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Economy and Business in Saudi Arabia

In less than a century, Saudi Arabia has undergone a dramatic social change, socially and economically, as a result of large revenues from its oil and gas deposits. The Kingdom is the world's largest producer and exporter of oil, with the largest proven oil reserves and the largest available production capacity. The establishment of the State of Saudi Arabia happened in 1932, the year before the first oil exploration license was granted, and the development of the country has largely been linked to the extraction of its oil resources - primarily after the Second World War, and especially from 1970 years, when revenues rose sharply as a result of higher prices, combined with more reform-friendly monarchs. From being a tribal society rooted in a Bedouin and nomadic culture in a geographical area divided between different clans and emirates, For half a century, Saudi Arabia became a modern state with an expanded infrastructure and established welfare services, especially in education and health, and rapid urbanization and substantial industrialization. However, even with some minor governance reforms towards the end of the 20th century, Saudi Arabia has remained a monarchical monarchy ruled by the house of Saud, which occupies important functions in social life and which has not allowed transparency, for example. in the country's budgets and economy. This has led to questions about the state of the economy, including the size of the oil and gas reserves. century, however, Saudi Arabia has remained a monarchy ruled by the house of Saud, which occupies important functions in social life and which has not allowed openness e.g. in the country's budgets and economy. This has led to questions about the state of the economy, including the size of the oil and gas reserves. century, however, Saudi Arabia has remained a monarchy ruled by the house of Saud, which occupies important functions in social life and which has not allowed openness e.g. in the country's budgets and economy. This has led to questions about the state of the economy, including the size of the oil and gas reserves.

Business and Economy of Saudi Arabia

According to countryaah, Saudi Arabia is heavily dependent on petroleum revenues, and the country is very vulnerable to fluctuations, especially in oil prices. More than 90% of the country's total export revenues, and 70-80% of the state's revenues, come from the petroleum sector. After a sharp increase in income in the 1970s, there were periods of low prices and a decline in income in both the 1980s and 1990s, which led to financial tightening and borrowing. Because of. Due to its large production capacity and large reserves, Saudi Arabia has been able to influence price developments, and - within OPEC - has been the country that has varied the production to a large extent to help regulate the price of crude oil on the world market.

Especially since the 1980s large public investments have been made in the development of other business activities, in particular industry and agriculture, not least to reduce the unilateral dependence on the oil sector. In particular, much has been invested in the petrochemical industry, and much has been invested in agriculture and fisheries to reduce the dependence on food imports.

The 1991 Gulf War also incurred great expenditure on the country; so does the construction and operation of a modern defense. The economic costs of the Gulf War are estimated at approx. $ 60 billion, financed by drawing on the country's foreign exchange reserves, as well as loans. In subsequent years there was increasing pressure on the Saudi economy, with increased debt and budget deficits. The authorities implemented several measures to reduce public spending and adapt the economy to a new era with increasing globalization and market adaptation. This was done i.a. by reducing government subsidies, replacing foreign workers with Saudis, and introducing more liberal foreign ownership rules. In 2005, it was estimated that more than 6 million foreign nationals, most from South Asia and the Middle East, worked in the country - and thus also accounted for substantial capital exports. The Saudi state plays a major role in the country's business, and liberalization in the form of privatization in the early 2000s had not yet yielded significant practical implications. One of the reasons for economic liberalization, including foreign investment facilitation, was Saudi Arabia's desire for membership in the World Trade Organization (WTO). A particular challenge for the Saudi economy is the large population growth combined with the high level of welfare services and subsidies - which leads to a rapid increase in government spending, while at the same time oil production and income per share. capita drops drastically. Reducing subsidies, and increasing taxes, are measures that are considered necessary but politically difficult to implement. Establishing sufficient jobs to meet population growth is another challenge.

Water supply is a serious problem in Saudi Arabia and a restriction on economic activity. Water is needed for the population, industry and agriculture. Extensive investment in saltwater desalination has resulted in increased access to water. for irrigation in agriculture, but at a high cost, both economically and environmentally, including side effects such as increased salt content in the soil and falling groundwater levels.

Saudi Arabia is traditionally one of the world's largest donors of development aid, primarily to Arab states and countries with an Islamic population.

Agriculture and fishing

Saudi Arabia is by nature not very suitable for agriculture, due to the fact that. lack of both arable land and water. Cultivation is limited to oases and areas under artificial irrigation. Even with considerable economic investment in agriculture, the economic importance of agriculture has decreased, both with regard to agriculture. production and employment. At the turn of the century, the share of agricultural workers had fallen to less than 5%; the contribution to GNI was approx. 5%. In addition to low rainfall, the operation is also hampered by increasing salinity in the soil and small units of use. The cultivated area is only approx. 2% of the total area; a further approx. 35% is used as pasture, but is of low quality. Urbanization has also resulted in labor shortages in the sector. Improved irrigation and drainage systems and greater control of migratory sand dunes have been significantly invested with increased yield, but at high production prices. Main agricultural products are wheat, sorghum, millet, barley, dates, tomatoes, fruits and vegetables. Large animal husbandry. Saudi Arabia is self-sufficient with a variety of dairy products and with eggs and poultry. The nomads (Bedouins) keep camels, sheep and goats.

The development of fisheries has also been focused on. There is some fishing for crustaceans, mussels and various sea fish, mainly in the Indian Ocean.

