MECCA, Saudi Arabia (Reuters) - Rashed Abdullah displays Oriental perfumes on a glass table to late-night shoppers in his small shop in Mecca ready for what he hopes will be a sales bonanza during this month's haj pilgrimage.
He is confident of attracting customers after fears of a swine flu outbreak kept many away last year.
"This year will be the best. There is really strong demand," he said, standing behind an incense collection in one of dozens souvenir shops around the Grand Mosque in Mecca.
Business has picked up in Islam's holiest city since Ramadan, the Islamic fasting month which fell in August and September when many visit Mecca.
The annual haj is one of the world's biggest religious gatherings, bringing together millions of pilgrims in Saudi Arabia, the birthplace of Islam.
In 2009, the number of pilgrims fell to about 2.5 million but a record 4 million are expected next week when the haj begins.
"We wanted to come last year but friends advised us to postpone so we came this year," said Shaikh Habib, a pilgrim from India who came with four members of his family.
While last year hotels had trouble filling rooms in Mecca and the nearby port city of Jeddah, where most arrive by air, this year hotels are almost entirely fully booked.
"People are really interested and everyone is trying to make up for last year ... things will be much better this year," said Walid Abu Sabaa, head of the tourism and hotels committee at the Mecca chamber of commerce.
Mecca governor Khalid al-Faisal said 1.5 millions foreign pilgrims had already arrived, Saudi daily al-Watan said on Wednesday.
"Sales have been going well, many have arrived early," said Salah al-Maqdad who sells prayer beads and perfumes.
John Sfakianakis, chief economist at Banque Saudi Fransi, said foreigners were forecast to spend 8 billion riyals ($2.1 billion) during the haj, up from 7.2 billion last year, while locals would spend 3.6 billion riyals versus 3.3 billion riyals.
"The multiplier effect from the haj season for the entire economy could surpass 35 billion riyals this year alone," he said, adding last year it was 31 billion riyals.
Tourism GDP would surpass 7.2 percent of non-oil GDP this year, up from 6.8 percent in 2009, and 2.8 percent of overall GDP, up from 2.6 percent last year, he estimated.
Although revenues from pilgrims are small compared to the massive wealth of the kingdom because of its oil and gas resources, it helps a sector the government is developing.
Faced with a fast-rising population of 18 million Saudis, the government needs to create jobs and developing tourism is one area to do that.
"The main economic potential for the haj is encouraging pilgrims to visit elsewhere in the kingdom," said Paul Gamble, head of research at Saudi bank Jadwa Investment in Riyadh.
So far pilgrim visas are limited to visit the two holy cities of Mecca and Medina but officials have said they are working on plans to allow visits to tourist sites as well.
"There are a variety of potential tourists sites in and around the Mecca region," Gamble said.
Even in the evening, the floodlighted Grand Mosque -- home to the Kaaba, the ancient cube-shaped shrine that Muslims around the world face when they pray -- is packed with worshippers, while dozens rest or picnic in the nearby streets.
"We want to stay as long as possible and we also want to see Medina," said Shaikh Habib's brother Fairouz, after performing evening prayers in the haram.