economic diversification

Topics: United Arab Emirates, Petroleum, Saudi Arabia Pages: 27 (2203 words) Published: December 4, 2013


Economic Diversification
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Introduction
In Middle East, the Saudi Arabia telecom industry is the largest with over fifty million mobile phone subscribers. At the end of 2011, the mobile penetration was about 188% with the sector enjoying stable growth. Saudi Arabia is the world’s largest oil exporter with oil being its largest income earner. However, to avoid the overreliance on the oil sector, the government of Saudi Arabia has been embarking on measures to diversify the economy through investments in other sectors as well as privatization of some industries. Their efforts have been successful and the telecommunication industry have benefitted from this diversification with a good growth rate which seems to be sustainable in the future. The United Arab Emirates on the other hand has had an unstable growth rate in their telecommunication industry. This paper compares the telecommunication industries of Saudi Arabia and United Arab Emirates and shows how economic diversification has been successful in growing the non oil sectors in Saudi Arabia. In addition, recommendations will be provided on improving the telecom sector of the UAE. Introduction to Saudi Arabia and its Economic development

Saudi Arabia occupies the largest part of Arabian Peninsula, it is located on a 1,960,582 sq km area most of it being a desert. Saudi Arabia hosts about twenty eight million citizens with more than 80% living in the urban areas. 90% of its citizens are Muslim Arabs (Saudi Arabia, 2001). Saudi Arabia hosts Median and Mecca which are the holiest cities of Islam. Saudi Arabia enjoys an oil based economy with the government controlling the major economic activities in that although private entrepreneurs exist, they are heavily regulated by the government. Its petroleum sector accounts for about 55% of its GDP and around 45% of the budget revenues. 40% of its GDP comes from the private sector (IMF. 2009). The labour force comprises more than five million foreigners who work mostly in the oil and service sectors. However their government of Saudi Arabia has been in the front line in encouraging the development and the growth of the private sectors to avoid overreliance on Oil as well as to broaden the employment opportunities for its increasing population (Elbadawi, Ibrahim and Loayza. 2008). It is doing this through permitting private and foreign investments in power generation and telecommunication sectors. One of its efforts to attract direct foreign investments and continue diversifying the economy was through joining the WTO in 2005 (Ramady, 2010). Saudi Arabia’s macroeconomic performance

The kingdom of Saudi Arabia has managed to recover from the global financial crisis of 2008 and its GDP has grown from below 1% in 2009 (IMF. 2009) This has been driven majorly by public initiatives and ambitious spending by its government. Saudi Arabia economy is mainly oil based with government controls on major economic activities. The petroleum sector accounts for about 45 % of the GDP and 90% of its exports. The economy is dependent on about six million foreign labour force. It has been a member of the world trade organization mainly to attract foreign investment. Key sectors to its economy include energy, agriculture and fishing, transport and communication, Finance, real estate and businesses, wholesale and retail trade among others (Looney, 2006). The current GDP per capita in the kingdom of Saudi Arabia increased with world breaking records of 1858% in the 1970s largely due to the oil boom in the world (Ugo and Iqbal, 2003).. Balance of trade refers to difference between the value of a country’s exports and imports. A trade surplus occurs when this difference is positive, meaning that the exports are larger than the imports. A trade deficit occurs when the value of imports are greater than the exports. In Saudi Arabia a trade deficit was experienced in...

References: Ahmed A, Abdullah A, Monica M and Rodney W, (2012) Economic Development in Saudi Arabia, Routledge, 2012.
Al-Khatib, M.A., 2011, “The Impact of Economic Diversification on the Saudi Non-oil Economy Arab Journal of Administrative Sciences, Vol 18 (2).
Diop, N., Marotta, D., De, M. J., & World Bank. (2012). Natural resource abundance, growth and diversification in MENA: The effects of natural resources and the role of policies. Washington, DC: World Bank.
Elbadawi, Ibrahim and Norman Loayza. 2008. “Informality, Employment and Economic Development in the Arab World,” Journal of Development and Economic Policies; Vol. 2,No. 2, July: p. 27-75.
IMF. 2009. Regional Economic Outlook: Middle East and Central Asia. The International
Monetary Fund, Washington DC: October.
Looney, R. E. (2006). Economic Development in Saudi Arabia: Consequences of the oil price decline. Greenwich, CT: Jai Press.
Ramady, M. A. (2010). The Saudi Arabian economy. New York: Springer.
Saudi Arabia. (2001). Kingdom of Saudi Arabia: The march of progress. Riyadh: Ministery.
Ugo, F., & Iqbal, Z. (2003). GCC Countries: From Oil Dependance to Diversification. International Monetary Fund.
United arab emirates yearbook. (2006). London: Trident Press.
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