The Economics of Hajj
Hajj, one pillar of Islam, is one of five obligatory fundamental Muslim practices. It is incumbent upon every Muslim to make the pilgrimage to the holy city of Mecca at least once in their lifetime, it they can afford to and are healthy enough to travel and perform the rituals.
The word ‘afford’ is of prime importance – because the annual pilgrimage is of considerable expense. On average, it costs USD 6,000 (£3,700) for an individual to make the annual pilgrimage.
This means that the millions who come to Saudi Arabia each year, contribute millions of dollars to the Saudi economy.
The number of people coming to Mecca to perform Hajj is increasing by the year and it is estimated that the number is likely to increase from 12 million to almost 17 million by 2025. The high number of travelers have contributed to the development of the religious tourism industry within Saudi Arabia, which makes up to 3 percent of the country’s gross domestic product (GDP).
Revenues from Haj and Umrah services in 2012 were recorded at more than SR 62 billion ($ 16.5 billion), up 10 percent, up from the 2011 figures. While most of the influx of capital is witnessed by Mecca and Medina, the benefits are also reaped by support services catering to the comfort and needs of those travelling for their Haj and Umrah.
Commenting upon the need to exploit the aforementioned spill-over effect by the support services industry:
Prof. Fahd Al-Andeejani; “We need more specialized markets to meet the needs of pilgrims who come for Haj and Umrah. Total revenue from Haj and Umrah will be more than SR 62 billion.” —Fahd Al-Andeejani, professor of economics,
He added that by customizing services to the needs of pilgrims from around the world, there are prospects for the development of national industries. He particularly addressed the hospitality industry saying that there is a growing market that indulges in Asian, European and American cuisines in Mecca and Madinah.
Investments in real estate is also a lucrative opportunity when nearing the arrival of pilgrims. Since the number of incoming Hajji’s is only going to rise, total demand for accommodation is the sole driving force behind the escalating rents and the perpetual need to build more hotels.
Mohamed Saed al-Jahni; “I have been investing in this sector for 35 years. I remember when I first sold a metre of land in Mecca for just 15 rials ($3), now it has reached 80,000 rials ($22,000). The demand is higher than supply and that is why many buildings and hotels have been built in recent years to accommodate the increasing number of pilgrims”. — Mohamed Saed al-Jahni, one of Mecca’s real estate tycoons
Yasser al-Khawli; “Despite the enormous size of shopping during the Hajj season, Saudi products, including gifts and handicrafts, are very weak, and the efforts of productive families lack the necessary marketing channels and sponsors to ensure good marketing outlets, because they do not know the size of market demand due to their limited capabilities.” — Commenting upon the assumed spill-over effect, Yasser al-Khawli, an economic expert on the Hajj season and investor in the Hajj and Umrah
Besides attributing decreased sales to ineffective marketing, Khawli also points out that Saudi products lose to competitively priced Chinese products. He estimates that if these issues are tackled effectively, then Saudi products can earn revenues of SR 500 million to SR 800 million annually.
Mark Walsh, Portfolio Director, Reed Travel Exhibitions, organizer of Arabian Travel Market, believes that the rate at which the Saudi hospitality sector is growing, can contribute to job creation within the country.
Mark Walsh; “The tourism sector is now the country’s second largest industry, with around 8 percent of total jobs, and industry growth presents a huge opportunity for job creation in the local market, with Takamul (an SCTA affiliate) organizing a number of job fairs around the country and working hand in hand with tourism companies to attract young Saudis looking to embark on a career in hospitality.” – Mark Walsh, Portfolio Director, Reed Travel Exhibitions, organizer of Arabian Travel Market
However, there is still a need to manage the Haj and Umrah services in a manner to address the needs of the millions of Hajji’s who are arriving in the Kingdom at an increased number each year, but also lead economic benefits for the country at large.