The Situation: On June 21, 2020, the Saudi Minister of Tourism, Ahmed Al-Khateeb, announced the creation of a Tourism Development Fund ("Fund") with an initial capital of SAR 15 billion (approximately US$4 billion).
The Goal: The National Transformation Program ("NTP") aims at, among other things, marketing Saudi Arabia as a tourist destination regionally and globally.
Looking Ahead: The Fund is likely to play an important role in attracting and supporting investments, encouraging the development of the Saudi tourism sector, and overcoming some of the challenges it faces.
Saudi Arabia's Vision2030 is a strategic framework to reduce Saudi Arabia's dependence on oil, diversify its economy, and develop public service sectors, including tourism. Under Vision2030, the NTP, a coordinating unit involving 24 Saudi government entities, aims to develop the government capacity and capabilities required to establish the necessary legal and physical infrastructure to achieve Vision2030's goals.
In the context of the Saudi tourism sector, the NTP aims at marketing Saudi Arabia as a tourist destination regionally and globally through the development of advanced infrastructure, the preparation of the necessary regulations and legislation, and the building of institutional capacities, all of which should contribute to creating jobs and increasing the contribution of the tourism sector to the Kingdom's economy. But the NTP recognizes that the development of the Saudi tourism sector faces a number of challenges, including:
- The lack of diverse tourist destinations and services in the Kingdom and the disparity in their qualities;
- The need to increase tourist infrastructure readiness, such as transportation and hotels, to meet the needs of different segments;
- The tourism sector's inability to meet the increasing demand for tourism services; and
- Inadequate infrastructure of a number of national heritage sites to accommodate tourists.
The Tourism Development Fund
Preliminary Comments. The Tourism Development Fund Law ("Law") provides in part that the Law will not come into force until 90 days after the Law's publication in the Saudi Arabian Official Gazette. The Law was published on June 26, 2020, and therefore came into force on September 23, 2020.
Investment, Financing, and Advice. The authority of the Fund includes (but is not limited to) the authority to invest its funds in assets, to provide financing to businesses operating in the tourism sector or related sectors, and to provide advice to businesses operating in the tourism sector or related sectors.
- Investment. The Law gives the Fund the authority invest in, own, and dispose of assets; to invest in securities; and to contribute to the development of tourist areas, either on its own or in partnership with the public or the private sector. The Fund therefore has the authority and the means to act by itself or in cooperation with others to invest in projects to address any of the challenges facing the Saudi tourism sector as identified by the NTP.
- Financing. The Law gives the Fund the authority to provide financing to businesses operating in the tourism sector, operating in fields supporting the tourism sector, or developing technology and infrastructure that serves different tourist activities, in each case subject to controls set by the Fund's Board of Directors as headed by the Minister of Tourism ("Board").
The Board is the authority responsible for establishing the Fund's policies. Until such policies are established, the terms upon which the Fund may provide financing will remain unknown. However, we would speculate (and this is only speculation) that the Fund will be to the Saudi tourism industry what the Saudi Industrial Development Fund is to Saudi industry: a source of medium- and long-term soft loans whose terms will vary with the location and the size of the project being financed.
- Advice. The Law gives the Fund the authority to provide consulting services to businesses operating in the tourism sector, operating in fields supporting the tourism sector, or developing technology and infrastructure that serves different tourist activities. While the terms upon which such consulting services will be provided are currently unknown, it seems likely that such consulting services will be provided on a commercial basis, given that the Law provides that funding for the Fund will come from (among other sources) the financial consideration received for the services and works it provides.
Tourism is a key driver of Vision2030, and the Fund can reasonably be expected to play an important role in attracting and supporting investments, incentivizing the development of, and overcoming some of the challenges facing the Saudi tourism sector. Businesses (whether domestic or international) involved in the tourism sector or related sectors should closely follow the development of the Fund.
Two Key Takeaways
- Saudi Arabia's National Transformation Program seeks (among other things) to market Saudi Arabia as a regional and global tourist destination but recognizes that the development of the Saudi tourism sector faces a number of challenges.
- The newly established Saudi Tourism Development Fund has been created and endowed with approximately US$4 billion to invest in the Saudi tourism sector and to provide financing and advice for businesses operating in or related to the Saudi tourism sector, all with the goal of developing the Saudi tourism sector.
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