourism guidance cadres and training them to improve their per for manse .

-1-4 Restaurant facilities .

Information obtained from ministry of commerce shows that there are 5470 restaurant in the K.S.A Table 7.

Shows the distribution of these restaurants to the areas in the Year 14

Table 7 Restaurants in the K.S.A in the year 14 H.

Areas No %

Makka 481 45.

Eastern province 88 16.

Riyadh 56 1.

Madinah 48 .1

Jizan 88 7

Baha 10 .4

Northern province 14 .

Other areas 1 .

Total 5470 100

It is clear that restaurants consent rate mainly in four areas Makka, eastern province Riyadh and Madinah . The percentage of restaurants in these areas 80.8% of the total number of restaurants in the K.S.A In this respect food and drinks industry has been developed considerably as a big net of restaurants series has been established. This is in addition to the famous international restaurants as well as popular and eastern restaurants

Fast population growth in the K.S.A coincide with the big development of construction has led to the spread of different types of kitchens and restaurants in the K.S.A these restaurants are middle east, Alrcan , Aslan and .

Services in the K.S.A Ministry of municipalities and villages affairs has prepared some statistics about the most of urban areas table 8 show the number and distribution of retail services according to the main cities of Kingdom.

Table 8 Retail services in the main cities of the Kingdom (14)

City No %

Riyadh 1668 45,6

Jeddah 706 1,

Dammam 5170 14,1

Makka 71 8,

Taif 4 6,6

Tabuk 5 ,7

Abha 5 1,6

Yanbu 450 1,

Total 6615 100

There are common markets in the big cities of the Kingdom .covered common markets have become important sources of attracting tourists. This is in addition to a number of traditional markets . All these kinds of markets exists in all cities of the the kingdom and they are popular attraction of both tourists and citizens alike.

-- Municipality Gardens and Resorts

Gardens , parks and resorts contribute in the beautification of destinations because they provide places of rest and amusements for tourists and citizens. Higher European to meet the need of the flow of workers from different countries.

Supply of restaurants is suitable and sufficient in performance , quantity and quality to meet the need of tourists from food and drinks. Restaurants industry is not different in nature from that of the original countries of tourists and consequently satisfy demand of investors and pleasure of tourists.

- Tourism Assisting Facilities

Tourism assisting facilities contribute in making destinations more attractive providing infrastructure and supporting tourism activities. to achieve this objectives it is four types of tourism assisting facilities can be distinguished-

• Retailers services

• Gardens & Parks

• Banking Services

• Health & Medical Care Services.

Concentration will be on the first two facility as there is no enough information about the other two facilities.

1-- Retail Services

Tourist care about places of retail and marketing in every destination. Not only that but services in these places from the pivot tourism activities.

Retail services sector includes common markets , big stores , centers of memoir sales and free zones sales . there are little statistics about retail.

Corporation of tourism has studied gardens in urban centers and entertainment resorts in the Kingdom at the end of the year 14 H through questionnaires distributed to the important municipalities. According to the collected data the number of gardens is 86 gardens and parks with the area of 500 sqm.

Big number of public gardens is in Riyadh , Jeddah and Madinah . these three cities have 70% of the total area of gardens and parks in the Kingdom.

4th Tourism investment in the K.S.A

economic policy is characterized by certain features e.g following the policy of free markets , encouraging private sector , removing restrictions on financial transactions , facilitating domestic and foreign investment. A detailed presentation of ingredients and hindrances of tourism investment has been prepared according to the findings of surveys and studies.

Kingdom of Saudi Arabia considered as the biggest country in the field of natural resources in the middle east and Arab Gulf area. It has diversified natural resources and rich sources of energy. It is rich of oil , natural gas and other minerals , the K.S.A also owns biggest reserves of the oil in the world. The oil reserves of Saudi Arabia estimated with 60 billion barrels which represents 5% of the world reserves of oil , Saudi Arabia also produces about 1% of the whole world production of oil. As for natural gas the Kingdom produce ¼ of the world production. Accordingly the KingdoPlease note that this sample paper on Tourism Investment in the Kingdom of Saudi Arabia is for your review only. In order to eliminate any of the plagiarism issues, it is highly recommended that you do not use it for you own writing purposes. In case you experience difficulties with writing a well structured and accurately composed paper on Tourism Investment in the Kingdom of Saudi Arabia, we are here to assist you. Your cheap custom research papers on Tourism Investment in the Kingdom of Saudi Arabia will be written from scratch, so you do not have to worry about its originality.

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