Any loss of revenue from Hajj and Umrah, estimated at $12 billion annually, will put further strain on the Kingdom.
Saudi Arabia has prohibited international visitors from making Hajj this year in an effort to contain the spread of Covid-19.
Only a limited number of people already residing in the Kingdom will be allowed to attend the pilgrimage, according to an announcement issued on Monday by the Ministry of Hajj and Umrah.
Around two million people were expected to visit Mecca and Medina this summer for the annual gathering, which is scheduled to take place from July 28 to August 2.
Saudi authorities believe that the decision will help them make plans for social distancing that will keep people safe.
Saudi Arabia has recorded over 160,000 cases of infection and 1,300 deaths. It lifted a nationwide lockdown on June 21.
Earlier this month, Indonesia was one of the first countries to withdraw from the pilgrimage. Senegal, Malaysia and Singapore followed suit with similar announcements.
Any loss of revenue from the pilgrimage sector will put further economic strain on the Kingdom, which has already been hit with the twin shocks of low oil prices and the pandemic.
In May, the oil-rich nation had tripled its value added tax (VAT) as part of austerity measures to support its pandemic-hit economy.
Even though the majority of Saudi Arabia’s wealth comes from oil, pilgrims visiting Mecca and Medina are critical to its economy.
The Kingdom saw more than 19 million pilgrims for Umrah and 2.5 million pilgrims for Hajj in 2019. Combined, they contributed approximately $12 billion, or 7 percent of total GDP and 20 percent of its non-oil GDP.
It also impacts the primary source of income to many of Mecca’s 1.9 million inhabitants. At least 45 percent of the city’s population is made up of non-Saudis, many of whom are second and third generation undocumented migrants.
For centuries, the city has attracted outsiders who visit with the intention of pilgrimage and then decide to stay back and contribute to its economy.
The move is likely to come as a blow to Riyadh’s Vision 2030 plans, as the government identified the pilgrimage industry as a pillar of economic diversification and targeted it for private investment.
Hajj and Umrah are essential to its tourism growth strategy: the Kingdom aimed to increase overall capacity for inbound Hajj visitors from 1.8 million in 2019 to 4.5 million by 2030, and inbound Umrah visitors from 6.2 million in 2019 to 30 million by 2030.
The contribution the government relies on from religious tourism is substantial. The Council of Saudi Chambers estimated that from 2018 to 2022, spending associated with the pilgrimages will generate upwards of $150 billion in income and create up to 100,000 Hajj-related jobs.
Almost 43 percent of Umrah pilgrims visit Saudi Arabia during the Islamic months of Rajab, Shaban, and Ramadan, making them the busiest seasons outside of Hajj for those economically dependent on tourism.
For the first time in recent history, there were no visitors to the city during Ramadan.
To control the pandemic earlier this year, Riyadh took unprecedented measures to suspend religious tourism in February and in April it restricted all entries to the Grand Mosque.
While other cities have fluctuated between degrees of curfews, Mecca has been under strict lockdown. However, it continues to experience some of the highest numbers of cases in the country.
Despite the uncertainty surrounding fallout of the pandemic on the 2020 Hajj season, the overall picture appears promising for the Kingdom’s two holy cities.
A Covid-19 economic impact assessment on Saudi Arabia by the Oxford Business Group states that “the real estate sector is expanding alongside the Grand Mosque’s capacity, and more streamlined visa processes and regulations should encourage a larger annual influx of visitors.”
“The key challenge for the government going forwards will be to ensure that transport and hospitality infrastructure keeps pace with this anticipated growth.”