The Economics of HAJJ

Every year, millions of pilgrims from around the globe trek to Mecca to complete the hajj–the sacred pilgrimage that all Muslims must complete in their lifetime at least once if they are able. According to a Prophetic narration cited in Bukhari “Whoever performs Hajj and does not commit any obscenity or transgression will return [free from sins] as he was on the day his mother gave birth to him.”

The sheer scale of demand by Muslims all around the world to complete their Hajj has given rise to consumer-capitalist models of religious tourism on an unprecedented scale. The cost of Hajj has increased significantly in recent years generating billions of dollars for the Saudi economy. In this article we will look at the economics of Hajj.

Until the introduction of modern transport systems, most Muslims beyond the Arab world had little expectation of completing this vital Islamic obligation. Before the mid-1950s, the number of overseas pilgrims rarely exceeded 100,000 and modern Saudi institutions were still developing. Yet by the early 2000s, the total number of Hajj pilgrims had passed the 2m mark, reaching a recent peak of just over 3m in 2012.

New opportunities for pilgrimage in the jet age have put immense pressure on the infrastructure of Mecca. Hundreds have lost their lives during periodic disasters including fires and stampedes, most recently in 2015, when a stampede and crush of pilgrims in Mina killed at least 2,426 people, according to an Associated Press count. With growing pressure, the Saudi authorities have invested huge sums in continually seeking to improve facilities and the overall management of the Hajj.

The millions who come to Mecca every year bring billions of dollars to the Saudi economy. Restaurants, travel agents, airlines and mobile phone companies all earn big bucks during the Hajj, and the government benefits in the form of taxes.

The Saudi economy, which is scrabbling to find other sources of revenue besides oil, has always benefitted from the influx of pilgrims, so much so that revenue from the pilgrims makes up an estimated 3 percent of Saudi Arabia’s GDP. Pilgrims usually arrive several days in advance and often stay on for a week or more, generating around US$8bn in revenues and making the hajj Saudi Arabia’s second largest income earner after hydrocarbons.

Millions also travel every year to perform the Umrah – the non-obligatory pilgrimage that can be performed at any time of year. Umrah attracted eight million pilgrims in 2017 and generated a further US$4bn for Saudi Arabia. Under its Vision 2030 strategy, the government plans to attract 30 million a year for Umrah.

According to the Mecca Chamber of Commerce and Industry, 25%–30% of the private sector’s income in the region around Mecca and Medina depends on pilgrimage. However, there is little broader data or research on the economic impact of the hajj as a whole.

 ‘It is difficult to work out the economic impact [of the hajj] as it is so all-encompassing, touching on almost every aspect of the economy – not just Mecca and Medina, but all of Saudi Arabia,’ says Thomas Wigley, partner at law firm Trowers & Hamlins, in Oman. The hajj also has a spillover effect throughout the Middle East, for aviation services in particular.

Government policy changes on pilgrimage quotas have added to the difficulty of estimating average annual revenue for the kingdom from pilgrimage. ‘In total it is estimated at US$16bn, but it could be much more than that,’ says Mohsin Tutla, chairman of Hajj People, which organises the annual World Hajj and Umrah Convention (WHUC) in London.

Saudi Arabia sets hajj quotas on the basis of an international Organisation of Islamic Cooperation (OIC) agreement, allowing 1,000 pilgrims per million of the total Muslim population in each sending country, although Saudi Arabia is flexible over the caps.

According to Seán McLoughlin, senior lecturer in religion, anthropology and Islam at the University of Leeds in the UK, 75% of non-Saudi hajj pilgrims come from eight countries: Indonesia, Pakistan, Bangladesh, Iran, Egypt, Nigeria, Turkey (all with Muslim-majority populations) and India. But quotas in Muslim-minority countries are disproportionately higher.

Muslims in the West are privileged as they can go on demand unlike in poorer countries like Indonesia which homes more than 220 million Muslims. Indonesia is one of the Muslim-majority countries where a government agency handles hajj pilgrimages by holding deposits on behalf of future pilgrims (who may wait 30 years or more for a hajj visa). The deposits are held in a fund used to help subsidise poorer pilgrims. 

In the UK Hajj packages average around £4,750 whereas for umrah the equivalent figure is £1,050. The cost of Hajj-going has increased by around 25% in recent years and the average profitability for operators is said to be £100 to £200 per pilgrim although I’m sure this is much higher. The Council of British Hajjis, suggested that this niche sector of the UK economy is worth around £150m and £310m including Umrah. Unlike all Muslim-majority nations, Muslim minorities in the West are not restricted to a Hajj quota of 1,000 pilgrims

The kingdom’s Vision 2030, published by Crown Prince Salman in 2016, underlines that the Islamic tourism market has a significant role to play in diversifying Saudi Arabia’s non-oil-based economy. An investment of US$50 billion in new transport and other infrastructure also aims to double the size of the Hajj by the end of the next decade and the hajj and Umrah are expected to generate US$150bn of income in the country over the next five years, creating a further 100,000 permanent hajj-related jobs.

As Saudi Arabia seeks to move its economic dependency off hydrocarbons and recognises the economic potential of Hajj and Umrah, we are likely to see a greater number of Muslims visiting Makkah and Madinah. In addition to this the arrival of new technologies if deployed effectively could help to ease the logistical challenge. But Hajj will always remain one of the most sacrosanct visits a Muslim will make in his life and the demand is only likely to increase further as Islam remains the fastest growing religion in the world. How the economics of Hajj look like in the future remains to be seen.