The Kingdom Of Saudi Arabia
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Published: Mon, 15 May 2017
The Ministry of Trade and Industry is an agency which regulates the businesses of the country and issues official documentations to business people wanting to start a business after first obtaining a commercial registration certificate. SAGIA is an agency which promotes and encourages foreign investors to invest in the country. Large scale corporations from the USA, Japan and the UK have invested in oil, petrochemicals and mining in the country (Zuhur, 2005).
In 1933, Saudi Arabia granted oil concessions to the California Arabian Standard Oil Company (CASCO), an affiliate of Standard Oil of California (SOCAL, today’s Chevron). Oil prospecting began on the Kingdom’s east coast. After six years (1939), the first tanker load of petroleum was exported. In 1944, the Saudi government became a partner in the company and so it changed its name to the Arabian American Oil Company (Aramco). In 1945, Saudi Arabia’s government acquired a 25 per cent participation interest in Aramco and in 1980 the Saudi government acquired 100 per cent participation interest, purchasing almost all of the company’s assets. In 1988, the Saudi Arabian Oil Company, or Saudi Aramco, was established. Now, more than 95 per cent of all Saudi oil is produced on behalf of the Saudi government by the parasternal giant Saudi Aramco. In June 1993, Saudi Aramco absorbed the State Marketing and Refining Company (SAMAREC), becoming the world’s largest fully integrated oil company. Most Saudi oil exports move by tanker from the Gulf terminals of RasTanura and Ju’aymah. The remaining oil exports are transported via the east-west pipeline which runs across the Kingdom to the Red Sea port of Yanbu (http://www.saudiaramco.com, 2010).In 2000, the Petroleum Intelligence Weekly ranked the company number one in the world for the 11th straight year based on the Kingdom’s crude oil reserves and production. In 2009, Saudi Aramco achieved maximum sustained crude-oil production capacity of 12 million barrels per day. Due to the sharp rise in petroleum revenues in 1974 following the 1973 Arab-Israeli war, Saudi Arabia became one of the fastest-growing economies in the world. It enjoyed a substantial surplus in its overall trade with other countries; imports increased rapidly and ample government revenues were available for development, defence, and aid to other Arab and Islamic countries (General department of statistic and info, KSA 2010 http://www.cdsi.gov/library/publications). Thus, higher oil prices led to development of more oil fields around the world and reduced global consumption. The result, beginning in the mid-1980s, was a worldwide oil glut which introduced an element of planning uncertainty for the first time in a decade. Saudi oil production, which had increased to almost 10 million barrels per day during 1980-81, dropped to about 2 million barrels per day in 1985. Budgetary deficits developed and the government drew down its foreign assets. Responding to financial pressures, Saudi Arabia gave up its role as the ‘swing producer’ within OPEC in the summer of 1985 and accepted a production quota. Since then, Saudi oil policy has been guided by a desire to maintain market and quota shares and to support stability in the international oil market. Saudi Arabia was a key player in coordinating the successful 1999 campaign of OPEC and other oil-producing countries to raise the price of oil to its highest level since the Gulf War by managing production and supply of petroleum. That same year saw establishment of the Supreme Economic Council to formulate and better coordinate Saudi economic development policies in order to accelerate institutional and industrial reform (General department of statistic and info, KSA 2010 http://www.cdsi.gov/library/publications). In response to increasing international demand for oil, Saudi Aramco engaged in an expansion of its oil production capacity and planned to raise its capacity from 11 million barrels per day to 12 million barrels per day by 2009. Saudi Aramco is also increasing production of associated and non-associated natural gas to feed the expanding petrochemical sector. Notably, Saudi Arabia has awarded contracts to foreign companies to conduct gas exploration in selected regions of the country – the first such foreign participation in the petroleum sector upstream since the nationalization of Aramco began in the 1970s.Saudi Arabia continues to pursue rapid industrial expansion, led by the petrochemical sector. The Saudi Basic Industries Corporation (SABIC), a parasternal petrochemical company, is now one of the world’s leading petrochemical producers. The government promotes private sector involvement in petrochemicals and also plans new investments in the mining sector and in refining. After Saudi Arabia announced its intention to join the World Trade Organization, negotiations focused on increasing market access to foreign goods and services, and the timeframe for becoming fully compliant with WTO obligations. In April 2000, the government established the Saudi Arabian General Investment Authority to encourage direct foreign investment in the country. Saudi Arabia signed a Trade Investment Framework Agreement with the U.S. in July 2003, and joined the WTO in December 2005.Through 5 years development plans, the government has sought to allocate its petroleum income to transform its relatively undeveloped, oil-based economy into that of a modern industrial state, while maintaining the Kingdom’s traditional Islamic values and customs. Although economic planners have not achieved all their goals, the economy has progressed rapidly. Oil wealth has increased the standard of living of most Saudis. However, significant population growth has strained the government’s ability to finance further improvements in the country’s standard of living. Heavy dependence on petroleum revenue continues, but industry and agriculture now account for a larger share of economic activity. The mismatch between the job skills of Saudi graduates and the needs of the private job market at all levels remains the principal obstacle to economic diversification and development; this is why about 4.6 million non-Saudis are employed in the economy. Saudi Arabia’s first two development plans, spanning the 1970s, emphasized infrastructure. The results were impressive – the total length of paved highways tripled, power generation increased by a multiple of 28, and the capacity of seaports grew tenfold. With the third plan (1980-85) the emphasis changed. Spending on infrastructure declined, but it rose markedly on education, health, and social services. The share for diversifying and expanding productive sectors of the economy (primarily industry) did not rise as planned, but the two industrial cities of Jubail and Yanbu – built around the use of the country’s oil and gas to produce steel, petrochemicals, fertilizer, and refined oil products – were largely completed. Given the increasing unemployment problem, it may seem paradoxical that there are so many non-Saudis resident in the Kingdom, estimated at 6.14 million in 2003 compared to a Saudi population of 17.93 million. Around 3.6 million of these non-Saudis were estimated to be in employment in 2003, undoubtedly an underestimate as some work illegally without permits. The number of dependents, which can be roughly estimated from the non-Saudi population age profile, is less than 2 million, giving a discrepancy of around 330,000 between those with work permits and those likely to be actually working, including illegal workers (Bosbait and Wilson, 2005).
