Saudi Arabia’s Economy

Saudi Arabia has a population of 30 million, a $745 billion GDP, a per capita income of $17,819.  4.5% tariffs and 2.2% inflation. 

Oil exports account for 90% of income and 80% of government revenue. They rank 77 on the 2015 Economic Freedom Index. 

http://www.heritage.org/index/country/saudiarabia

http://www.tradingeconomics.com/saudi-arabia/gdp

Diversification and the 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.^[29]
Saudi first began to diversify its economy to reduce dependency on oil in the 1970s as part of its first five-year development plan. Basic petrochemical industries using petroleum as feedstock were developed.^[30] The fishing villages of al-Jubail on the Gulf and Yanbu on the Red Sea were developed. However, their affect on Saudi's national accounts has been small.^[31]
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.^[29]
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 90% ownership in most joint venture enterprises.^[29]
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.^[29]
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.^[29]
The seventh plan (2000–2004) focuses more on economic diversification and a greater role of the private sector in the Saudi economy. For 2000–04, the 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.^[29]
Advertising expenditures have reached new peaks due to emphasis on value-added manufacturing.^[32]
As part of its diversification, Saudi Arabia has been inking major refinery contracts with Chinese and other companies.^[33]

Future plans

Saudi Arabia has announced plans to invest about $46 billion in three of the world’s largest and most ambitious petrochemical projects. These include the $27 billion Ras Tanura integrated refinery and petrochemical project, the $9 billion Saudi Kayan at the Wayback Machine (archived March 15, 2009) petrochemical complex at Jubail Industrial City, and the $10 billion Petro Rabigh refinery upgrade project. Together, the three projects will employ more than 150,000 technicians and engineers working around the clock.^[34] Upon completion in 2015–16, the Ras Tanura integrated refinery and petrochemicals project will become the world’s largest petrochemical facility of its kind with a combined production capacity of 11 million tons per year of different petrochemical and chemical products. The products will include ethylene, propylene, aromatics, polyethylene, ethylene oxide, chlorine derivatives, and glycol.^[34]
Saudi Arabia had plans to launch six "economic cities" (e.g. King Abdullah Economic City, to be completed by 2020, in an effort to diversify the economy and provide jobs.^[35] They are being built at a cost of $60bn (2013)and are "expected to contribute $150bn to the economy".^[36] As of 2013 four cities were being developed.^[37]
Employment
As of 2008, roughly two thirds of workers employed in Saudi Arabia were foreigners, and in the private sector approximately 90%.^[38] In January 2014 the Saudi government claimed it had lowered the 90% rate, doubling the number of Saudi citizens working in the private sector employment to 1.5 million. (This compares to 10 million foreign expatriates working in the kingdom.)^[39]
According to Reuters, economists "estimate only 30-40 percent of working-age Saudis hold jobs or actively seek work," although the official employment rate is only around 12 percent. Most Saudis with jobs are employed by the government, but the International Monetary Fund has warned the government cannot support such a large wage bill in the long term.^{[39] [40]} The government has announced a succession of plans since 2000 to deal with the imbalance by `Saudizing` the economy, However, the foreign workforce and unemployment among Saudis has continued to grow.^[41]
One obstacle is social resistance to certain types of employment. Jobs in service and sales are considered totally unacceptable for citizens of Saudi Arabia—both potential employees and customers.^[42]

Non-Petroleum sector

Saudi Arabia has natural resources other than oil, including small mineral deposits of gold, silver, iron copper, zinc, manganese, tungsten, lead, sulphur, phosphate, soapstone and feldspar.^[31] The country has a small agricultural sector, primarily in the southwest where annual rainfall averages 400 mm (16"). The country is one of the world's largest producers of dates. For some years it grew very expensive wheat using desalinated water for irrigation,^[31] but plans to stop by 2016.^[43] As of 2009, livestock population amounted to 7.4 million sheep, 4.2 million goats, half a million camels and a quarter of a million cattle.
Although jobs created by the roughly two million annual hajj pilgrims do not last long, the hajj employs more people than the oil industry - 40,000 temporary jobs (butchers, barbers, coach drivers, etc.) -- and US$2–3 billion in revenue.^[44]

Private sector

Saudi Arabia's private sector is dominated by a handful of big businesses in the service sector, primarily in construction and real estate—Bin Laden, Olayan, Zamil, Mahfouz, and Al Rajhi. These firms are "heavily dependent on government spending", which is dependent on oil revenues.^[45]
From 2003-2013 "several key services" were privatized—municipal water supply, electricity, telecommunications—and parts of education and health care, traffic control and car accident reporting were also privatized. According to Arab News columnist Abdel Aziz Aluwaisheg, "in almost every one of these areas, consumers have raised serious concerns about the performance of these privatized entities."^[46]
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. As of November 2005, Saudi Arabia was officially approved to enter World Trade Organization.

