Adkins: The 2022 World Cup’s Lessons for the Gulf
Though the World Cup saw massive profits, tourism cannot replace the oil-based economies of nations in the Persian Gulf.
From November to December 2022, the entire world’s attention was focused on Qatar, a small nation in the Persian Gulf. Fans from all over the globe flocked to Qatar for the chance to see a spectacle of colors, passion and the most prestigious football tournament in the world.
While the World Cup was certainly entertaining, something often glossed over is the fact that this tournament also provided us insight into how many Arab countries in the Gulf are transitioning to tourism-based economies. According to Qatar’s embassy, petroleum and gas are the backbone of the economy. As oil booms, so does their economy. However, in the near future, we may see this trend subside.
Qatar recognized this. In 2014, the country’s Tourism Authority published a 34-page plan called the Qatar National Tourism Sector Strategy 2030 to describe the potential economic benefits of tourism. But while tourism may introduce new ways of bringing money to nations in the Gulf, it will be insufficient in replacing the profits of oil.
While I won’t go into the mechanics of what happens when the focus of a country’s economy shifts, one must acknowledge the dangers of centering an economy on a single industry. Countries without diversified economies risk instability. To avoid this, they can either increase capital or labor productivity. However, the Persian Gulf countries lack a sufficient domestic labor force. While in the United States we frequently run into the problem of not having enough jobs for workers, in Gulf countries there are not enough workers for many jobs. The Gulf turns to large numbers of migrant workers as a result. Fortunately for countries in the Gulf, oil has effectively increased the capital side of the equation while not requiring a massive workforce. The World Bank notes that the largest petroleum company in Qatar, known as Qatar Energy, only employed 8,536 employees in 2019. As economic activity slows due to widespread divestment from fossil fuel companies, Qatar hopes to prevent future difficulties by filling the expected gap in other ways.
Qatar isn’t the only Gulf country looking to adapt. Other countries in the region are preparing for oil’s decline. Mega-projects like the Saudi Arabian Line City are under construction with a focus on bringing tourists and expats to the country. NEOM, the company building the city, even partnered with Saudi Arabian Airlines to promote the city as a “top location for tourists worldwide.” Gulf countries hope to become not just a hub for international business but also to connect the eastern and western world through tourism and trade.
These goals are easy to see considering the massive investment in national airline companies. According to the International Airline Pilots Association, Qatar has subsidized Qatar Airways via more than $25 billion in “cash, cut-rate fuel, loan forgiveness and free aircraft.” The same goes for Etihad Airways and Fly Emirates, which have also received massive subsidies. It’s no secret that respective governments are funding these companies to deliberately manufacture routes that include layovers in their countries. For example, a direct flight from Boston to Istanbul is about 10 hours. However, spend a night in Doha, and the route to Istanbul is cheaper despite the added distance. The hope is that westerners traveling to Eastern Europe, Asia or other countries in the Middle East will be enticed to spend money in their countries.
When it comes to sports, Gulf Countries have been looking to host any large event they can. Just before the newest season of the Egyptian Premier League, Al Ahly and Zamalek played in a football match known as the Egyptian Super Cup. Yet, this game between two of the most famous African teams was not played in Cairo but rather in Dubai. UFC, the world’s most notable MMA competition, has now hosted 16 fights in Dubai. The Saudi state-owned football team Al Nassr recently spent more than 200 million Euros to bring Cristiano Ronaldo onto their team. Important Formula 1 races are being hosted in Abu Dhabi. It’s apparent that countries in the Gulf are attempting to capitalize on the fact that sports tourism is a growing industry. Even the UN claims that “mega sport events such as Olympics and World Cups can be a catalyst for tourism development if successfully leveraged in terms of destination branding, infrastructure development and other economic and social benefits.” The Gulf has dived right in on that idea.
With no other significant natural resource to invest in and export, Gulf countries hope to replace the oil money they expect to dry up with these other investments and mega-projects. The hope is that American companies will invest, create hubs and contribute to the economies in the Middle East. Many countries have set low tax rates to incentivize companies to invest in the region, but it’s unclear if American companies will actually follow suit. For example, Saudi Arabia saw a 10% decrease in foreign direct investment from American companies from 2018 to 2019. The Gulf countries have made a tremendous gamble on building tourism-oriented infrastructure.
However, these mega-projects will come at the expense of national prosperity, burning through the oil money these countries still have more quickly. Historical significance seems to be a more compelling draw for tourists, as compared to shopping malls. While organizations like the UN may claim that shopping tourism is a new phenomenon that continues to grow, when citing evidence, they point to shoppers in places like Madrid, Spain or Leon, Mexico. The difference is that places like these possess many other reasons to visit, including cultural and historical significance, incredible weather and accessibility. Unfortunately for Gulf countries, these boxes are harder to check. Aside from Mecca and Medina in Saudi Arabia — two of the world’s most significant religious and historical landmarks — I contend that Bahrain, the UAE and Qatar do not have a sufficient density of comparable sites to make them competitive with other tourist destinations.
While the governments of Gulf nations also look to host western expats, westerners tend to be hesitant due to human rights concerns. A typical American businessman probably doesn’t want to risk their firm’s image on unpredictable and less-than-tolerant regimes. Potential public relations disasters are something they know are best to avoid. While this thin veil of morality businesses possess may just aim to please consumers, it still remains. Without a broader political change in the region, it seems unlikely this will change.
Tourism just does not have the capacity to replace the billions of dollars gained from exporting oil. Neither does foreign investment or attracting expats. The future of Gulf economies seems bleak, and unless there is another method of solving this impending crisis, a massive geopolitical shift may occur.