Overview of the Saudi Economy, Case Study Example

The discussed report demonstrates the contemporary economic trends in the global economy in the framework of the post-crisis recovery and the place of Saudi Arabia in it. The main trends in global development for 2014 and certain predictions for 2015 are made. Since the report is aimed at the explanation of the current and predicted position of the Saudi economy, the primary attention is paid to various indicators of its economic growth and overall development. The aim of this paper is to outline the main highlights of the required section of the report (pages 8-53) and what it tells about the country and it economic situation.

On the global scale, it is argued that the world economy is gradually recovering from the economic crises by regaining positive global economic growth on the level of 3.4 percent for 2014 and 3.5 percent for 2015. Developed countries demonstrate a more moderate growth rate of 2.4 percent for 2015 in contrast to developing countries with their average growth rate of 4.3 for 2015. A particular feature is that due to the overall normalization of the economic trends, Chinese economic growth decreased from 7.4 percent for 2014 to 6.8 percent for 2015.

The unemployment rate also decreases gradually across various countries, showing signs of the economic and welfare improvement. 2014-15 demonstrate strengthening of the American economy which is particularly evident in monetary and financial aspects. US dollar strengthened its positions against all other currencies, which can be attributed to the reform of US economy and cessation of American Federal Reserve program. Strengthening of the US currency is also conditioned by political ups and downs in Europe and Japanese bank easing of Japanese yen in 2014. Although world’s trade growth rate declined 0.1 percent and stopped at the point of 3.4 percent in 2014, in terms of emerging markets, the trade growth rate was expected to reach 5.3 percent in 2015 in contrast to 3.4 in 2014.

This data corresponds to the on-going global trend of strengthening of emerging economies and increased tempo of strengthening of the developing markets. With the increase in demand of those countries, various companies would compete for being present and dominant in these countries. Thus, the orientation of various segments of developing markets remains a global trend. It also stimulates developing countries to import more good and services, which demonstrated the increase of a growth rate of 3.3 percent in 2014 compared to 2.1 percent in 2013.

One of the crucial factors of global economic development is the indicator of world oil prices, which demonstrated a decline since June 2014, with the price of $97.18 for the Arabian light crude oil. Although the average oil demand increased, it was slower than expected. This factor might be one of the reasons why the economic growth of GCC countries (except for Saudi Arabia) decreased in 2014. Even the total export of GCC countries decreased by 4.2 percent in 2014. While the external trade and contribution of GCC countries to global economy are largely conditioned by the oil markets situation, in the framework of GCC cooperation is more diversified which is demonstrated by a steady increase in intra-trade from $15 billion in 2002 to $121 billion in 2013. This is largely conditioned by the beneficial framework of the Gulf market’s resolutions. Overall, meetings of various international organizations concluded that the recovery from the global economic crisis is far from being over, and its tempo is quite slow and more measures are to be adopted in the future.

In the context of the above global and GCC countries economic situation, the Saudi economy demonstrates a healthy economic growth, effective implementation of the economic reforms and strengthening of the economy in terms of various positions. Unlike the rest of GCC countries, Saudi Arabia favored the increase in economic growth from 2.7percent (2013) to 3.5 percent (2014). This situation is mainly due to the governmental investment into structural reforms of the Saudi economy aimed at diversification of products and services and orientation in non-oil sectors of the economy. The primary rationale for these reforms is that economy oriented on a single industrial segment is vulnerable to the global and regional trends, which is demonstrated in the overall slowing down of economic growth of GCC countries due to the oil prices change and political context of oil market conditioned by Russia-American confrontation over the situation in Ukraine in 2014-2015.

The success of the governmental policy of diversification was demonstrated not only in the overall economic growth but also in terms of separate sectors. For instance, the growth of manufacturing sector increased by 7.8 percent, communications by 6.2 percent, hospitality by 6 percent, public utilities by 5.8 percent. Another crucial factor showing the healthy economy is the increase of the internal demand which is fully satisfied by the internal supply. Consequently, the overall demand for goods and services (in the country) increased by 9.9 percent (2014) in contrast to 2013.

Another essential indicator of strengthening of the economy is a financial aspect. People became more likely to commit for long-term savings, which demonstrated the increase in time and savings deposits in 15.6 percent in 2014. The overall banking sector performance was positive in 2014, demonstrating an increase in total commercial banks assets by 12.6 percent in 2014. These statistics demonstrate stability and people’s trust to the financial system and eager to place deposits in banks. Whereas under the conditions of unstable economy and crisis population tends to withdraw money from a bank account and keep it in cash, long-term deposits are also scarce during economic instability.

One of the crucial issues of the Saudi economy is the labor force, particularly the governmental policy towards Saudisation of labor over the foreign workers. Thus, the policies of “Hafiz” and “Nitaqat” demonstrated to be effective since the number of male Saudi workforce increased by 6.4 percent in 2014, for Saudi female workers by 3.6 percent. Although the process of Saudization is slow in its incorporation into the private sector and only 15.5 percent of workers in the private sector are Saudis, the improvement is still vivid. Regarding the public sector, Saudi representation remains predominant 94.2 percent; however, female participation increased by 4.3 percent in 2014.

The significance of this data is that it shows the balancing o the labor force and gradual equalizing of female labor position in the country, strengthening Saudi Arabian socio-economic position in the region and the world. On the other hand, irrespective of the growing private sector and the increase of working positions in the tourist industry unemployment rate has increased slightly reaching 6 percent in 2014 compared to 5.8 percent in 2013. This is largely conditioned by the slower tempo of jobs opportunities being created compared to the number of new university graduates, which is the increase of the frictional type of unemployment.

Overall, from all mentioned above it can be concluded that the while the global economy is gradually recovering from the economic crisis, Saudi Arabia also manages to strengthen its economic growth through reorientation if its economy from single oil industry towards multi-dimensional economy benefiting from the GCC countries cooperation and internal systematic reforms. Governmental reforms towards Saudization of labor force demonstrate to bring gradual profits and changes in the national socio-economic profile.