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Saudi Arabia can be termed as an economy that is wholly based on oil. As a matter of fact, it is characterized by a lot of government controls. This is as far as the country’s major economic activities are concerned. All along, the country has been the largest exporter of oil. In this case, it accounts for more than twenty five percent of the globes oil reserves (Global edge 12).
This therefore means that Saudi Arabia is a big player in OPEC. The country’s economic activities have always been planned by the central government. This aspect does not mean that the economy doesn’t have private businesses but the government has always regulated them for long term sustainability. In this case, they are not restricted from operating in the country but they are closely observed and watched.
Most of the governments’ budget is catered for by the oil sector. In this case, it gets most of its revenues from the oil sector. This has been projected to be more than 45%. It should be known that more than half of the country’s GDP is also accounted for by the oil sector. The private sector has also been playing a big role in the country’s economy and it accounts for more than 40% of the general GDP.
As a matter of fact, the country has a lot of foreign workers who have continued to play an important role in the economy (Global edge 18). Most notably, these foreign workers have occasionally been employed by the oil sector. Saudis population has been increasing as time goes by and this means that the government is mostly concerned with employment opportunities. As a result of this, it has encouraged private investors in the country to avoid a lot of reliance on oil.
This is a trend that is beginning to take shape because a country can not rely on oil alone as much as it might be feasible. In this case, the economy should have vibrant sectors as far as long term sustainability is concerned. There are specific sectors like the telecom and power generation sectors that have been opened up for private investors’ participation by the government.
This is because for such sectors to be effective they are supposed to be highly competitive (Economy watch 21). In this case, citizens will end up getting the best services that they can. The county was able to become a member of WTO in 2005 after many years of negotiations. All along, the government has been having budget surpluses and this is because of its oil revenues. In this case, it has pumped a lot of money in development projects like infrastructure.
The government has been enhancing its education sector and training through good allocation of funds. Most of Saudi Arabia’s exports are accounted for by oil. In this case, it accounts for 90% of the revenues that the country gets from the export trade (The economy 19). As far as World Bank statistics are concerned, Saudi Arabia is the most stable economy in the Arab world and this is undeniable. As much as oil might be a key factor, the country has emerged as a strong economy in recent years.
The country’s economy started growing from 1973 and this has been improving as time goes by. This is based on trade surpluses and other aspects that can make an economy grow faster. Saudi Arabia exports a lot of oil to other countries and this is based on its positioning as a major oil country.
The country joined the world trade organization in 2005 and this has opened it up to business in a broad way. As much as Saudi Arabia is a member of the world trade organization, it has not fully complied with set regulations and obligations and this has been a matter of concern. In this case, the country is not fully compliant with WTO and attention has focused on its ability to increase market access that has been restrictive.
This is as far as foreign investors in the country are concerned. In response, the government has established an investment authority to encourage foreign investments in the country (Economy watch 25). There are some sectors that the government prohibits foreign investments but this has been criticized by various stakeholders. For instance, insurance and power transmission sectors have not been opened up for private investors and this is a major concern.
The country ranks well as far as doing business is concerned and this is a positive development. As a matter of fact, it is ranked position 13 as one of the world’s competitive countries (The economy 28). The international monetary fund has acknowledged that the country is experiencing a rapid rate of economic growth and this is commendable.
This has been brought about by various economic sector reforms that were initiated by the government. The country is viewed as the best place where investors can do business in the Arab world and its environs. There are other key reforms that are currently being undertaken and this is set to give the economy a new lease of life. As far as this paper is concerned, we will look at various aspects like GDP, FDI, imports and other economic indicators to asses the country’s economic performance.
Exports and imports
It should be known that 98% of Saudi Arabia’s exports are accounted for by the oil sector. The country’s major export partner is the United States that accounts for 17% of all the exports. It is closely followed by Japan that accounts for 15.3% while South Korea comes up third at 10.2% (Saudi Arabian Monetary Agency 21). Saudi Arabia leads other countries as far as oil exports are concerned and this has been going on for a long time.
As a matter of fact, it accounts for 14% of all the exports. In addition, the country owns a quarter of the world’s oil reserves. The country imports a lot of goods and services and this has been growing in relation to its population. As a matter of fact, the country has a trade surplus that has been increasing as time goes by. Its general imports are valued at more than $81.7 billion and this has also been on an upward trend.
