Introduction
Saudi Arabia is one of the leading economies of the Middle East region and is currently the fifth largest exporter of goods worldwide. The kingdom of Saudi Arabia is located in a mostly arid area and, therefore, the country relies heavily on trade to boost its GDP and keep the economy of the country afloat. In 2013, the Kingdom exported $633 billion worth of goods and imported $165 billion. These statistics show that the kingdom reaps a lot of benefit from the export and import of goods. A country that earns more from export than what it spends on import is said to have a positive trade balance and will record a higher GDP.
The top exports of the country are crude oil, refined petroleum, ethylene polymers and propylene. Most of the principal exports are oil based products since the country boasts of having one of the world's largest oil reservoirs in the world. Oil is big business, and so it is not surprising that the exports of the country generate large amounts of money. The top imports into Saudi Arabia include cars, gold, trucks, medication, and refined petroleum. The import needs of the country are little due to the small population and the substantial financial capacity of the kingdom. The kingdom has a population of roughly 27.3 million individuals and this translates to over $5000 worth of imports per person. This figure is higher than most of the developed world hence Saudi is considered to be in a good economic situation in world trade.
The top export destinations for Saudi as of 2013 was other Asian countries accounting for $199 billion, North America accounting for $54.2 billion, China $47 billion, US and Japan account for $47.2 billion and $44 billion respectively. The trade relations established with these countries is crucial to the well-being of Saudi’s economy and represents the overall importance of good trade relations to the foreign policy of the country. These countries also supply Saudi with the majority of imports especially vehicles from Japan and the US.
There are very many variables that affect trade in Saudi. The country was ranked forty-second in the list of most complex economies worldwide. Trade is affected by many political and social factors in the world market. The product space in which Saudi operates shows that the country exports 25 products with comparative advantage meaning that its share of the global export market is larger than it should be for a country of its small size. Knowledge of the variables affecting trade in the country is, therefore, crucial in determining the trend of the country's economy and the overall landscape of the international markets.
This paper aims at finding out and analyzing the variables that affect the import and export trade in Saudi Arabia. The paper aims at answering the question of which factors are most crucial to the wellbeing of the economy of Saudi. An in-depth analysis of the variables affecting export and import trade in Saudi is, therefore, a necessary one since the economy is largely dependent on the revenues that the exports generate. The methodology which will be adopted in this paper will be research based with minimal interaction with actual respondents. Since the country is too far away to employ traditional data collection methods such as interviews, an analysis of the factors affecting trade from 1990 to 2012 will be used. The data collected will then be analyzed, and conclusive factors derived.
Literature Review
The economy of modern Saudi Arabia largely depends on the export of oil and its products. It's only through export of oil that the government can obtain finances for the running of government. The country is located in the arid areas of the deserts of the Middle East and, therefore, depends heavily on imports than other countries. Since oil is the main export of the country, the economy ids dependent on the world markets. The world market depends on the price of oil, so it is safe to say that the economy of Saudi Arabia is dramatically dependent on the price of oil. An economy that is strongly reliant on a single commodity is subject to run the risk of depressing with a fall in the price of the commodity (Clark, Tahlawi, Facey, Pledge, & Saudi Aramco, 2006).
In the face of the falling oil prices of 2015/2016 however, the Saudi economy was able to survive quite stably because of the country's deep pockets regarding the national fund. The Saudi economy has been able to absorb, save and invest a lot of funds it receives annually from the export of oil and its products (Graeber, 2016). When the oil prices were $115 per barrel, the Saudi economy earned a net export of $360 billion and at $85, the government only earns $270 billion. The standard of living in Saudi Arabia has been on a sharp rise over the years but also has the country’s foreign reserves. The trade of oil has been very rewarding for Saudi Arabia because they boast a reserve of over $737 billion in foreign assets. The economy can handle a dip in oil prices for at least three to five years before national spending would have to be curbed.
Agriculture is a big are of concern for the Saudi Arabian economy. The sector is believed to have contributed 6.5 percent of the total GDP from 1970 onwards. The country's location limits the number of natural resources that the country can boast. The growth rate of the agricultural sector in Saudi Arabia is at an average of four percent annually. This figure is impressive when a comparison is made with a majority of the developing countries. Saudi Arabia's agricultural sector is still insufficient in meeting the needs of the population. Import rates rise as a result of this. The value of the imported foods paid for by commercial banks rose by 61 percent whereas the imports of grains rose by 11 percent. These figures indicate a strong dependency on imports to meet the agricultural needs of the people of the kingdom.
