Saudi Arabia Economic Data

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Saudi Arabia Jeddah Islamic Port History


Saudi Arabia has a robust economy that experienced rapid growth from 2003 to 2005 but remains largely dependent on the production and exportation of oil. Saudi Arabia produces more oil and natural gas liquids than any other country in the world. The Saudi Arabia Oil Company (Saudi Aramco), which was fully nationalized in 1988, controls this vitally important resource. Even as the demand for oil, and consequently the price per barrel, remain at historic highs, Saudi Arabia faces the challenge of diversifying its economy. In 1999 a royal decree established the Supreme Economic Council under the leadership of the crown price and charged it with bringing Saudi Arabia’s economy into the twenty-first century. Since the 1970s, the Saudi government has used five-year development plans to try to make its economy less susceptible to fluctuations in oil prices. Currently in its eighth five-year plan (2005–8), the government has goals of achieving modest but consistent gross domestic product (GDP) growth, increasing the role of the private sector in the economy, and creating significant numbers of new jobs for Saudi citizens.

Despite ambitious government plans for economic modernization and diversification, the development of the non-oil economy has proceeded slowly, and attempts in the past decade to encourage private investment have been hampered by the many vested interests of the royal family, which continues to dominate the economy. Strong oil sales have boosted government revenues and enabled robust government spending (a trend expected to continue in the near term), but analysts note a long-term decline in national living standards. Compared to some other oil-dominant economies, such as the United Arab Emirates and Kuwait, Saudi Arabia has a relatively low per capita GDP. Popular discontent has been rising for years among Saudi citizens who feel that not enough of the country’s oil wealth goes back to the people. Although production has boomed, there is actually less oil money to go around. Saudi Arabia’s per capita oil export revenue in 2004, US$4,500 per person, was far less than the high of nearly US$23,000 reached in 1980. Economic discontent will likely continue to reverberate as high levels of unemployment plague the country’s young male population.

Gross Domestic Product (GDP):

According to estimates, Saudi Arabia’s gross domestic product (GDP) will reach between US$308 billion and US$338 billion in 2005. Should these estimates prove accurate, the total would represent a healthy increase over the US$215 billion to US$251 billion posted in 2003 and 2004. Estimated per capita GDP was US$12,800 in 2005. Projections for future GDP growth remain bright: 5.4 percent for 2006 and 4.6 percent for 2007, following high annual growth rates of 7.7 percent, 5.2 percent, and 7.5 percent, respectively, in 2003–5. Oil prices and production will undoubtedly determine the validity of such forecasting.

Government Budget:

Since 2002, when oil revenues began to increase dramatically, Saudi Arabia has produced large budgetary surpluses. Before that time, high defense spending and government subsidies to consumers, coupled with low oil production rates and prices, generally yielded significant budgetary deficits. Saudi Arabia’s 2006 budget includes government spending of nearly US$90 billion, a 20 percent increase over 2005. This plan will continue the government’s strategy of using record oil revenues to provide broad economic stimulus. Government spending priorities include education, health and social affairs, municipal services, transportation, and infrastructure. Even with its ambitious spending plans, the government projects a budget surplus of US$15 billion in 2006, based on estimated 2006 revenues of US$104 billion. About 20 percent of revenue will be from non-oil income. Government officials expect tariff and duty revenue to decrease as the full effects of Saudi Arabia’s ascension to the World Trade Organization are borne out.

Because of the significance of oil revenue, Saudi Arabia imposes only minimal income taxes on Saudis and does not have a capital gains or value-added tax, although a payroll tax supports social insurance programs, and the government collects the Islamic tithe of 2.5 percent of net worth from both businesses and individuals. Joint ventures and non-Saudi individuals and businesses are taxed at varying rates.


Saudi Arabia controls internal inflation through a series of price subsidies. When necessary or expedient, the government intervenes to drive market prices down for consumers. For example, in April 2006 the government slashed automobile gas prices by 20 percent. Externally, however, the weak U.S. dollar, to which the riyal is pegged, continues to drive up the cost of imported goods. According to the cost of living index calculated by Saudi authorities, consumer prices rose by 1.1 percent in 2005. Inflation is expected to remain very low in the kingdom at between 0.4 and 0.5 percent through 2006.

