Economy of Saudi Arabia

Economy - overview: Saudi Arabia has an oil-based economy with strong government controls over major economic activities. Saudi Arabia is second in the world to Canada in proven reserves of petroleum (24% of the proved total), ranks as the largest exporter of petroleum, and plays a leading role in OPEC. The petroleum sector accounts for roughly 75% of budget revenues, 40% of GDP, and 90% of export earnings. About 35% of GDP comes from the private sector. Saudi Arabia was a key player in the successful efforts of OPEC and other oil producing countries to raise the price of oil in 1999 to its highest level since the Gulf War by reducing production. Although oil prices are expected to remain relatively high in 2000, Riyadh expects to have a $7.5 billion budget deficit in part because of increased spending for education and other social problems. The government in 1999 announced plans to begin privatizing the electricity companies, which follows the ongoing privatization of the telecommunications company. The government is expected to continue calling for private sector growth to lessen the kingdom's dependence on oil and increase employment opportunities for the swelling Saudi population. Shortages of water and rapid population growth will constrain government efforts to increase self-sufficiency in agricultural products.

Roughly 4 million foreign workers play an important role in the Saudi economy, for example, in the oil and service sectors. Many of these foreign workers, especially in the less well-paying positions, come from India, Pakistan, or the Philippine Islands. However, the Saudi government is making an effort to reserve jobs in the service sector for Saudi nationals. In November, 2002, the Saudi Interior Ministry's Manpower Council banned expatriates from driving taxis and working in the gold and jewelry industries. These moves were resisted by Saudi businessmen.

Economy - in greater depth:
Oil was discovered in Saudi Arabia by U.S. geologists in the 1930s, although largescale production did not begin until after World War II. Oil wealth has made possible rapid economic development, which began in earnest in the 1960s and accelerated spectacularly in the 1970s, transforming the kingdom.

Saudi oil reserves are the largest in the world, and Saudi Arabia is the world's leading oil producer and exporter. Oil accounts for more than 90% of the country's exports and nearly 75% of government revenues. Proven reserves are estimated to be 260 billion barrels, about one-quarter of world oil reserves.

More than 95% of all Saudi oil is produced on behalf of the Saudi Government by the parastatal giant Saudi ARAMCO[?]. In June 1993, Saudi ARAMCO absorbed the state marketing and refining company (SAMAREC[?]), becoming the world's largest fully integrated oil company. Most Saudi oil exports move by tanker from Gulf terminals at Ras Tanura and Ju'aymah. The remaining oil exports are transported via the east-west pipeline across the kingdom to the Red Sea port of Yanbu. A major new gas initiative promises to bring significant investment by U.S. and European oil companies to develop nonassociated gas fields in three separate parts of Saudi Arabia. Following final technical agreements with concession awardees in December 2001, development should begin in 2002.

Due to a sharp rise in petroleum revenues in 1974 following the 1973 Arab-Israeli war[?], Saudi Arabia became one of the fastest-growing economies in the world. It enjoyed a substantial surplus in its overall trade with other countries; imports increased rapidly; and ample government revenues were available for development, defense, and aid to other Arab and Islamic countries.

But higher oil prices led to development of more oil fields around the world and reduced global consumption. The result, beginning in the mid-1980s, was a worldwide oil glut, which introduced an element of planning uncertainty for the first time in a decade. Saudi oil production, which had increased to almost 10 million barrels per day (b/d) during 1980-81, dropped to about 2 million b/d in 1985. Budgetary deficits developed, and the government drew down its foreign assets. Responding to financial pressures, Saudi Arabia gave up its role as the "swing producer" within OPEC in the summer of 1985 and accepted a production quota. Since then, Saudi oil policy has been guided by a desire to maintain market and quota shares.

However, beginning in late 1997, Saudi Arabia again faced the challenge of low oil prices. Due to a combination of factors--the East Asian economic crises, a warm winter in the West caused by El Niño, and an increase in non-OPEC oil production--demand for oil slowed and pulled oil prices down by more than one-third.

Saudi Arabia was a key player in coordinating the successful 1999 campaign of OPEC and other oil-producing countries to raise the price of oil to its highest level since the Gulf War by managing production and supply of petroleum. That same year, Saudi Arabia established the Supreme Economic Council to formulate and better coordinate economic development policies in order to accelerate institutional and industrial reform.

In recent years, Saudi Arabia sought to join the World Trade Organization. Negotiations have focused on the degree to which Saudi Arabia is willing to increase market access to foreign goods and services and the timeframe for becoming fully compliant with World Trade Organization obligations. In April 2000, the government established the Saudi Arabian General Investment Authority to encourage foreign direct investment in Saudi Arabia. Saudi Arabia maintains a "negative list" of sectors in which foreign investment is prohibited, but the government plans to open some closed sectors such as telecommunications, insurance, and power transmission/distribution over time.

