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2010 | Buch

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The Saudi Arabian Economy

Policies, Achievements, and Challenges

verfasst von: Mohamed A. Ramady

Verlag: Springer US

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Technik" , Springer Professional "Wirtschaft"

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The Saudi Arabian economy has changed almost beyond recognition since the oil boom days of the 1980s, and the Kingdom itself has changed too economically, socially, and demographically. In the second edition of The Saudi Arabian Economy, Mohamed Ramady uses several overlapping themes to establish and develop a framework for studying the fundamental challenges to the Saudi economy. Particular attention is paid to the benefits of short-term planning and long-term diversification intended to shield the economy from potentially de-stabilizing oil price fluctuations and the pace and diversity of domestic reforms. The author examines the core strengths and evolution of various financial institutions and the Saudi stock market in the face of globalization, before analyzing the private sector in detail. Topics discussed include: • The hydrocarbon and minerals sector, including the emergence of the competitive petrochemical sector • The impact of small and medium sized businesses and the evolving role of “family” businesses • The growing role of women in the Saudi economy • The role of privatization and FDI as engines of change and the position of public-private-partnerships • The establishment of a foundation for a knowledge-based economy Finally, the author offers an analysis of the key challenges facing the Saudi economy, paying particular attention to the potential costs and benefits of globalization, and membership in the WTO. Employment, education, economic and social stability, and Saudi Arabia’s place in the Gulf Cooperation Council, as well as Saudi Arabia’s evolving strategic economic relations with China and other countries are offered as keys to the consensus building needed to ensure the Kingdom’s healthy economic future.

Inhaltsverzeichnis

Frontmatter

The Setting

Frontmatter

Chapter 1. Overview

Abstract

The Kingdom of Saudi Arabia has witnessed a dramatic rise in the pace of economic and social change since the succession of King Abdullah bin Abdulaziz to the throne in August 2005. The country had been going through a transformation prior to the succession, but the pace and urgency was more evident in the domestic economic, social and educational sectors, as well as in Saudi Arabia’s new-found confidence in establishing strategic economic alliances in the Far East.

Mohamed A. Ramady

The Development Process

Frontmatter

Chapter 2. Reforms and Economic Planning

Abstract

In the space of a few years since the first edition of this book in 2005, the Kingdom has witnessed some fundamental changes taking place which few would have predicted to happen so soon. The entry of Saudi Arabia to the World Trade Organization in 2005 was probably one catalyst to speed up domestic economic and administrative reforms, but the momentum for change was already in the making, primarily driven by King Abdullah bin Abdulaziz. Upon succeeding to the throne in August 2005 following the death of King Fahd, the Custodian of the Two Holy Mosques, the King’s official title, embarked on a series of domestic reforms the outcome of which are not yet fully certain, but which will determine the direction and pace of Saudi economic development over the next decades. The outcome is not important just for Saudi Arabia, but for the wider world given the Kingdom’s strategic geopolitical importance in the world and its enhanced role in such bodies as the G20 bloc and multilateral organizations like the International Monetary Fund and the World Bank. Saudi Arabia continues to play a significant role in energy matters, possessing around a quarter of the world’s proven oil reserves.

Mohamed A. Ramady

Chapter 3. Public Finance

Abstract

Counter-cyclical government spending is vital for Saudi Arabian growth and health of the national economy. Until the economic base is more diversified on a sustainable basis, government expenditures will remain the key driver of confidence in the domestic programme and investment plans. As such, any analysis of the Saudi Arabian economy must examine in depth the Saudi budgetary and public sector financing and how surpluses and deficits are invested and utilized. The state of a country’s fiscal position has become even more important following the global economic and financial crisis of 2008/2010. The international financial markets are now demanding more transparency and fiscal accountability from countries that have opted for economic openness. The Kingdom is a significant member of global institutions such as the International Monetary Fund (IMF) and the World Bank.

Mohamed A. Ramady

The Financial Sector

Frontmatter

Chapter 4. Saudi Arabian Monetary Agency (SAMA) and Monetary Policy

Abstract

Sitting at the head of Saudi Arabia’s financial system is the Saudi Arabian Monetary Agency (SAMA). Established by Royal Decree in 1952, it has now completed 58 years of service to the country. It has been an observer and key player in financial matters, and has seen its role expand with the evolution of the Kingdom’s economy and financial system. The history and role of SAMA encapsulates the evolution of Saudi Arabia’s banking and financial structures in the gradual institutionalization of the country’s financial market. How SAMA operates and the tools and policies it adopts will have a great impact on all of Saudi society, not merely on the financial sector. SAMA has come a long way from those early days and proved a capable regulator during the global financial crisis of 2007–2010, ensuring that the Saudi financial sector was not affected by the global contagion and that Saudi banks remained relatively unscathed.