Agriculture, Forestry, and Fishing: The agriculture sector accounted for 4 percent of Saudi Arabia’s 2004 gross domestic product (GDP), down from 5.1 percent in 2002. Agriculture employs about 6 percent of working citizens. The scarcity of water and fertile soil limits the crops that can be grown. The principal crop in recent years has been wheat. In 2003 Saudi farmers produced more than twice as much wheat as any other agricultural commodity. Other significant crops include dates, potatoes, tomatoes, watermelons, and sorghum. Saudi Arabia is self-sufficient in the production of most dairy products. Saudi agriculturalists annually produce a surplus of eggs and broiler chickens. Nearly 75 percent of the country’s land is still used for low-grade grazing of livestock rather than for cultivation. This has led the Ministry of Agriculture to establish a research center dedicated to finding the most efficient and profitable means of utilizing and protecting pastureland.

According to Saudi estimates, the country possesses nearly 6 million acres of forested land, but this area cannot sustain a forestry industry. The Saudi government has taken measures in recent years to conserve existing forests. It set up 20 nurseries across the country to cultivate seedlings and produce fertilizers and planted tree barriers along the edges of selected forests in order to guard against creeping sand and desertification. The fishing industry, through capture and aquaculture, produced an annual catch of 55,000 metric tons in 2002.

Mining and Minerals:

Extraction efforts in Saudi Abaia focus on petroleum and natural gas. According to the U.S. Energy Information Administration, oil makes up 90-95 percent of Saudi Arabia’s exports, 70-80 percent of state revenues, and about 40 percent of the country’s GDP. Despite its economic clout, however, the oil industry employs only 1.5 percent of the working population. Government-controlled Saudi Aramco, the world’s largest producer of petroleum, facilitates the oil industry in Saudi Arabia and in fact dominates the entire mining industry. Moreover, the company’s influence and role in overall economic planning and performance cannot be overstated.

Saudi Arabia has proven oil reserves of more than 261.9 billion barrels, which will allow continued production at present rates (nearly 11 million barrels per day in 2005) for about 50 years. In order to control prices and guard against glutting the world market, Saudi Arabia adheres to the quotas set by the Organization of the Petroleum Exporting Countries (OPEC), of which it is an influential member. Saudi Aramco officials claim that oil production could be ramped up to 15 million barrels per day if the market justified such an expansion. The country’s oil infrastructure has grown rapidly, doubling the number of drilling rigs in the country (90), between 2004 and 2006. Nevertheless, challenges still lie ahead, including guarding against the threat of terrorism and addressing the decline of oil fields. A typical decline rate of 5-12 percent annually means that Saudi Arabia must boost production by 500,000 to 1 million barrels daily just to maintain current output.

In addition to oil, Saudi Arabia has large deposits of natural gas—235 trillion cubic feet, the fourth largest natural gas reserves in the world, representing nearly 4 percent of the world’s total natural gas reserves. In 2002 Saudi Arabia completed construction on the world’s largest natural gas plant, located in Hawiya. Saudi officials hope that the plant will increase production by up to 30 percent. Iron ore, gold, and copper also are major mining industries. On a smaller scale, the extraction of limestone, gypsum, marble, and clay augment the mining industry’s annual output.

Industry and Manufacturing:

Manufacturing in 2004 contributed 8.8 percent of gross domestic product (GDP) and in 2002 provided employment to 8.1 percent of the Saudi workforce. Experts projected a manufacturing production growth rate of 7.1 percent for 2005. Most manufacturing jobs are tied in some manner to the minerals sector. Refining petroleum continues to be the most important activity. In 2005 Saudi Aramco increased production of refined products by 3 percent. Cement production rose by 2 percent. Additionally, the manufacturing of fertilizer and steel contribute significantly to the country’s economy. Ship repair, commercial airline repair, and construction also provide the region with much-needed industrial jobs.


Most of the country’s electric energy comes from thermal power stations, which use the country’s petroleum resources. Additionally, electricity produced through the desalinization of seawater has become increasingly important in the past decade. Saudi Arabia produced 145.1 billion kilowatt-hours of electricity while consuming only 134.9 billion kilowatt-hours in 2003. Demand for electricity has expanded as a result of the country’s growing population and artificially low consumer prices (as a result of government subsidies). According to the Ministry of Industry and Mining, the demand for electric power grows by 7 percent a year; thus, further expansion of electricity production will be needed. The government has taken steps to encourage private investment in this sector in order to meet the exorbitant cost of such rapid growth.

In the 1970s, the government pushed for consolidation in the energy sector, and small, private companies were merged as a result. In 1998 government consolidated the producers of electricity even further, creating a public company, the Saudi Electric Company, with shares for purchase on the stock market. This government control did not last, however. In order to expand the energy grid to include all regions of the country (currently 20 percent of Saudis are not served by the national grid) and to meet future needs, the Saudi government has eased restrictions on Independent Power Producers (IPPs) and Independent Water and Power Projects (IWPPs). The recently completed Ghazlan II power project was the first in Saudi history to receive a significant portion of its funding from an international commercial loan (US$500 million of the US$1.7 billion total cost of the project). The Saudi government plans to establish 10 IWPPS by 2016.


