The Economic Growth of Saudi Arabia - Research Paper Example

The Economic Growth of Saudi Arabia Economy of old Saudi Arabia in the Arabian Peninsula Before the discovery of oil in Saudi Arabia, the traditional Bedouin culture prevailed in the country. In those days, the Saudi tribes used to be desert warlords who had captured Mecca in the year 1926 and put an end to slavery there. They had frugal and fundamentalist conditions. Bribes were minor lubricants until the discovery of oil in Saudi Arabia. The discovery of oil brought a revolutionary change in the economic strength of Saudi Arabia. Owing to the massive export of oil, Saudi Arabia has conventionally been the largest holder of the international financial assets and has thus, actively participated in the international financial markets. Economy of Saudi Arabia after discovering the oil The discovery of oil has played a fundamental role in the economic growth of Saudi Arabia. Saudi Arabia is the key state among all Arabic countries with oil reserves. The role of Saudi oil in the world economy is tremendous. With as many as 25 per cent of all oil reserves in the world, Saudi Arabia today is the leading oil exporter all over the world (Sharshar, 2002, p. 46). While the production of most of the states with oil reserves has already reached its apogee in the 1980s, Saudi Arabia still retains the tendency to explore more oil reserves and further expand its production. People living in Saudi Arabia have a very high standard of living. People live in opulence, and a vast majority of the citizens are wealthy. King Abdullah has announced a whole range of benefits worth $10.7 billion for the citizens which include funding for the aid of young unemployed citizens, funding to alleviate inflation, and to help the Saudi citizens in receiving education abroad. In addition, incomes of the state employees have been increased by 15% and loans have been provided for housing and accommodation of the citizens. Saudi Arabian government provides two National Insurance funds to the employees belonging to both the public and the private sectors. These funds are funded mutually by the contributions of the employee and the employer, as well as by the pay retirement pensions. The schemes of pension in Saudi Arabia are some of the most generous schemes of pension in the whole world. With every single year of service, the retiring employees gain the fortieth part of their final salary so that after a service of 40 years, the employees are able to gain full salary upon retirement. In addition to that, the Saudi citizens are provided with free health care and school education by the government. Poverty in the state is further addressed by the Social Security system. While the citizens of Saudi Arabia are living a very happy life, conditions are not quite as great for the migrant workers. A lot of people from such developing countries as India, Pakistan, and Bangladesh go to Saudi Arabia in search of work, and are paid very less for the amount of labor taken from them. Factors affecting the economic growth of Saudi Arabia Education Education has played a cardinal role in the economic growth of Saudi Arabia. A vast majority of the Saudi citizens go abroad every year to receive higher education. After completing their education abroad, they come back to serve in their homeland, and increase the population of skilled workforce which is an asset for Saudi Arabia. Geography Saudi Arabia’s geography is amongst the most significant factors that have contributed to the economic growth in Saudi Arabia. Saudi Arabia is geographically located at such a place where there are the largest reserves of oil of all countries in the world. In addition to that, a very important geographical significance of Saudi Arabia that is the backbone of its economy is the location of the Holy Kaa’ba in the Holy city of Mecca. Every year, hundreds of thousands of Muslims from all over the world visit Saudi Arabia to perform Hajj and Umrah, thus contributing to its economic growth. Health Saudi Arabians generally enjoy very good health. Health and medical care charges for the citizens are very low, owing to which, people get regular checkup to ensure safety and health. Although the condition of health and safety is very good in Saudi Arabia, yet its relationship with or influence on the economic growth of Saudi Arabia is very subjective. Nevertheless, healthy workforce is more productive which indirectly maximizes the profitability of businesses and thus contributes to the economic growth of the country. Culture The culture of Saudi Arabia is fundamentally influenced by Islam, Saudi Arabia being the origin of the religion of Islam in the world. Most of the citizens live their lives according to the Islamic norms, values, trends and traditions and the Saudi laws have also been made in due accordance with the Islamic teachings. This is the prime reason why the crime rate in Saudi Arabia is very low. Owing to the strict punishments and strength of the condition of law and order in the country, foreign investors consider it safe to invest in businesses in Saudi Arabia, thus contributing to the economic growth of Saudi Arabia. Population There has been a continuous increase in the population of Saudi Arabia over the decades particularly as a result of the massive inflow of trained skilled workers from all over the world in general and the underdeveloped countries in particular. It is anticipated that the population of Saudi Arabia will increase by 15.4% to reach 29.3 millions in the next five years, primarily because of the migration of skilled workers to execute the projects for the diversification of the oil-based economy of the country. The migrant