Challenges

Among the challenges to Saudi economy include halting or reversing the decline in per capita income, improving education to prepare youth for the workforce and providing them with employment, diversifying the economy, stimulating the private sector and housing construction, diminishing corruption and inequality. In answer to the question of why the Saudi economy is so dependent on foreign labour, the UN Arab Human Development Report blamed stunted social and economic development inhibited by lack of personal freedom, poor education and government hiring based on factors other than merit, and exclusion of women.^[53]

Income drop

Despite possessing the largest petroleum reserves in the world, per capita income dropped from approximately $18,000 at the height of the oil boom (1981) to $7000 in 2001, according to one estimate.^[54] As of 2013, per capita income in Saudi was "a fraction of that of smaller Persian Gulf neighbors", even less than petroleum-poor Bahrain.^[55]
Unlike most developed countries where gross domestic product growth is a function of increases in productivity and inputs such as employment, in Saudi the fluctuation of oil prices is the most important factor in the growth or decline of domestic production. "Saudi reserves are steadily being depleted, and no significant new discoveries have been found to replace them," according to Middle East journalist Karen House. Saudi population grew sevenfold from 1960 to 2010,^[56] and petrol prices are subsidized and cost users less than equivalent quantities of bottled water. ^[57] With production stagnant, growth in population and domestic energy consumption means a decline in per capita income unless oil prices rise to match that growth.^[55]

Demographics

Saudi population is young. About 51% are under the age of 25 (as of Feb 2012).^[58] According to a 2013 report by the International Monetary Fund, up to 1.6 million young nationals of the Gulf countries (of which Saudi Arabia is the largest) will enter the workforce from 2013 to 2018, but the economies of those countries will have jobs in the private sector for less than half (approximately 600,000).^[59]

Education

According to The Economist magazine, the Saudi government has attempted in years past to raise employment by forcing "companies to fill at least 30% of their positions" with Saudi citizens. However, "employers complained bitterly about the lack of skills among young locals; years of rote-learning and religious instruction fail to prepare them for the job market." As a consequence, "the quota has now been dropped and replaced with a more flexible system."^[60]
According to another source (scholar David Commins), the kingdom depends "on huge numbers of expatriates workers to fill technical and administrative positions" in part because of an educational system that in spite of "generous budgets", has suffered from "poorly trained teachers, low retention rates, lack of rigorous standards, weak scientific and technical instruction and excessive attention to religious subjects".^{[61] [62] [63]}
Another statistic conducted by Bayt.com shows that Over a quarter (28%) of professionals believe that there is a skills shortage in their country of residence. This belief is more prominent among respondents in Saudi Arabia (39%).^[64]

Innovation

Saudi has not been a hotbed of technological innovation. The number of Saudi patents registered in the United States between 1977 and 2010 came to 382—less than twelve per year—compared to 84,840 patents for South Korea or 20,620 for Israel during that period.^[45][65] Saudi hopes to increase technological innovation, particularly with the King Abdullah University of Science and Technology, and thus to stimulate the economy.

Legal system

Saudi Arabia's legal system is based on shariah (traditional Islamic) law and many of the "matters the law has to interpret were not in existence when the basis of the law" (the Quran) was revealed in the 7th century AD. Thus, according to some unbelievers (Harvey Tripp and Peter North)
when one considers what wasn't around when the Prophet lived his life — running water, sewerage, cars, telephones, paper and so on— it is some minor miracle that modern society run to the rules of Shariah Law can operate at all.^[66]
It is also unique and—according to some—an obstacle to doing business in the kingdom because of its lack of predictability and its prohibition on interest payments. There is no uniform legal code and no concept of legal precedent.^[67] According to Oxford Business Group, "it is not always possible to reach a conclusion on how a Saudi court or judicial committee would view a particular case" because "decisions of a court or a judicial committee have no binding authority with respect to another case," and "in general there is also no system of court reporting in the Kingdom."^[68]
The author of a book on the Saudi legal system (Frank Vogel) bemoaned the
"unpredictability of decisions; obscure if not occult doctrine; dissonance between many Saudi commercial norms and those prevailing nearly everywhere else ... huge costs on the Saudi economy. That the king and government have not been inclined, or able, to impose a solution to this widely known difficulty is an apt measure of the cultural and political influence of fiqh and ulama and of the centrality of the shari'a ideal for Saudi life public and private."^[69]

