Greece & Saudi Arabia: A Comparative Analysis - Case Study Example

Saudi Arabia: An Overview Saudi Arabia is among the richest countries in the world, producing a quarter of the Petroleum that is mined in the world today. With an economy that is centered around oil-production, Saudi Arabia is also a leading member of the Organization of the Petroleum Producing Countries an organization also known as OPEC. The country is spread on an area of 2.15 M sq km and according to the official figures published by the Saudi government in the year 1999; the population is roughly 14 million with roughly 12.3 million people belonging to the indigenous population of the country.1 The country has a huge workforce that is comprised of foreign nationals who work alongside the Saudi nationals and it has been estimated that this number of foreigners increased from 4,563,000 in the year 1985 to a total of 5,300,000 in the year 1990.2 The country is a kingdom and before the year 1932, the Arabs were divided into different geographical regions such as the Nejd, Hejaz and Al Hasa regions and it was Ibn Saud who conquered the various dis-united regions ad declared himself the king of the United Saudi Arabia in the year 1932. 3 The petroleum deposits that have taken Saudi Arabia to the heights of its current prosperity were discovered in the year 1936. Most of the population belongs to a strict sect of Islam known as the Wahhabis. The cultural and social conditions of the country seem to be much talked about, yet still veiled mystery as the people are extremely conservative and follow the Sharia (Islamic Law) with strict adherence. A very big reason that the Saudi workforce comprises of so large a number of foreign residents is the fact that until the last decade there were very few places where Saudi national could obtain higher education in their own country. Due to this reason, the country has a huge workforce which comprises of foreign nationals. Recently, in the last decade or so, the government has started spending huge amounts of money on developing its own national workforce, which is an avenue which was always neglected previously. The oil that the country produces plays a huge role in its economy. Statistics confirm that the budget revenue is derived mainly out of oil sales and it accounts for 80% of the over all budget. It also makes up a large chunk of the country’s GDP at a contribution of nearly 45 %. It can easily be said that with 90% of the its earnings coming out of oil export, Saudi Arabia is an economy which is highly dependent on its natural resources. Although the current falling prices of oil and the global financial crises have effected every nation in the world, the Saudi government has enough reserves in its banks collected from the oil boom days and it can safely bee said that until and unless a huge fall is experienced by oil prices, the country will easily sail through these turbulent waters Greece: An Overview Greece is a country located in Southern Europe with an area of 131 thousand sq km, and a population of 10.7 million governed through a parliamentary republic system and has a capitalist economy. Greece’s economy underwent accelerated development during the 1950s and 1960s with an annual 7.6% growth rate4, primarily from a large amount of foreign investment in capital intensive industry sectors such as the petrochemical industry and heavy manufacturing. During the 1970s the economy suffered from the oil crisis in 1973 and the ensuing international monetary climate with the GDP growth rate dropping to a mere 1.4% in the 1980s. Over the course of the last decade, the Greek economy has slowly and steadily risen, when the country became part of the European Union and the stronger Euro currency resulted in reduced interest rates on the country’s debts, allowing increased spending in social development programs and an a marked improvement in the standard of living. The European Union’s aid has also helped the country out and has helped in the exponential growth that was carried out in the country during the last 10 years. The induction of Greece into the group of EU countries added to the economic boon that the country experienced when the Olympics of 2004 were held in Athens, have been the major cause of the rising wave of development that was seen in this European country. Greece & Saudi Arabia: A comparative analysis On the whole, these past three years have been much harsh for Greece as compared to Saudi Arabia. The economic growth that the country saw following its inclusion into the European Union, suffered a severe set back in the year 2009 when the country experienced a negative growth for the first time in 16 years. Saudi Arabia on the other hand, according to a report published by the World Bank in the year 2008 is the strongest economy in the Arab world and was the 23rd strongest economy in the world. The country, extremely rich with oil money, has never suffered an extreme economic shock the likes of which are being faced by Greece right now due to its budget deficits. The statistics show that currently the GDP per capita for Greece is higher than the GDP of Saudi Arabia. A major reason for this is the fact that the GDP is directly linked with the standards of living of a nations population. Greece ranks very high on the Quality of life index, a 22nd position, higher than more developed economies such as the United Kingdom and 50 places higher than Saudi Arabia which is ranked 72 on the index 5. Due to this reason, GDP which is a direct measurement of the productivity of the economy of a nation is higher in the case of Greece. Saudi Arabia on the other hand faces an extreme form of in equal distribution of wealth. The country is rich because the money is held by a select few; the population in general has a much lower standard of living when compared to the common man living in Greece. On the other hand , when the other aspects of the economies of the two countries are compared, the results show something else entirely. The current account balance for Greece is in the negative, as a result of the budget deficit that the country is going through. This deficit is projected to reach 12.7 percent of the nations entire GDP, something which is highly unacceptable to the European Union. Due to this the country has been pressed to announce that it will employ policies that will resultantly lower this budget deficit to less than 3 percent of its GDP, a feat that still has to be performed yet. However, as a result of this deficit the economic and social paradigms of the county’s system are being thoroughly hampered. The current regime of George Papandreou is trying to cut expenses, and trying to do so at the cost of the nation’s growth and as a result of this, the public sector of the country carried out its threat to go on a public strike for 24 hours on the 22nd of April this year6 Saudi