Should Gulf Countries Pursue Mega-Events?
featured blog
Should Gulf Countries Pursue Mega-Events?
—
By Syeda Saniya Fatima, Analyst, Botho Emerging Markets Group
August 1, 2022
From sports to trade-adjacent events, the Gulf countries are set to be home to a plethora of mega-events in the course of this decade. While the UAE just wrapped up a successful Expo 2020 amidst an ongoing pandemic, Qatar is gearing up to host arguably one of the biggest sporting events in the world—FIFA World Cup 2022. Meanwhile, Saudi Arabia has declared their ambition to host Expo 2030. These mega-events, targeted to boost both economic and soft power credentials, have already garnered widespread international attention. The growing interest in the Gulf to host mega-events suggests that these events hold significant opportunities to boost host nations' economies. However, international scrutiny means negative press can potentially have counter effects too. So, should Gulf countries continue to pursue mega-events?
Previous studies on mega-events, such as the Olympic Games, show that the commercial gains from such events are frequently short-term and rarely extend beyond the event itself. Furthermore, policymakers frequently use mega-events in emerging markets as a catalyst for urban development. In the case of the Gulf countries, however, Dubai, Doha, and Riyadh all rank among the top urban centers. It could be argued that the goal in the Gulf is perhaps not to drive urban development but rather to use mega-events as a platform to showcase the opportunities that these urban centers provide, thereby boosting soft power credentials and securing investment impetus for the countries.
When it comes to mega-events as soft-power vehicles, sporting mega-events are among the major eye-grabbers in the world, and the FIFA World Cup is the most popular single-sport mega-event globally. With Doha set to host the 2022 tournament, Qatar has made headlines right from the bidding stage. As the first Middle Eastern country to host a FIFA World Cup, the event is primed to put Qatar on the global sporting map and boost the country's international image. However, not all of these headlines have been positive, and Qatar has been a victim of soft disempowerment—when soft power vehicles result in a loss of influence and attractiveness. This has been mainly due to accusations of corruption and labor rights concerns surrounding the event. Yet, as airline ticket prices to Doha soar by up to 19 times on match days, early trends indicate that Doha will gain economically from the event, with an obvious boost to tourism, aviation, and hospitality industries, at least on a short-term basis.
These economic gains, even if short-term, can be very significant, as seen in Saudi Arabia’s hosting of the Formula One Grand Prix. The 2022 edition, which also received similar reputational challenges due to security threats, saw a remarkable tourism-led spike in the country’s hospitality sector. The average daily rate at Jeddah’s hotels on Dec. 4, one day before the race, reached SR1,707.72 ($455.39), up from SR612.25 ($163.14) the previous week, while revenue per available room (RevPAR) was SR1,517.92 ($404.46)—both all-time highs, according to hospitality data provider STR. To put things in perspective, while Jeddah is new to hosting major sporting events, the city has always formed the cornerstone of Saudi Arabia’s religious tourism industry that attracts millions every year, indicating the extent of the boost the city’s hospitality sector experienced. Furthermore, it's not just the hospitality and tourism industries that stand to benefit. These events also allow for big moneymakers running global corporations to form relationships on the sidelines of sporting events with local stakeholders. For instance, as the F1 Grand Prix qualifying races got underway in Jeddah in December 2021, French President Emmanuel Macron wrapped up a tour of the Gulf region with a visit to Jeddah, accompanied by a large contingent of French businesses. While Macron met with Saudi Arabia’s crown prince, Mohammed Bin Salman, French companies, including BNP Paribas, Sanofi, and EDF Renewables, signed 27 deals with Saudi Arabian companies, hinting at the more long-term deals that some of the mega events can bring in.
So, despite the challenges that come with mega-events, it would be unfair to write off the potential of mega-events in the Gulf. The UAE’s recent hosting of the Expo 2020 event provides an incredible example of a Gulf country maximizing a mega-event to boost its economy by attracting investments and capitalizing on soft power. Expo 2020, which was held from October 2021 to March 2022, helped the UAE's economy significantly. During the six-month World Expo, more than three out of every four companies in Dubai – approximately 76.5 percent – experienced growth, while 73.5 percent established new business relationships. The hospitality industry, which had taken a severe hit due to the pandemic, clocked gains much bigger than that of Milan, which previously hosted Expo 2015. Despite facing the added challenge of a pandemic, RevPAR in Dubai in January 2022 increased to $125 (AED460), compared to $80 (AED293) in January 2021, marking an increase of 56.3 percent and outperforming Milan’s recorded RevPAR growth of 54.5 percent in 2015.
The UAE also witnessed medium- and long-term investments, particularly in Dubai’s real estate market, which had been on a downward trend before the pandemic. The industry saw an increase in housing rentals by as much as 40%–60%, with luxury rentals seeing a 2.5-times rise. That the UAE outperformed its predecessor shows that it had something deeper going for it — policy interventions beyond the event itself. From the introduction of long-term residential opportunities for migrants with special talents to the allowance of 100% ownership in businesses, Expo 2020 anchored vital pro-investment policies in the country, contributing to a positive soft power that built the UAE’s image as a COVID-19 resilient economy.
While other Gulf countries' hosting of mega-events has also led to policy reforms—Qatar, for instance, introduced significant labor law reforms—the UAE’s experience with Expo 2020 exemplifies the potential of mega-events in the Gulf region. Such was the success of the event that its value was expected to trickle down and tremendously benefit its Gulf counterparts, too. While time will tell us about the long-term benefits of the event, proactive policies accompanying the mega-events are likely to boost the country’s branding and soft power, contribute to short and medium-term economic gains, and together bring long-term value. So, should Gulf countries continue to pursue mega-events? Yes, but their best value lies in utilizing the center stage provided by these events to showcase themselves beyond the immediate purpose of the events.
Syeda Saniya Fatima is an Analyst at Botho Emerging Markets Group.