Non-oil activity has grown over the years. The amount of revenue generated from the export of services and goods that are not related to oil has grown from 2.7 percent of the GDP in the 1900s to 4.3 percent in 2011. This trend has seen oil reduce its contribution to the total GDP of the country by almost ten percent to around 30 percent. The importance of oil to the economy has not decreased, but an evolution of the economy to other exports has sought to strengthen the economy of this Middle Eastern country. Goods such as cloths, porcelains and other commodities of trade from Saudi Arabia have increased in the percentage of the country's main exports. An evolution of the Saudi economy thus is imminent, with other sectors stepping up to relieve the dependency on the export of oil and its products (Nakaya, 2006).
The Kingdom of Saudi Arabia does not import income taxes on its citizens. The country is thus heavily reliant on trade as a means of funding government projects such as building roads and hospitals. The net balance of trade in the country is therefore very high and is estimated to be at $430 billion dollars annually. All these measures are possible because of the population of the kingdom. There are an estimated 27.3 million inhabitants in the entire kingdom. The small population allows the government not to need the revenues from taxes and can run operations smoothly with only the income from trade. If the population were to quadruple, the burden on the Saudi government would be great. A higher population would impact the price of goods or export, thereby affecting international trade.
Data Collection
Data was collected from various online sources and IMF records on the trend of the economy of Saudi Arabia. The data collected shows a decrease in the economic forecast of the economy of Saudi Arabia. Information from various financial institutions shows that the economy of the country can be divided into various sections.
The trend of the country’s export shows that the GDP is heavily reliant on oil as an export. Since the oil craze of 1970, the value of oil as an export good has risen steadily throughout the decades. An increase in the price of oil sparked an increase in production of oil with a growth rate of 10 percent annually. In the early 1980s, the growth was stunted due to a decline in the oil prices. The decline in the early eighties led to a negative GDP being recorded. In the mid-eighties, the Saudi government re-initiated drilling and increased production of oil. The price of oil has been on a parallel increasing slope with the production of oil in Saudi. An increase in both the sale and production of oil has seen a gradual increase in the GDP of the country. The growth of the economy is now steady at a rate of 3.4% annually.
There has been an increase in the quantity of non-oil commodities that make up the total export of the country. In Saudi Arabia, the leading export commodity is oil and has been this way for many years. There has been fear among some economists that question the wisdom of relying wholly on one commodity for the trade of the country. In recent year, foodstuff, silverware, and other non-oil products have come up as good export options ("6. The Wages of Oil,”).
Since the oil boom of the 1970s, the general growth of GDP in the country has been middle at par with average developing nations. The non-oil sector has however managed to grow stronger over the years relinquishing the country’s overreliance on oil. The country’s growth has been on par with the Latin American countries as well as the Caribbean.
Investment in non-oil corporations and multinational businesses in the country has had a positive impact on the economic growth of the kingdom. Private and government investment into local companies and the non-oil sector has increased by 15 percent in the last decade alone. A steady flow of investment into the oil-rich country has seen the GDP of the country grow at an exponential rate.
The increase in the labor market has also been on a steady rise in the Middle-Eastern nation. The country has experienced a steady growth in employment figures. The country currently declares an unemployment rate of less that 2 percent annually. A strong showing in the employment sector has served to increase the number of middle and upper middle class in the region. With more and more workers in the workforce, the GDP has also risen.
Data Analysis
The data collected is then thoroughly analyzed to derive variables that determine the export trade in the country. Inference to the data is made in establishing the viability of a factor as a variable in the export trade of Saudi Arabia.
Saudi Arabia is heavily dependent on oil as a commodity of export. The economy of the country recorded major gains during the oil boom and has been growing at a constant rate ever since then. Oil drives the economies of many countries and is seen as a crucial commodity in international trade. Through an analysis of this situation, it can be deducted that the country’s export is heavily dependent on the price of oil. a sharp rise in the price of oil per barrel in the world market would see the country gain a lot of money in terms of GDP growth. However, low prices at the market could negatively impact the export trade of Saudi Arabia. In 2015 and early months of 2016, the global oil prices fell to a record low of $30 per barrel of oil. The global oil-producing nations such as Saudi Arabia faced the possibility of an economic downturn because of the same. This situation proves that the price of oil is a huge factor in the macroeconomics of Saudi Arabia.
