This paper illustrates in detail on the economy of Saudi Arabia in the ministry of finance and National economy. It shows the current situation of its economy and also details its weaknesses and strengths in the global market. In addition, it illustrates the states GDP state, inflation, unemployment, growth in the international trade, and the composition of their exports and imports (Chai, 2009). It goes to the extent of including recommendations that are entailed to draw a path that can be used to strengthen their current state in the global market. Thus, the recommendations are a guide as to what needs to be undertaken by Saudi Arabian economy in order to raise their GDP state to a better level.
Current state of Saudi Arabia Economy
The state boasts with the largest economy in the Gulf and it represents the world’s largest oil producer and exporter. It has approximately 25% of the GDP of all Arab states whereas Saudi Arabia has 60% of the population of the Arab states. The government continues to try and wean the state off of its reliance on oil as there are signs of greater private sector productivity, higher levels of returns on investments and increased industrial investment (Hart, 2007). This has been accomplished in an economic atmosphere of price stability, an open economy and an exchange system free of restrictions. Basically, this indicates that persistent has been the cause of these fairly young institutions that few relics of the old economy survive unchanged.
The issues related to fluctuation of oil prices and high government spending affects the running of the economy as income level per capita is low due to its large population. This contributes to the kingdom to be regarded as a subject to geo-political and domestic security threats (Chai, 2009). Its banking system does not have longevity; this is so as it developed in the mid 20th century. Moreover, the percentage of shares traded compared to the percentage of total market value share is estimated to be no more than 5%. Thus, most shares are owned by institutions instead of individuals.
It has maintained its position as the strongest Middle East economy since 2008 and this has initiated the government to support the free market economy based on competition. The government is also encouraging private sector growth in areas like power generation schemes, telecommunication and increase employment rate (Niblock, 2006). The states nationals and citizens do not pay income or corporate taxes and this has contributed towards a Fiscal freedom. Furthermore, its financial system is firm, diverse infrastructure equal to many other industrial states. Their kingdom banking system is sturdy and has highly trained management and sophisticated technology. Their strength in banking and stock market makes it an attractive investment state as they offer relatively good opportunities.
GDP state of Saudi Arabia
The gross domestic product for Saudi Arabia is approximately 576.82 billion U.S dollars, basing on the report published by the World Bank. This shows that its GDP value is about 0.93% of the world economy. Its GDP analysis by the World bank since 1968 until mid 2012 is 160 USD Billion reaching an all time high of 576.82 USD Billion in June of 2012 and a record low of 4.2 Billion USD in 1968 (Hart, 2007). Therefore, this indicates that its GDP is equal to the total expenditure for all their final products produced within the state in a speculated period.
Saudi Arabia has been facing the issue of rising inflationary pressure whereas in 2007 price rose by 6%. It doubled in 2008 and in 2009 it declined by 5%, essentially, this shows that the inflation rate is still high. Factors that contribute to inflation are Riyal’s exchange rate with the U.S dollar; this has benefited the state on account of relatively stability of U.S monetary policy and insulating the oil revenue is invested in dollar dominated asset (Chai, 2009). However, its weakening since 2006 against the euro and other currencies is affecting the state in many ways. There is depreciation of riyal to these currencies and thus it makes it import from these states costlier than before.
Total employment increased by approximately 191,100 individuals in 2011, but increases were insufficient to restrain unemployment growth. Construction ranked highest with 218,900 jobs and followed by wholesale and retail; general administration; gas and water, banking and insurance and community and social services (Niblock, 2006). The steepest employment gains were Saudi national males, followed by foreign males, Saudi national females and then foreign females. Thus, this shows that unemployment rate among women has increased drastically similar to the unemployment rate among the youth.
Growth in the international trade
Its economic freedom score is 62.5 hence making it the 74th freest in the 2012 index. There is a huge increase in levels of government spending and notable drop in labor freedom overwhelming a modest gain in freedom from corruption. It is ranked 8th out of the 17 states in the Middle East and its overall score is above the world average (Hart, 2007). The kingdom’s economic freedom remains deficient in other areas but there has been a notable progress in tacking corruption in recent years.
Composition of their exports and imports
In 2011, the share of fuel in the total exports was as high as 56.9% while the share of manufactures fell from 2000 level of 37.7% to 32.1% in 2011 and this decline was seen in all the sub categories except chemicals. Machinery and transport equipment took the lead in exports of manufactures in 2012 with a share of 13.9% in the total exports in spite of the decline from 2000 leve lof 17.4%. The share of other commodities in the total export of 2012 remained at the same level without significant change: 5.8% for food, 3.4% ores and metals, and 18% for agricultural products (Niblock, 2006). This shows that commodity composition of export did not change in the analyzed period except the declining share of manufactures favor of fuel.
Imports indicate that member states are heavily dependent on manufactured goods. In 2011, they constituted 70.1% of the total imports with a small decrease from 2000 level of 73.1%. Machinery and transport equipment had the highest share in total imports (38.8%) despite the decline from its 2000 level of 40.1%. share of agricultural raw material fell from 2.6% to 2.1% thus showing that such a high share of manufactures in imports which is more than twice as high as its share in exports (Chai, 2009). It indicates that there is a weak domestic industry which can be explained by the low level of industrialization accompanied by insufficient developments in science and technology.
Saudi Arabia ought to come up with modified strategies that will enable it be among the best firm in the global economy. This can be done by employing more females and the young generations as they will contribute to labor force. In addition, more investment ought to encourage and reduction of taxes on both imports and exports will definitely bring about a huge market for their products (Niblock, 2006). In addition, firms in Saudi Arabia should motivate their employees and their clients to contribute on what needs to be done to the business in order to build a strong business concept for their kingdom.
Hart. T, P (2007) Saudi Arabia and the United States: Birth of a Security Partnership, Indian University Press.
Niblock, T (2006) State, Society and Economy in Saudi Arabia: Papers Presented at a Symposium Held at the Centre for Arab Gulf Studies, University of Exter July 1980, Taylor & Francis.