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The Saudi Arabian economic environment is both beneficial and unfavorable to investors considering that the economic backbone of the region is the highly volatile oil and petroleum products. Research indicates that an estimated 75 percent of the budget revenue in Saudi Arabia is from the oil industry. About 40 percent of the Saudi Arabian Gross National Product results from oil-related activities and business transactions. Export surveys indicate that about 90 percent of Saudi Arabian export earnings are from the oil industry. The exploration and production of oil in Saudi Arabia has transformed the region into a key stakeholder regarding world petroleum reserves. The Saudi Arabian economy faces challenges due to the influence of governance policies, which promote a centralized control on most aspects of the economy. The over-dependence on oil in Saudi Arabia has hindered economic diversification, which is a crucial aspect for investors. The lack of a diversified economy introduces numerous risks to investors and minimizes the viability of potential business ventures in Saudi Arabia. The economy of Saudi Arabia often leads to currency overvaluation because of its over-reliance on exports. An overvalued currency has detrimental effects on the domestic price of imports and exports because it leads to distortion of price structures. Other unfavorable effects of currency overvaluation include the lack of balance between the demand and supply of foreign exchange.
An economic environment in which the government has considerable influence scares investors because sustainable markets function purely on the concept of market forces. Government policies and regulations introduce restrictions that eliminate equal opportunities for investors. The climate in most regions of Saudi Arabia includes hot summers and cold and rainy winters. The geographical location of Saudi Arabia provides easy access to the export market in various destinations. The continuously growing population in Saudi Arabia has helped to retain a population with the right purchasing power. Saudi Arabia has a variety of other natural resources apart from oil including bauxite, limestone and iron core. Saudi Arabia’s chief source of electric power is oil-powered diesel engines. Statistical evidence indicates that about 92 percent of Saudi Arabians have access to electric power. Technological development in Saudi Arabia is still developing considering. The various aspects of the implementation of policies on science and technological development are in the early stages in various sectors. Transportation in Saudi Arabia has undergone significant transformation to include extensive highways, modern airports, seaports and railroads.
About 10 percent of Saudi Arabians engage in agriculture with agriculture-related activities contributing to about 5 percent of Saudi Arabia’s GDP. Changes in agricultural preferences have led to a decline in the traditional growing of dates, and an increase in the growing of wheat, corn, sorghum, and a variety of fruits and vegetables. Although the key industries in Saudi Arabia are oil-based, there have been attempts to diversify manufacturing to include other industries such as cement and steel manufacturing. A significant percentage of the Saudi Arabian population lives in urban areas. While coastal regions and internal oasis have condensed populations, desert regions have spare populations. The Saudi Arabian GPD has been improving although at slow rate because of the influences of unstable global oil prices. The increase in household consumption highlights an improvement in purchasing power and improved per capita income. Remittances have led to fluctuating current account in Saudi Arabia and the devaluation of the region’s currency. Oil exports have considerably facilitated the stabilization of the current accounts. Expenditures on education in Saudi Arabia constitute about 10 percent of the GDP.