Saudi Arabia Economy
Introduction
Saudi Arabia is a country located in the Middle East between the Red Sea and the Persina Gulf. For the past decades, the development and establishment of the Saudi Arabia have been core subjects in economics. Many researchers have emerged to discuss the country’s economic development for the past fifty years. To Dan & Rice (2011), Saudi Arabia has been the 19th largest economy in the world in 2011, and experts have predicted an annual growth of 5% for the next forty years. With this, Dan & Rice’s research shows that the country might be seventh most growing markets in the global world for the next four decades. Oil industry has played a significant role in the Saudi Arabia economy. The country possesses over 18% of the world’s petroleum reserves, ranking the largest exporter of oil and petroleum. As indicated in the table below, there has been an increase in oil revenues from 1995 to 2006.
Table 1
Note. From Saudi Arabian Monetary Agency, 2011, March 9. Saudi Arabia’s Economic Needs And The Price Of Oil.
From table 1 analysis, one can affirm that the discovery of oil that occurred in 1938 is the incident that has shaped the Saudi Arabian economy and increased its spending from 1995 to 2006. The discovery of oil has allowed the country to have good relationships with other countries.
Table 2
Note. From Saudi Arabia Agency and Bank Negara, Malaysia, n.d, Credit Suisse Economics Team Estimates
As indicated in the above table, there has been a tremendous economic growth from 2009 to 2011. With the stable economy, it is obvious that the consumer has spent less on spending having in mind the cost of living has been favorable. The country has been privileged with fixed investments that has increased the economic growth to 5%The following paper focus on the impact of foreign direct investment in other countries and in Saudi Arabia.
Impact of Foreign Direct Investment in Other countries
One cannot undervalue the impacts of foreign direct investment in other countries. For instance, there are various effects that emerge when a country such as Saudi Arabia directly invest in other countries. First, it creates job opportunities as the country may have to transport some of their experts in different fields to other countries as argued by House (2012). Secondly, direct investment in other countries enhances economic growth in that government tax company investing in other countries. As mentioned earlier, Saudi Arabia may have to transport some employees to other countries for effective operation. In this case, the country may benefit from their labor force in that it may oblige every employee to pay taxes. Additionally, companies who invest in other countries strive to make huge profits. As many companies strive to make huge profits, this can contribute to economic growth in Saudi Arabia.
Thirdly, FDI in other countries is vital as it creates vivid insights on how other countries operate in their businesses. Investing in other countries is important as it promotes new business skills, ideas, and technologies that other countries such as Turkey have used to flourish in their economy. When put into place, the country can flourish in its businesses and further boosts its economy. Fourthly, FDI in other countries boosts efficiency and product quality. A company in Saudi Arabia, investing in other countries may need to be efficient to become competitive in the global market. Investing in other countries may require one to be successful in the home market to efficiently succeed in the global market. In this regard, foreign direct investment in other countries boosts efficiency and product quality in that originality and authenticity are important factors for a company to stay competitive with companies in other countries.
Despite the positive impacts brought by foreign investment in other countries, there are various negative impacts that may occur. For instance, there may be stiff competition in the market when foreign countries invest in other countries.
Impact of other countries Foreign Direct Investment in Saudi Arabia
The impact of FDI in Saudi Arabia cannot be underestimated since there are various benefits that emerge. First, the Foreign Direct Investment (FDI) is an important pathway for the transmission of new business skills, ideas, and technologies from different countries. As foreign countries invest in Saudi Arabia, this would enhance a strong impact on the economy. Still, other foreign companies investing in Saudi Arabia may benefit the country with the increase amount of capital investment and innovation of more productive technology skills and techniques. Foreign companies create a strong path for the host country to integrate with the world’s economy. This is because as many companies establish the need to invest in a country, many countries follow in the same path on investing in that country.
Secondly, direct foreign investment in Saudi Arabi has enhanced economic growth. The rich natural resources, modern infrastructure, economic, and political stability make it the chief destination for the FDI. Most significantly, Saudi Arabia has made an effort to attract greater FDI flows through various resources such as oil and petroleum. As many FDI emerges in the market, the Saudi Arabia’s economy has been strong and ranked the second largest economy in the Middle East after Turkey. The country’s capital income has been consistently high with a positive trade balance. The country’s economic growth has caused social benefits. Most importantly, the cost of living has been favorable to many citizens and most have further invested in the country for future growth and development needs.
