StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

Banning Exports of Cement in Saudi Arabia - Assignment Example

Comments (0) Cite this document
Summary
In the paper “Banning Exports of Cement in Saudi Arabia” the author discusses a ban on cement exports from the country. The ban was partially lifted in 2009 following further discussions and considerations between the ministry officials and stakeholders in the local building and construction industry…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER93% of users find it useful
Banning Exports of Cement in Saudi Arabia
Read TextPreview

Extract of sample "Banning Exports of Cement in Saudi Arabia"

Download file to see previous pages The decision by the Saudi government to stop and ban the exportation of cement was prompted by the soaring domestic prices of building and construction materials. In the subsequent discussion, we will attempt to identify and explain the cause(s) of such a shortage, and factor(s) leading to the imposition of the ban. In addition, we will assess the reasons for its partial uplift and subsequent reinstatement, how the government’s actions translate to monopolistic behavior. Finally, we will analyze the impact and effectiveness of the monopolistic strategy on the economy and in particular in relation to the country’s projected economic growth.
Discussion and analysis
Despite being the highest producer of cement among GCC countries, Saudi Arabia has recently been experiencing cement shortages. This is because the manufacturing companies export most of their products to the international market to fetch higher prices. The exportation of blocks of cement has grown steadily between 2004 and 2007. In 2006, the cement export volume was quoted as 2.26 million tones. Total production over the same period was estimated at 33.1 million tones against a local consumption level of 31.2 million tones. This translates to a shortage of approximately 0.36 million tones locally.
Figure 1: Trends in cement export from Saudi Arabia
Source: El-Qua, O, Hasa, F, Desai, A, Rout, B & Gupta, S 2007, p.8
The table below provides the total production of clickers and cement as between regions in the Kingdom in 2006.
Table 1. The regional actual production of cement and clinker
Source: El-Qua, O, Hasa, F, Desai, A, Rout, B & Gupta, S 2007, p.7
These statistics show the total production of cement in Saudi Arabia was 33.1 million tons in 2006. However, the total consumption of cement in the same year was about 31.2 million tones (El-Quqa, Hasa, Desai, Rout & Gupta 2007, p. 9). Comparing the above statistics, it is evident that there has been a shortage of cement in the local market. Since this trend has continued, the government responded by banning exports of cement to alleviate the shortage in the local market.
In 2009, the ban was partially lifted following an upsurge in demand in the Middle Eastern countries. Another factor was the continued fall in the country’s GDP growth rate projections for the past 2 years forcing the adjustment on foreign trade policies to boost the balance of payments. The ban has had little effect on the cement manufacturers. According to Jimaa (2011), cement sales in the Saudi Arabian market (local market) had grown from “3.61 million tons to 4.61 million tons between April 2010 and April 2011” despite the 2009 export ban (p. 2). In 2011, domestic demand for cement in Saudi Arabia rose to 48 million tons, and Economists predict that the demand is likely to rise to more than 50 million tons by 2013. Based on the increasing construction projects currently taking place in Saudi Arabia, economists have predicted growth in demand throughout this year (2012). This means that companies will have sufficient demand in the local market. Therefore, the government ban on exports will not affect the sales for the companies.
The figure below shows forecasts for demand in cement since 2007. It is evident that the demand has been increasing gradually throughout the years. Economists predict a similar trend between 2011 and 2013. This implies that sales per company shall increase within the local market now that the government has banned the export of cement.
Figure 2: Trends in cement demand
Source: Hasan, K, Karman, H, Faruqui, U& Alyaqout, T 2011, p.15
Therefore, the inference is that the current ban on export and high levy on cement imports by the government will not affect the performance of the cement manufacturers in Saudi Arabia.
Saudi Arabia has been experiencing a growing economy since 2010. The average growth in the GDP of the Kingdom is about 6.8% for the last four or so years. The construction industry accounts for more than 8% of Saudi’s economic growth. In fact, it has the largest construction market is in the Middle East” (Al-Nagadi 2008, p. 104). As illustrated by the figure below, economists predict an increasing GDP throughout this year.
Figure 3: Trends in GDP of Saudi Arabia
Source: El-Qua, O, Hasa, F, Desai, A, Rout, B & Gupta, S 2007, p.4
Arab News (2012) interprets that growth in the economy will result in investment into housing and other infrastructure such as roads and hospitals both at private and public levels (p. 110). This means that domestic demand for cement will rise; the sales and hence the performance of these firms in Saudi Arabia will not be affected by the government's decision.
