Saudi Arabia Economy
Introduction
Saudi Arabia is an oil based economy. The government is the main control of the economic activities in the country. Saudi Arabia has 25% of the petroleum reserves in the world. It is considered the largest oil exporter in the world. In addition, Saudi Arabia plays an important role in OPEC. The economy of Saudi Arabia has grown greatly for the last few years. The Saudi Arabia government has used revenue from oil to expand its economy. The Saudi Arabian government has used the oil revenues to convert its traditional economy into an industrial economy. Though other countries have benefited a lot from oil reserves, they have not experienced good economic growth like Saudi Arabia. There are various factors that have led to good economic growth like the diversification programs. The government has created a wide range of development plans to help develop different sectors of the economy including education, investment etc. The commitment of the government in allocating funds and monitoring the plans has led to economic growth. Moreover, the involvement of Saudi Arabia in trade has resulted to growth. Saudi Arabia became a member of WTO in 2005. This paper analyzes economic growth in Saudi Arabia.
Discussion
Saudi Arabia Economy
The petroleum sector in the country accounts for almost 45% of the revenues in the country. In addition, the petroleum sector in the country accounts for 90% of revenue derived from exports. Also, studies have shown that the petroleum economy in the country accounts for 55% of the gross domestic product in the country. The petroleum industry has employed more than 5 million foreign workers and other local workers. The workers play a crucial role in Saudi Arabia economy. The Saudi Arabian government has encouraged involvement of private sector in other sector so as to create jobs in the country. Also, the private sector is supposed to reduce the country’s dependence on oil so as to promote economic growth (Oxford business group, 2010).
At first, the Saudi Arabia economy was based on agriculture. Most of the people in the country relied on subsistence farming. The population in the country was nomadic before oil was discovered in 1930s.The country experienced rapid economic growth in 1973 as a result of oil crisis in the world. The 1973 oil crisis resulted after the organization of Arab petroleum exporting countries members established an oil embargo. The Oil embargo was in response to US action to supply the Israel military again with fighting materials. The United States government supported the Israel military during the yom Kippur war. The US actions led to oil embargo and high oil prices. In addition, the United States actionas affected supply of oil in the world and also led to recession. This forced NATO to develop strong measures to prevent the impact of US actions on the oil supply and avoid recession. As a result, most of the countries from Europe and Japan moved away from the US Middle East policy (Oxford business group, 2010).
Most of the Arab oil producers associated the end of embargo with peace efforts in the Middle East. They argued that the United States government attained its objectives by creating peace in the Middle East. This further complicated the situation in the country. Most of the regions like Saudi Arabia benefited a lot from the oil crisis experienced in 1973. This is because the countries were able to expand their economies. The Saudi Arabian government took advantage of the oil crisis in the country and established its economy. The oil producers in the world increased the process of oil due to the crisis. This in turn increased revenues from oil and hence encouraged economic growth (Federal research division, 2004).
The oil crisis experienced in the country in 1973 led to rapid economic growth in the country and also increased the gross domestic product per capital. The GPD per capita increased by 1,858%. The gross domestic product declined in 1980s. The GPD in the country reduced by 58% in 1980s and this resulted to slow economic growth in the country.As a result, the government developed policies to encourage diversification in Saudi Arabia. The diversification helped boost economic growth in the country. The Saudi Arabia government developed two development plans in 1970s. The development plans focused on the development of infrastructure. The number of roads paved increased by 28.The third development plan covered 1980 to 1985. The third development plan focused on education, health and social services. Though the government spent a lot of money improving the productive sectors of the economy, it did not achieve its objective as stated. This affected the growth of the economy badly as it slowed economic development in the country (Federal research division, 2004).
The fourth development plan covered 1985 to 1990. The development plan was aimed at transforming the economy in the country by encouraging the private sector to work with the public sector. The infrastructure in the country was well developed, but education and training were not developed. This forced the government to find ways to transform the education sector and other sectors. The government encouraged the private firms to contribute to the development of basic areas of the economy like education. In addition, the government promoted foreign investment. Joint ventures between the Saudi public and private firms were promoted so as to enhance economic growth in the country. The private sector contributed a lot to the development of the economy of Saudi Arabia. The private sector contributed 70% of the country’s GPD derived from other sectors apart from oil in 1987.At first, the private sector focused on trade, commerce and investment, but later spread to other sectors.
For example, the private sector covered agriculture, banking and construction firms. The government funded private investment in different parts of the country. The government wanted the private sector to own more than 70% in the joint venture enterprises. Apart from the second and third development plan, the government established other plans. For example, the government established a 5 year development plans. The government decided to allocate revenues from petroleum to economic growth. The income was used to transform the oil based economy to a modern industrial economy. The government maintained the Islamic values and customs while developing the economy (Kogan page, 2004).
