Saudi Arabia, the birthplace of Islam is the largest country in the Arabian Peninsula. It has been an ancient trade center. Trade was considered crucial for the development of the country in the earlier period. Different trade routes were developed to transport agricultural goods. Saudi has emerged from an agricultural society into a diversified economy and is at present the world’s largest oil producer. Increase in oil exports, helped the country to build basic infrastructures and also improve commerce and industry. This resulted in an economic transformation and progress to become a fast developing country in the world. The history of trade in Saudi Arabia is discussed below.
Saudi Arabia had an agricultural society which included nomads who were dependent on the infrequent rains. Dates were the important crop .Other products were barley, millet, wheat etc. As the rains were not adequate for pastoral activities people had to create systems with multiple resources. This resulted in oases control, protection services and cultivation. The limited production served small markets and trade was carried out with camel caravans. The pilgrims also contributed to the growth in trade. The development of Hejaz Railway helped in the settlement of merchant families in the main cities .European colonial expansion led to growth in international trade which was advantageous to the merchants. (Factors, n.d)The discovery of vast reserves of oil in 1938 brought about the change in the economy of Saudi Arabia. The Arabian American oil company was established and development of oil fields accelerated the growth of trade. The Company provided the support needed in terms of technology, finance and logistics to organize the industry’s production and distribution. Development of oil industry created various new economic opportunities. Currently Saudi has become the largest producer and exporter of oil.
Imports and Exports
With increase of imports and exports and government incentives to promote business, the commercial sector of Saudi Arabia has grown at a rapid rate. Most important exports to ninety countries include Petrochemicals, plastic, electrical appliances and materials for construction. Crude and refined oil the most dominant export generates the maximum income for the country. It contributes to nearly 90percent of the revenue. The main imports are mechanical appliances, machinery, and electrical equipment, chemicals, vegetables, base metals etc. There has been an increase in the imports and exports of the country after it became a member of the WTO in 2005. It has helped to attract more opportunities in the global market. High prices for oil in the international market from 2005 to2014 created fiscal surplus and increase in foreign reserves. In the year 2013 the overall exports was 375,873 US$. The number of products was 1,867. According to Global Trade Information Services crude oil export was estimated to be 7.7 million bbl. /d in 2013.An estimated 68% was received by Asia. The second largest annual petroleum exporter to the United States after Canada is Saudi Arabia. The imports was 163,713US$ and the number of products were 3,774. (WITS, n.d) The export as of 2015 is 185284.00 million SAR. The imports were recorded as 140819 million SAR. The international Finance Corporation has ranked Saudi as the world’s 13th most economically competitive country. The country has attracted foreign investment due to its economic and social stability, and inexpensive supply of energy. Foreign investors need minimum capital requirements. Incentives are given to industrial establishments according to the Saudi law. Some of the incentives are tariff exemptions, subsidies to train Saudi employees for Saudi business which are partially foreign owned. Locally manufactured goods are given assistance for exporting. A new law was introduced on April 11, 2000 which made foreign investors eligible for the same benefits, guarantees and incentives as for the Saudi companies and individuals. Certain commodities like pork and its products, alcohol and old vehicles are not allowed for import. Tariff exemption is given for most medicines and pharmaceutical products. The average tariff is 3.6percent.Some of the economic sectors in the country prohibits and restricts foreign investment. Most of the import requirements have been received from USA. The other sources for import are Japan, UK. Saudi has undertaken to form Free-trade Zones with many neighboring countries.
Foreign Trade
The foreign policy of the country focuses to maintain peace and cooperation among the neighboring countries. Diplomatic relations were established with the United States from 1940. Regional and global issues are shared by both the countries .Large oil reserves and strategic location made it important for United States to maintain friendly relations with the Saudi Arabia. A Trade investment Framework Agreement has been signed by both the countries as Saudi Arabia provides major portion of oil to the U.S market. The second largest trading partner of Australia is Saudi Arabia. Australia exports passenger motor vehicles, beef, barley, meat, Wheat, dairy products etc. to Saudi Arabia. Export of service especially education is noteworthy. Many students from Saudi study in Australian institutions. Australia has expanded its business with Saudi by signing of a MoU between both their Business councils. India and Saudi Arabia cooperate in regional affairs and trade. India gets major supply of oil from Saudi Arabia. India ranks sixth in the world’s largest energy consumers. There are a large number of Indian expatriate workers in Saudi Arabia and it is said to be accommodating largest mass of Indians outside India. It has become Saudi Arabia’s fourth largest trading partner and for India it is the fourteenth largest market. Joint ventures were set up with engineering and construction industry .Basmati rice is exported to Saudi in large quantities.
Ready-made garments, manmade yarn fabric, rice meat, plastic and linoleum products, semi-finished iron and steel are some of the other products of export from India. Venezuela, Ecuador and Mexico have special relations With Saudi Arabia as they are major oil producers and exporters. They cooperate under the system of the organization of the Petroleum Exporting Countries (OPEC).Saudi Arabia has been progressing rapidly toward self-sufficiency with implementation of plans to develop the agricultural sector as well. Saudi also provides aid to Arab, African and Asian countries. Saudi Arabia has joined with the World Bank to help in providing energy for poor countries and also provide assistance for high food cost.
Conclusion
The economy and trade of Saudi Arabia has progressed rapidly from agriculture to a diversified economy. It has become a global economic power and the largest oil producer in the world. Development plans with long term goals formulated by the government resulted in the expansion of infrastructure which helped in the growth of industry and commerce. New investments in the oil sector helped in maximizing earnings. The economic performance of the country had positive growth due to development strategy undertaken by the country. Foreign investments increased with the development of oil related economic activities. Saudi Arabia has enough energy supply to maintain its economy for a long period. With diversification of its economy the country will be able to maintain its economic progress in the future. Being dependent on United States for trade it will have to implement favorable oil policies and maintain stability in price.
References
Royal embassy of Saudi Arabia. Washington, DC (n.d).Retrieved from https://www.saudiembassy.net/about/country-information/history.aspx
Factors that transformed the economy.(n.d) Retrieved from
http://countrystudies.us/saudi-arabia/35.htm
WITS World Integrated Trade Solution.(n.d) Retrieved from http://wits.worldbank.org/countrysnapshot/en/SAU