Furthermore, the increasing population in the Kingdom provides a bright future for cement firms. Since 2010, the Kingdom has recorded a high rate of population growth. It has a growth rate of about 2.4%. The population has grown from 27.6 According to the theory of monopoly and law of demand/supply, reduction in supply increases the price. Therefore, local firms will sell their cement at higher prices and achieve equal profits they used to realize before the ban.
A monopoly is defined as one having the exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices. In other words, a monopoly is the presence of only one firm within an industry. The power that a monopoly firm possesses will always depend on the existence of comparable substitutes produced by rival industries and the barriers to entry, which the monopolist is able to create.
Reasons for the export ban include:
1. To match growing demand in the local market especially with multibillion, dollar infrastructure projects underway e.g. Dubailand project quoted at $5B.
2. To ensure price stability over the commodity locally
3. To ensure there is enough supply.
The government’s strategy is designed to create efficiency and legislative monopoly in the industry. Legislative monopoly is achieved through the Ministry of Commerce’s limit on the quantity exported, the pricing, and the tax levy on imports. This reduces the competition level between local manufacturers ensuring that each firm best meets its quota of local market demand. Efficiency monopoly is established in view of the diminished cost of production. Cement production is highly energy-dependent amounting to 30-40% of total production costs. Saudi Arabia is the world’s largest oil producer resulting in relatively low fuel prices, consequently lowering the marginal cost for these firms.
Barriers to Entry
A barrier to entry is a restriction or impediment, which works to exclude new firms from entry into a particular market. Such barriers may be economic, social, or even politically motivated. For example, a government can create a monopoly over an industry that it wants to control by placing restrictions on trading terms or supply. Another way a government may create a monopoly is by holding the exclusive rights to some natural resource.
Such is the case in Saudi Arabia, the world’s largest oil producer, where the government has sole control over the oil industry, which accounts for approximately 45% of the Kingdom’s Gross National Product. In recent years, the Saudi Government has looked to an economic growth strategy of diversification to reduce its economic dependence on oil and as such, has targeted the cement industry.
It also resulted in a cement shortage in the local market when in 2008; domestic prices soared due to companies exporting large quantities of cement in order to take advantage of higher profits.
A firm’s monopoly may be safeguarded by some form of legal protection. A clear example of how the Saudi government has created a barrier to entry to protect its monopoly is through the creation of legal impediments.
Due to the local cement shortage in 2008, the Saudi government initially responded by placing a trade restriction on cement exports. From May 2009, cement makers in Saudi Arabia were only allowed to export up 10 percent of their cement reserves if they held a Ministry of Commerce issued license. As mentioned above, in recent weeks an extreme version of legal protection in the form of a complete ban on exports was implemented; again, this keeps a supply of a necessary raw material (cement) from consumers such as rival nations and foreign companies.
Guaranteed supply of cement offers a boost to the intense construction projects undergoing in Saudi Arabia. A shortage means delays; delays translate to monetary losses i.e. operational costs to the construction firms and lost revenue to a government keen on changing the country’s GDP base from oil-dependency to tourism and cultural dependency according to forecasted depletion of oil reserves within the next 50 years.
The ban has had little effect on local cement manufacturers. According to Jimaa (2011), cement sales in Saudi Arabia has increased by 1 million tones in 1998-1999. It is expected that this demand will grow to over 50 million tones by 2013. This means that the local demand would be large enough to meet the production over the same period.
Conclusion
Lasting monopolies are those sustained through government policies. With the GDP growth rate in Saudi Arabia projected at an average of 6.8% over the past 4 years and in view of the immense expenditure on infrastructure alongside the anticipated population, growth of 2.4% the demand for cement in the building and construction industry seems secure-for the moment. The change in foreign trade policy serves to guarantee this position in accordance with the country’s growth objectives. ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(Banning Exports of Cement in Saudi Arabia Assignment, n.d.)
Banning Exports of Cement in Saudi Arabia Assignment. Retrieved from https://studentshare.org/business/1590452-why-the-saudi-government-has-implemented-banning-exports-of-cement-and-explain-the-answer-in-terms-of-monopoly-strategy
(Banning Exports of Cement in Saudi Arabia Assignment)
Banning Exports of Cement in Saudi Arabia Assignment. https://studentshare.org/business/1590452-why-the-saudi-government-has-implemented-banning-exports-of-cement-and-explain-the-answer-in-terms-of-monopoly-strategy.
“Banning Exports of Cement in Saudi Arabia Assignment”, n.d. https://studentshare.org/business/1590452-why-the-saudi-government-has-implemented-banning-exports-of-cement-and-explain-the-answer-in-terms-of-monopoly-strategy.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Banning Exports of Cement in Saudi Arabia

