Dubai, Saudi tourism boom fuels Mideast non-oil sector resilience

Dubai’s tourism sector expanded 20% in the second quarter

Published: Thu 21 Sep 2023, 8:23 PM

By
Issac John

Tourists at Dubai Mall. The city is targeting to attract 40 million hotel guests by as early as 2031. — KT file

A remarkable boom in tourism-related sectors of Dubai and Saudi Arabia is fuelling resilience in the Middle East non-energy sector regardless of a general slowdown sparked by the lowering of oil output by the energy sector, economists and analysts said.

Dubai’s tourism sector experienced rapid growth in the second quarter, up 20 per cent from Q1 2023, with a record 8.6 million tourist arrivals. The city is targeting to attract 40 million hotel guests by as early as 2031. In 2022, Dubai received 14.36 million international visitors compared to 7.28 million in the previous year, marking an exceptional growth enabling it to surpass global and regional tourism recovery levels.

Saudi Arabia is also witnessing substantial growth in the sector, with a notable 225 per cent surge since Q1 2022, according to the latest Economic Insight report for the Middle East, commissioned by ICAEW and compiled by Oxford Economics.

“Growth in the region’s non-energy sector is demonstrating significant resilience, primarily fuelled by the tourism-related sectors, with data showing double-digit expansion in transport, storage, accommodation, and food services,” said Scott Livermore, ICAEW economic advisor, and chief economist and managing director at Oxford Economics.

By the end of 2023, approximately 154,000 rooms will be operating in Dubai's hospitality sector, marking a substantial 6.4 per cent increase from 2022, according to a report by Knight Frank. With an existing supply of 207,200 hotel rooms, the UAE has an additional 24,500 rooms in various stages of development, further solidifying its global leadership in the hospitality sector, the consultancy said in a report.

STR data shows that the Dubai market as a whole recorded a 0.8 per cent increase in RevPAR compared to July 2022, driven by a 6.8 per cent increase in occupancy but held back from further growth by a 5.6 per cent decrease in ADR.

The ICAEW report reveals that the region’s economic performance weakened in Q2 as a result of the energy sector lowering oil output. The pace of GDP growth in the Middle East has therefore been downgraded by 0.4 percentage points and is forecast to slow to just 1.7 per cent this year. The revised economic outlook reflects the Middle East’s weakened performance in Q2, driven by reduced oil production in GCC countries. Projections for GCC growth this year have been scaled back by 0.5 percentage points to 1.4 per cent.

“Nonetheless, there are encouraging indicators in the non-oil sector and domestic demand. Businesses have reported growth in their customer base and employment. However, this positive performance may face challenges due to the impending impact of high-interest rates on consumption and private investment,” said the report.

“Despite the slowdown, optimism prevails as the region’s non-oil activity remains robust,” said Livermore.

Looking forward, the planned inclusion of the UAE and Saudi Arabia into the Brics group next year is expected to create new opportunities for increased trade and investment. This development will also help reduce their reliance on the US dollar, offering a positive outlook for the future, said Hanadi Khalife, head of Middle East, ICAEW. “This quarter has been challenging for the region, marking weaker growth than initially predicted,” she added.

Livermore said the recent energy cuts have had a pronounced impact on the economic outlook for this quarter. “As a result, 2023 is forecast to be the GCC's weakest year for the energy sector since 2017, excluding the exceptional circumstances of 2020. In contrast, the non-energy sector continues to thrive; we expect 30 million international tourists to visit Saudi Arabia next year with Qatar receiving 3.17 million visitors. The surge in the tourism industry continues to bolster the GCC’s diversification efforts.”