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ECONOMIC POSITION OF SAUDI ARABIA.
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Analysis of Saudi Arabia as a key economic power because of its large oil reserves.... More...
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Paper Abstract:
Analysis of Saudi Arabia as a key economic power because of its large oil reserves. Comparison with other Middle Eastern countries. Key macroeconomic statistics. High GDP. Low inflation rate. High trade balance. Oil prices and levels of production. High unemployment rate. Need for foreign investment to provide jobs. Future outlook.

Paper Introduction:
Introduction Saudi Arabia is a key economic power in the international market because of its large reserves of oil and the dependence that the rest of the world has on oil. A key member of OPEC, Saudi Arabia influences both the price and production levels of oil and uses its key position for political as well as economic strategy. However, the nation is also dependent on its trading partners to provide it with much of the goods that it cannot produce internally, and its heavy reliance on the United States has resulted in an odd strategic alliance between the two nations. This research considers the current economic position of Saudi Arabia relative to other Middle Eastern countries as well as its own performance, and what is likely to occur in the nation's economy in the future. Key Macr

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SaudiArabia should be able to secure international financing at competitiveinterest rates because it has a strong economy, but the fact that theeconomy is highly dependent on a single commodity--oil--means that thenation could face problems if there is a significant downward trend in theprice of oil. 32). (2 1). Just as high GDP indicates a strong economy, a low rate of inflationis generally considered positive for a nation's economic health. However, if per capita GDP is used as arough approximation of the standard of living of a particular country, bothTurkey and Saudi Arabia are well behind several Middle Eastern neighbors.Qatar's 2 per capita GDP stood at US$28,369 while the United ArabEmirates (UAE) had a per capita GDP of US$19,581. In 2 , Saudi Arabia'sgross domestic product (GDP) stood at US$168.8 billion, second only toTurkey's for the region (Turkey's GDP was more than US$187.4 billion duringthe same year). Saudi Arabia is seeking to attractadditional foreign investment in order to provide jobs to its youngerpopulation, which is primarily the generation affected by the largeunemployment rate (McDermott, 2 1). Recent reforms in thenation suggest that it is taking the steps necessary to accomplish this asit invites foreign investment and is seeking to build an economy and aninfrastructure based on non-oil products and services. Financing the future. Aside from having one of the highest GDPs in the region, Saudi Arabiaalso has one of the lowest inflation rates. The textileindustry in particular has been affected, with exports expected to declineas costs increase. A key member of OPEC, Saudi Arabia influences boththe price and production levels of oil and uses its key position forpolitical as well as economic strategy. However, no other nation even approached Saudi Arabia'sexport level of more than US$78 billion: the UAE exported US$43 billionand Turkey US$31 billion while Iran and Kuwait exported US$28 and 19billion, respectively ("Databank," 2 1, p. While absolute GDP is important, the rate of GDP growth can be anindicator of future economic performance. The Gulf (Middle EastMonitor) (11), pp. The attacks in the United States on September 11, 2 1 have alreadyhad an effect on the economy of Saudi Arabia. In 2 , Saudi Arabia had a balance of trade of more than US$51billion, meaning that the country exported US$51 billion worth of goodsmore than it imported. The UAE had a trade balance in excess of US$11 billion("Databank," 2 1, p. Since prices arelow in the home country, this also frees up money which can be investedabroad both by individuals and companies interested in participating in theinternational market where there are more opportunities than in the homemarket. McDermott, E. MEED MiddleEast Economic Digest (45), pp. Washington, DC:Department of Commerce. Qatar had the highest growthrate in the region, and, at 12 percent, was the only nation in the regionposting a GDP increase of more than 1 percent. 32. Thisresearch considers the current economic position of Saudi Arabia relativeto other Middle Eastern countries as well as its own performance, and whatis likely to occur in the nation's economy in the future. Key Macroeconomic Statistics Saudi Arabia has one of the strongest economies in the Middle East,due in large part to its significant oil reserves. Saudi Arabia is a member of OPEC, a cartel that effectivelyfixes the price of oil for its members, but the nation also recognizes thestrategic and political role that oil plays in the international market.Saudi Arabia, for example, led the oil embargo during the mid-197 s whichled to oil price increases as a reaction against the Middle East policiesof the United States at the time ("Happy Days," 2 1, p. Databank: Economic indicators, 2 . IPR Strategic Business Information Database, n.p. At the same time, individuals are able tomake purchases without having their wages eroded by inflation. (2 1,October 31). The nation's move to attract foreign investment has been successful inthat outside companies were recently selected to participate in natural gasdevelopment inside Saudi Arabia. Oil prices and levels of production are key to Saudi Arabia's recenteconomic performance, and the country reduced production from 8.7 millionbarrels per day at the start of 2 1 to 7.5 million barrels per day by mid-2 1. This far outpaced other nations in the region:Iran had a trade balance of US$14 billion while Kuwait had a trade balanceof US$12 billion. Despite the high trade balance, Saudi Arabia was among the topimporters in the region, with imports of more than US$27 billion in 2 .This was the third highest level of imports in the Middle East, with onlyTurkey (at US$53 billion) and the UAE (at US$31 billion) having higherlevels of imports. 