Saudi Arabia

... Saudi Monarchy and its along the Passage of History ]In a fair political term, the political system of the Kingdomof Saudi Arabia can be considered as absolute monarchy. Indeed Saudi Arabian monarchy considers the king as the head of both the state and its government. The King of Saudi Arab functions as the chairman of the country’s Council of Ministers. But since the country is ruled according to the Islamic Laws, the King does not preserve any right to enact laws. He only “issues royal decrees in accord with the shari’a” (Matthes et al 2). The most difficult duty that the King has to perform is to maintain a balanced and harmonious relationship among the Royal Family members, the upper-class people of the society and the Ulama...
7 Pages(1750 words)Essay

Dancing in Saudi Arabia

..., and there have been reports such as a woman being sentenced to 20 lashes for dancing in front of men. (Kirk, 1994). As western music is prohibited in Saudi Arabia, many dances types of western dances such as ballet or ball room dancing are explicitly forbidden. Wahhabism has a concept known as Bidah which means innovation. They take this philosophy even further than its original meaning means innovation in religion. They apply it to dancing, and here anything that has Western influence shall be banned in the Holy land. In cities such as Mecca and Medina dancing is only allowed in private gatherings because of their historical importance to the Muslims living there, and fear that dancing openly in these two cities might offend the people...
3 Pages(750 words)Essay

Saudi Arabia

... Islamic Saudi Arabia Introduction The present day Saudi Arabia owes its existence to Prophet Mohammad, Holy Koran, Islam and Meccah, Medina. Before the arrival of prophet, the Arabian society was divided and diversified, with different tribes holding various religious faiths. The social and cultural bondage was virtually absent, among such tribes, during those days. This can be judged from the reading about pre-Islamic history of Saudi Arabia, as given below. The magnetic attraction of Prophet towards people of different backgrounds helped the unification of all Arabian communities, which resulted in the creation of Saudi Arabia, as a political entity, in 1932. As Prophet Mohammad was responsible for converting members of all communities...
15 Pages(3750 words)Research Paper

Saudi Arabia

It stands as a significant industrial country, claiming over 25% of the global oil reserve. It is this wealth in oil that Saudi Arabia is known for and is what drives the country’s economy. Considered as the origin of Islam, the country has been keen to preserve its historical richness with the passage of time. Geography Saudi Arabia occupies about 80% of the Arabian Peninsula, measuring 865,000 square miles, just about 25% of the total surface are of the US. This is a big country as compared to the size of other countries globally. The country borders the United Arab Emirates, Qatar and the Persian Gulf to the east, Oman and Yemen to the south and Kuwait, Iraq and Jordan to the north. On the west, the Red Sea separates it from S...
5 Pages(1250 words)Research Paper

Saudi Arabia

... fishermen in Saudi Arabia. With the increasing demand, Khalifa Algosaibi helped establish the kingdom’s first modern fishing company in Dammam, Saudi Arabia. The company introduced modern fishing boats and founded a facility for the manufacturing and storage of fish and fish products. With this introduction, the kingdom witnessed a leap in their economy, marking the foundation of this company as a turning point in the country’s efforts to diversify from its main export – oil. This shift caused a change in the pattern of domestic consumption as well as an increased demand for fish from both the local population and those individuals who have been recruited to work within Saudi Arabia. The primary means for catching fish in both...
6 Pages(1500 words)Essay

Saudi Arabia Business Ethics

...WHAT TOP SALES AND MARKETING EXECUTIVES NEED TO KNOW ABOUT SAUDIS’ CULTURE Introduction This paper aims to investigate the business customs of Saudi Arabia and to create an informative essay in order to train the top sales and marketing executives about these customs and business ethics. This task pertains to inevitable requirement of conducting business globally in which organisations and personnel must learn how to communicate properly with other businesses in a different culture in order to pursue productivity and quality. Considering the reforms in the investment laws in Saudi Arabia in which foreign nationals are allowed to invest, it is interesting to know how culture becomes a fundamental factor in doing business in the Kingdom...
9 Pages(2250 words)Essay

Saudi Arabia

...; and passports of foreign workers were illegally retained with their wages also withheld for months, sometimes years (Eye of the UN “UN Authority Figures”). For the United States, the above violations are very rare occurrences in the labor sector. The United States is equipped with various labor laws and civil laws which help prevent these violations. Because of its strong labor rights protection, the US has managed to draw in more laborers; this has helped contribute to strong exports for the United States and lesser trade deficits (Weller & Zucconi “Issues”). Organizing/% of Unionization Unionization in Saudi Arabia is prohibited. Their basic laws do not include the freedom of association and the government has actually...
7 Pages(1750 words)Admission/Application Essay