The services sector produced 44.1 percent of the gross domestic product (GDP) in 2002 and employed 73 percent of the workforce. In 2005 it produced an estimated 35-38 percent of GDP. According to a 2002 survey of the services sector, 16 percent of Saudis worked in retail, 12 percent in education, and 10 percent in domestic service.

Banking and Finance:

Saudi Arabia has a profitable and stable banking industry, closely regulated by the Saudi Arabia Monetary Fund (SAMA). Saudi banks that conform to Islamic law prohibiting interest payments have the benefit of not paying their depositors to hold their money. This, along with high oil revenues, has led to high profits for Saudi banks in recent years. SAMA reported that total bank deposits reached US$138 billion in the first quarter of 2006. SAMA estimates that non-performing loans comprise only about 9 percent of the banking industry’s lending portfolio. No bank has ever failed in Saudi Arabia.

The banking sector is composed of 13 Saudi-owned banks and eight branches of foreign banks. The country’s largest bank, the National Commercial Bank, is controlled by the Saudi government and operates under Islamic principles. Saudi Arabia only recently began opening its doors to foreign banks. The Gulf International Bank (Bahrain) arrived first in 2000, followed by the Emirates Bank International (United Arab Emirates), the National Bank of Kuwait, and the National Bank of Bahrain in 2002. The Capital Market Law, passed in 2003, eliminated further barriers to foreign financial institutions. In addition to commercial banks, which meet general banking needs, five government-developed credit institutions are designed to meet private and corporate financing needs: the Real Estate Development Fund, established in 1974; the Saudi Industrial Development Fund; the Saudi Arabian Agricultural Bank, which was founded in 1964; the Public Investment Fund, which lends to “commercially oriented public corporations;” and the Saudi Credit Bank, established in 1971 to make personal loans to low-income Saudi citizens for marriage expenses, vocational training, and building projects. Besides commercial banks and the five government funds, only a few investment banks and other financial intermediaries exist. The venture capital and entrepreneur finance sectors of the economy remain underdeveloped, as most Saudis continue to rely on either family or friends to provide capital for business development. Insurance companies are in their infancy. Prior to passage of the Co-operative Insurance Companies Control Law of July 2003, the government had a monopoly on the insurance industry.

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The Saudi stock market is the largest in the Arab world, with a total market capitalization valued at nearly US$650 billion at the end of fiscal year 2005, a 111 percent increase from one year prior. Established in 1990 by SAMA, Saudi Arabia’s stock market only opened to investors outside the Gulf Cooperation Council (GCC) in 1997. Public interest and participation have increased during the past few boom years. Stocks, bonds, mutual funds, and initial public offerings (IPOs) have become common investment strategies for the country’s financially aware citizens. In 2001 SAMA established an online trading system called Tadawul that made securities more accessible. Additionally, the Capital Market Law of 2003 established an official trading floor for the Saudi Arabia Stock Exchange. Still, the legacies of corporate secrecy and government interference in business remain stumbling blocks to wide participation in the securities market. Moreover, the decline of the stock market in February 2006 after three years of record gains provided a sobering warning to investors.


Saudi Arabia is aggressively pushing the development of its tourist industry. The secretary general of the Tourism Higher Authority (THA) boldly predicted that Saudi Arabia would have 45.3 million tourists in 2020. Presently the THA has embarked on an aggressive expansion of tourist facilities. An estimated 4.8 million tourists came to Saudi Arabia in 1999, generating receipts of more than US$1.4 billion. The World Tourism Organization estimated that in 2004 Saudi Arabia received 8.6 million visitors who spent a combined total of US$6.5 billion.

The hajj is the bedrock of Saudi tourism. In 2004 nearly 2 million pilgrims came to Saudi Arabia. Additionally, nearly 500,000 Saudis take part in hajj activities each year. Currently, expansion projects are underway in order to increase the number of pilgrims that can be accommodated. Outside of the hajj period, visitors performing the omra, or minor pilgrimage, visit Mecca and Medina. Until recently, these pilgrims were restricted to the primary religious cities. However, in 2000 the government approved tourist visas that would permit further travel in the kingdom, and travel companies can now conduct group tours, although restrictions on who can enter the country remain in effect. Significant barriers to tourism still exist for non-Muslims, although Saudi Arabia initiated a pilot program of granting tourist visas in early 2006.

