Saudi Arabia has a high-income developing economy highly reliant on its petroleum sector. Oil and gas account for approximately 22.3% of Saudi GDP and 55% of government revenue, with substantial fluctuations depending on oil prices each year.
The kingdom has the second-largest proven petroleum reserves, and the fourth-largest measured natural gas reserves. Saudi Arabia is currently the largest exporter of petroleum in the world. Other major parts of the economy include refining and chemical manufacturing from the oil reserves, much of which is vertically integrated in the state-owned enterprise, Saudi Aramco. Saudi Arabia is a founding member of the OPEC cartel.
In 2016, the Saudi government launched its Saudi Vision 2030 program to reduce its dependency on oil and diversify its economic resources. By 2022, Saudi Arabia had only modestly reduced its dependence on oil. Monetary policy in Saudi Arabia is anchored by the fixed exchange rate of the Saudi riyal to the U.S. dollar. Nearly every major business in Saudi Arabia has extensive ties to the Saudi State.
Economic overview Saudi oil reserves are the second largest in the world (after Venezuelan oil reserves), and Saudi Arabia is the world's leading oil exporter and second-largest oil producer. Proven reserves, according to figures provided by the Saudi government, are estimated to be , which is about one-quarter of the world oil reserves. Petroleum in Saudi Arabia is not only plentiful but also located under pressure close to the earth's surface, which makes it less expensive and more profitable to extract compared to other places.Tripp, Culture Shock, 2003: p.113 The petroleum sector accounts for roughly 87% of Saudi budget revenues, 90% of export earnings, and 42% of GDP. Saudi Arabia's oil reserves and production are largely managed by the state-owned corporation Saudi Aramco.
Another 40% of the GDP comes from the private sector. An estimated 7.5 (2013) million foreigners work legally in Saudi Arabia and play a crucial role in developing the Saudi economy, for example in the oil and service sectors. The government has been encouraging the growth of the private sector for many years to decrease the kingdom's dependence on oil and to increase employment opportunities for the swelling Saudi population. In recent decades, the government started allowing private sector activity and foreign investor participation in certain sectors, such as power generation and telecommunications, and acceded to the World Trade Organization. During much of the 2000s, high oil pricesTripp, Culture Shock, 2009: p. vii allowed the government to post budget surpluses and boost spending on job training and education, infrastructure development, and government salaries.
With its absolute monarchy, large state sector, and supply of welfare benefits, the Saudi economy has been described asː
The following table shows the main economic indicators in 1980–2021 (with IMF staff estimates in 2022–2027). Inflation under 5% is in green. YearGDP (in billion Int$ PPP)GDP per capita (in Int$ PPP)GDP (in billion US$ nominal)GDP per capita (in US$ nominal)GDP growth (real)Inflation rate (in percent)Unemployment (in percent)Gov. debt (in % of