Foreign Workers: Saudi Arabia

... Due Foreign Workers: Saudi Arabia From a historical perspective, Saudi Arabia has always strongly relied on foreign workers for its economic growth and development. After the oil book of the 1970’s, a great deal of construction and economic activities started to take place in the country. There was a big need to bring in millions of foreign workers to work in various economic sectors. Saudi culture and society has always been very open and welcoming of foreign workers from all parts of the world. Currently, there are more than six million foreign workers in the country and this represents 50% of the total workforce. According to Eleanor (37-34) there have been some issues of mistreatment of such workers such as not being paid salaries...
6 Pages(1500 words)Research Paper

Saudi Arabia

...Saudi Arabia is a kingdom in the Arabian Peninsula, which is ruled by a king who combines legislative, judicial, and executive functions when administering the country. Either the law of the country is generally made by a royal decree from the king or the constitution of this state is the Quran. Although this country is often perceived to be a totalitarian state by many people in America, its political system has worked for the last century and not only has it done this, but it has also led to a great deal of development for its people. The Saudi Arabian government has used the oil wealth of the country for the benefit of its people and it has put a lot of investment not only in infrastructure but also in education (Khatib, 2011). In fact...
2 Pages(500 words)Research Paper

Cement

...Cement & Portland cement Introduction Cement refers to a finely ground substance mainly produced by pulverization of clinker in a rotary kiln, which hardens gradually when mixed with water. Facilitation of hardening characteristic in this case results from numerous integrated materials including lime and shale as main components besides other additives whose respective roles are indispensable during kilning process (Thomas & Jennings, 2008). Currently, there are varied types of cements manufactured for specific purposes besides the ordinary ones meant for conventional roles in the construction sector. Their differences vary in the mode of manufacturing as well as how they behave once exposed to natural elements, for instance, water...
4 Pages(1000 words)Coursework

The United Kingdom and Saudi Arabia Gender Question

...A Comparative Case Study Analysis of the United Kingdom and Saudi Arabia with Reference to Gender Introduction When considering conducting business or even just traveling to another country, it is often necessary to understand how that country’s culture affects the way in which its people might receive you, both as a businessperson and as a tourist. For some countries, the differences between your home and the country visited will not be all that great, as in traveling between two modern capitalist countries. The reason for this is due to the degree to which they subscribe to a particular overall culture and how strictly they adhere to the specificities and laws of such culture. However, in other countries, such as the Arab Nations...
14 Pages(3500 words)Case Study

Feasibility of Implementing Business Process Reengineering in Saudi Arabias Small and Medium Enterprises

...PhD Research Proposal “Feasibility of Implementing Business Process Reengineering (BPR) in Saudi Arabia’s Small and Medium Enterprises (SMEs)” Submitted By: Suaa7Fafa7 (E-mail add.: nutmega@gmail.com) Table of Contents I. Title of the Proposed Research …………………………………………. 3 II. A Brief Introduction ……………………………………………………….. 3 III. Importance of Business Process Reengineering (BPR) in SMEs ….. 4 IV. Justifying the Importance of the Selected Research Topic …………. 4 V. Aim and Objectives of the Proposed Research Topic ……..………… 5 a. Aim of the Proposed Research Topic ……………………… 5 b. Objectives of the Proposed Research Topic ……………… 6 VI. Key Academic Ideas (Theories & Concepts) and Supporting References...
9 Pages(2250 words)Research Proposal

Relationship between Money Supply and Inflation in Saudi Arabia

Over the recent past, the effects of money supply, debt and inflation have become contentious issues for debate. Furthermore, frequent cautions concerning the risk of very large budgetary deficits aver that this would send up the upcoming state debt and capital rate as indicated by the rates (interests). As a nation, Saudi Arabia has a bi and enduring budgetary deficit over the past two decades and the government has been forced to go into the market so as to have loan access and to make up for the deficits. Given the impact of this on inflation and other economic variables, it's imperative and of great alarm for strategy architects (strategists) to understand how microeconomics has an effect on money supply, financial plan defici...
10 Pages(2500 words)Speech or Presentation

The Relationship Between Financial Perfprmance and Corporate Social Resposibility on Saudi Electricity Company

