Economic Environment of Saudi Arabia - Assignment Example

Due The economy of Saudi Arabia The Saudi Arabia financial system is in terms of mixed based economy. This impliesthat the government has a high influence over the resources whereby private sectors also own some resources that facilitate production within the Saudi Arabian economy. Government is in critical control of all oil reserves that are in its possession. This accounts for approximately 92% of the revenue budget, which the country en joys (Gonzalez, 1583). However, the government is also stimulating private investment in order to avoid much overreliance on the present oil resources as well as generating more employment opportunities.

Investments in this case encompass power generation and telecommunication sectors where the state has a freedom score of about 60.60% besides creating ample settings where individuals can also have reasonable extent of freedom to participate in trade. Saudi Arabia economic policies have greatly transformed after the oil boom of 1974 (Gonzalez 1583). This prompted the regime to dwell much on the oil reserves as a way of establishing its economic foundation and equal those of other states. The state’s regime is also involved in training some of its youths in ensuring that they gain the appropriate labor expertise that will ensure continued general economic development.

This is by initiating effective policies aimed at reducing unemployment among its own nationals as it stimulates development in diverse sectors besides uplifting people’s wellbeing. The government also strategizes on promoting foreign direct investments in the entire state by adopting the six economic city plans, which will boost growth of foreign trade activities. Additionally, the government has adopted a policy of expanding its local investments in order to increase privatization and employment opportunities in diverse sectors as aforementioned.

The country dwells on oil activities as its main source of economic stimulus. For example, as stated earlier, Saudi Arabia is an oil economy. This means that exports and energy generation activities dominates the economic sectors. The oil reserves of Saudi Arabia take around 60% of the GDP while the private sectors contribute 40% of the gross domestic product. However, agriculture, which was a traditional activity also still also, assumes a significant portion among the state’s economic activities in Saudi Arabia.

The risks American companies in the Saudi Arabian economy There are different risks that may affect companies operating in Saudi Arabia. Among these risks may include foreign direct investments policies that may not favor development of the US companies in this country. The fiscal policies adopted by the country may also limit the profitability of such companies in the United States of America. Among the fiscal policies, that affect the progress of US companies in Saudi Arabia include those concerning inflation.

The Saudi Arabian economy as aforementioned dwells mostly on oil activities. This is evident with the recent years where rising prices of did not favor price patterns in the country whereby there is a possibility of recurrence if respective agencies fail to take the necessary measures. For example, this has continuously increased the level of prices, which the Saudi Arabian economy offers for exports (Rice 59). Hence, triggering to unreasonable prices’ escalation that would imply increasing inflation incidences, which is detrimental to the investing corporations including those coming from other foreign states.

Escalation in inflation patterns do not favor USA companies operating within Saudi Arabia. They would succumb to high operation costs due to the rising prices within the country. Exchange rate policies between the country and other foreign nations also affect the USA companies in Saudi Arabia. For example, the weakening of the US Dollar against has greatly affected the growth of internal firms (Rice 59). Such actions have posed detrimental risks for imports, which the state benefits from Euro zones.

For example, weakening of currency may lead to increased prices of import materials leading to increased burden on states operating within the Saudi Arabian regions (Rice 59). The foreign direct investment policies in Saudi Arabia are subjects to different determinants. One of the determinants of the foreign direct investment policies in this country is the GDP (Rice 59). This implies investments from foreigners conform to the GDP level of diverse sectors in the state. For example in Saudi Arabia, the GDP’s generation emanates from oil sectors (Rice 59).

This means oil investments are the only outstanding activity within the region that determines fiscal condition. The effect of this is that there would be a risk on the companies of USA operating in other sectors other than oil in this country. Other determinants like strict and high custom duties have also lead to retaliation by other state not showing any interest in the state. This retaliatory practice has exposed Saudi Arabian companies to adverse effects on profitability. The escalating interest rate in Saudi Arabia is also a central risk in the development of USA firms throughout the state irrespective areas of specialization.

For example, increasing interest rates have hampered an increase in the costs of acquiring capital within the country. Hence, this has affected growth of other states’ firms who have shown interest and invested in the country. These actions have influenced operations of these companies based on the return on investments factors whereby compared to other similar ventures globally still lag behind in terms of profitability. The rising costs of capital have lowered ROI, which US based companies ought to have after immense spending due to poor policies and Saudi Arabian state much dwelling on one line of investment, which is oil.

Hence, exposing numerous corporations to risks especially those due to their diverse lines of specializations have come up with diverse products other than oil-based. Work cited Gonzalez, L. J. "Saudi Arabia." Choice 49.10 (2012): 1853 Rice, Gillian. "Doing Business in Saudi Arabia." Thunderbird International Business Review 46.1 (2004): 59-84