Analysis of the Macroeconomics in Saudi Arabia
The Macroeconomics of Saudi Arabia
Saudi Arabia has one of the worlds fastest growing economies. Its economy is largely dependent on oil and so many aspects of the economy are more or less centered on oil. Given that oil is such a precious commodity with a lot of demand, the country has been stable and continues to thrive (Aljerayed, 2000). However, its macroeconomic state is best understood by an examination of its specific indicators.
GDP
According to the International Monetary Fund (IMF) statistics released in 2008, Saudi Arabia had a GDP of 469,462 US dollars although this value might vary slightly when statistics from other institutions are used. The greatest contributor to the GDP is oil revenue, although the country is also seeking to diversify its economy to include the service sector such as telecommunications (Aljerayed, 2000).
Income per capita
The per capita income of the country is one the highest in the world. As at the year 2007, it stood at 20,700 US dollars. This represented a great rise, as the country has continued to enjoy the great wealth that it derives from its oil wealth (Bowen, 2008).
Population
The country has a very diverse population which was estimated to total 27,019,731 as at the year 2006. Although in the early years of this century the majority of the population were nomadic people, a mere 5 of the population remain unsettled. Of the total population, it is estimated that early five million are migrants who are legally resident there (Niblock, 2007).
Consumer Price Index and Producer Price Index
The country has a favorable Consumer Price Index (CPI) that has varied over time as shown in the figure below. The Producer Price Index (PPI) is also fairly low, meaning producers are able to afford the costs of doing business in the country.
The inflation Rate
Over time, the country has enjoyed a fairly low inflation rate owing to its ability to keep consumer prices low. The average inflation rate over the last few years is approximated to be 3.4, but specific values are shown in the table below
Average Inflation rate (consumer prices) 9.9 (2008), 4.1 (2007)
YearInflation rate (consumer prices)RankPercent ChangeDate of Information20031.00 19020022004.50 202-50.00 2003 est.2005.80 1560.00 2004 est.2006.40 14-50.00 2005 est.20071.90 38375.00 2006 est.20084.10 106115.79 2007 est.20099.90 143141.46 2008 est.Source CIA World Factbook
Currency
The official currency for the country is the Saudi Arabian Riyal (SAR). As at the year 2008, the exchange rate was 3.75 for one US dollar. This indicates that the Riyal is a relatively stable currency compared to many other currencies in the Middle East region (Shoult, 2006).
Monetary Policy
All monetary policies in the country are aimed at stabilizing the Riyal because being an economy that is heavily dependent on oil exports and the fact that the oil sector is prone to changes in the world economic system, the currency has to be kept at a more or less a fixed or stable position. Monetary policy is a semi fiscal one which sees the government fixing the exchange rate of the Riyal because the exchange rate is the critical measure used to determine economic performance as opposed to interest rates. This policy of fixing the exchange rate has helped to keep inflation low (Al-Jasser Banafe, 2010).
Imports and Exports
Saudi Arabia is not a producer of many other items except oil (Aljerayed, 2000). As a result, it has to rely on imports from other countries to sustain itself. The main imports into the country are machinery and related equipment, foodstuffs, textiles, motor vehicles, and industrial chemicals. The country is largely a desert and there are no real agricultural activities going on. Instead, all commodities that come from agricultural farming have to be imported, and actually form the bulk of its imports (Aljerayed, 2000). The country relies heavily on the exports of oil to the rest of the world. In fact Saudi Arabia is ranked as the worlds leading oil producer and exporter. With about a quarter of all the proven oil reserves of the world, the country has a very large oil industry indeed, of all of which is centrally governed or controlled. Exports of petroleum and petroleum-based products account for the over 90 of the countrys total exports. The remainder are commodities like livestock, animal products, minerals, and a small proportion of manufactured industrial products (Aljerayed, 2000). Below is a variation of petroleum exports over the years.
The Stock Market
Saudi Arabia has a very successful stock market. It was first operational in 1985, registering an average index of 1000 points for each of the six main sectors present then (Aljerayed, 2000). Ever since, the stock market has bee on a generally upward trend, with exceptions being during the times of low global oil prices (GulfBase, 2010).
Effect of Recession
The stock market has been adversely affected by the recent global economic crisis which set oil prices tumbling. Otherwise, the stock market registers extremely high indices compared with other major stock markets in the world. The last decade has seen a rather rapid growth partly buoyed by rising oil prices and a stable economy (GulfBase, 2010).
Foreign investments in the country have been growing and the stock market has been a beneficiary of this growth (Aljerayed, 2000).
Rules and Regulations
Among the rules of engagement is the need for players to always prove financial viability and be able to trade fairly using set trading criteria. Other rules are set from time to time by the Capital Markets Authority based on international standards (Index Mundi, 2008). Foreigners are subject to strict legal requirements before they are allowed to trade.
Market Indices
The latest index (TASI) stood at 6,801.64, representing a 0.66 or about 44 points high from the previous day of trading. On average, the market has been gaining by about the same margin daily over the last 10 years (GulfBase, 2010).
The Real Estate Market
Cyclical trends
As a country that is fast developing, its real estate market is booming. In fact, it is one of the very ideal investment avenues sure to bring in high returns on investments (ROI). Buoyed by the rapid population growth rate of the country of which over 45 are below the age of 20 years, the real estate market is set to grow even further.
Market values
The current rate of growth is about 49 but in the next decade this rate is projected to have reached around 70 as demand for housing in both residential and commercial sectors surges (AMEinfo, 2010).
Effects of recession
Although the recent economic downturn has shaken the housing market a bit and caused a little slowing down of its otherwise rapid growth rate, the effects were not as dire as happened in Western countries. The slight fall in demand for mortgages caused by reduced disposable incomes is already being overcome. As the leading oil exporter, the country managed to cushion other sectors of the economy which are less prone to changes in the global economic conditions (Wilson, 2004).
Conclusion
Given the above statistics, Saudi Arabia is a very economically viable country that is ideal for investments of any kind. The stock market and the real estate one are particularly attractive. That aside, investments can be made in the mining sector, or in the lucrative petroleum drilling industry.