In the fourth plan (1985-90), the country’s basic infrastructure was viewed as largely complete, but education and training remained areas of concern. Private enterprise was encouraged, and foreign investment in the form of joint ventures with Saudi public and private companies was welcomed. The private sector became more important, rising to 70 per cent of non-oil GDP by 1987. While still concentrated in trade and commerce, private investment increased in industry, agriculture, banking, and construction companies. These private investments were supported by generous government financing and incentive programs. The objective was for the private sector to have 70 per cent to 80 per cent ownership in most joint venture enterprises. The fifth plan (1990-95) emphasized consolidation of the country’s defences. It also improved the efficiency of government social services, regional development and, most importantly, created greater private-sector employment opportunities for Saudis by reducing the number of foreign workers. The sixth plan (1996-2000) focused on lowering the cost of government services without cutting them, and sought to expand educational training programs. The plan called for reducing the Kingdom’s dependence on the petroleum sector by diversifying economic activity, particularly in the private sector, with special emphasis on industry and agriculture. It also continued the effort to ‘Saudize’ the labour force. The seventh plan (2000-2004) focused more on economic diversification and a greater role of the private sector in the Saudi economy. For the period 2000-04, the Saudi Government aimed at an average GDP growth rate of 3.16 per cent each year, with projected growths of 5.04 per cent for the private sector and 4.01 per cent for the non-oil sector. The government also set a target of creating 817,300 new jobs for Saudi nationals. The eighth plan (2005-2010) again focused on economic diversification, in addition to education and inclusion of female in society. The plan called for establishing new universities and new colleges with technical specializations. Privatization, as well as an emphasis on a knowledge-based economy and tourism, will help in the goal of economic diversification. The government of Saudi Arabia has been the main domestic economy bill payer in the country since the early 1930s until today; thus, whenever oil prices decline and the government faces a deficit, the economy growth slows down Saudi Arabia has been one of the biggest world donors to poor countries since the 1970s. Between 1976 and 1980, Saudi Arabia gave 6 per cent of its national income to third world countries – a total of $20 billion – which was equal to 15 per cent of all aid given by the industrialised west (The kingdom by Robert Lacey published by Hutchinson & co ltd 1981). UN member countries are asked to donate 0.5 per cent of their Gross Domestic Product in foreign aid, but Saudi Arabia consistently donates 1.5 per cent (Arab newspaper, 2011).
Saudi Arabia has a high population growth rate, recorded in the census as 3.20 per cent between 2004 and 2010 which is high compared to other Middle East and MENA countries. The 2010 census has shown a population of 27, 136, and 977. Almost 8 million are expats working in massive development projects in the country. Despite the huge number of expats in the country, the unemployment rate is somewhat high at 5.4 per cent (www.cdsi.gov.sa, 2010).When it comes to comparing between the Saudi economy and those economies of other countries in the region such as Turkey and the UAE, Saudi Arabia’s economy is based on an open market model. This is one of the areas where Islamic economic law meets the western world. It is a diversified economy where oil and oil derivatives make up the largest part, but tourism (pilgrimage to the Muslim holy cities of Makkah and Madina) also represents a significant part of the country’s economy. Saudi Arabia’s economy, social situation and religion are similar to those of other Arab Gulf countries (Kuwait, Qatar, UAE, Oman, and Bahrain) but Saudi differs when it comes to culture. There is a severely conservative society in the central and southern part of the country, and a more moderate and open society in the western and eastern parts of the country Due to the balanced foreign policy of Saudi Arabia toward other countries, along with the generosity of being the second largest world donor, Saudi investors are welcomed worldwide. Foreign investors in Saudi Arabia are served by a government agency which takes care of all their needs under one umbrella to ease and overcome any problems. Investment in the country can lead to great profit in a tax free business environment, and there is non-restrictive monetary regulation meaning money is allowed to be moved in any amount by law.
Saudi Arabia is the land of opportunity for millions of expats from all over the world. There are an estimated 8 million foreign workers making their living in the country and their annual remittance reached 90 billion SR (25 billion USD) in 2009. Expats come from almost 60 countries, with more than 20 religions and different cultures represented, although they all live in harmony within Saudi Arabia (http://www.cdsi.gov.sa, 2010).
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