Since non-hajj tourism has never been a significant industry in Saudi Arabia, many tourist-friendly operations that other countries take for granted are not in place. To begin rectifying this situation, the Supreme Commission for Tourism has proposed instituting a hotel rating system, developing roadside rest areas, funding hotels in rural regions, encouraging archeological and museum visitors, and licensing tourist companies. The commission has also developed plans for expanding education opportunities for those interested in the hospitality and hotel industries.


Labor, or rather sufficient employment, is a significant problem in Saudi Arabia. The unemployment rate has risen to nearly 25 percent (estimates vary from 13 percent by the Saudi government to 25 percent by the U.S. government), and the economy remains dependent on the skills and expertise provided by the 6 million foreign nationals residing in the country. Current estimates place the workforce in Saudi Arabia at 6.76 million, with foreign workers constituting nearly one-third of that total. Resolution No. 50, passed in 1995, required that the workforce of any company with more than 20 employees be at least 5 percent Saudi. This requirement was raised to 10 percent in 1999. Additionally, in 2001 the Saudi government prohibited the awarding of contracts to companies not complying with Saudiization and stipulated that foreign workers applying to change jobs would be charged a fee.

Saudi Arabia does not have a minimum wage, but most workers earn a wage adequate to meet their family’s basic needs. Overtime must be paid for hours worked beyond the federally mandated 48-hour workweek. The government prohibits the formation of labor unions and collective bargaining, although it has begun to allow the establishment in larger companies of “labor committees,” whose members must be approved by the Ministry of Labor and Social Affairs.

Numerous reports exist of maltreatment of workers in Saudi Arabia. Charges include forced labor, martial punishment, and using trafficking victims to meet labor needs. Foreign workers are particularly vulnerable to exploitation because contracts generally favor employers, and reporting a grievance to the labor courts often takes months. The government offers arbitration services between workers and employers in cases of alleged abuse.

Foreign Economic Relations:

Because of its massive oil revenues, Saudi Arabia regularly produces a significant trade surplus. The country’s major trade partners are Japan, the United States, and the European Union. Saudi Arabia maintains memberships in most of the region’s economic organizations, including the Cooperation Council for the Arab States of the Gulf, Islamic Development Bank, Organization of Arab Petroleum Exporting Countries, and Organization of the Petroleum Exporting Countries. Saudi Arabia became the 149th member of the World Trade Organization (WTO) in December 2005, evidence that it is making strides toward market modernization. Saudi Arabia maintains a close economic relationship with the United States and other oil-consuming nations. The United States, followed by Japan, South Korea, and China, receives the majority of Saudi exports. In 2004 the United States was both the leading market for Saudi exports and the leading supplier of imports, as it had been in previous years. Japan also does significant business with Saudi Arabia. In addition to trade connections, the Saudi riyal is pegged to the U.S. dollar. Thus, when U.S. officials adjust monetary or fiscal policy, Saudi leaders typically follow suit.


Increasing demands for consumer goods in Saudi Arabia have driven up overall imports in the kingdom, a trend that is expected to continue for the foreseeable future. The total value of imported goods in 2006 is expected to increase from the estimated total of US$51 billion in 2005. The largest categories of imported goods are machinery and vehicles, which make up about 50 percent of all imports, as well as appliances, electrical equipment, sound and television apparatus, aircraft, and cars. The United States continues to be Saudi Arabia’s leading source of imports (13 percent in 2005). Imports from the United States include military equipment, machinery, foodstuffs, and transport equipment. European countries, including Germany, France, and Britain, are other leading suppliers.


Nearly 90 percent of Saudi exports are related to oil. Petrochemicals, plastics, construction materials (cement especially), and agricultural products make up the remainder of Saudi exports. Export earnings (mainly from oil and petroleum products) totaled an estimated US$175 billion in 2005. The value of exports is expected to increase in 2006, as increased production likely will offset any reduction in the price of oil. The United States and Japan receive the largest share of Saudi exported commodities?about 17 and 14 percent, respectively, of the 2005 total. Other primary destinations include South Korea, China, Singapore, and Taiwan.

Trade Balance:

Saudi Arabia annually produces a significant trade surplus. Even in the wake of the 1973 oil shock, revenues from exports exceeded the cost of imports. Saudi Arabia posted a trade surplus of nearly US$124 billion in 2005, almost solely the result of a banner year for oil production and prices.

