The Economy of Saudi Arabia

Question: What should Saudi Arabia, a country that receives 90% of its GDP from the oil sector, do in the long run. What are the determinants of economic growth in oil-producing countries such as Saudi Arabia. In the presence of highly volatile financial markets and crises, can non-oil sectors play a fundamental substitute to oil energy in Saudi Arabia. How would diversification in non-oil sectors aid Saudi Arabia in bringing about stability to their gross domestic product (GDP). What is your perception of the future of the oil market over the next 20 years?. Do you think the global trend toward sustainability and energy efficiency will have a real impact in the oil market? Why or why not? Answer: The economy of Saudi Arabia is completely based on the production of oil along with a strong control on the part of the government on the major economic activities. 16% of the proven total oil reserves around the world is possessed by the country. It plays a crucial role in OPEC and ranks first among the largest oil exporters across the world. The petroleum sector of Saudi Arabia accounts for 80% of the budget revenues and 45% of total GDP along with 90% of the earnings from export (Belloumi Alshehry, 2015). Currently the country is putting effort in accumulating its private sector in order to diversify its economy so as to employ more Saudi nationals. The efforts put on diversifying the economy mainly focuses on the generation of power, telecommunication, and exploration of natural gas and also on the petrochemical sector as well. The economy of Saudi Arabia is controlled by moreover 6 Million foreign workers who are employed, mainly in the oil and service sector of the country. At the same time Riyadh is struggling to eradicate unemployment among its own nationals. The organizations based on Saudi Arabia generally try to employ dynamic and efficient people but the youth of the country lacks in the proper education and skills that the private sector of the country requires (Alshehry Belloumi, 2015). Being major oil producing the country in the world, Saudi Arabia has also faced certain problems. In the year 2015 the country has experienced a budget deficit of 13% of the total Gross Domestic Product (GDP) and in the year 2016 the budget deficit is nearly equal to $87 billion. This budget deficit is planned to be financed by the revenue from bond sales along with reducing the reserves of the economy (Asif, 2016). Although the country is capable to finance its wide budget deficits by reducing its foreign reserves or by borrowing, it has planned to implement certain policy to avoid this deficit and has also planned to reduce its capital spending in the year 2016. Some components of this plan of reducing the spending include the imposition of Value Added Tax (VAT) along with withdrawing subsidies on the electricity, petroleum and water. The government of Saudi Arabia has also planned to privatize and diversify its economy more intricately in order to rejuvenate the oil market of the country (Anderson Jr, 2014). From the available resources it can be seen that the country primarily focused on the diversification of petrochemical, telecommunication, power generation and in the exploration of natural gas. However, in the present time the government of Saudi Arabia has strictly focused on their aims and objectives in the more long run the government may implement more drastic changes in the economic framework of the country for the low price of oil. These are the plans and actions of the government of Saudi Arabia which is adopted for maintaining the sustainability of the country. However, as the country is mainly based on the oil production sector it should also focus on extracting the oil reserves sustainably (Alshahrani Alsadiq, 2014). Natural oil is considered as the exhaustible resource, exhaustible resources are found deep under the earths crust and once it is depleted it takes millions of years to generate the resource again. Therefore, to establish long ru n sustainability in the oil and service sector of the economy of Saudi Arabia, the country must adopt a method that will sustain the oil reserves for years. This involves managing the sustainable resources for the generations to come and helping them to capture more of their values. Hence there should be a commitment to establish a sustainable economy that will definitely turn out to be prosperous in future (Alshahrani Alsadiq, 2014). Establishing sustainability involves optimization of all the processes and practices involved such as exploration, discovery, recovery and processing in the production of oil. It also requires shifting the technologies used in these processes to an energy efficient one. The main principle of establishing sustainability that should be followed all over the country is, Reducing the use of energy for the facilities of the organizations by 2% Redesigning the facilities which will again be energy efficient Increasing awareness about the efficiency of energy Promoting and influencing the efficiency of energy at the national level. Energy intensity can also be a measure of success of this initiative, the total energy spend to produce a barrel of oil is equivalent to a thousand of Btu. In the year 2015 the energy intensity was measured to be 108000 Btu which lower by 8% when compared to that of in the year 2014 and further lower by 23% when compared with the energy intensity in the year 2013 (Belloumi Alshehry, 2016). Reference List: Alshahrani, M. S. A., Alsadiq, M. A. J. (2014).Economic growth and government spending in Saudi Arabia: An empirical investigation. International Monetary Fund. Alshehry, A. S., Belloumi, M. (2015). Energy consumption, carbon dioxide emissions and economic growth: The case of Saudi Arabia.Renewable and Sustainable Energy Reviews,41, 237-247. Anderson Jr, I. H. (2014).Aramco, the United States, and Saudi Arabia: A study of the dynamics of foreign oil policy, 1933-1950. Princeton University Press. Asif, M. (2016). Growth and sustainability trends in the buildings sector in the GCC region with particular reference to the KSA and UAE.Renewable and Sustainable Energy Reviews,55, 1267-1273. Belloumi, M., Alshehry, A. S. (2015). 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