Thirdly, direct foreign investment has created employment. The country considers information technology, utilities, and infrastructure as essential investment areas since they develop the population’s skills, abilities, and talents that in turn helps in future development. With this regard, foreign direct investment creates job opportunities for Saudi Arabians. As foreign companies invest in Saudi Arabia, they have created employment for many people. In their article, Said, Berthelsen & Pleven (2012) argue that, as many multinational companies embrace the advantage of the growing Saudi Arabian economy, there has been a prospect growth in different areas such as telecommunications, roads, transport, manufacturing, insurance, and banking among others. The emerging markets in countries such as India, United States, and China have been the most foreign companies who have invested in Saudi Arabia. The government has permitted the foreign investors to own houses and real estates. Still, the government has effectively promoted FDI in infrastructure such as transportation, telecommunication, water, and power, which has brought economic and infrastructure development.
Nevertheless, FDI in Saudi Arabia may create stiff competition in the market. Foreign companies may have to share the same market and consumers with the companies in Saudi Arabia. To emerge the best in the market, companies in Saudi Arabia may have to lower their prices on goods and services to attract a large number of consumers.
Conclusion
To sum up, this paper has provided a brief analysis of the Saudi Arabia economy. In discussing, the analysis has shown that the oil industry plays a significant role in the country’s economic growth and development. Saudi Arabia attracts most countries to invest in the country such as China, India, and the United States among others (Lindorff, 2012). Many foreign companies have embraced the need to directly invest in Saudi Arabia for future growth. This has brought various impacts such as job creation, economic growth, and transmissions of business ideas, skills, and information. There has been a remarkable growth when foreign companies directly invest in Saudi Arabia. Additionally, this paper has provided a comprehensive analysis of the impact of direct investment in other countries. In brief, the paper has brought into light that direct investment in other countries creates employment since some companies may transport some of their employees and experts to work in other countries. In so doing, this may create employment and in turn boost the economy. Still, there may be a prospective growth in skills, talents, and abilities when countries such as Saudi Arabia direct invest in other countries. This is because the global market obliges one to be fully equipped with the skills and abilities to compete with companies from other countries. Additionally, a country may benefit from heavy taxation from companies directly investing in other countries. This directly affects the economy and the cost of living. When the economy is stable, it augments good living conditions and lifestyle. From this analysis, one can learn that foreign direct investment has many positive impacts to a country. However, FDI in Saudi Arabia and other countries may create stiff competition. For instance, there may be stiff competition when foreign companies directly invest in Saudi Arabia. Still, there may be also threat of competition when companies from Saudi Arabia to invest in other countries. Thus far, this research is important is important as it educates many on the economy of Saudi Arabia and the impact of FDI in other countries.
References
Dan J., & Rice III, B. (2011, April 1). COMMODITIES: Weighing the Middle East: An Outlook on Commodities Amidst Political Turmoil. On Wall Street (USA), p. 24.
Dave, L. (2012, August 1). The New Emerging Markets; Africa and the Middle East Spell Opportunity. On Wall Street (USA), p. 16.
House, K. (2012, June 18). Saudi Succession and the Illusion of Stability. Wall Street Journal – Eastern Edition. p. A13.
Said, S., Berthelsen, C., & Pleven, L. (2012, March 2). Saudi Pipeline Rumor Roils Oil. Wall Street Journal – Eastern Edition, S pp. C1-C2.
Saudi Arabian Monetary Agency. (2011, March 9). Saudi Arabia’s Economic Needs And The Price Of Oil. Retrieved March 26, 2013 from
http://www.gloria-center.org/meria/2010/12/mann01.png
Saudi Arabia Monetary Agency and Bank Negara, Malaysia. (n.d). Credit Suisse Economics Team Estimates. Retrieved March 26, 2012 from http://www.google.co.ke/imgres?um=1&hl=en&biw=1012&bih=331&tbm=isch&tbnid=NB29615M9_8hRM:&imgrefurl=http://rupertbumfrey.blogspot.com/2010_01_25_archive.html&docid=_ZYzNlx5D9-cBM&imgurl=http://www.alphadinar.com/wp-content/uploads/2010/01/saudi-GDP-growth.png&w=424&h=306&ei=XVBRUa3GKIqr4ATC0ID4BQ&zoom=1&ved=1t:3588,r:10,s:0,i:108&iact=rc&dur=1565&page=1&tbnh=178&tbnw=224&start=0&ndsp=12&tx=51&ty=63
Lindorff, D. (2012). The New Emerging Markets. On Wall Street, 22 (8), 16-20.
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