Gulf Arab states are feeling the brunt of an economic slowdown as the spread of coronavirus tests years’ worth of reforms. Countries like the United Arab Emirates and Saudi Arabia have relied on tourism and hospitality sectors to diversify away from oil, but recent travel cancellations and suspensions due to the illness are set to result in significant financial losses.
Countries across the oil-dependent Gulf Cooperation Council (GCC) have made efforts to bolster their travel and hospitality sectors in recent years to build more sustainable economic models, but the spread of coronavirus is testing the strength of such reforms.
“The biggest thing coronavirus has shown is how vulnerable the Gulf is to an epidemic, given its role as a travel and logistics hub,” said Varsha Koduvayar, an analyst on covering the Gulf Arab states with the Washington-based Foundation for Defense of Democracies (FDD).
It has also shown that “infrastructure becomes a weakness during times of epidemic, exposing the Gulf to disease transmission and hurting the Gulf’s economies when steps are taken to contain transmission,” she added.
Saudi Arabia, for example, only as recently as October 2019 introduced a new 90-day tourism visa for travelers from 49 different countries, including the U.S., Canada, and Australia.
But on Sunday an official from the Saudi Arabian tourism ministry partially reversed that decision, saying that the country would suspend visas for 22 countries where an outbreak of coronavirus had been reported.
Saudi Arabia last week also shut down the two holiest sites of Islam in Mecca and Madina to foreign travelers and banned religious pilgrims from entering the country.
The kingdom “has made religious tourism, in particular, an important component of economic reform. Now that’s coming to a halt, with the ban on Umrah pilgrims and tourists,” Koduvyar told Skift.
In the United Arab Emirates, major events and concerts have been canceled or deferred this week as the coronavirus spreads in the Gulf region.
Dubai’s prominent international art fair, Art Dubai, which was scheduled for March 25–28 has been postponed. Meanwhile, electronic music festival Ultra, which was set to be held on March 5–6 at Abu Dhabi’s 25,000-capacity Du arena has also been canceled.
At least 21 people have contracted the virus in the UAE, which is considered a major business and tourism hub, as well as air transit center.
Across the region, dozens of people have died and thousands more have been infected. Meanwhile, Saudi Arabia announced its first case of the virus on March 1.
Travel and Tourism Hardest Hit
The virus, which causes the deadly Covid-19 illness, has so far infected more than 90,000 people across 73 countries, resulting in more than 3,110 deaths as of March 2.
Because it has spread with great speed and magnitude, global travel has been the most vulnerable. Most airline companies in the region from the UAE, Qatar, Oman, and Saudi Arabia have restricted travel and flights to countries like Iran and China.
“Coronavirus will act as a headwind against demand for travel, tourism, leisure, and retail in the region,” said Walid Namane, an analyst at Dubai-based Emerging Markets Intelligence & Research (EMIR).
More than 3 million passengers from mainland China and Hong Kong traveled through the Dubai International Airport in 2019, recording a five percent increase year-on-year, Namane said.
“Companies selling into or dependent on tourism, retail, and real estate will feel the pinch in the first half of 2020, particularly in the UAE as it remains the most important business and tourism hub in the region. The UAE has also been the most successful in courting Chinese visitors,” he added.
While some travel suspensions and cancellations of large gatherings might be helpful to contain the virus, Middle Eastern airliners have so far lost an estimated $100 million due to the outbreak, according to the International Air Transport Association (IATA).
An official from the IATA pointed out on Monday that governments in the region should consider supporting their carriers during these “difficult times.”
“Disruption and suspension of flights to China and other affected countries from the region will result in financial losses to both travel agents and airline companies, especially if containment efforts to mitigate the virus fail in the next two months,” said Namane.
Oil Faces Even Weaker Demand
With already declining global demand, the impact on global oil markets has also put severe strains on the Gulf Arab countries. Despite their diversification efforts, these countries still remain significantly vulnerable to oil price fluctuations.
That’s why the most direct and immediate impact of the coronavirus on economies in the Gulf Arab countries will be through the oil sector, Dubai’s largest lender Emirates NBD said in a recent research note.
China, the world’s second-largest economy, is also the world’s biggest oil importer, and Saudi Arabia is its top supplier. With many factories closed and travel restrictions placed in China, the cost of global benchmark Brent crude has fallen to $52 in March from about $63 in January.
The Organization of Petroleum Countries (OPEC), set to meet this week, is expected to push ahead with deeper output cuts in order to calm markets.
“Fears of coronavirus outbreak and its disruption to global supply chains, trade, and manufacturing are leading to fears about a lack of demand for oil,” Namane from EMIR added. “We could potentially see oil demand forecast downward by up to 20 percent for 2020.”
Reem Abdellatif is a Skift contributor based in Dubai.
Photo credit: Saudi Arabia last week also shut down the two holiest sites of Islam in Mecca and Madina (pictured here) to foreign travelers. Shaihana AlMutairi / flickr.com