Arabia on the other hand does not have such a severe budget crisis and it was only in the year 2009 that the country experienced a budget deficit- a first one after the year 20047. Even then, the millions pouring into the country’s economy as a result of Oil sales has made it possible for the country to spend more than its budget and still get through. The worst thing that could happen to the country could be in the form of a severe slump in the oil prices which will surely cause a spending slump the likes of which happened in the 1990’s 8. Another important comparison is between the rates of unemployment experienced by the population of both the countries. The rate of unemployment remains a cause of concern for both Greece and Saudi Arabia and has been persistently increasing all through the past three years. A big reason for this high rate of unemployment in Greece is again the crisis that the economy is going through. According to a report the total workforce in the country at the end of October 2009 amounted to 4,505,100 while the number of people out of a job was 491,139 a startling 123,935 people more than the figures of last year at the same time 9 Similarly Saudi Arabia also has a very high rate of unemployment. The official figure is much less than the un-official more accurate figure, however it is still higher than that of Greece. A major reason for that is the fact despite all the wealth, the Saudi workforce is not as technically trained as the workforce of other countries. As the report has mentioned before, the government, up until a few years ago did not spend a very large amount of money on developing a quality standard of higher education, due to which foreign nationals had to be employed in the positions at which Saudi nationals were not able to work due to their lack of skills. Roger Hardy notices that at the current prices of about $60 per barrel, the country is earning approximately $480 a day, and even though 35-40 percent of this money is spent on the budget for health and education, the currently has still not been able to increase its unemployment rate 10 On the whole, the inflation suffered by both the countries has also seen the same upward trend. Although the inflation suffered by the Saudi economy is less than that suffered by Greece, the main reason of this inflation is the Global Financial crisis which is effecting the economies of struggling countries all over the world. This coupled with the poor administration and usage of the allocated funds by the government in Greece has increased the inflation in the country and has played a very large part in the current disquiet that is rising among the common Greek people. Saudi Arabia on the other hand experienced less inflation than Greece during the year 2007, but subsequently, this last year, the country faced a higher level of inflation as compared to Greece. The major reason behind is the fact that Saudi Arabia’s economy mainly depends upon the revenue generated by selling its oil, and as the purchasing power of countries worldwide fell due to the global financial crisis, the country suffered the economic upswing in the inflation level Another very important comparison between both the countries is the Purchasing Power Parity, which also drives the GDP indices. The Per Capita Income in Greece is approximately $32,000 which is higher than that of Saudi Arabia which is $20,700 11, which is a direct influence on the prices of non-trade able consumer goods which can be bought from this income. This sheds light on the in equal distribution of wealth in the Saudi economy, which -even though- is rich, is still unable to raise the quality of life as experienced by its nationals. Conclusion: On the whole, currently it can easily be said that Greece and Saudi Arabia are both quite different when compared economically. When the account balances of the government are compared, there is a stark difference between the two, whereas when problems such as inflation and unemployment are compared, both countries are plagued with the same concerns. From the analysis, a simple conclusion that can be drawn in the case of Saudi Arabia is the fact that while money can buy most things, it cannot buy social development. Although the country- rich in resources- has managed to stand tall all these years, the fact that all of its economy stands on the shoulders of its oil production makes it a very flimsy economy in my opinion. Even though the fact remains that this oil giant will in no terms run out of buyers for its resources, there is still a startling lack of advanced infrastructure in the country, the lack of which is harming the common man, yet not so much the government. Greece on the other hand is a clear victim of a corrupt and unequal administration. The country -once going so strong with a GDP growth surpassing the growth levels of all other EU nations- has now been brought down to its knees due to incorrect management of resources and money. Greece will eventually, with the aid of EU, get back on its knees but once it does so, the biggest cause of concern for the administration would be in devising strategies that take the country down the same path of which it veered off when it ran into its current financial crisis. Bibliography Eric de Carbonnel. Saudia Arabia’s 2009 budget deficit. (2008).http://www.marketskeptics.com/2008/12/saudi-arabias-2009-budget-deficit.html Helen Chapin Metz, ed. Saudi Arabia: A Country Study. Washington: GPO for the Library of Congress, 1992. Retrieved From: http://countrystudies.us/saudi-arabia/19.htm Nick Illiev .Greek public sector declares general strike amid increasing austerity measures. (2010). From the Sofia Echo. Retrieved from: http://sofiaecho.com/2010/04/22/890956_greek-public-sector-declares-general-strike-amid-more-austerity-measures Nick Illiev .Greek unemployment on the rise amid severe financial crisis. (2010). From the Sofia Echo. From: sofiaecho.com/search/?rubrid=0&fromdate=15/1/2010 Per capita income. http://siakhenn.tripod.com/capita.html Roger Hardy. Un- employment/: The new Saudi challenge. (2006). BBC news. Retrieved from: http://news.bbc.co.uk/2/hi/business/5406328.stm The Quality of Life Index. International Living. Retrieved From: http://www1.internationalliving.com/qofl2010/ The Country and People of Saudi Arabia. Retrieved From: http://www.hejleh.com/countries/saudi.html Thomas White. Greece: From Ancient Civilization to Bold European Player. Retrieved From: http://www.thomaswhite.com/explore-the-world/greece.aspx . Appendix 1: Greece Saudi Arabia Current Account Balance [Billions USD] 2007 2008 2009 -44.4 -51.574 -33.756 93.454 134.225 15.389 Inflation [%] 2007 2008 2009 3.30 2.90 4.10 1.90 4.10 9.90 Unemployment Rate [%] 2007 2008 2009 9.20 8.30 7.70 13.00 13.00 11.80 GDP growth rate (real) [%] 2007 2008 2009 4.20 4.00 2.90 2.40 3.50 4.20 Per Capita Income 2007 2008 2009 Read More