Mohamed A. Ramady

Chapter 5. The Financial Markets

Abstract

The Saudi financial sector comprising commercial banks, the insurance sector and non-bank financing companies came out of the 2008/2009 global financial and credit crisis relatively unscathed, thanks to an accommodating policy of the Saudi Arabian Monetary Agency and a somewhat conservative Saudi banking sector compared to their international peers. Although some Saudi banks were forced to take large loan loss reserves to cover for possible domestic corporate defaults and exposure to some high-profile Saudi names, they are still in a better position when compared to the collapse of major banks and other financial institutions in the USA and Europe. Thus far only a limited number of Gulf banks have publicly admitted and quantified their exposure to the US subprime crisis. Only one Saudi part-government-owned Bahrain-based bank – Gulf Investment Bank – admitted to such exposure amounting to around $966 million and had to raise additional capital. In Saudi Arabia, SAMA was quick to announce that no serious Lehman Brothers exposure to Saudi banks existed, amid serious doubts that with time such exposure might well surface or might not be acknowledged. Some financial players in the Saudi market seemed to be directly affected though by events in the USA, and Tawniya, the leading Saudi insurance company, lost nearly two thirds of its market trading value in 2008, not because of any problems in its operating business but through possible exposure to dealings with the troubled US insurance giant AIG, which had to be bailed out by the US Treasury.

Mohamed A. Ramady

Chapter 6. The Saudi Capital Market

Abstract

The role of capital markets in economic development has increasingly been emphasized as an important tool of financial intermediation. Saudi Arabia has been endowed with enormous wealth, gained in a short period of time. An efficient capital market structure could help in recycling capital surpluses, especially those held by the private sector. There is no doubt that Saudi Arabia possesses such capital surplus.

Mohamed A. Ramady

The Domestic Sector

Frontmatter

Chapter 7. The Private Sector: Globalization Challenges

Abstract

In spite of tangible past accomplishments, Saudi Arabia faces future challenges that, if not addressed, will be difficult to overcome. One key objective is for the private sector to take the lead in reducing its reliance on oil revenues and in diversifying its economy. As we will explain in the chapters that follow, the Kingdom has not yet created a sufficient number of jobs for its Saudi population, nor has it adequately diversified its economy, although some progress has been made in expanding the non-oil GDP base.

Mohamed A. Ramady

Chapter 8. The Energy Sector

Abstract

Energy is a necessary and vital input to economic activity throughout the world. Oil plays a key role in this regard; crude oil is today one of the most highly valued commodities in international trade. While some might consider oil as a homogeneous commodity that should carry the same price worldwide, in reality price differentials among regions of the world exist due to market conditions, shipping distance and political factors. Saudi Arabia remains the dominant force in oil, accounting for around 13% of the world’s production and 20% of global exports.

Mohamed A. Ramady

The Foreign Sector

Frontmatter

Chapter 9. Foreign Trade: Changing Composition and Direction

Abstract

Saudi Arabia leads the Arab world in exports and imports, and ranks among the top five in the Islamic world, along with Malaysia, Turkey, Indonesia and the UAE (Wilson, 2003). This chapter discusses the various aspects of foreign commerce, principally imports and exports; we will look at how the composition has changed over time as well as their impact on the Kingdom’s balance of payments. We will closely examine Saudi exports to assess the success of the economic diversification programme to date, as well as to analyse Saudi product export competitiveness. The final section of the chapter sets out model guidelines for a more effective export promotion programme to help the private sector achieve the country’s economic diversification goal.

Mohamed A. Ramady

Chapter 10. Saudi Arabia and the WTO

Abstract

In the new millennium, the Kingdom of Saudi Arabia has set itself the objective of reducing the economy’s vulnerability and heavy dependence on oil market fortunes, and has opted for decentralized, private market-based economic activities (Auty, 2001). The Kingdom aims to achieve this through different approaches. A strategic decision was made by the Kingdom to join the World Trade Organization (WTO) to enable a bigger Saudi world market share and this was achieved in December 2005. Other strategic options which will be examined in the following chapter involved the initiation of domestic privatization programmes of core government services and using foreign direct investment (FDI) to foster technology transfer and domestic economic stimulus (Najem and Hetherington, 2003).

