Overview of Saudi Arabia’s Economy
The economy of Saudi Arabia is the largest in the Middle East region. It plays a dominant role in the global economy, boasting the world’s 19th largest GDP with approximately $683 billion. Saudi Arabia’s main sources of revenue include petroleum resources and government subsidies. Saudi Arabia is esteemed for its low cost of living and high job growth, adding an estimated 134,000 new jobs in 2017. This upward trend in the Saudi Arabian economy has been seen in recent years due to the development of its oil industry and diversifying away from oil-dependency.
Pre-oil Economy
According to experts, the economy of Saudi Arabia was largely dependent on traditional trading and small-scale production up until the mid-20th century. After vast reserves of oil were discovered in 1938, the Saudi Arabian economy underwent a dramatic transformation. Before the discovery of oil, Saudi’s largest source of revenue was derived from its Hajj pilgrimages. In the early days, the modern economy of Saudi Arabia revolved around the exploitation of oil reserves, which included exporting oil and was responsible for the country’s economic development in the 20th century.
Principles of the Saudi Economy
The Saudi economy is based on a number of core principles. These include a strong attachment to Islamic principles and a focus on economic stability. Additionally, Saudi Arabia has long undertaken the pursuit of economic diversification to reduce its dependency on oil revenue. This has been supported by the government. As a result, there has been a major push towards initiatives such as foreign direct investments, privatization, and promotion of industrialization and IOT services.
Oil and the Saudi Arabian Economy
Oil production is a major component of the Saudi Arabian economy and accounts for nearly half of the national GDP. This resource has been largely responsible for transforming the country from one of the world’s poorest nations to its current level of economic success. The country’s vast oil reserves have enabled it to be an important player in the global economy. The Kingdom of Saudi Arabia is a part of the Organization of Petroleum Exporting Countries (OPEC) and thus has a large say in the global oil market. As Saudi Arabia is the world’s largest exporter of crude oil and petroleum, these activities have been a significant source of revenue for the country.
Diversifying away from Oil
In recent years, Saudi Arabia has become increasingly aware of the need to diversify away from oil and maintain economic stability. This includes the Government’s 2030 Vision which targets increasing private sector contribution to the economy from 37% to 65%. Additionally, Saudi Arabia is striving to become a knowledge based economy by encouraging research and development, establishing new free zones, incentivizing international investments, and developing rural areas.
Future of the Economy
Saudi Arabia is looking to the future with its continuing efforts to promote sustainability, improve management systems, and create a supportive regulatory environment. Experts believe these initiatives will result in greater economic stability and growth over the coming years. Additionally, the government is instituting several ambitious initiatives such as Free Zones and privatization of state owned entities which could go a long way towards improving the country’s overall economic performance.
Fiscal Regulations and Policies
The Ministry of Economy and Planning of Saudi Arabia is the main body overseeing and regulating the country’s fiscal policies. This includes indirect taxation, government subsidies, and controlling the circulation of money. Saudi Arabia is an export-oriented economy and its fiscal regulations are formulated with the main aim of creating a conducive environment for foreign trade and investments. This is done by creating an investment-friendly environment with regular policy changes and tax incentives.
Opportunities and Challenges in Saudi Economy
Saudi Arabia is currently in a period of rapid economic growth and transformation. This presents the country with a myriad of unique opportunities as well as potential challenges. The Kingdom’s rich economic resources, strong human capital, and abundant oil reserves present the country with plenty of viable options for investment and development. On the other hand, Saudi Arabia still faces a range of challenges, the most pressing of which is the need to create jobs for its burgeoning population and providing adequate social services.
Infrastructure
The development of infrastructure in Saudi Arabia is a significant priority for the government. The country is currently undertaking a number of large-scale projects which are aimed at improving its transport, energy, and communication networks. According to the Ministry of Transportation the country is now investing approximately $86 billion in new infrastructure projects with the aim of creating more efficient and sustainable systems. The government is also committed to developing smarter cities so as to increase investment and tourism in the country.
Role of Industrialization
Industrialization is playing a crucial role in the transformation of Saudi Arabia’s economy. The country is currently undertaking numerous projects and initiatives to promote industrialization through public-private partnerships. Saudi Arabia’s industrialization has already made it the largest manufacturing sector in the GCC region and is expected to become an even larger contributor to the country’s gross domestic product in the near future.
Investment in Human Capital
Investments in human capital are also essential for the future of the Saudi Arabian economy. Therefore, the government is focused on developing programs and initiatives which can help train and educate the country’s burgeoning workforce. Additionally, there is a focus on creating a skilled and educated workforce that is able to embrace the challenge of the knowledge and digital age.
Reshaping the Saudi Economy
In order to ensure the continued success of the Saudi Arabian economy, the country is taking steps to reshape its economic structure. This includes everything from increasing foreign investments to reforming taxes, reducing the government’s role in the economy, and incentivizing the private sector. Additionally, the government is placing emphasis on diversification to reduce its dependence on oil related activities.
