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Saudi Arabia - Overview

Contents extracted from the comprehensive atlas of international trade by Export Entreprises

Introduction

Capital:: Riyadh
Area:: 2.150 km2
Total Population:: 28.288
Annual growth rate:: 2.00%
Density:: 13.00/km2
Urban population:: 82%
Population of Riyadh (5.855), Jeddah (4.500), Mecca (2.500), Ad-Dammam (2.051), Dammam (2.000), Medina (1.300), Al-Hufuf (784)
Official language:

Arabic

Other languages spoken: English is most widely used. Other languages spoken in Kingdom are Indonesian, Somali, Tagalog, Urdu and Western Farsi.
Business language: Yes, English is widely used as business language.
Ethnic Origins:: Arab 90%, Afro-Asian 10%
Beliefs: Islam is the official religion of Saudi Arabia.
Telephone codes:
To make a call from: 0
To make a call to: +966
Internet suffix:: .sa
Type of State::
Saudi Arabia is an absolute monarchy where the King has supreme powers.
Type of economy::
High-income economy
It has the greatest reserves and is the leading producer of petroleum in the world.

Economic overview

Saudi Arabia is the largest economy in the Middle East and the richest Arab country. The economy of Saudi Arabia is entirely based on oil. The policy of large-scale public works undertaken by the government, as well as foreign direct investment and the soundness of the banking and financial system have enabled the country to become the number one regional economy and one of the largest in the world. After registering a growth of 3.6% in 2013 thanks to a drop in the global oil production, growth should consolidate in 2014, benefiting from expansionist fiscal policy, rising investment and the country's oil revenues.

In 2013, the government continued with its five-year investment programme, which was adopetd in 2011, implementing a policy of labor market "saudisation" while simultaneously fighting against illegal immigration. Riots were triggered by expulsions carried out by the police and the construction and catering sectors were affected by these measures. The government faces the challenge of how to reorient the Saudi unemployed towards low-skilled jobs vacancies which they are unwilling to take. The government has also pursued the development of the oil and gas industry while trying to diversify the economy and develop manufacturing, services, as well as stimulate the private sector. For 2014, the country has adopted a record new budget of $228 billion. Its focus will be on education and healthcare, which account for 38% of the overall spending, as well as infrastructure projects. As opposed to the previous two budgets, the budget for 2014 now includes measures to return to a fiscal equilibrium instead of creating a surplus. Although these social and economic measures are very much needed, the political status quo is the source of a growing discontent among the population.

The standard of living is one of the highest in the region with over USD 20,000 GDP/inhabitant. The country is still marked by an unemployment rate of about 12%, which concerns especially young people, and a high degree of social inequality.

Main industries

Agriculture accounts for 2.5% of the GDP and employs 4% of the active population. It is not a very productive sector despite the huge state investments. Saudi Arabia imports most of its agricultural and food product requirements because of the geographical and climatic constraints (droughts). Water scarcity is a serious regional problem that the country is likely to face in the coming years, as growing cultivation of wheat presents a strong threat of water depletion. The industrial sector represents around 60% of the GDP. It is dominated by non-manufacturing activities (oil drilling). The country has the largest oil reserves in the world and is also the largest producer and exporter of oil in the world. Oil accounts for more than 90% of exports and nearly 80% of government revenues. The share of non-oil industrial sector is now growing because of the investments of the Saudi state for economic diversification.

Lastly, services represent nearly 38% of the GDP. This sector is mainly dominated by tourism, financial and insurance services and the banking sector. Tourism generates very large revenues (almost 4 millions of tourists per year), exclusively thanks to the pilgrimage to Mecca.

Foreign trade overview

Saudi Arabia is world's 15th largest exporter and foreign trade represents over 80% of its GDP (average for 2010-2012). The country's trade balance, although structurally in surplus, fluctuates according to the price of oil and the global demand. In 201e, the trade surplus diminished slightly due to a rise in imports and a reduction in oil revenues.

Saudi Arabia's main export partners are the United States, China and Japan, followed by Germany and U.A.E., as well as the Southeast Asian countries. The country exports mainly crude oil (the black gold represents 90% of its exports), plastics, organic products and chemicals.

Its main import partners are the United States, Japan, China and South Korea, followed by other Asian countries (India, Taiwan and Singapore). Saudi Arabia mainly imports vehicles, machinery, electrical equipment, iron, steel and food products.

In order to promote international trade, attract foreign investment and diversify the non-oil sectors, the government has announced plans to establish four "economic cities" in different regions of the country.

FDI

Long hampered by its unattractive regulatory framework, foreign investment in Saudi Arabia recovered thanks to its accession to the WTO in late 2005 and especially thanks to the adoption of a more favorable investment legislation in April 2000. Saudi Arabia is the largest recipient of foreign direct investment in the Gulf and the Middle East, and according to the 2013 World Investment Report published by UNCTAD, the country was the largest FDI recipient in Western Asia after Turkey. 

Social and political tensions and a reduced access to credit have recently been obstacles to FDI, but this should prove to be only temporary. The government of Saudi Arabia has invested heavily in national infrastructure to attract investment. FDI is one of the most effective ways to diversify the national economy and ensuring the employment of young generations. The authorities welcome FDI due to their ability to transfer technology, employ and train the national workforce, foster economic development and enhance local raw materials.

With controlled inflation and relatively stable exchange rates, openness to foreign capital in upstream gas, as well as extensive privatization programs are among the advantages attracting the investors into the country. The dynamic performance of the banking sector is driving the growth of the non-oil sector. Lastly, access to the world's largest oil reserves, very low energy costs and a high standard of living are decisive factors for foreign investors.

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