Through 5-year development plans, the government has sought to allocate its petroleum income to transform its relatively undeveloped, oil-based economy into that of a modern industrial state while maintaining the kingdom's traditional Islamic values and customs. Although economic planners have not achieved all their goals, the economy has progressed rapidly. Oil wealth has increased the standard of living of most Saudis. However, significant population growth has strained the government's ability to finance further improvements in the country's standard of living. Heavy dependence on petroleum revenue continues, but industry and agriculture now account for a larger share of economic activity. The mismatch between the job skills of Saudi graduates and the needs of the private job market at all levels remains the principal obstacle to economic diversification and development; about 4.6 million non-Saudis are employed in the economy.

Saudi Arabia's first two development plans, covering the 1970s, emphasized infrastructure. The results were impressive--the total length of paved highways tripled, power generation increased by a multiple of 28, and the capacity of the seaports grew tenfold. For the third plan (1980-85), the emphasis changed. Spending on infrastructure declined, but it rose markedly on education, health, and social services. The share for diversifying and expanding productive sectors of the economy (primarily industry) did not rise as planned, but the two industrial cities of Jubail and Yanbu--built around the use of the country's oil and gas to produce steel, petrochemicals, fertilizer, and refined oil products--were largely completed.

In the fourth plan (1985-90), the country's basic infrastructure was viewed as largely complete, but education and training remained areas of concern. Private enterprise was encouraged, and foreign investment in the form of joint ventures with Saudi public and private companies was welcomed. The private sector became more important, rising to 70% of non-oil GDP by 1987. While still concentrated in trade and commerce, private investment increased in industry, agriculture, banking, and construction companies. These private investments were supported by generous government financing and incentive programs. The objective was for the private sector to have 70% to 80% ownership in most joint venture enterprises.

The fifth plan (1990-95) emphasized consolidation of the country's defenses; improved and more efficient government social services; regional development; and, most importantly, creating greater private-sector employment opportunities for Saudis by reducing the number of foreign workers.

The sixth plan (1996-2000) focused on lowering the cost of government services without cutting them and sought to expand educational training programs. The plan called for reducing the kingdom's dependence on the petroleum sector by diversifying economic activity, particularly in the private sector, with special emphasis on industry and agriculture. It also continued the effort to "Saudiize" the labor force.

The seventh plan (2000-2004) focuses more on economic diversification and a greater role of the private sector in the Saudi economy. For the period 2000-2004, the Saudi Government aims at an average GDP growth rate of 3.16% each year, with projected growths of 5.04% for the private sector and 4.01% for the non-oil sector. The government also has set a target of creating 817,300 new jobs for Saudi nationals.

GDP: purchasing power parity - $191 billion (1999 est.)

GDP - real growth rate: 1.6% (1999 est.)

GDP - per capita: purchasing power parity - $9,000 (1999 est.)

GDP - composition by sector:
agriculture: 6%
industry: 47%
services: 47% (1998 est.)

Population below poverty line: NA%

Household income or consumption by percentage share:
lowest 10%: NA%
highest 10%: NA%

Inflation rate (consumer prices): -1.2% (1999)

Labor force: 7 million
note: 35% of the population in the 15-64 age group is non-national (July 1998 est.)

Labor force - by occupation: agriculture 12%, industry 25%, services 63% (1999 est.)

Unemployment rate: NA%

Budget:
revenues: $41.9 billion
expenditures: $49.4 billion, including capital expenditures of $NA (2000 est.)

Industries: crude oil production, petroleum refining, basic petrochemicals, cement, construction, fertilizer, plastics

Industrial production growth rate: 1% (1997 est.)

Electricity - production: 110.132 billion kWh (1998)

Electricity - production by source:
fossil fuel: 100%
hydro: 0%
nuclear: 0%
other: 0% (1998)

Electricity - consumption: 102.423 billion kWh (1998)

Electricity - exports: 0 kWh (1998)

Electricity - imports: 0 kWh (1998)

Agriculture - products: wheat, barley, tomatoes, melons, dates, citrus; mutton, chickens, eggs, milk

Exports: $48 billion (f.o.b., 1999)

Exports - commodities: petroleum and petroleum products 90%

Exports - partners: Japan 17%, US 15%, South Korea 11%, Singapore 8%, India 4%, France 4% (1998)

Imports: $28 billion (f.o.b., 1999)

Imports - commodities: machinery and equipment, foodstuffs, chemicals, motor vehicles, textiles

Imports - partners: US 21%, UK 9%, Japan 9%, Germany 6%, France 5%, Italy 4% (1998)

Debt - external: $28 billion (1998 est.)

Economic aid - donor: pledged $100 million in 1993 to fund reconstruction of Lebanon; since 1993, Saudi Arabia has committed $208 million for assistance to the Palestinians

Currency: 1 Saudi riyal (SR) = 100 halalah

Exchange rates: Saudi riyals (SR) per US$1 - 3.7450 (fixed rate since June 1986)

Fiscal year: calendar year

See also : Saudi Arabia