Main Industry SectorsEconomic OverviewForeign Direct Investment [FDI]FDI Government MeasuresCountry Strong PointsCountry Weak PointsForeign Trade Overview
Agriculture accounts for 3% of the GDP and employs 15% of the active population. Saudi Arabia is not a very productive sector despite the huge state investments. Saudi Arabia imports most of its agricultural and food product requirements because of thegeographical and climatic constraints. Water scarcity is a serious regional problem that the country is likely to face in the comingyears, as growing cultivation of wheat presents a strong threat of water depletion. The industrial sector represents two thirds of the GDP. Saudi Arabia is dominated by non-manufacturing activities (oil drilling). The industrial sectorportion, other than oil, is growing due to Saudi state investments, to diversify the economy, thekingdom having tapped into its financial reserves accumulated by the soaring oil prices. The services represent 22% of the GDP. This sector is mainly dominated by tourism, financialand insurance services and the banking sector.
The Saudi Arabian economy is entirely based on oil.Saudi Arabia has the largest oil reserves in the World and is also the Worlds biggest oilproducer and exporter.Oil accounts for more than 90% of the countrys exports and nearly 80% of governmentrevenues.The recovery of the demand in 2010 helped to stabilize growth and offers hope for afavorable recovery in 2011.The big construction works policy led by the government as well as direct foreigninvestments and the solidity of the banking and financial system have allowed thiscountry to become the first economy in the region and one of the major ones in theworld.Inflation, which had reached a record 10% in 2008, mainly due to the increase in theprices of food products has decreased.The kingdoms authorities wish to abolish all the existing subsidies, which will in factlead to an increase in prices.
The government wants to reduce the kingdoms dependence on the oil sector bydiversifying its economic activities and in developing mainly the agricultural, food, andindustry sectors.The kingdom has a stable and high-quality banking and financial system.Private investments are supported by generous government financing and incentiveplans.The standard of living is one of the highest in the region with USD 15,352GDP/inhabitant.Saudi Arabia is still marked by an unemployment rate of about 11%. Tourism generateshighly significant revenues (nearly 4 million tourists per year), exclusively on account ofthe pilgrimage to Mecca.
Long hampered by its unattractive regulatory framework, foreign investment in Saudi Arabia recoveredthanks to its accession to the WTO in late 2005 and especially thanks to the adoption of a more favorableinvestment legislation in April 2000. Saudi Arabia is the main recipient of the foreign direct investments in the Gulf and Middle-East with USD24.3b. FDI stocks are constantly on the increase. The Saudi Arabian government has invested massively in national infrastructures in order to attractinvestments. FDIs are among the most efficient means of diversifying national economy and providing investment for the young generations.
The authorities welcome FDI according to their capacity to bring in technology, employ and train theworkforce, aid economic development and valorize local raw materials. With controlled inflation and relatively stable exchange rates, openness to foreign capital in upstream gas,as well as extensive privatization programs are among the advantages attracting the investors into thecountry. The dynamic performance of the banking sector is driving the growth of the non-oil sector. The access to the worlds largest oil reserves, very low energy costs and a high standard of living aredecisive factors for foreign investors.
According to the law on foreign direct investment, revised in 2000, foreigners are now allowedto invest in all sectors of the economy, except for specific activities on a negative list. Foreign investors are no longer required to take local partners in a number of sectors and mayown real estate for company activities. They are allowed to transfer their company money outside the country and can sponsorforeign employees. In order to facilitate investments in the Kingdom, the Saudi Arabian General InvestmentAuthority (SAGIA) has set up an Investment Services Centre (ISC). The ISC must decide to grant or refuse a license within 30 days of receiving an applicationfrom an investor.
Once Saudi Arabia became a member of WTO in 2005, the foreign investment climate in theKingdom substantially improved. From an investors point of view, the countrys strong points are economic stability, thelarge local market with a high spending power (and a population of over 27 million), soundinfrastructures and a well-regulated banking system.
The week points are the inadequate legal framework in resolvingcommercial disputes, the lack of transparency in applying the intellectualproperty legislation, the government imposed quotas of Saudi employees incompanies, the delayed payment of some government contracts, a restrictivevisa policy for all workers, a very conservative cultural environment andenforced segregation of the sexes in most business and social settings.
The foreign trade share in Saudi Arabia is nearly 90% of the GDP. Saudi Arabia recorded a highly significant trade surplus in 2008. Despite the falling oil prices, the country should show a positive balance in the forthcoming years. Saudi Arabias main export partners are the United States, China and Japan, followed by Germanyand U.A.E., as well as the Southeast Asian countries Saudi Arabia exports mainly crude oil (the black gold represents 90% of its exports), plastics,organic products and chemicals. Saudi Arabia’s main import partners are the United States, Japan, China and Korea, followed byother Asian countries (India, Taiwan, Singapore). Saudi Arabia mainly imports vehicles, machinery, electrical equipment, iron, steel and foodproducts. In order to promote international trade, attract foreign investment and diversify the non-oil sectors,the government has announced plans to establish four "economic cities" in different regions of thecountry.
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