In a world of growing demand for energy and soaring oil prices, the Saudis have absolutely nothing to worry about; Saudi Arabia’s oil reserves account for more than 25% from the world’s total and its natural gas reserves are forth within the world (after Russia, Iran and Qatar). However, as we describe below, the Hashemite Kingdom faces some very good economic challenges which call for attention.
Introduction
Saudi Arabia stands out as the largest nation during the Middle East. It is an absolute monarchy, ruled by HM King Abdullah bin Abdul Aziz al-Saud (since King Fahd’s death in 2005) and sees the Koran as the main source of law. It's quite a dominant player inside the international field, mainly because of its weight in IPAC as well as the global energy market and via its cooperation with each the U.S. (e.g., from the war with Iraq) as well as the Arab League.
The national currency is the Saudi riyal (SR), that is pegged towards US dollar at US$1 = SR3.745. Saudi Arabia’s GDP was 379,476.7 Million USD in 2007, which places the Saudi economy at the world’s 25th place, with 4.7% GDP growth (ranked 133rd inside world and 2PP lower than in 2005). Even though total population grows fast, as we additional discuss below, the Saudi’s 2007 Per Capita GDP (9,227.81 USD) was ranked 35th within the world by the International Monetary Fund. Not surprisingly, oil exports accounted for 40% of GDP.
The Saudi economy is even now heavily dependent on oil production and related industries (e.g. refineries and petroleum industries). The financial sector can also be incredibly developed, partially because banks do not pay taxes.
Saudi Arabia is an infertile state and water resources are limited. Agriculture accounts for your really little fraction of the economy; virtually half of agricultural solutions are imported.
However, the major economic challenge Saudi Arabia faces these days stands out as the enormous unemployment rate in 1 from the world’s fastest growing populations. Saudi Arabia has the 7th biggest birth rate worldwide, with 25 births per 1000 inhabitants. Reported unemployment accounts for 26% and the total variety of unemployed Saudis grows at a horrifying 4% a year.
Oil production can be at risk, once the existing 80 oil and gas fields have a decline rate of 5-12 percent a year.
Changes in economic policy
To meet these challenges, the Saudi federal government engage into quite a few measurements, which focus on diversifying the Saudi economy, strengthen its importance inside global energy market and create jobs for young Saudis.
These measurements include:
1. An 18 billion USD investment to increase oil production to a potential of 13.1 million barrels per day in 2013.
2. King Abdullah Economic City, an ambitious project to produce an industrial and economic centre at the coast from the Red Sea with an investment of 28.1 billion OSD.
3. “Saudiisation“: a plan to shift current work held by foreigners to Saudis.
4. Further investments in petrochemical industries, real estate projects and foreign direct investments overseas.
5. Removal of tariffs in an effort to boost consumption.
These changes and others indicate how the Saudi federal government is willing to heal its economy and not heading blind after the current high profits from oil. Saudi Arabia’s 2005 joining to WTO is one more benchmark for this tendency.
Conclusion
Saudi Arabia is a huge Muslim country and a powerful economy which goes through radical change. Its oil reserves and production capacities makes it to be a key player within the global energy market. As a result, Saudis enjoy rather high quality of life (e.g. in terms of baby mortality rate) and disposable income. As oil prices remain high this pattern is not expected to change within the near future.
Saudi Arabia is now a member of WTO. Saudis are keen for investments in numerous other fields, for example industry, infrastructure education, tourism and true estate, that are a major driving force to support the country heal some of its weaknesses, specially the high unemployment rate from the face of its ever-growing population. Thus, while it remains a conservative country, Saudis are additional open on the western world and, as 1 ought to assume, understand the future implications of this move, also in the cultural aspect. They take more than just before and appreciate the benefits of becoming an significant member of contemporary society.
The federal government is obviously the leader of these changes. Removal of tariffs, acceptance of WTO trade regulations and opening the marketplace for foreign investors, retailers etc. is a major step ahead during the building system on the new Saudi economy, and join other essential initiatives for example the economic cities, privatization of key sectors (e.g., water infrastructures) as well as the encouragement for Saudi investors to improve the domestic industry via investments in agriculture production overseas.
However, the major weakness in the Saudi economy remains its labour market. Saudis’ wages are up to 5 times greater than individuals of foreigners, and there is a severe shortage in trained Saudis to enhance the economy. The gloomy outcome is that 88% from the employees inside individual sector are foreigners. The federal government plans to stop this trend and to oblige companies to employ at least 75% Saudis.
Some other measurements are required to be able to complete these efforts. Women integration inside workforce is 1 dilemma to pay attention to. Though women accounted to about half with the education system graduates, they comprise only 5% in the workforce, meaning that a large ability of skilled workers remain outside on the market. One more problem is transparency and corruption, exactly where Saudi Arabia nevertheless has a extended method to go, in addition to with its conservative education system and the gaps between rural and urban Saudis.
Considering all the above, the region has the correct approaches and attitude for becoming dominant in other fields, over all in its growing industrial sector. Larger government expenditure and public-private partnerships are needed, but it appears that unlike some other nations within the region, Saudi Arabia are going to be in ten years a whole a variety of country.
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