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5 August 20247 minute read

The Kingdom of Saudi Arabia The worlds new destination for luxury tourism

Vision 2030

In the volatile global economy, the Kingdom of Saudi Arabia’s (KSA) strategic policy, Vision 2030, has ushered in a new era for growth and diversification of the country’s economy. Vision 2030 is a “transformative and ambitious blueprint” aimed at unlocking the potential of KSA’s resources, people and economy.

Hospitality and tourism have been identified as key pillars of the strategy. The vast potential of the international hospitality sector can be seen in the success of the neighboring United Arab Emirates (UAE), with travel and tourism contributing nearly AED167 billion to the UAE’s GDP in 2022, almost 9% of the UAE’s GDP.

Since the opening of KSA to non-religious tourism in 2019, the number of international tourists across the country has grown exponentially. Growth has been so significant that KSA’s initial target of 100 million annual domestic and international tourists by 2030 was surpassed in 2023. The target has subsequently been increased by 50%, to 150 million tourists annually by 2030.

 

Cutting-edge developments

To continue to attract tourists to meet its targets, KSA is focusing its investments in giga-projects such as NEOM and the Red Sea, and across a variety of hospitality resorts from cultural sites to beach resorts and sporting recreation destinations.

  • The Red Sea, a development on the west coast of KSA, is already gaining a reputation as a leading ultra-luxury destination and is known colloquially as the “Maldives of the Middle East.” When complete, the Red Sea development is set to have 8,000 rooms across 50 hotels and has already welcomed top luxury brands.
  • In geographic contrast, the luxury mountain resort of Soudah Peaks, set 3,105 m above sea level at KSA’s highest peak, is positioned as a key cultural and wellness asset in Vision 2030. It's estimated that Soudah Peaks will contribute USD7.7 billion towards KSA’s GDP upon operation.
  • Trojena, KSA’s first snow-sports resort, will form part of the NEOM giga-project and is set to host the 2029 Asian Winter Games. Trojena aims not only to offer a luxury travel experience but also to pioneer sustainability in snow melt strategies, water usage and renewable energy.

These locations offer attractive prospects to brands hoping to position as market leaders in cutting-edge luxury travel.

 

International events

As part of a broader strategy, KSA is also successfully positioning itself on the global stage as open and ready to host international events. In addition to the 2029 Asian Winter Games, EXPO 2030 will be hosted in Riyadh, and KSA has also bid to host the FIFA World Cup in 2034.

The potential impact of international events on the hospitality sector must not be underestimated. For example, Dubai saw a hotel occupancy rate of 96% by the end of EXPO 2020, the Emirate’s highest occupancy rate in 15 years. Qatar continues to see sustained growth in the number of international tourists visiting the country following the 2022 FIFA World Cup, with international arrivals increasing by 58% from 2022 to 2023. Hoping to follow the success in GCC neighbors, hospitality brands can't miss the opportunity to capitalize on the potential growth of KSA as a future tourism powerhouse geared up to welcome the world to its variety of destinations.

 

Infrastructure

Substantial investments have also been made in the essential infrastructure to facilitate the increase in tourist numbers. September 2023 saw the opening of the Red Sea Global International Airport, which is set to welcome one million tourists annually at full capacity. Guests will also have access to world-class healthcare facilities while at the Red Sea resort, following the Ministry of Health’s approval of the designs and the commencement of construction of Turtle Bay Hospital.

To further accommodate the significant growth, and to provide increased comfort to investors and those doing business in the region, KSA has updated its legal infrastructure. For example, the Civil Transactions Law, which entered into force on December 16, 2023, represents part of the regulatory reform of Vision 2030, and has codified and updated key principles of Shariah law, particularly with respect to limitations of liability, liquidated damages, moral damages, and termination rights. Further, the Saudi Centre for Commercial Arbitration published revised Arbitration Rules on May 1, 2023, aligning the institutional rules with best practice in international arbitration and positioning KSA as an arbitration-friendly jurisdiction.

 

Investment in people

KSA is also investing in people to cement its status as a market leader in the education and development of hospitality professionals. In particular, KSA has launched a first-of-its-kind collaboration with the United Nations’ World Tourism Organization focused on creating internationally accredited training programs for hospitality professionals.

KSA’s Minister of Tourism, H.E. Ahmed Al Khateeb, has recognized the importance of this investment not only for KSA talent but also the global hospitality workforce:

“Investing in human capital development is an investment in all our futures. This is a landmark agreement that prioritizes people with a focus on the power of e-learning. Collaborating with UNWTO, we can ensure that development opportunities are accessible worldwide, building the workforce necessary to support a thriving and sustainable future for the sector.”

With 63% of KSA’s new hotel rooms projected to be at luxury 4- or 5-star properties, training programs will be essential in upskilling the average of one to two members of staff required per room, to service these properties.

 

Key legal considerations for hoteliers and the hospitality sector

The significant potential for growth represents an opportunity for luxury hospitality brands to capitalize on the attractive emerging destination that is KSA. To ensure a successful transition into and a fruitful stay in the region, international hotel operators have to comply with KSA’s Tourism Laws and regulations, including obtaining the necessary licenses and approvals.

Any tourism activity (including tourist accommodation facility management) requires a license from the Ministry of Tourism (in addition to the general foreign investment licensing process administered by the Ministry of Investment of Saudi Arabia). Previously international hoteliers could provide management services in KSA on a remote basis through their preferred choice of foreign entity. But the new regulatory regime means operators with a physical presence in the Kingdom must provide their services through a licensed legal entity in KSA. This is a significant change and underlines the imperative for operators interested in KSA to consider establishment and licensing requirements, alongside tax structuring advice, to ensure they're properly structured to take advantage of the considerable opportunities in the Kingdom's burgeoning tourism sector.

Those in the hospitality sector should also prepare for disruption to supply chains as a result of the anticipated growth and increased demand for goods and services and put measures in place to limit the impact on their businesses. From a contractual perspective, parties should ensure that their contracts, at the very least:

  • set out each parties’ rights and obligations clearly and precisely, including who bears the risk of factors such as increased costs of in-demand products;
  • oblige parties to report regularly on the supply chain, allowing the parties to identify any issues at an early stage; and
  • include dispute resolution provisions that allow for the prompt resolution of supply chain issues.

Sustainability is also a key part of Vision 2030 given KSA’s goal of becoming net zero by 2060. Those looking to enter into and remain in the region should embrace environmental, social and governance (ESG) principles and operate in a manner that incorporates sustainable practices.

 

Conclusion

The post-pandemic growth of the luxury hotel industry is emerging as a structural shift in the industry, rather than a temporary trend, as guests continue to favor luxury travel experiences. KSA’s geographic location, coupled with its upcoming global events and strategic investments, leave it primed to capitalize on this shift as a new key player in the global luxury hospitality industry.

The rapidly changing environment presents new challenges, for example in the form of unprecedented strain on supply chains and an evolving regulatory landscape in the region. But the opportunities KSA's hospitality and leisure sector are hard to ignore for those wishing to grow and strengthen their presence in the region.

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