2-5. Introduction Saudi Arabia is a key economic power in the international marketbecause of its large reserves of oil and the dependence that the rest ofthe world has on oil. Saudi Arabia had a GDPincrease of 4.5 percent, placing it in the middle of the progress of theregion as a whole (Yemen, the UAE, Tunisia, Sudan, Oman and Kuwait all hadmore substantial increases than Saudi Arabia between 1999 and 2 ,although none exceeded growth rates of seven percent during the time inquestion) ("Databank," 2 1, p. Thereare a significant number of American and Asian nationals in the country whoperform a wide variety of jobs. The announcement came in mid-2 1 thatExxon-Mobil, British Petroleum and Shell would participate in threedifferent development programs with an aggregate cost in excess of US$3 billion. Insurancecosts have also increased as a result of the expectation that additionalattacks will occur resulting in additional risk to carriers. SaudiArabia requires that a company's workforce be composed of at least 75percent Saudi nationals, although this rule is often not enforced. 32). MEED MiddleEast Economic Digest (45), p. However, the nation is alsodependent on its trading partners to provide it with much of the goods thatit cannot produce internally, and its heavy reliance on the United Stateshas resulted in an odd strategic alliance between the two nations. 32). Happy days are here again. (2 1, August). Ready for reform. This was low evenamong oil producing nations in the region, and was surpassed only by Jordan(at .7 percent) and Bahrain, which was experiencing deflation (the rate ofinflation in Bahrain was -1. 23-24. At the same time, the nation has sought to maintain relatively highprices (at the $23 per barrel level) throughout 2 1. The balance of trade in Saudi Arabia is also among the highest in theregion. Saudi Arabia: September 11 attacks negatively impact trade. 3). (2 1, October 5). percent). Lebanon also had a low (onepercent) inflation rate, but that rate cannot be attributed to oil or aparticularly strong economy. Analysis High levels of GDP indicate that there is strong economic performancethat should protect the country against sudden economic shocks. Saudi analysts estimate that the events of September 11have resulted in an increase in costs of approximately 1 percent ("SaudiArabia," 2 1, n.p.). Since the nation'seconomy is tied directly to the price of oil, relatively higher prices putthe nation in a better economic position than lower prices can provide, butthe nation also recognizes the role that oil prices play in the worldwideeconomy, and in the political situation both domestically and in theinternational market (McDowall, 2 1). 2.) Despite Saudi Arabia's strong GDP figures and low inflation rate, thenation has a relatively high (14 percent) unemployment rate for its malepopulation (figures are not reported for women, who do not comprise a largepercentage of the workforce) (Country Commercial Guide, 2 1). Noneof these other nations, however, had aggregate GDP in excess of US$61billion, and the high per capita GDP figures are due to low populations inthese nations, which often exhibit even less non-oil economic activity thanSaudi Arabia ("Databank," 2 1, p. (2 1, September 14). Lowinflation means that prices increase slowly, which keeps costs down forcompanies within the market. 32). Turkey, although it had a high absolute GDP,also faced inflation of 4 percent in 2 ; Libya had inflation of 24percent, while Sudan and Iran both had inflation rates of 16 percent in2 ("Databank," 2 1, p. In 2 , inflation in SaudiArabia was running at an annual rate of 1.2 percent. 12. Due to population differences, Saudi Arabia outpacedTurkey in terms of per capita GDP, with 2 per capita GDP of US$7,621compared to Turkey's US$2,797. This is a direct result of the liberalization of foreigninvestment rules that took place in 2 . References Country Commercial Guide: Saudi Arabia. At the same time,the nation is taking advantage of the wealth that several years of high oilprices have brought by taking on development projects that will have long-term benefit, and which may provide jobs both in the short-term as well asthe long-term. Long-term, Saudi Arabia faces the challenge of shaping an economy thatis less dependent on oil prices, or at least an economy that does notnecessarily go into a slump when oil prices decline. Kuwait had per capitaGDP of US$17,138 and Bahrain's per capita income stood at US$9,8 9. This can becritical for large purchases or purchases made over time. (2 1, July). 33). The attacks effectivelyincreased the price of transportation, and insurance costs have alsoincreased as insurance companies seek to cover their losses. Euromoney, p. McDowall, A. Such international involvementis necessary if the nation is to create jobs for its younger workers thatwill enable them to participate in the nation's overall economic strength.This investment also lessens the nation's dependence on exporting oil, andincreases the likelihood that the nation will be accepted into the WorldTrade Organization (WTO), an organization in which Saudi Arabia has soughtmembership for several years ("Happy Days," 2 1, p.

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