The fifth development plan has also contributed a lot to economic development in the country. The plan covered 1990 to 1995. The fifth plan focused on improving defense in the country. It also concentrated on improving government social services, regional development employment in the private sector. The creation of employment opportunities in the private sector helped reduce the number of foreign workers who worked in the country. This in turn helped increase the gross domestic product and led to economic growth.
Moreover, the government established a development plan in 1996 to help reduce the cost of government services. The plan lasted for 4 years. The plan reduced the cost of government services and improved education in the country. The government argued that the plan will help reduce dependence on oil by diversifying the economic activity in the country. The government helped diversity economic activities in the private sector including industry and agriculture. Like the sixth plan, the seventh plan was aimed at diversifying the economic and also improving the role of private sector in Saudi Arabia economy. The Saudi Arabia government aimed to achieve a gross domestic growth rate of 3.16% per year from 2000 to 2004. The growth for the private sector was about 5.04% and the non oil sector was 4.00 %. In 2007, the non oil manufacturing activities in the country accounted for almost 9% of the gross domestic product in the country. The non oil manufacturing accounted for 5% of the employment in the country (Kogan page, 2004).
Though the government has not achieved the economic growth set, the country’s econmy has progressed well. The economic growth in the country has improved greatly due to the development plans established by the government. The production of oil in the country has improved the living standards of most people in Saudi Arabia. The population growth in the country has increased greatly and this has affected the government negatively. The government is not able to improve the living standards in the country due to financial difficulties and high population growth. Though Saudi Arabia depends mostly on oil, it also depends on other sectors like agriculture and industry. The industry and agriculture account for a large percentage of economic activity in the country. The diversification plans established by the government accounted for 20% of GPD in the country (Kogan page, 2004).
The gross domestic product for the last few years is as follows. The gross domestic product in 1970 was 22,565. In addition, the gross domestic product in 1975 and 1980 was 163,670 and 546, 602 respectively. The gross domestic product in the country improved greatly between 1975 and 1980 due to the diversification program in the country. Moreover, the gross domestic product in 1985 and 1990 was 375,328 and 437, 333. The gross domestic product declined in 1985 from1980 due to poor productivity in the country. The rate of inflation in the country in 1980 was 94 and in 1985 it was 91. The rate of inflation decreased in 1990 to 90 but it increased in 1995, 2000 and 2005. The rate of inflation in 1995, 2000 and 2005 was almost 102, 101 and 100 respectively. The gross domestic product in 1995, 2000 and 2005 was 535, 504, 707, 657 and 1,151 600 respectively. The gross domestic product in the country increased from 1995. The country recorded a high growth rate on 2005 as evidenced by the high rate of GPD (Kogan page, 2004).
During the oil price increase in 2004 and 2008, the Saudi Arabia had enough oil reserves to overcome the global crisis. The government managed to make large profits from the 2004 -2008 increase in oil prices. The increase in oil prices during this time led to increase in the rate of gross domestic product in the country. This in turn led to economic growth in the country as the government was able to fund a lot of economic projects and hence stimulate economic growth. However, the reduction in oil prices in 2009 had a negative impact on economic growth in the country. This is because it resulted to slow economic growth in the country.
The reduction in oil prices affected exports of oil in the country. The Saudi Arabian companies were not able to export oil to other parts of the world due to low prices. This in turn reduced the revenue gotten from oil exports and hence affected economic projects. The reduction in oil prices in the country forced the government to post phone some of the economic development projects. This affected economic growth in the country. Apart from cutting funding on several projects, the government took other actions. For example, the government started to direct capital to financial institutions. This was aimed at facilitating economic growth in the country. Providing capital to financial institutions could help cater for financial needs in the country and hence lead to economic growth.
The government also reduced the rates in financial institutions to stimulate investments in the country and growth. The high rates in the banking institutions affected investments. This is because most people were not willing to invest in the country due to high rates. Thus, this led to slow economic growth.Apart from reducing the rates, it also guaranteed bank deposits so as to boost investments and promote economic growth. Saudi Arabia was ranked the strongest economy in the Arab region in 2009. This is according to a report released by World Bank. The purchasing power parity in the country was 3.75 compared to US dollar.
The gross domestic product in 2009 was almost $592.885 billion. This made the country to be ranked 22nd in the world interns of purchasing power parity. The country was ranked 23 rd in the world in terms of nominal having a domestic gross product of almost $469.425 billion. The gross domestic product growth in the country was -0.6%The gross domestic product was affected by the reduction in oil prices and this led to reduction. The GPD per capital in the country in 2009 was almost $23, 814 and the country was categorized 38 in the world in terms of purchasing power parity. Different sectors in the country contributed to economic growth in 2009.