Bureaucracy

A business journalist (Karen House) criticizing the Saudi bureaucracy complained that someone seeking to start a business in Saudi Arabia
has to complete innumerable applications and documents at multiple layers of multiple ministries, which invariably requires seeking favors from various patronage networks and accumulating obligations along the way, most probably including having to hire less-than-competent dependents of his patrons. Then, for any business of any size, government contracts, not private competition, are the financial lifeblood. So this means more patrons, more favors, and more obligations. Not surprisingly, Saudi businesses that can compete outside the protected Saudi market are few.^[70]

Corruption

The cost of maintaining the Royal Family is estimated by some to be about US$10 billion per year.^[31] A 2005 survey by the Riyadh Chamber of Commerce found 77% of businessmen polled felt they had to `bypass` the law to conduct their operations. Since then "businessmen say it has only gotten worse."^[71]

Poverty

Estimates of the number of Saudis below the poverty line range from between 12.7%^[72] and 25%.^[73] Press reports and private estimates as of 2013 "suggest that between 2 million and 4 million" of the country's native Saudis live on "less than about $530 a month" – about $17 a day – considered the poverty line in Saudi Arabia. In contrast, Forbes magazine estimates King Abdullah's personal fortune at $18 billion.^[73][74]
The Saudi state discourages calling attention to or complaining about poverty. In December 2011, days after the Arab Spring uprisings, the Saudi interior ministry detained reporter Feros Boqna and two colleagues (Hussam al-Drewesh and Khaled al-Rasheed) and held them for almost two weeks for questioning after they uploaded a 10-minute video on the topic (Mal3ob 3alena, or 'We are being cheated') to YouTube.^[75][76] Authors of the video claim that 22% of Saudis are considered to be poor (2009) and 70% of Saudis do not own their houses.^[77] Statistics on the issue are not available through the UN resources because the Saudi government does not issue poverty figures.^[78] Observers researching the issue prefer to stay anonymous^[79] because of the risk of being arrested, like Feras Boqna.^[76][80]

Housing

Only 30% of Saudi Arabia's citizens own their own home, compared to the international average rate of 70% ownership. In 2011, analysts estimated 500,000 new homes/year were needed to match the growth in Saudi population, but as of early 2014 only 300,000 to 400,000 houses/year were being built.^[81]
One problem is that the government Real Estate Development Fund (REDF) -- which provides 81% of all loans for housing—had a 18-year waiting list for loans due to pent-up demand. Another is that the REDF's maximum loan is 500,000 SR ($133,000), while in 2012 the average price for a small free-standing home in in Riyadh is more than double that—1.23 million SR ($328,000).^[82]
A major reason for the high cost of housing is the high cost of land. In urban areas the price of land has been bid up because nearly all of it is owned by the Saudi elite (members of the royal family or other wealthy Saudis), who have lobbied the government for land "giveaways".^[81] Landlords have seen prices rocket by 50% from 2011 to 2013.^[81] The owners benefit from these price increases as they hold the land for future development.^{[83] [84]} To deal with the key "land banking" issue the Housing Minister suggested in 2013 that landowners of vacant within city limits could be subject to a tax. However, no firm plans for any tax have been unveiled.^[81]

Further diversification

According to journalist Karen House, "every" Saudi five-year plan "since the first one in 1970" has called for diversifying the economy beyond oil, but with marginal success.^[85]
As of 2007, manufacturing outside of the petroleum industry contributed 10% to Saudi Arabian GDP and less than 6% of total employment.^[86]

https://en.wikipedia.org/wiki/Economy_of_Saudi_Arabia#Private_sector

Comments

Oil revenue welfare for the Saudi population is unsustainable, so the Saudis government walks on eggs trying to avoid citizen unrest and lays plans to make their citizens more employable. Saudi citizens should seek engineering degrees.

Norb Leahy, Dunwoody GA Tea Party Leader