The Business of Hajj

By: Saud Masud

As a six year old I vividly remember my family and I driving from Riyadh to Mecca to perform the Hajj in a caravan-like formation accompanied by other families, and anxious to reach Islam’s holiest city and birthplace of Prophet Muhammad (PBUH).  Hajj is one of the five pillars of Islam and an obligation, provided a Muslim is financially and physically able. This ritual has been exercised for nearly 4,000 years dating back to Prophet Abraham (PBUH). Recalling the entire Hajj experience I continue to find it as a unique source of strength and humility as well as a spiritual chain linking billions throughout history. As a business professional I also can’t help but wonder about the non-spiritual facet of this unique event or the business of Hajj.

According to the Ministry of Hajj in Saudi Arabia roughly 2.5 million pilgrims participated in the 2009 Hajj with almost 1.6 million as foreign pilgrims (i.e. 64% of total pilgrims). According to other sources adding in unregistered pilgrims the actual number may be between 3 and 3.5 million pilgrims.  The Muslim population worldwide stands at over 1.6 billion or 25% of total world population.  Therefore 0.2% of total Muslim population or one out of every 500 Muslims performs the Hajj every year. This may seem like a fairly small figure in the larger scheme of things but for Mecca, a city with a natural population of around 1.6 million, more than doubling of the local population at least once a year, is no small feat to handle, especially logistically and administratively.

Being at the center of the Muslim universe Mecca’s economy has been primarily religious-tourism based. However for centuries and even well before Islam this city was a famous commerce hub in between the key countries of Jordan and Yemen.  According to Madinah Chamber of Commerce and Industry, Hajj and Umrah combined, annually generates more than SR30 billion with some sources estimating around SR35 billion or $9.3 billion of total economic benefit to Saudi Arabia.  To put in some perspective, $9.3 billion or 2% of Saudi Arabia’s total gross domestic product (GDP) of $470 billion may not appear very meaningful to the Saudi economy but it essentially contributes 20% of country’s non-oil GDP. Note that while oil fluctuations may significantly impact overall Saudi government revenue, religious tourism for the most part remains fairly predictable and consistent; thereby further adding to its significance from an economic standpoint. Another way to look at the Hajj opportunity is that the Saudi economy benefits by roughly $3,000 in annual revenues for every pilgrim performing the Hajj or Umrah.

Glancing over the various Hajj packages available online, for US-based pilgrims, they range from an economical $3,000 per person to $12,000 per person at the high end.  While Hajj is typically, a five-day event these packages may include flight tickets, food and lodging spread over 12 to15 days covering Mecca, Madinah and Jeddah, for example. Strictly speaking dollars and cents one may argue that for an average family of four, lets say, a $12,000 total Hajj budget may be quite expensive however if one can afford it and we know that Hajj is incumbent only once in a lifetime, then perhaps the economics seem quite attractive. According to the IMF, Pakistan’s GDP per capita is roughly $2,500, which implies an average person may have to save money for several years before being able to afford Hajj.

Inflation and rising prices anywhere from food to transportation are recurring concern of many pilgrims who also seek to bring back merchandise and gifts including Zamzam (holy water) for their families. In order to assure fair pricing and avoidance of overcharging Hajjis (pilgrims), the Saudi government has been strictly regulating the services sector and the service providers. Historically, certain designated groups or unions would take sole responsibility for providing various services to the Hajjis including lodging, travel and providing Zamzam. Furthermore, there are restrictions on Saudi nationals and foreigners on performing one Hajj in a five year period to avoid overcapacity issues that may in turn lead to supply shortages and rising prices among other problems. The Saudi government also works closely with foreign countries on fixed quotas to minimize overcrowding and related challenges. According to some sources, 11,066 visas were granted to US Hajj participants in 2009 with 48% granted through New York.  In comparison nearly 160,000 pilgrims from Pakistan are expected to travel for Hajj in 2010. This differential may be attributed to the population difference as Pakistan is home to nearly 160 million Muslims, while according to CAIR (Council on American-Islamic Relations) there are approximately 7 million Muslims in the U.S.

Finally, to accommodate the growing pilgrim population (expected to double in next 30 years) the Saudi government has spent and plans to spend billions on the infrastructure upgrade ranging from four lane highways to mosque expansions, e.g. the Masjid al-Haram can accommodate more than 2 million worshipers during Hajj. Roughly 23,000 in administrative and security staff, health monitors and travel guides are deployed to manage around 3 million pilgrims, i.e. one-service personnel for every 130 pilgrims. Emergency controls to counter heat, rains, floods and fires, etc. are being carried out using state of the art communications and infrastructure machinery/equipment. According to Mecca’s mayor about $125 billion in projects will be developed in and around Mecca to address the pilgrim population growth and needs.

While the scale and scope of Hajj is impressive and is a business worth billions of dollars, what every pilgrim comes to seek in terms of spiritual liberation and divine communion is truly priceless.

Saud Masud is the CEO of SM Advisory Group, LLC. a consultancy firm focused on Middle East, North Africa and South Asia region (MENASA). Previously, Mr. Masud was the Head of Investment Research at UBS for Middle East and North Africa based in Dubai. In addition to overseeing the research platform he was also a Sr. Analyst covering Real Estate sector for the Middle East region. Before moving to Dubai Mr. Masud was a Sr. Analyst for 5 years covering the tech sector for UBS in New York. Prior to Wall Street Mr. Masud ran an Internet start-up, Synapse Worldwide and engaged in management roles at Lucent Technologies based in New Jersey. Mr. Masud holds both a Bachelor of Science in Electrical Engineering and MBA in finance from Virgina Tech. Mr. Masud has often appeared as guest on TV and radio including CNBC, Bloomberg, CNN, BBC, Voice of America, etc. and has been frequently quoted in business news outlets like Wall Street Journal, Financial Times, TIME, Reuters, etc.

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