The agricultural sector accounted for 3.2% of the gross domestic product in 2009. In addition, the industrial sector contributed 60.4% of the gross domestic sector while the service industry contributed 36.4%.The inflation rate in the country in 2009 was 5%. The World Bank report showed that Saudi Arabia offered good investment opportunities in the world. Most of the industries in the country encouraged foreign investment. The country was ranked 11th in the world as people found it easy to do business in different industries in the country (Cordesman 2003).
The strong economic growth in the country is as a result of trading with other countries. Saudi Arabia joined the world trade organization so as to boost economic growth in the country and trade. The country increased access to foreign goods and services after joining the world trade organizations. The government created the “Saudi Arabian general investment authority” in 2000 to promote foreign direct investment. The country has been able to trade with other countries in the world including United States, UK. Saudi Arabia has exported petroleum and petroleum products to different countries. It has also imported goods and labor from different parts of the world. Though the country opened some sectors after joining WTO in 2005, the country prevents foreign investment in other sectors. For example, Saudi Arabia has prevented forewing direct investment in telecommunication industries and insurance industry. In addition, the government has prevented foreign investment in power transmission industries (Cordesman 2003).
The country was ranked 13th in the world as economists and researchers considered it to be one of the most economically competitive nations in the world. This is according to world bank report on doing business released in 2010.The report showed the rapid economic growth in the middle east countries. For example, the report highlighted the tremendous economic growth in Saudi Arabia. The reporters associated the rapid economic growth in the country with the reforms in the economic sector. The country has improved its ability to do business since 2004. The improvement is linked with numerous policies and reforms in the country. The Saudi Arabian government has developed various policy reforms that are aimed at facilitating entrepreneurship. Most of the companies in the country have been doing well and have been ranked among the top 100 companies in the world (Cordesman 2003).
The government has given diversification of the economy top priority. This is to ensure the government does not only rely on oil. The diversification program will help enhance foreign direct investment in the country. This will in turn help boost economic development in the country. The oil income accounts for 80% of the government income. The oil revenue and contribution to gross domestic product reduced in 2009 by 48%. The efforts to reduce reliance on oil have proved effective for the last few years as the government has managed to establish other sectors. The efforts are expected to bear more fruits in future after the diversification of the economy. Saudi Arabia has led Arab peninsula in promoting foreign direct investment in the country. The country continues to be the strongest economy in the gulf region. The foreign direct investment will help strengthen the economy. The income from foreign directed investment in 2009 dropped. The nominal gross domestic product rose from 8.0% to 9.4% in 2008 and 2009 respectively. The foreign direct investment flows are expected to improve in 2011 and hence lead to good economic growth (Cordesman 2003).
Further, the rapid economic growth in the country is as a result of government commitment in enhancing economic growth. The government has been committed to promote economic growth in the country by providing counter measures when crisis arise. This has shown expansion of the Saudi Arabia economy. The Saudi Arabian government remained committed to achieving economic growth even during the time of global crisis. The government established different development plans as stated above to facilitate growth in the country. The government improved its spending for the next five years in 2010-2014 development plans. The spending increased by 67.2%. The government argued that the increase in government spending by 16.0% was aimed at enhancing development. The government projected the spending to increase in 2011 by 2011. The commitment in spending has made it easy for the country to develop economic development projects. The country has been able to fund different types of economic development projects in different sectors. This has helped diversify the economic activities in the country (Wilson 2004).
The development plans have been effective in promoting economic growth unlike plans in other countries. Most of the countries have established plans to help them improve their economies, but they have not been effective. This is because of lack of funds and commitment. The governments in such countries do not allocate enough funds for the development plans and this has made it hard to carry out the projects. On the other hand, the Saudi Arabian government has allocated adequate funds for the economic projects in the country. Additionally, the development plans in the countries do not succeed because of lack of commitment. Most of the governments are not committed to funding the projects and implementing the plans established. This has in turn led to slow development in the countries. The Saudi Arabian government has been committed to fund the plans and implement them as stated earlier. This has led to good economic growth in the country (Wilson 2004).
The ninth development plan covers 2010 to 2014 and it is one of five year plans in a series of strategies aimed at attaining socioeconomic vision by 2024. The country is committed to changing its economy and social settings by 2024. Development plans created in the country for the last few decades have been effective. This is because the plans have helped attain development in different sectors of the economy. This has helped strengthen the economic structures in the country. The economic growth in the country has improved greatly from 1970 to 2010(Wilson 2004).
