The future of Saudi Arabia’s tourism industry: two developments along its Red Sea coast

    14 Jun 2021

    Saudi Arabia’s mega vision for its tourism industry is thoroughly embodied by way of two large-scale developments along its Red Sea coast. They’re led by John Pagano, CEO of The Red Sea Development Company, and Amaala.

    He spoke to the Gulf business about company plans. Let’s check the main topics.

    Pagano believes that The Red Sea Project is determined to transform the tourism trajectory of the world’s largest Arab economy. He calls it the sustainable development project which will have its own airport, ultra-luxury hotels and resorts, and cutting-edge mobility solutions. The Red Sea Project is spread across 28,000 square kilometers – for scale, that’s a little smaller than Belgium.

    Within Saudi, the Red Sea development is among three other giga projects – including Neom, Qiddiya, and Amaala – that are being planned and executed as part of the kingdom’s Vision 2030, directly overseen by Saudi Arabia’s Crown Prince Mohammed Bin Salman.

    John Pagano, a veteran property developer with nearly four decades of experience within the field, was handpicked and appointed to the role of CEO of The Red Sea Development Company (TRSDC) by the Crown Prince himself. Pagano, the former director of London’s Canary Wharf, who saw the London development project from its inception in the Margaret Thatcher era and spent 23 years with the group, was already retired when the idea of heading up TRSDC was suggested to him.

    “When I was approached about coming to Saudi Arabia, at first I wasn’t that interested. But they persuaded me to come. I met His Royal Highness, and I was honored to have the future sovereign of this country directly ask me to lead what is a very near and dear project to him. It wasn’t just the project that attracted me as much as the effect that the project would have on helping transform the country and bring it into a [new] era,” Pagano tells Gulf Business.

    Both the Red Sea project and Amaala are financially backed by the country’s sovereign wealth fund, the Public Investment Fund

    That new era that Pagano is referring to is the country’s drive to radically diversify its economy and tear it away from a decades-long disproportionate focus on oil. “In Saudi Arabia, tourism represents a relatively small proportion of the overall economy. Given the desire to diversify the economy, tourism makes a lot of sense. Today, we have something like 3-3.4 % contribution [of tourism] towards GDP, which is largely based on religious tourism.”

    Ultra-luxe tourism mega-developments, like the Red Sea Project, are aimed at tipping that scale. The first phase of construction at the Red Sea is well underway. The team aims to deliver 16 hotels with approximately 3,000 hotel rooms, an international airport, and a new village to house the approximately 14,000 people that are going to live and work at the destination. “We hope to complete the first few hotels at the end of next year and then the balance of that phase by 2023.”

    But mindless concretization and plundering the natural resources of the area was a red flag from the get-go. Beyond sustainability, regenerative development was the overarching goal here. As Pagano explains, there are 90 islands as part of the Red Sea development, with plans to build on no more than 22 of them – leaving 75 % of the islands untouched.

    The goal at the Red Sea is to increase the conservation value of the destination by 30 % over the next couple of decades

    “The islands that we chose to develop were borne out of a very detailed planning exercise which was to create a computer simulation where we divided up the entire lagoon into 30,000 squares assigning a conservation value.” Each island was therefore assigned a conservation value, and the islands where construction would have the least impact on its flora and fauna were selected for development.

    “The goal we set for ourselves was to actually increase the conservation value of the destination by 30 % over the next couple of decades. Sustainability is simply distilled down to not making a mess of the place, whereas regeneration seeks to leave the place better than when you arrived.”

    For an area that is rich in marine biodiversity, mangroves, seagrasses, and marine life including the critically endangered Hawksbill turtles and green turtles, it’s difficult to understate the importance of regenerative tourism in this area of the kingdom.

    As part of the regenerative tourism concept, Pagano says that while the area can accommodate 10 million visitors a year, he will be limiting it to a million visitors, “based on our environment-caring capacity”.

    With the success that Pagano has had with getting the Red Sea Project off the ground, he was additionally appointed to the role of CEO of Amaala, another giga tourism project aimed at attracting UHNWIs. “Our focus at the Red Sea is primarily on nature, ecotourism, and sustainability. The main focus for Amaala is on arts and culture, and a very strong emphasis on wellness,” explains Pagano about how the two projects that he now directly oversees differ from one another. The first phase of development at Amaala will consist of six hotels and roughly 1,000 hotel keys, the construction of which is expected to be completed by the first quarter of 2024.

    “Subsequent phases will be built out by the end of 2025, and then ultimately the entire project by the end of 2027, which in the aggregate will be about 3,000 hotel rooms across around 25 hotels.”

    Saudi introduced its first international tourism e-visa in September 2019 to begin attracting droves of tourists, and by March 2020 had issued more than 400,000 tourism visas. But between the Red Sea and Amaala itself, will the supply of hotel rooms outstrip demand? Pagano is quick to counter that suggestion, adding that while the Red Sea and Amaala will deliver around 11,000 hotel rooms, an area of roughly only 50 kilometres along the French Riviera, including Nice and Cannes, has 40,000 rooms along that stretch.

    Both the Red Sea and Amaala are financially backed by the country’s sovereign wealth fund, the Public Investment Fund (PIF). “With the Red Sea, our equity is committed, so we have the capital to build the first phase. I am signing a debt financing package raising SAR14.1bn. I’ve awarded SAR15bn, including a PPP contract [with the Acwa Power consortium]. To date, I’ve already spent SAR4.5bn.”

    The main focus for Amaala is on arts and culture, and a very strong emphasis on wellness

    Pagano says that while he does have the capital to build the Red Sea in its entirety, the aim is to incentivise the private sector to partner on the project too. “At the end of last year, we awarded a large scale PPP contract to a consortium led by Acwa Power. The consortium will build our utility infrastructure, including power, white water, wastewater municipal waste and district cooling. The power is 100 per cent renewable energy – the largest tourism destination in the world to be powered exclusively by renewables.  We’re building the largest battery storage system in the world too. We have the largest district cooling plant, powered by renewable energy in the world. That contract was for direct domestic investment in the project. They’re deploying their capital for a 25-year concession to run, operate and maintain those utilities.”

    Amaala is on a smaller scale than the Red Sea, but is also a roundly funded project. “Our equity [for Amaala] will be committed by PIF which allows us to move forward with the project. In time, we’ll be tapping the debt markets to raise debt financing. We’re looking and talking to green mobility providers to provide terrestrial, air, and marine mobility solutions for the destination, so there are opportunities for the private sector to participate too.”

    There are other large-scale tourism projects being built in Saudi including the $500bn Neom, the $8bn Qiddiya entertainment zone, the Soudah Development near the country’s border with Yemen into which PIF has already committed $3bn to build nearly 2,700 hotel rooms, and also the AlUla project for which the Crown Prince unveiled the development’s masterplan earlier this year and which is projected to contribute SAR120bn to the kingdom’s GDP. Pagano is on the board of the AlUla project too.

    He explains that with many mega tourism development projects spread across the country, TRSDC can serve a much bigger agenda than its namesake. “The Red Sea Development Company is not a project company. It was never intended to be just the Red Sea. I wanted to build a real estate champion for the kingdom, to be able to not only do the Red Sea, but other projects starting domestically – Amaala is the manifestation of that vision – regionally, and potentially globally too.”

    Leave a Reply

    Your email address will not be published. Required fields are marked *