Mohamed A. Ramady

Key Challenges

Frontmatter

Chapter 11. Privatization and Foreign Direct Investment

Abstract

There is a consensus amongst Saudi economic observers and practitioners that the Kingdom truly needs to make economic reforms work and it can only do so by strengthening the private sector, finding other sources of investment and encouraging repatriation of Saudi capital in viable domestic projects. What then are the obstacles? It is not that Saudi Arabia lacks good intentions or has not set the proper priorities. Rather, there is no matching consensus as to how much action is needed and how quickly it should act. While different economists and government planners might assign different priorities and values to the urgency of the effort needed, most would agree that success will depend on far more progress being made in the following areas: Privatizing key public assets, Attracting more effective foreign direct investment (FDI), Strengthening the private sector in a meaningful manner, Repatriating Saudi capital into domestic projects, Creating meaningful and value-added jobs for the Saudi economy

Mohamed A. Ramady

Chapter 12. Population and Demographics: Saudization and the Labour Market

Abstract

There are a multitude of reasons – economic, social and political – for the Saudi Arabian government’s serious approach to the current state of the labour market and to Saudi unemployment issues. Unemployment means less output, a lower standard of living and a high and worrying dependency rate. Some studies have put the number of Saudi dependents as high as 56 per 100 Saudi workers, 2.4 times the world average (Al Sheikh, 2003). Thus, any major decline in income per worker, or a total lack of work, could have a dangerous effect on living standards and social cohesion. A worrying rise in juvenile crime rates connected with unemployed youth has now been widely reported in the local Saudi press and this adds further pressure on the government.

Mohamed A. Ramady

Chapter 13. Education: A Tool for a Knowledge-Based Economy

Abstract

There are a number of reasons why education plays such a crucial role in Saudi Arabia: its young population, the influx of expatriate labour, the lack of natural resources besides exhaustible oil and a relatively new educational system. The major issue, however, is not the amount of expansion, but rather the orientation of the educational system. A major problem with this system is that it attributes high social prestige to university education, while underestimating the significance of technological and vocational education. It is widely, if unfairly, believed that only school dropouts and academically poor students enter technical training (Kibbi, 2002). This belief is further strengthened by employment policies which, until recently, encouraged an educational structure that offered priority employment opportunities in the government sector to university graduates, thus making technical and vocational education even less attractive and less socially desirable (The Economist, 1997).

Mohamed A. Ramady

Chapter 14. Saudi Arabia’s Global Relations: GCC and Beyond

Abstract

Over the past three decades, the Kingdom has deepened its economic, political and military relationships with its immediate neighbours in the Gulf Cooperation Council, and most recently has expanded its economic and geopolitical relationship with key emerging global economic powers, specifically China and India. The Kingdom has ensured that its existing multifaceted relationship with other European countries and the USA is still maintained on an amicable basis, but as explored in a previous chapter, it has become noticeable that Saudi trade flows, especially in energy and energy-related products, are now moving towards the Asian economies, rather than towards the USA and Europe. This new openness to the rest of the world has been due to several factors, economic and political, and have been largely driven by King Abdullah bin Abdulaziz.

Mohamed A. Ramady

Conclusion

Frontmatter

Chapter 15. The Challenges Ahead

Abstract

The pace and tempo of change in Saudi Arabia has accelerated. For the last 30 years, modern economic history has seen few national changes as rapid and turbulent as those that have affected Saudi Arabia. They have transformed the desert Kingdom beyond recognition. For better or for worse, the Kingdom and its citizens have to live with the consequences of decisions taken in earlier days, and press on to meet the growing list of challenges facing the country in the new millennium. Sitting on top of a quarter of the world’s proven oil reserves, Saudi Arabia attracts both envy and fear of its economic potential. However, no other country, some analysts would argue, is so rich and yet so poor. Despite massive oil reserves, its per capita income is below those of its neighbours in the GCC; the country is beset by a rising tide of population growth and the spectre of growing unemployment. Despite many discussions about diversification and public exhortations to the private sector, the Kingdom is still reliant on two main exports: crude oil and energy-related petrochemical products.

Mohamed A. Ramady

Backmatter

Titel: The Saudi Arabian Economy
verfasst von: Mohamed A. Ramady
Verlag: Springer US
Electronic ISBN: 978-1-4419-5987-4
Print ISBN: 978-1-4419-5986-7
DOI: https://doi.org/10.1007/978-1-4419-5987-4