Though the economy experienced a slow down in 2008 and 2009 during the economic recession in the world, it will continue to grow. The economic recession in the world affected different economies in different countries. The economic crisis in the world affected major sectors of the economy like agriculture, housing etc. This led to slow economic growth in the world.Like other countries; Saudi Arabian was also affected by the global crisis. The main sectors in the country like oil were affected and this lowered the GPD. The Ninth development plan will help attain a gross domestic product of 5.2%. This will increase economic output in the country. The economic output in the country in 2009 was 293.6 billion USD. The economic output in 2014 will be 293.6 billion USD (Wilson 2004).
The government has allocated enough money to human resource development in the country. The human resource development in the country is made up of education development. The government has allocated enough funds to help boost education in the country and science and technology. The development plan has encouraged the private sector to develop more schools in the country. This will help boost the number of schools in the country to 15% by 2014. This move is aimed at developing knowledge economy. In addition, the development plan is also aimed at improving technology in the country so as to enhance development. The government has established 25 technological research institutes and facilities. The institutes and facilities will help produce works having the right knowledge in technology and hence be able to apply technology in the economy. This will help boost employment in the country as most of the graduates will be able to get jobs . The improvement in education system is important as it will help the country not rely on foreign workers. The country will be able to produce qualified workers by 2014.Hence; this will ensure good economic growth by 2014 (Ramady 2010).
Though the country has experienced good economic growth, the growth in the country is hindered by various factors. First, the economic growth in the country is hindered by the work force. The total number of employees in Saudi Arabia is 6.922 million. 80% of the employees in the country are immigrants. The country relies mostly on workers from other countries. This is because it is not able to produce qualified and experienced workers like other country. The education system in the country has not been effective as this has led to poor performance of employees. Most of the graduates in the country are not able to work in the private sector. This is because they do not have adequate skills. The kind of skills that the graduates have is not inline with the demands of the private sector.
Lack of qualified graduates to work in the private sector has affected economic growth in the country. This is because it has affected diversification of the economy and development. The private sector has employed more than 4.6 million employees from other countries. The government established the diversification programs to help improve the sector by diversifying it and creating employment opportunities. However, the government has not been able to create jobs in the private sector as the graduates in the country do not get employment. The rate of unemployment in the country has increased greatly for the last few years. This is mainly due to lack of employment opportunities. The rate of unemployment in 2009 was 11.6%.The rate of unemployment in the country in 2009 was higher than the previous years (Ramady 2010).
Countries that have qualified and experienced workforce have performed well. The countries have recorded good economic growth. This is because the workers contribute to the development of the economy positively. In addition, the government does not rely on foreign workers to work in various sectors in the country. This has increased productivity in the country and gross domestic product. It has also helped improve the rate of unemployment in the country. This is because most people in the country are able to get employment. The Saudi Arabian government should improve its education system so as to be able to perform well.The government should ensure the graduates in the country are able to work in different sectors in the country. This will help increase productivity and performance of various sectors of the economy and thus improve economic growth. It will also improve the gross domestic product and reduce dependency on foreign workers. This will ensure enough income flow in the country (Ramady 2010).
Conclusion
Saudi Arabia is considered one of the largest economies in the world and in Arab region. The country has experienced rapid economic growth for the last few years. The growth is as a result of various factors. First, the rapid economic growth in the country is as a result of the diversification program established by the government. The Saudi Arabian government created a diversifaction program that is made up of various development plans. The government established development plans in 1970 to help improve economic growth in the country.
The government also established economic development plans from 1970 to 2005 to help enhance the economic growth in the country. The plans helped improve infrastructure in the country. The plans have also helped develop various sectors in the country. For example, it helped improve the education sector, agricultural sector and other sectors. The development plans proved effective as the country registered good economic growth. In addition, the 2010-2014 development plans will help improve the economy by encouraging foreign direct investment and enhancing education in the country.
The 2010-2014 development plan has given priority to education so as to equip graduates with the right knowledge and reduce dependencies on foreign workers. The economic development in the country is due to government commitment. The government has been committed to enhance economic growth by allocating enough funds and supporting the plans. The economic growth also resulted from the oil crisis experienced in 1973. The Arabian government took advantage of the increase in oil prices to boost its economy. The Economy is expected to grow in future.
Reference
Cordesman,A.H.Saudi Arabia Enters the Twenty-first Century. The political, foreign policy, economic, and energy dimensions. Greenwood Publishing Group, 2003
Federal research division. Saudi Arabia A Country Study. Kessinger Publishing, 2004
Kogan page. Middle East Review. Kogan Page Publishers, 2004
Ramady, M.A.The Saudi Arabian Economy: Policies, Achievements, and Challenges. Springer, 2010
Oxford business group. The Report. Saudi Arabia 2010. Oxford Business Group,2010
Wilson, R. Economic development in Saudi Arabia. Routledge, 2004
Is this your assignment or some part of it?
We can do it for you! Click to Order!