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The country’s leading importer is United States that accounts for more than 12.3% of all the imports. It is closely followed by Germany at 8.6% then China comes in a distant third at 7.9% (Saudi Arabian Monetary Agency 29). Saudi Arabia enjoys a trade surplus with the United States and this is commendable.
This surplus has been increasing as time goes by because United States is the world largest economy. The country’s trade positioning has been increasing since the country joined WTO in 2005. As much as its trade is heavily dependent on oil, other products are set to come in as time goes by. China is coming up as a large player in trade between the two countries and it is expected to be more than $60 by the year 2015 (Saudi Arabian Monetary Agency 34).
Saudi Arabia imports a lot of products that it does not produce locally like electrical, chemicals, machinery, automobiles and others. This means that it is supposed to maintain good trade relations with other countries. The country’s total exports were valued at $235.3 billion in 2010 (Saudi Arabian Monetary Agency 34).
On the other hand, its total imports were valued at $99.17 billion in the same year. From this statistics, it is quite obvious that the country will continue being a major player in global trade as time goes by. This is based on the sole fact that the country has a lot of oil reserves that are needed by various economies for long term sustainability. The country has continued to position itself as far as trade is concerned and this is based on various key reforms that have been undertaken.
The country has maintained a favorable trade balance over the past years and this has been improving. This improvement in trade balance can be traced from 1986 where the surplus was recorded at U.S. $0.96 billion (Saudi Arabian Monetary Agency 43). From 1994, the country has recorded impressive surpluses and there are indications that this is set to grow as demand for oil increases.
There are occasions where there has been an oversupply of oil in the international market and this has affected the country’s revenues. The most notable trade surplus was recorded in 2009 at 362731 Million SAR (Saudi Arabian Monetary Agency 37). Saudi Arabia will continue to enjoy a good trade surplus as long as the demand for oil increases in the international market.
This therefore gives the country an effective trade balance over other countries in the Arab world. All along, the country has been producing an annual trade surplus and this is positively commendable. The country has used its trade superiority to gain other services and investments through various programs.
As a matter of fact, the country spends a lot on the importation of foreign services because it has not fully invested in education and training programs (Economy watch 11). The positive balance of payment should be made sustainable through effective measures and reforms. High oil prices will continue giving the country an effective trade balance.
Saudi Arabia uses the Saudi Riyal as its official currency. Currently, it should be known that one US Dollar is equivalent to 3.75167 Saudi Riyal (Saudi Arabian Monetary Agency 27). The Riyal has depreciated in the last twelve moths and this has been because of various factors.
As a matter of fact, the USDSAR has been having a stable exchange rate for more than 20 years. Despite all this factors, the country has been enjoying a stable exchange rate. This is based on the fact that the country is a large player in global trade because of its enormous oil resources. In 2007, the Saudi Riyal rose to a 20 year high and this was because of the federal reserves action on interest rates. Saudi Arabia is a member of the monetary union of the Arab states and they have been working hard to have a single currency.
Saudi Arabia has been attracting a lot of foreign direct investments and this is because of various reforms that it has initiated. In 2010, the country was one of the most attractive destinations for foreign investors. As a matter of fact, the country had inflows of more than $36 billion (Economy watch 23). The country is ranked at number 8 as far as attracting foreign investments is concerned and this means that it is the best in the Arab world.
When compared with its neighbors in the Middle East, the country is doing well and the World Bank and International monetary fund have commended it for this (Economy watch 39). The country’s investment authority can be credited for creating a good investment climate and environment. As a matter of fact, most of the inflows have been coming from the USA with $5.8 billion. Most foreign direct investments in Saudi Arabia were focused on services and technology projects.
Real estate and the telecommunications sector have also attracted a lot of foreign investments in recent years. Other sectors like insurance and banking will also continue to attract a large number of investors and this is because of reforms that have been initiated by the government. Foreign direct investments have raised the country’s stock value in recent years. As much as the country is performing well in foreign direct investments, there is a feeling that it has not achieved its estimates.
This is because it seeks to be the best in foreign direct investments in the world. Currently, the country has investor friendly laws and these are some of the factors that will attract foreign investors as time goes by (Saudi Arabian Monetary Agency 39). In addition, the economy has a great potential that has not been fully explored by all stakeholders. Investment policy measures will continue to attract investments that the country is seeking so that it can be an economic hub in the Middle East.
