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Research Paper on Saudi Arabia

Posted by admin as Sample papers

Saudi Arabia’s Economic Revolution Research Paper

In a world of growing demand for energy and soaring oil prices, the Saudis have nothing to worry about; Saudi Arabia’s oil reserves account for more than 25% of the world’s total and its natural gas reserves are forth in the world (after Russia, Iran and Qatar). However, as we describe below, the Hashemite Kingdom faces some great economic challenges which call for attention.

Saudi Arabia is the largest country in the Middle East. It is an absolute monarchy, ruled by HM King Abdullah bin Abdul Aziz al-Saud (since King Fahd’s death in 2005) and sees the Koran as the primary source of law. It is quite a dominant player in the international field, mainly due to its weight in IPAC and the global energy market and through its cooperation with both the U.S. (e.g., in the war with Iraq) and the Arab League.

The national currency is the Saudi riyal (SR), which is pegged to the US dollar at US$1 = SR3.745. Saudi Arabia’s GDP was 379,476.7 Million USD in 2007, which places the Saudi economy at the world’s 25th place, with 4.7% GDP growth (ranked 133rd in the world and 2PP lower than in 2005). Although total population grows fast, as we further discuss below, the Saudi’s 2007 Per Capita GDP (9,227.81 USD) was ranked 35th in the world by the International Monetary Fund. Not surprisingly, oil exports accounted for 40% of GDP.

The Saudi economy is still heavily dependent on oil production and related industries (e.g. refineries and petroleum industries). The financial sector is also quite developed, partially because banks do not pay taxes.

Saudi Arabia is an infertile land and water resources are limited. Agriculture accounts for a very small fraction of the economy; almost half of agricultural products are imported.

However, the major economic challenge Saudi Arabia faces today is the enormous unemployment rate in one of the world’s fastest growing populations. Saudi Arabia has the 7th biggest birth rate worldwide, with 25 births per 1000 inhabitants. Reported unemployment accounts for 26% and the total number of unemployed Saudis grows at a horrifying 4% a year.

Oil production is also at risk, when the existing 80 oil and gas fields have a decline rate of 5-12 percent a year.

Changes in economic policy
To meet these challenges, the Saudi government engage into several measurements, which focus on diversifying the Saudi economy, strengthen its importance in the global energy market and create jobs for young Saudis.

These measurements include:
1. An 18 billion USD investment to increase oil production to a capacity of 13.1 million barrels per day in 2013.
2. King Abdullah Economic City, an ambitious project to build an industrial and economic centre at the coast of the Red Sea with an investment of 28.1 billion OSD.
3. “Saudiisation“: a plan to shift current jobs held by foreigners to Saudis.
4. Further investments in petrochemical industries, real estate projects and foreign direct investments overseas.
5. Removal of tariffs in an effort to boost consumption.
These changes and others indicate that the Saudi government is willing to heal its economy and not going blind after the current high profits from oil. Saudi Arabia’s 2005 joining to WTO is another benchmark for this tendency.

Saudi Arabia is a huge Muslim country and a strong economy which goes through radical change. Its oil reserves and production capacities makes it to be a key player in the global energy market. As a result, Saudis enjoy rather high quality of life (e.g. in terms of infant mortality rate) and disposable income. As oil prices remain high this pattern is not expected to change in the near future.

Saudi Arabia is now a member of WTO. Saudis are keen for investments in many other fields, such as industry, infrastructure education, tourism and real estate, which are a major driving force to help the country heal some of its weaknesses, in particular the high unemployment rate in the face of its ever-growing population. Thus, although it remains a conservative country, Saudis are much more open to the western world and, as one should assume, understand the future implications of this move, also in the cultural aspect. They consume more than before and enjoy the benefits of being an important member of modern society.

The government is obviously the leader of these changes. Removal of tariffs, acceptance of WTO trade regulations and opening the market for foreign investors, retailers etc. is a major step ahead in the building process of the new Saudi economy, and join other important initiatives such as the economic cities, privatization of key sectors (e.g., water infrastructures) and the encouragement for Saudi investors to improve the domestic market through investments in agriculture production overseas.

However, the major weakness of the Saudi economy remains its labour market. Saudis’ wages are up to five times higher than those of foreigners, and there is a severe shortage in trained Saudis to boost the economy. The gloomy outcome is that 88% of the employees in the private sector are foreigners. The government plans to stop this trend and to oblige companies to employ at least 75% Saudis.

Some other measurements are needed in order to complete these efforts. Women integration in the workforce is one issue to pay attention to. Although women accounted to about half of the education system graduates, they comprise only 5% of the workforce, meaning that a huge potential of skilled workers remain outside of the market. Another issue is transparency and corruption, where Saudi Arabia still has a long way to go, as well as with its conservative education system and the gaps between rural and urban Saudis.

Considering all the above, the country has the right means and attitude for becoming dominant in other fields, more than all in its growing industrial sector. Bigger government expenditure and public-private partnerships are needed, but it seems that unlike some other countries in the region, Saudi Arabia will be in ten years a whole different country.

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