Saudi Arabia - Overview
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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.
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'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.
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.