The Kingdom of Saudi Arabia is in southwestern Asia and occupies about four-fifths of the Arabian Peninsula, covering a land area of 2.24 million sq. km., and having a population of 24.7 million. The per capita income of US$11,770 is high compared to global standards.
As the world’s largest oil producer, Saudi Arabia is riding a wave of prosperity buoyed by record-high crude prices. With the windfall that fills its national coffers, Saudi Arabia has paid off debts and driven economic growth to its fastest pace for nearly three decades. Saudi Arabia now has a free market economy with liberal trade policies. There are no exchange restrictions except items such as pork and alcohol that are banned because of religious restrictions. The reform process, initiated in 1998, aimed at privatization of some of the biggest companies, tackling unemployment, modernizing financial markets, and attracting more foreign investments.
The economic development is based on five-year development plans that started in 1970. The current economic policies are based on utilizing the oil profits for infrastructure and human resource development. Economic diversification is being attempted to move the country away from excessive dependence on oil and gas. There is emphasis on stronger private sector participation. Within, there are efforts to create a more balanced economy with all-round regional economic development in this geographically vast country.
The Saudi Arabian budget for fiscal year 2008 was the largest in its economic history. The salient feature of the budget was the government’s continued commitment to increase spending to support development programs while adhering to fiscal prudence in an environment characterized by rising inflation, high monetary supply, and robust oil revenues. Long-term infrastructure was the cornerstone of the budget. With expenditures estimated at US$109.3 billion and revenues of US$120 billion, the resulting budget surplus is US$10.6 billion.
Saudi Arabia is a member of several international and regional organizations such as the United Nations (UN), World Trade Organization (WTO), International Monetary Fund (IMF), International Atomic Energy Agency (IAEA), Organization of Petroleum Exporting Countries (OPEC), and Gulf Cooperation Council (GCC). It is also a signatory to many international agreements. In a milestone in its economic history, Saudi Arabia joined the WTO in 2005, initiating a process of aligning itself more closely with the global economy. In the process of preparing for membership to the WTO, Saudi Arabia enacted 42 new trade-related laws, created nine new regulatory bodies, and signed 38 bilateral trade agreements over a period of 12 years.
The currency of Saudi Arabia is Saudi riyals, 1 riyal being divided into 100 halalas. The exchange rate of the riyal has been pegged to the U.S. dollar since 1986 at the rate of 3.75 riyals to US$1. The official calendar of Saudi Arabia is the Islamic Hijrah calendar. The weekly holidays are observed on Thursdays and Fridays. The official language of Saudi Arabia is Arabic. English is widely understood in business circles. The legal system is based on the sharia and on royal decrees promulgated by the Council of Ministers known as the Majlis Shoura. There is free education and healthcare for citizens.
The central bank is called the Saudi Arabian Monetary Agency, which deals with monetary policy and currency. The stock exchanges use a trading system called Tadawul for real-time trading, clearing, and settlement of shares through electronic order routing. The International Finance Corporation includes the Saudi Share Market index in the emerging stock markets database. The Saudi Securities and Exchange Commission protects investors’ interests and implements orderly securities dealing to regulate and develop capital markets.
Among the prominent industries existing in Saudi Arabia are the petroleum and gas reserves, petrochemicals, plastics, packaging, mining, food processing, power generation and transmission, construction and building products, healthcare, transportation, water treatment and desalination, agriculture, and travel and tourism. There is a growing information and communication technology, and telecommunications industry.
Saudi Arabia adopts a policy of Saudization that favors companies with local participation in investments, majority local holdings, and training and employment of locals. It should be noted that Saudi Arabia hosts a large number of expatriate workers estimated to be about 6 million. At the same time, unemployment among local youth is high, creating an anomalous situation. This happens because of various reasons, including the poor skill levels, reluctance to take lower-end jobs, and high expectations of locals. On the other hand, there is ample availability of a cheap, skilled expatriate workforce.
The economic challenges facing Saudi Arabia include unemployment and dependence on migrant labor, inequity in distribution of wealth, lack of investment in social and physical infrastructure, burgeoning population, aquifer depletion, and lack of long-term planning. As well as increasing liberalization, there is a need for broader labor reforms and continual investments in education, skill development, health, and social welfare.
- Abbas Ali, Business and Management Environment in Saudi Arabia: Challenges and Opportunities for Multinational Corporations (Routledge, 2009);
- Wayne H. Bowen, The History of Saudi Arabia (Greenwood Press, 2008);
- Arthur P. Clark, Muhammad A. Tahlawi, William Facey, and Thomas A. Pledge, A Land Transformed: The Arabian Peninsula, Saudi Arabia, and Saudi Aramco (Saudi Arabian Oil Co., 2006);
- Joshua Huband, The Kingdom: Saudi Arabia and the Challenge of 21st Century (C. Hurst & Co. Publishers, 2008);
- Jamal A. Al-Khatib, Avinash Malshe, and Mazen Abdulkader, “Perception of Unethical Negotiation Tactics: A Comparative Study of US and Saudi Managers,” International Business Review (v.17/1, 2008);
- Andrew Mead, Saudi Arabia: The Business Traveller’s Handbook (Interlink Travel, 2008);
- Tim Niblock, Saudi Arabia: Power, Legitimacy and Survival (Routledge, 2006);
- Tim Niblock and Monica Malik, The Political Economy of Saudi Arabia (Routledge, 2007);
- Igor S. Oleynik, Natasha Alexander, and Karl Cherepanya, US–Saudi Arabia: Economic and Political Cooperation (International Business Publications, 2006);
- Samba Financial Group, Saudi Arabia and the WTO (Samba Financial Group, 2006).
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