Saudi Arabia is currently engaged in negotiations that will result in admission to the World Trade Organization (WTO). This report discusses the impact of WTO accession on the economy of Saudi Arabia. The benefits and negative effects are presented in the report. 1.
PROBLEMS AFFLICTING THE SAUDI ECONOMY
Lack of diversity in sources of GDP
Saudi Arabia: GDP growth since 1997
Lack of diversity in sources of GDP and budgetary revenues continues to impede Saudi economic development. Oil and oil derivatives make up around 90-95% of total Saudi export earnings, 75% of budget revenues and approximately 35-40% of GDP. The government decision in May 2001 to reduce applied tariff rates on most imports to 5% resulted in lower customs receipts accruing to the budget. Saudi Arabia has 260 billion barrels of proven oil reserves and up to 1 trillion barrels of ultimately recoverable oil. Saudi Arabia is one of the world's largest producers (currently slightly more than seven million barrels per day), exporters and holders of spare oil production (about 3 million barrels per day). Saudi Arabia's share of world oil production has declined from 17% in 1980 to approximately 9% currently. OPEC's decision to maintain production cuts in order to stabilize world oil prices in the $22 to $28 range, has restrained government oil revenues. Despite OPEC's current success in maintaining oil prices, the long-term price trend (and Saudi government oil revenues) will likely be downward, given rising non-OPEC production, more efficiency in usage, new technologies and conservation. Saudi policy makers must diversify the economy to reduce the domestic impact of oil price fluctuations. 1.2
Saudi Arabia faces serious pressures for job creation over the long term. Although unemployment data are generally not officially available, analysts estimate unemployment among Saudi males ranges from 14% to 20%. Saudi women, hired under strict gender segregation requirements, represent only 4-6% of the labor force, primarily in education, health care and banking. Currently, the large majority of workers in the private sector are foreign, numbering 5-6 million with most coming from South Asia, the Philippines and Africa. With nearly 40% of the population born after the 1990-91 Gulf War and approximately 70% under the age of 30, Saudi Arabia, like other affluent Gulf countries, has an enormous "youth bulge." The Saudi government and the private sector can only absorb about half of the 150,000-200,000 job seekers entering the marketplace annually. The Saudi economy, which needs to grow substantially faster than the more than 3% population growth rate to absorb the Saudi "youth bulge," must diversify and the non-oil sector must grow more rapidly. The government no longer has sufficient resources to act as employers of last resort or provide all the funding needed for basic infrastructure. The Saudization policy which was adopted to replace expatriate workers with qualified Saudi nationals has not achieved the desired results leading to the persistence of the unemployment problem.[2,7] 2.
The World Trade Organization (WTO) is an international organization dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. At the heart of the system known as the multilateral trading system are the WTO's agreements, negotiated and signed by a large majority of the world's trading nations, and ratified in their parliaments. These agreements are the legal ground-rules for international commerce. Essentially, they are contracts, guaranteeing member countries important trade rights. They also bind governments to keep their trade policies within agreed limits to everybody's benefit. 2.2
Saudi Arabia & the WTO
Saudi Arabia has been seeking to join the WTO since 1993. Saudi Arabia is currently the only Gulf...
References: 1. "Saudi Arabia admits Foreigners to the Fortress" Euromoney Aug. 2000 pp. 36.
6. Anonymous. "Enter the Saudis?" The Economist. London: May 17, 1997. Vol. 343, Iss. 8017; pp. 82-83.
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