Mining and energy

Saudi Arabia is very mineral rich and is the world's largest producer and exporter of crude oil. The country also has the world's largest known oil deposits, and the world's fourth largest known natural gas reserves. In addition, the country has significant deposits of a number of other minerals.

The production and export of crude oil, and gradually natural gas, is the dominant sector in the Saudi economy, and the very foundation for the development of the modern kingdom as one of the world's leading welfare states. The first oil exploration licenses were granted in 1933, and the same year the Arabian American Oil Company (Aramco) later began drilling. In 1938, the first export took place, before recovery began in earnest in 1946. In 1980, a consensus was reached on full Saudi takeover of the foreign oil companies' operations in Saudi Arabia, effective back to 1976. The state-owned oil company Saudi Arabian Oil Company (Saudi Aramco) is the world's largest and the country's leading economic player, alongside Saudi Basic In-dustries Corp. (SABIC); one of the world's leading petrochemical groups.

Petroleum production is by far the most important economic activity in the country, and normally contributes between 30% and 40% of GDP, accounting for over 90% of total export value, and 70-80% of the state's total revenue. The sector means less employment, with only 2% of the working population. Saudi Arabia has the world's largest known oil reserves, as of 2005, estimated at over 260 billion barrels, ie around one-fourth of the world's total proven reserves. Saudi Arabia is also the world's largest producer, with a daily output of just over 10 million barrels/day in the early 2000s. Saudi production has varied considerably, ia. as a result of OPEC's attempt to regulate prices, and the country claims to have a capacity of approx. 15 million barrels/day Natural gas reserves in 2005 were estimated at 235 trillion cubic feet. Saudi Arabia has about 80 oil and gas fields, but over half of the oil reserves are concentrated on only eight fields, of which Ghawar and Safaniya are the world's largest for respectively. onshore and offshore production - and Ghawar, with approx. 70 billion subjects, the world's largest oil field ever. Saudi Arabia also mines a field with Kuwait, the so-called. neutral zone, from which the income is distributed equally between the two countries. The field contains approx. 5 billion barrels. Saudi Arabia produces oil along with Bahrain, in the Abu Saafa field, and has donated its proceeds to neighboring countries. Saudi Arabia is a key supplier of oil to Europe and the United States, and responded in the early 2000s for approx. 15% of the country's oil imports. About 60% of exports go to Asia, which is also the main recipient of Saudi refined products. Saudi Arabia has eight refineries with a total capacity of approx. 1.75 million barrels/day. Most of the exports take place via the Ras Tanura and Ras al-Juaytmah terminals, as well as Yanbu. For these, two major oil lines operate. Saudi Aramco's subsidiary Vela has one of the world's largest tankers and accounts for a large part of its exports. The largest gas deposits are related to the oil, mostly from the Ghawar, Safaniya and Zuluf fields.

Saudi Arabia has significant reserves of several minerals, especially in the north of the country. Gold, plaster and limestone are also mined, and there are known deposits of iron, phosphate, bauxite, uranium, silver, tin, tungsten, zinc, copper and more.

Due to both urbanization and industrialization, Saudi Arabia has a large and rapidly growing energy demand. In 2016, the production of electric energy was 345 TWh, with 59 per cent being produced with natural gas and 41 per cent with oil. Around 70 per cent of electricity consumption goes to air conditioning and cooling, while 20 per cent is used for seawater desalination. Consumption growth has been between 6 and 8 per cent per year. Installed production capacity is above 60 GW and this is expected to increase to 120 GW by 2032. It is planned that a large part of the growth in the future will be covered by renewable energy and nuclear power.. In 2014, it was reported that 100 percent of rural people have access to electricity.


Saudi Arabia has built up an extensive industry since the 1970s/1980s, which is essentially linked to the country's petroleum extraction and petrochemical activities, including oil refineries, gas plants and other petrochemicals, including fertilizer production. The industrialization program has also focused on building materials, especially steel and cement, as well as hardware and metal products. Production of food and pleasure products is also an important part of the industrial sector, which accounts for approx. 10% of GNI. Most of the industry is state-owned, but the authorities are encouraging the creation of private small businesses. Industrial centers have been established in Jubayl and Yanbu.

Foreign Trade

Saudi Arabia has traditionally had significant surpluses in the balance of trade with foreign countries, but has had deficits during periods of lower production or lower oil prices. The volume of foreign trade is closely linked to the prices of petroleum. As of 2005, petroleum and petroleum products contributed almost 95% of the country's total export revenue. The main customers for the country's exports are the USA, Japan, France, South Korea and Italy.

Transport and Communications

Saudi Arabia has a well-developed transport network, with approx. 159 000 km of main road including connecting Dammam on the Persian Gulf with Riyadh and Mecca and Jeddah on the Red Sea. Also road along both coasts. Filling bridge over to Bahrain in Persian Gulf. Railway connections exist between Riyadh and Dammam, and between Riyadh and the petroleum fields. An extension of the railway from Dammam to Jubayl is planned. Pipelines from the petroleum fields to the shipping ports.

The main ports are Jeddah, which receives most of the pilgrimage traffic to Mecca, Dammam, Jubayl, Yanbu and Jizan. Petroleum terminal at Ras Tanurrah (north of Dammam). The country has 25 commercial airports; international airports in Riyadh, Jeddah and Dhahran (Zahran) and 22 airports for domestic traffic.

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