workers are increasing at a tremendous rate so as to outnumber the Saudi nationals in near future, thus developing the country’s huge reliance on foreign workers for continued economic development. Although Saudi Arabia provides its citizens with numerous social benefits, yet they are below what are provided to their citizens by such Gulf Arab producers of oil as Qatar and Kuwait, whose native populations are lesser than that of Saudi Arabia. Nevertheless, the overall impact of the increase in skilled workers on the economy of Saudi Arabia is positive. Resources Saudi Arabia is geographically located in the far South-Western Asia. Not only is Saudi Arabia the largest country in the Arabian Peninsula area-wise, but is also of a huge religious significance as it contains the holiest places in Islam. Although the export of oil is the backbone of the Saudi economy, yet measures are being taken to diversify its economy, thus limiting the country’s dependence upon oil. Technology Saudi Arabia is investing a lot in the advancement of technology. There has occurred a revolutionary change in the telecommunication infrastructure of the country over the years. “The third plan is for the country to become a leading country in science, technology and innovation in Asia and by the end of the fourth plan, the country will be transformed into a knowledge-based economy and society joining the advanced industrialized countries” (Al-Saud cited in Harrison, 2010). Contemporary economic challenges for Saudi Arabia Saudi Arabia faces economic challenges with respect to the development of capability of women. The gender-related development index (GDI) was introduced by the Human Development Report (UNDP, 1995). GDI measures the level of disparity in the achievement between men and women. The value of GDI of a country gets lower relative to its Human Development Index (HDI) with the increase of gender disparity in the development of human resources. The HDI value of Saudi Arabia is 0.812 whereas its GDI value is 0.783, which means that the GDI value of Saudi Arabia is 96.4% of the HDI value of the country. The gravity of this issue can be estimated from the fact that out of 156 countries, 144 countries’ ratios are better as compared to that of Saudi Arabia when both of their GDI values and HDI values are compared (Fadaak, 2010, p. 691). This means that men in Saudi Arabia have higher level of economic freedom as compared to the women in Saudi Arabia. Another contemporary economic challenge for Saudi Arabia is the diversification of its economy and creation of new jobs so as to reduce the country’s dependence upon oil as the backbone of its economy. Saudi Arabia has resolved to spare a total sum of $400 billion for the upgradation of its infrastructure till the year 2013 and has also developed a plan to construct five industrial and economic cities for the generation of new jobs. However, the development projects are stalled by the delays and the country faces the challenge of competition from more developed cities like Dubai. The global financial crisis has also caused many international companies to pull out of the projects in Saudi Arabia. Nevertheless, the country is able to continually provide the funds for the main industrial projects because of the money accumulated from several decades of export of oil at high prices. Corruption also poses some economic challenges for Saudi Arabia. The Saudi government in general and the Saudi royal family in particular has been frequently accused of corruption. The interface between the personal wealth of Saudi princes and the state assets is quite blurred in Saudi Arabia as it is conventionally considered to belong to the royal family. Corruption in Saudi Arabia is endemic and systemic. Generally, the allegations of corruption have been considered as accusations, yet objective allegations surfaced in the year 2007 when it was claimed that Prince Bandar had received US$2 billion from the British defense contractor BAE Systems as bribe. Although Prince Bandar denied the claims, yet the investigations made by the UK and US authorities identified plea bargain agreements between Prince Bandar and BAE Systems, as a result of which, BAE Systems had incurred a fine of US$447 million. Economic Opportunity of Saudi Arabia The extent of foreign reserves and assets held by Saudi Arabia depends to a large extent upon the production of oil and the pricing policy implemented by the country in the future. The Saudi oil reserves have huge potential to impact the international monetary system, particularly the value of the US dollar. The dollar holdings of the Arab states in general and of the Saudis in particular depict the value of dollar in the global market. “[B]y financing development and military purchases of their own, as well as those of other less fortunate Arab states, a substantial part of these capital expenditures flow to the United States, considering its traditional relations with rich oil states in general and with Saudi Arabia in particular” (Sharshar, 2002, p. 46). References: Fadaak, T. (2010, Dec.). Poverty in the Kingdom of Saudi Arabia: An Exploratory Study of Poverty and Female-headed Households in Jeddah City. Social Policy & Administration. 44(6): 689-707. Harrison, R. (2010, Feb. 17). The future of technology in Saudi Arabia. Retrieved from http://www.menafn.com/menafn/1093305846/The-future-of-technology-Saudi-Arabia. Sharshar, A. M. (2002). Oil, religion, and mercantilism: A study of Saudi Arabia’s economic system. Virginia Commonwealth University. EBSCO Publishing. UNDP (1995). Human Development Report 1995 [online]. New York: United Nations. Retrieved from http://hdr.undp.org/en/reports/global/hdr1995/. Read More