The tax rate has been reduced to stimulate the economy and this is one of the factors that have made the country a good investment destination for foreign investors. Other measures have been taken to stimulate the economy as far as specific sectors are concerned. It is undeniable that foreign direct investments have played a major role in developing Saudi Arabia’s economy (Global edge 31). Foreign direct investments will continue to be a major factor in Saudi Arabia’s economic global integration.
This is the only way that the economy can be able to relate well with other economies around the world. Saudi Arabia will continue being a major recipient of foreign capital inflows as long as it enhances its investment climate. The country has recorded impressive growth rates because of foreign direct investments through inflows. Saudi Arabia’s economy has a great growth potential and the government should tap in more investors for long term sustainability.
Balance of payment
It projected that the country’s balance of payment will hit a record high in 2011 and this is good news. The country’s balance of payment has been good because of a strong oil sector. In this case, the oil sector has been performing well thereby giving the country a big surplus. All in all, the country had a current account balance of more than $52.03 billion in 2010 (Saudi Arabian Monetary Agency 32). Overall, the country recorded good capital inflows that were estimated at more than US$ 36 billion (Global edge 25).
As a matter of fact, the country has good reserves that it has used to cushion itself from any external factors that might impact its economy negatively. This therefore means that Saudi Arabia has a favorable balance of payment based on its surpluses. The country’s surplus is always offset by deficits in investments and this should be properly evaluated for long term sustainability.
Saudi Arabia has a GDP of $592.886 billion and this means that it is ranked at position 22 in the world (Saudi Arabian Monetary Agency 38). More than 60% of this GDP comes from the industrial sector while 36.4% comes from the services sector. 3.2% of the country’s GDP is attributable to the agricultural sector.
The petroleum sector plays an important role in Saudi Arabia’s GDP and this is undeniable because it is an oil based economy. Although the country was greatly affected by the global economic crisis, its economy is set to grow in 2011. As a matter of fact, it is projected to grow by 4.5% and this is good news (Saudi Arabian Monetary Agency 12). The government has increased its spending to spur economic growth and activities but these will not increase inflation as people might expect.
The government has been spending a lot on food because it does not have a lot of agricultural activities like other countries. Saudi Arabia has good reserves and this means that it will not borrow any money to finance its budget.
These are some of the factors that have given the country good economic prospects as time goes by. In 2010, the country’s real economic growth rate was 3.8% and this was an improvement from 0.1% that was recorded in 2009 as a result of the global financial and economic crisis (Saudi Arabian Monetary Agency 28).
Before this, the economy was registering positive economic growth rates and this momentum can be maintained with good and effective policies. Generally, Saudi Arabia has a GDP per capita of $23,814 (Saudi Arabian Monetary Agency 29). Moderate growth will be driven by various economic predictions that will make the country an economic powerhouse in the world.
Domestic consumer demand is something that will be closely looked at as far as Saudi Arabia’s economy is concerned. This is because of its importance on the economy’s performance as a whole. Saudi Arabia has a positive outlook as far as all sectors in the economy are concerned. The economy is strong because of favorable oil prices and internal demand. Improving business confidence is one of the reasons why Saudi Arabia is expected to have good growth levels.
The key to achieving a growth rate of 4.5% will be wholly dependent on the economy’s ability to tame inflation that can reduce the gains that have been made (Saudi Arabian Monetary Agency 42). Saudi Arabia’s hospitality industry is another key sector that will contribute to growth in this financial year. The government is committed to infrastructure development and this is a major driver that will continue to encourage investors in the country.
There are various attempts towards diversification to reduce the country’s dependence on oil and this is a major development. In this case, it should be known that non-oil activities contribute 10% of the GDP and this should be improved upon. The country has an unemployment rate of 11.6% and this should be reduced through massive investments that will create jobs in the economy for long term sustainability.
Saudi Arabia has a public debt that is estimated to be 23% of the GDP and this is an aspect that needs to be addressed (Global edge 18). The country’s stock exchange market has been doing well and proper regulation will continue to attract investors for long term sustainability. ICT services have been improved and this will continue to open up the country to the outside world.
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Global edge. Saudi Arabia: Economy. 2011. Web.
Saudi Arabian Monetary Agency. Economic Reports and Bulletins. 2011. Web.
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