Saudi Arabia’s GDP Analysis, Case Study Example

The Kingdom of Saudi Arabia (KSA) has a vast array of sources of energy. In fact, the world’s largest proven oil deposits are located within the Kingdom of Saudi Arabia, and it is ranked fourth in terms of proven gas reserves, with plentiful solar and wind (renewable) energy resources, even furthermore, in terms of electricity production and consumption, it is ranked 20th on the planet. The Kingdom of Saudi Arabia is one of the world’s largest and most important economies. This has made the sovereign nation one of the most important economies within the Middle East. In order to understand Saudi Arabia’s economy, it is important that key elements be analyzed and tracked over time. One of the most important elements of the economy is gross Domestic Product (GDP). This is essential in developing a clear picture of the economy. The analysis will mainly entail the past four years.

Real and Nominal GDP

Real GDP tells us the value of all the commodities (good and services) produced by a nation within one year, depicted in base-year prices. Real GDP accounts for the actual value of goods while factoring in inflation. Owing to the fact that the economy is largely dependent on oil extraction, processing and sale, its GDP fluctuates relative to the movements within the oil markets.

The real GDP of Saudi Arabia notably peaked after 2012. This was as a result of an increase in oil prices. During this time, oil production was increased rapidly and this resulted in an average GDP growth rate of up to 10% annually. The first half of 2010 witnessed a reversal in fortunes for the economy of Saudi Arabia as declining oil prices led to a drastic dip in output. The second half of the 2010 witnessed a resurgence in the production of oil by the economy. This led to a 3.5% decade-average real GDP growth between the 1990s and the 2010s.

Nominal GDP

While the oil sector has had its share of real GDP decline over the past two decades, it has not changed the fact that the economy is still largely dependent on oil. This is because an increase in oil prices favors an increase in price, thereby increasing the contributions that oil makes to the economy’s GDP in nominal terms (nominal GDP). Statistically, contributions by the oil sector towards the economy’s nominal GDP is currently at 60%. This is a considerable increase from the 1990s where it accounted for 30%of nominal GDP.

Components of GDP for the most recent year if data available

Saudi Arabia’s GDP can be analyzed on a more intricate level, taking into consideration the different components of the economy. The most significant is the fact that currently, the oil or petroleum industry accounts for 55% of the economy’s gross domestic product.

The economy has 40% of its gross domestic product originate from the private sector. This high percentage of the GDP generated by the private sector is a culmination of several years of policy development and implementation. The government has always encouraged growth in the private sector as a means of reliving the economy’s overdependence on oil and petroleum products. This has led to the development of the service sector within the country.

Growth of Real GDP over the last 20 years

Real GDP growth has also been subject to the performance of the country’s oil industry, relative to the performance of the global oil markets. One of the most significant highlights of the GDP growth rate was experienced in 2012. During the FY2012, Saudi Arabia experienced an unprecedented increase in GDP.  While there are a number of factors that led to this immense growth, the most significant was the disruption of the production of one of the most significant players on the global oil market, Libya (Quandl.com). In 2011, a raging civil war disrupted oil production in Libya, creating a shortage that drove prices upwards. This led to an increase in oil production by Saudi Arabia. Between 2000 and 2011, the economy’s real GDP growth rate averaged 4.3%. This resulted in a decline in the share that the oil sector in Saudi Arabia has on its GDP to 30%. This figure stood at 2.7% in the 1990s.

Real GDP per Capita in the last 20 years

The economy has realized a fluctuation in per capita GDP in the past 20 years. However, there has been a general growth trajectory adopted by real GDP per capita. However, most notable was the sharp decline in per capita GDP in 2009. FY2009 realized per capita GDP was at US$14,805. This was a 22.88% decline from the previous financial year (Quandl.com).

Comparing KSA’s Economy to the G20

GDP per Capita is an integral tool of analysis and comparison between sovereign nations and economies. As one of the G-20 economies, Saudi Arabia is one of the weaker members in the summit. The economy currently has a GDP of 784.88 (Quandl.com). However, as the largest exporter of oil, it holds considerable collateral during negotiations.

Life expectancy is generally a measure that indicates the state of health and lifestyles within a given economy. The Kingdom of Saudi Arabia’s life expectancy is currently ranked 108^th globally, standing at 74.82. Compared to the other G-20 economies, it has a very low life expectancy.

Education in the Kingdom of Saudi Arabia has realized considerable strides in the past two decades. One of the most significant is the countries ranking at 66^th in math and science. This is a considerable indicator of the investments the economy has made in skilled training of the labor force.

In conclusion, Saudi arabia’s GDP is quite responsive to its most robust industry, the oil and petroleum industry. This overdependence has led to the industry contributing a considerable portion of the country’s GDP, putting it at risk of adverse price changes within the global market. recent diversification into the services industries has aided in mitigating this overdependence.

Works Cited

BBC. “Asia tops biggest global school rankings.” 13 May 2015. BBC.com. Internet Source. 8 June 2015. <http://www.bbc.com/news/business-32608772>.

Central Intelligence Agency. “The World Fact Book – Country Comparison: Life Expectancy at Birth.” 10 November 2014. Central Intelligence Agency. Internet Source. 8 June 2015. <https://www.cia.gov/library/publications/the-world-factbook/rankorder/2102rank.html>.

Quandl.com. “Saudi Arabia Economy Data.” 1 March 2015. Quandl.com. Internet Source. 8 June 2015. <https://www.quandl.com/collections/saudi-arabia/saudi-arabia-economy-data>.