Balance of Payments:

Saudi Arabia’s significant trade surplus in goods is offset by deficits in the exchange of services and investment. In contrast to the goods sector, Saudi Arabia annually experiences a trade deficit in the services sector. The Saudi Arabian Monetary Agency (SAMA) projects that the country will experience a deficit of US$35.8 billion for services and transfers in 2005. On average, Saudi Arabia spends about four times as much on importing foreign services as it receives from foreign entities purchasing Saudi services. Nevertheless, overall Saudi Arabia has enjoyed a positive balance of payments over the past few years. The country last recorded a negative balance of payments in 1998. For 2005 SAMA recorded a record US$90 billion current account balance.

External Debt:

In 2005 Saudi Arabia’s public debt was an estimated $38.78 billion, or approximately 11 percent of gross domestic product. Saudi Arabia maintains about US$27 billion in reserves of foreign exchange and gold.

Foreign Investment:

As a result of the improving climate for foreign investment in Saudi Arabia and sustained high oil prices, foreign direct investment has boomed since 2000. After years of rhetoric without substantial change, Saudi Arabia made its first real allowances to foreign investors with the Foreign Investment Act of 2000. The law guaranteed foreigners protection against Saudi nationalization of particular industries and reduced the income tax on foreigners. The Capital Market Law of 2003 created further opportunities, allowing for initial public offerings and denationalizing some industries. In 2004 Saudi Arabia received about US$300 million in foreign direct investment. According to the Saudi Arabian General Investment Authority (SAGIA), investment capital secured through investment licenses increased 787 percent in the first quarter of 2005 over the same quarter in 2004. Despite these advances, foreign investors have been hesitant to participate in Saudi ventures because of the long tradition of government interference in the marketplace, bureaucratic nuisances, and concerns about instability and terrorism. Moreover, the government continues to ban foreign investment in national defense or certain sectors with religious significance such as health and pilgrimage services.

The acceptance of foreign capital in Saudi Arabia has made it easier for foreign businesses to follow. Foreign companies, however, face a distinct disadvantage in terms of taxes. Saudi-owned businesses pay only the zakat (a 2.5 percent alms tax) on company assets and property while foreign-owned companies face a tax rate of up to 20 percent (or even as high as 80 percent in the hydrocarbon sector). Restrictions on the Saudi stock exchange have reinforced the government’s prominent role in economic development and discouraged foreign investors. The Saudi stock exchange is now partially open to foreign investors, but trading remains limited. Non-Gulf Cooperation Council citizens can only invest in Saudi Arabia’s equity market by purchasing mutual funds managed by Saudi banks. Foreign investment in the Saudi stock market probably will not become widespread until foreigners can purchase stocks and equities directly.

With the collapse, beginning in 1998, of the Saudi government’s National Gas Initiative, which sought to free up crude oil for export by locating new gas supplies to meet domestic needs, a distinct opportunity has emerged for foreign investors in the gas sector. International oil companies, including the U.S. firm Chevron Texaco, have been allowed to pursue a number of “upstream” gas development sites. Additionally, the Saudi government has recently opened the insurance, education, pipeline services, and mobile telephone sectors to foreign investment. The government also has tried, with limited success, to force its largest foreign investors to disperse their money more widely in the Saudi economy. The Saudi offset program mandates that companies with large military and, in some cases, commercial contracts invest a portion of their profits in Saudi industries.

Foreign Aid:

Saudi Arabia gives aid to less affluent nations, primarily Arab and other Muslim states. In 1974 a royal decree established the Saudi Fund for Development (SFD), which provides grants and loans to developing countries. Specifically, the SFD supports the export of non-crude-oil commodities by providing the financing to get such operations underway. According to the Saudi government, 68 different nations have been party to 369 SFD loan agreements. Saudi officials also claim that assistance to poor countries has at times reached as high as 6 percent of Saudi Arabia’s gross national product and that the country has given more than US$20 million to developing Islamic countries in the past 15 years.

Not surprisingly, Saudi Arabia has given more generously during times of high oil revenues. Since 2000, Saudi officials have earmarked the following aid packages: Palestine (US$307 million), Iraq (US$1 billion in loans and export guarantees, US$133 in grants), and Pakistan (US$153 million for earthquake recovery).

Currency and Exchange Rate:

Saudi Arabia’s currency, the riyal (SAR), is pegged to the U.S. dollar. Therefore, the rate in terms of U.S. value remains stable: SAR3.75=US$1.

Fiscal Year:

Saudi Arabia’s fiscal year coincides with the calendar year.

~Library of Congress, 2006~

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