Non-oil products also play a critical role in the export trade of the kingdom of Saudi. There has been a steady growth in the amount of exported non-oil goods. Agricultural produce and other foodstuff have made a big part of the non-oil associated products. The popularity of non-oil products as a commodity for export has grown exponentially over the past few years. The rise in the number of exports that are not associated with oil can be attributed to increased investment by the government into various sectors including plastics and foodstuff. The increased interest in other sectors is a strategy by the government to curb over-reliance on only one commodity of trade. An economy that is reliant on one commodity will fluctuate depending on the demand and price of the commodity. The economy will not be stable and may lead to declines in investments if the commodity prices fall or the world demand for the commodity ceases (Cordesman & Center for Strategic and International Studies (Washington, D.C.), 2004).
Investments are seen as a major factor for the development of the export industry in the Middle Eastern country. The influx of foreign and domestic investments in the country has influenced the economic perspective of the country. Before the 1980s, Saudi Arabia made most of its revenue from exporting oil. The great wealth this product amassed enabled the government to set up investments into the local industries and businesses. It did not take long for major multinational companies to follow suit. There has been a surge in the number of investors into Saudi Arabia incorporated with a lot of government investments. This situation has led to the diversification of the economy making the nation less reliant on oil.
The labor available for the local industries also has a major impact on the economic trends of the company. Saudi Arabia has a very small population of close to 28 million people. This population size has limited the number of workers in industries. This is a major reason that the country became so reliant on international trade to keep the economy afloat. Growth in the number of skilled personnel in the kingdom has served to boost the local businesses in the country. As more and more people conduct business, there is less incentive for export. The country is on the path to evolving into a consumer based economy.
Conclusion
The entire economic set up of the kingdom of Saudi Arabia is centered on the export of goods. The country is located in an area with very few natural resources. The oil boom in the early 1970s placed the country as one of the leading producers of oil in the world. A steady rise in demand and production has led to Saudi Arabia rising from a developing country to one of the leading economies in the Middle East. The export of goods, mostly oil, has generated so much revenue that the net balance of international trade for the country is $480 billion. The country relies heavily on trade to make up its revenues and thus an analysis of the factors affecting it is crucial.
Factors affecting the export trade include the price of oil, the performance of non-oil substances and the investment levels. The price of oil affects the demand and profit from the trade of oil. Saudi Arabia is heavily dependent on oil trade, and so a fall or rise in the price of oil will greatly affect the export trade. Supply of oil was in excess in 2016 to such an extent that the oil prices plummeted to new lows. The economy of Saudi was able to weather the rough time through the use of the national fund that exists due to the great profit of the oil trade.
There has been an increase in the number of non-oil goods being exported from Saudi Arabia. Plastics and foodstuff head the list of commodities that are exported. The growth of this sector has seen its importance in the export trade increase. The trade of agriculture alone has contributed to more than 6 percent of the GDP of the country. This statistic is impressive because the country lacks any substantial natural resources.
Foreign and domestic investment serves to change the economic landscape of the country. Ere has been a great influx of investments into the local business and establishing of international offices. The growth of business in the country has led to the development of an alternative option to export. The more business is conducted within the borders, the more the country’s GDP increases. The country will become less reliant on export if a booming local business economy develops.
The factors that affect international trade and export in Saudi Arabia are of great importance for studying the trend of the Saudi’s economy. The factors proposed in this paper can be used as a measure of economic growth and policy adoption. The weaknesses of this study include the limited data collection. Further study on the topic is encouraged.
References
6. The Wages of Oil. (n.d.). How Oil and Water Forged Modern Saudi Arabia. doi:10.4159/9780674059405-006
Clark, A. P., Tahlawi, M. A., Facey, W., Pledge, T. A., & Saudi Aramco. (2006). A land transformed: The Arabian Peninsula, Saudi Arabia, and Saudi Aramco. Dhahran, Saudi Arabia: Saudi Arabian Oil Co. (Saudi Aramco.
Cordesman, A. H., & Center for Strategic and International Studies (Washington, D.C.). (2004). Energy developments in the Middle East. Westport, CT: Praeger.
Graeber, D. (2016, January 19). IMF lowers economic forecast for Saudi Arabia. UPI.
Nakaya, A. C. (2006). Oil. Detroit: Greenhaven Press.