The pragmatic parallel mixed methods design was adopted for the study using the questionnaire, structured interview guide and content analysis were the primary instruments utilized in the collection of data. A total of 500 respondents participated in the study. These respondents represented the five sectors considered in the study, namely: the community residents, SEC employees, SEC managers, personnel from other establishments (i.e., the marketplace) and the government.  A combination of sampling techniques was used in this study: stratified random sampling, for the community respondents and SEC employees; simple random sampling, for the respondents of other companies; and purposive sampling for SEC managers and a representa...
88 Pages(22000 words)Case Study

Effects of Globalization on Saudi Arabia

Even if intensely loyal conservatives of today would want the world to reverse this trend, there appears to be in no chance for achieving this objective. For the past few decades, in light of the liberalization, privatization, free trade, and free-market policies, all the nations of the world have become extremely interconnected, interdependent and interrelated (Fox, Mourtada-Sabbah, & Al-Mutawa, 2006). The current global crisis is a perfect example to prove this point. A financial crisis that was purely a creation of some large corporations of the United States ended up disturbing the economies of countries located thousands of miles away  (Ramady, 2010). At that time, Saudi Arabia was building on something called the &l...
10 Pages(2500 words)Term Paper

Cultural Differences and Similarities Between United States and Saudi Arabia

From a general viewpoint, the differences in culture seem to be more than the similarities. Case in point, the American's belief and role of religion is different from that of the Saudis. In this regard, Americans do not attach a significant value to religion in their daily lives. On the other hand, religion is the most important thing amongst the Saudis. Effectively, religion dictates the rhythm of life to the Saudis and its role in the society and the country is significant. Nevertheless, while too many people think that there is nothing common about the cultures between United States and Saudi Arabia, there are similarities and differences between them. 
The world cannot seem to get enough of petroleum and its byprod...
10 Pages(2500 words)Literature review

Primary Care Nurses and Doctors Views of Managing Childhood Obesity in Saudi Arabia

...MSC Public Health and Health Promotion Dissertation module SHGM57 A Qualitative Study of primary care nurses and doctors views of managing childhood obesity in Saudi Arabia Student No: 628587 Word Count: 20,000 Submission Date: 1-6-2012 ABSTRACT Obesity is increasingly recognised as a serious and escalating public health problem in the world today, contributing to increased morbidity and premature mortality. The rise in childhood obesity is of special concern. It is acknowledged that obesity in childhood can lead to many lifelong health consequences and that intervention in childhood and early adolescence is probably the most critical time to reverse this trend. In Saudi Arabia, increasing economic development has led to significant...
79 Pages(19750 words)Dissertation

Estimation of The Wet-bulb Globe Temperature in Saudi Arabia Resources Sector

...Estimation of WBGT in Saudi Arabia’s resources sector using LASCAR, EL-USB-2-LCD+ relative humidity and temperature data loggers. Abstract The Wet-bulb Globe Temperature (WBGT) has been a widely used heat stress index in the determination of the effect of different climatic conditions to the health statuses of several people in relation to their work cycles. Ideally, there have been the development of quantitative links between the WBGT and the required work-rest cycles for the prevention of heat stress effects among workers at the workplace. The climate is rapidly changing in the Arab countries including Saudi Arabia and the best possible adaptation would be through the estimation of the temperature and rainfall. As a quantitative...
21 Pages(5250 words)Research Paper

Two Water Provision Methods in Saudi Arabia

... Report on Comparison of Two Water Provision Methods in Saudi Arabia 0 Introduction The availability of wateris essential to the sustainable social and economic development in any country. The scarcity of water nowadays is becoming a global issue in the society in both the developing and developing countries. Water scarcity is defined as the condition whereby the provision of water cannot match the demand. Saudi Arabia is particularly destitute of the water due to its majority of regions being arid. In an arid country like Saudi Arabia with no perennial rivers, groundwater is the main, but limited resource that can be used in residential, industrial and agricultural areas to guarantee adequate supply of water. The rapid growth...
6 Pages(1500 words)Assignment

Health Care Finance in Saudi Arabia

.... Therefore, response to medical emergencies has not been efficient. Part of the funds invested into the health sector should fund emergency service provision. The allocation of funds in health emergency response agencies in turn improves the provision of emergency healthcare services. Oil is major export commodity in Saudi Arabia and constitutes a large percentage of the total revenue the country earns. The revenue obtained from the oil exportation is the main source of finances used to fund the health sector in the country. However, the price of oil in the international market is not consistent and this causes inconsistency in the provision of funds to the health sector. The solution to this problem would be pushing for the establishment...
7 Pages(1750 words)Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Assignment on topic Banning Exports of Cement in Saudi Arabia for FREE!

Contact Us