Saudi's Vision 2030 and the implications for 2024 Hotel Supply Chains

Saudi Arabia currently has a hotel development portfolio reportedly worth in excess of US$110 billion, which will result in the development of circa 310,000 hotel rooms by 2030. This will impact on certain market participants (both locally and further afield) who may struggle to navigate the increased demand for materials and expertise without proper planning. James Stripe writes about these upcoming supply chain challenges and what hotel developers and operators can do to mitigate this.

Middle Eastern Ambition

The Middle East as a region is no stranger to implementing ambitious projects with mass hotel development at the heart of it. Dubai have been investing in its tourism infrastructure for a number of years including the success of Expo 2020 and continue to have a strong pipeline of hotels in development with plans afoot for a further 65,000 rooms to be constructed. The recent Fifa World Cup 2022 hosted by Qatar saw a surge in investment in hotel infrastructure to accommodate the influx of tourists that the tournament would bring to the nation. Now it seems to be the turn of Saudi Arabia who have set out Saudi's Vision 2030.

So what is Saudi's Vision 2030?

Saudi Arabia's Vision 2030, which was launched in 2016, is an incredibly ambitious national development plan. The goal is to transform and diversify the Saudi economy, which was previously reliant of the oil and gas industry. Oil and gas supplies will not last forever and there is a conscious effort globally to become more "green" and a significant way to achieve this is by reducing the consumption of fossil fuels. The plan is therefore to move away from oil and gas and to make the country more attractive to foreign investment.

The plan is being implemented in a number of ways, with the most high profile being the conscious investment in a number of sports, including:

• the establishment of LIV Golf to rival the PGA tour and subsequent merger that took place between those institutions which has dramatic implications for game of golf;
• the high profile acquisition of professional European based footballers (including Cristiano Ronaldo, Karim Benzema and N'Golo Kanté) as well as investing heavily in the Saudi national football league to increase global interest in the Saudi game;
• the hosting of some of the biggest boxing matches of the last decade (including heavyweight championship fights between Andy Ruiz and Anthony Joshua and Anthony Joshua and Oleksandr Usyk respectively);
• the hosting of Formula One Grand Prix races in 2021 and 2022; and
• the hosting of the Supercoppa Italiana football matches in recent years.

In addition, the country will be hosting the upcoming World Expo 2023 and is home to two of the holiest cities in Islam, Mecca and Medina (meaning that, every year, millions of Muslims from around the world travel to Saudi Arabia for Hajj and Umrah pilgrimages). Each of these will generate a large number of international and domestic tourists.

Of course, if you are to increase the number of tourists that arrive in your country, you need the hotel infrastructure to host the tourists. As such, the nation has increased investment in hospitality projects including the construction and development of hotels, resorts and other hospitality infrastructure to cater for this demand.

Saudi Arabia currently has a hotel development portfolio reportedly worth in excess of US$110 billion, which will result in the development of circa 310,000 hotel rooms by 2030, with 42,033 hotel rooms currently under construction. This level of construction places Saudi Arabia third in the global hotel construction market, with only China and the US building more at the moment.

Why does Vision 2030 impact on the wider supply chain for hotels?

When discussing "supply chain", we should consider two distinct supply chains, which are both equally impacted by Saudi Vision 2030:

• Construction Supply Chain – As you would imagine, construction on this scale has begun (and will continue) to have a dramatic impact on the levels of demand for the materials and specialists required to build hotels. This will be felt both regionally and globally because of the scale of the project that is anticipated.
• Operational Hotel Supply Chain – Once the proposed hotels are operational, the supply chain of existing operating hotels will be impacted. This will extend to materials used to keep the hotel running on a daily basis (including toiletries, food and drink, for example).

Fundamentally this dramatic increase in activity is a good thing for the suppliers involved in each of the supply chains because of the increased demands but other market participants (who will now be competing for these supplies) should be aware of the impending increase in demand and should be prepare accordingly. There is a very real risk that the significant increase in demand for goods and services may cause disruptions in supply chains and may also impact on the price of the relevant goods and services.

Global logistics should also be considered in this context due to limited infrastructure and transportation networks. Still recovering from the effects of the Covid-19 pandemic, the industry may struggle to meet the increased demand for construction materials and other necessary equipment to remote areas from 2024 onwards. Supplying these materials to remote areas with underdeveloped infrastructure can be costly and time-consuming.

What can hotel developers and operators do to minimise the disruption and impact?

This provides an opportunity to assess and potentially re-evaluate the well-established supply chains that may not have been questioned previously. For example, could hoteliers source more local products? This would have the dual benefit of reducing carbon footprint (and therefore improving ESG credentials) and giving the hotel concerned "local character", which guests may enjoy. Some panellists at the recent International Hospitality Investment Forum in Berlin have even suggested that this Saudi boom may give the hotel industry an opportunity to prioritise ESG goals and may even spark a "green revolution".

Hotel developers and operators should consider diversifying the sourcing of materials and products to reduce dependency on a single supplier and may explore both domestic and international options to mitigate disruptions and optimise costs.

Market participants should engage proactively in procurement management. This could involve appointing a supply chain specialist to anticipate and forecast (1) what supplies will be required and when, and (2) identify and address potential problems before they impact on the operational efficiency of the hotel or development concerned.

Linked to the above, hoteliers should also consider investing in supplier relationships to further mitigate the problem. For example, you could enter into advance guarantees with key suppliers to guarantee delivery when needed with a view to ensuring a smoother supply chain and minimize potential disruptions.

Finally, hotel developers and operators should ensure that they have sufficient skilled workforce, especially during periods of high demand. Developers need to be mindful of periods when multiple hotel projects are being undertaken simultaneously and operators, who have already seen workforce issues in the wake of Covid-19, should consider proactively recruiting/focussing on staff retention now.

Concluding thoughts

This is not the first time that hotel developers and operators have been required to consider (or re-consider supply chains) in recent years. Covid-19 brought with it a number of supply chain issues so it may be that a number of developers and operators are already well versed in anticipating and monitoring potential "crunches" before they impact of the development or operation of the hotel concerned.

That being said, Saudi's Vision 2030 has the potential to have a significant impact and hoteliers should look to "horizon scan" now to head off any potential issues. In particular, the volume of work planned for 2024 could well have far reaching ramifications across the market.

How can Fieldfisher help?

Fieldfisher is a recognised leader in the hotels and leisure sector. We observe the market and are known for our extensive international expertise, which covers more than 40 jurisdictions. Our clients range from large multinationals through to entrepreneurs. We act for brand owners, leisure operators, financiers and investors and hotel and leisure developers. We offer our clients a fully integrated service, drawing upon talent from across the firm, including finance, corporate, employment, franchising, intellectual property, real estate, tax and technology groups, creating a genuine one stop shop for clients in the sector. In the ever-changing global hotel and leisure industry, our clients find that our extensive understanding of the sector is invaluable.