GDP)1980418.144,859.5164.517,655.15.7%4.4%n/an/a1981466.547,671.8184.318,832.11.9%3.6%n/an/a1982392.738,212.2153.214,912.7-20.7%1.9%n/an/a1983342.531,746.0129.211,972.2-16.1%0.6%n/an/a1984338.429,864.0119.610,558.7-4.7%-0.7%n/an/a1985314.926,466.2103.98,732.8-9.8%-2.3%n/an/a1986375.930,086.786.96,955.117.0%-3.1%n/an/a1987359.627,414.185.66,524.2-6.6%-2.4%n/an/a1988421.130,571.488.16,398.813.1%-0.4%n/an/a1989435.430,103.895.26,583.3-0.5%1.2%n/an/a1990520.334,260.8117.57,735.015.2%-1.1%n/an/a1991618.738,793.7132.08,280.215.0%3.9%n/a39.4%1992658.038,823.1136.98,077.74.0%-1.0%n/a47.8%1993664.438,455.7132.87,686.0-1.4%1.2%n/a58.6%1994682.438,550.2135.07,626.40.6%1.4%n/a67.9%1995698.238,497.0143.27,893.40.2%5.1%n/a74.2%1996729.739,271.8158.58,527.72.6%0.3%n/a75.2%1997750.539,422.1165.78,706.31.1%-0.2%n/a76.7%1998780.940,036.4146.87,525.32.9%-0.4%n/a101.5%1999762.138,136.5161.78,092.7-3.8%-2.1%4.3%103.0%2000823.240,207.4189.59,256.55.6%-1.0%4.6%86.7%2001831.539,642.3184.18,778.4-1.2%-1.1%4.6%93.1%2002820.738,187.7189.68,822.5-2.8%0.1%5.3%96.4%2003931.042,278.8215.89,800.511.2%0.5%5.6%81.6%20041,032.145,739.0258.711,467.18.0%0.3%5.8%62.9%20051,123.748,168.2328.214,068.25.6%0.6%6.1%37.3%20061,190.749,362.7376.415,604.02.8%1.9%6.3%25.8%20071,245.549,936.8415.716,666.61.8%5.0%5.6%17.1%20081,348.752,301.7519.820,157.36.3%6.1%5.2%12.1%20091,329.449,863.3429.116,094.7-2.1%4.3%5.4%14.0%20101,413.251,270.0528.219,163.35.0%3.7%5.5%8.4%20111,586.755,918.0671.223,654.910.0%3.7%5.8%5.4%20121,672.557,284.5736.025,208.25.4%2.9%5.5%3.0%20131,680.256,015.9746.624,893.02.7%3.5%5.6%2.1%20141,722.956,785.5756.424,929.33.7%2.2%5.7%1.6%20151,541.849,637.2654.321,063.34.1%1.2%5.6%5.8%20161,475.746,422.9644.920,288.91.7%2.1%5.6%13.1%20171,565.948,014.6688.621,114.0-0.7%-0.8%6.0%17.2%20181,643.649,189.7816.624,438.52.5%2.5%6.0%18.3%20191,678.649,055.7803.623,485.10.3%-2.1%5.7%22.5%20201,628.546,511.7703.420,088.5-4.1%3.4%7.4%32.4%20211,751.249,386.2833.523,507.33.2%3.1%6.7%30.0%20222,018.355,802.31,010.627,941.57.6%2.7%n/a24.8%20232,166.958,736.3996.427,008.83.7%2.2%n/a25.1%20242,277.160,513.71,016.727,018.72.9%2.0%n/a24.6%20252,386.662,180.31,044.227,206.42.9%2.0%n/a24.0%20262,503.763,953.21,077.627,525.02.9%2.0%n/a23.2%20272,629.465,847.11,116.127,950.03.0%2.0%n/a22.4%
History
Oil, petroleum and gas
Saudi Arabia was a subsistence economy until the 1930s. In 1933, the Saudi government signed an oil concession agreement with the Standard Oil Company of California; five years later, commercial volumes of oil were discovered in the kingdom. The development of oil fields continued in Saudi Arabia, managed mainly by Arabian American Oil Company (Aramco), a company formed by the partnership of Texaco and Chevron. In 1951, the first offshore field in the Middle East was established by Aramco at Raʾs Al-Saffāniyyah area. By 1949, Saudi oil production reached 500,000 barrels per day (bpd) and rose rapidly to 1 million bpd in 1954. Moreover, in 1951, Aramco started operating the Trans-Arabian Pipeline that moved oil from the eastern region of Saudi Arabia to the Mediterranean Sea through Jordan, Syria, and Lebanon. However, in 1981, this line was no longer used after a new line began operations that linked Jubail on the Persian Gulf and Yanbu on the Red Sea. The new pipe contributed greatly to speed up oil transport.
In 1960, OPEC was established, with Saudi Arabia as one of its founding members. During the 1973 oil crisis, the price of oil rose from $3 per barrel to nearly $12, and the Saudi economy started growing rapidly,Tripp, Culture Shock, 2009: p. vi with GDP increasing from approximately $15 billion in 1973 to almost $184 billion by 1981. After gradually purchasing Aramco assets, the Saudi government nationalized the company in 1980. In 1988, Saudi Aramco was established to take over the responsibilities of Aramco.
In 1980, the price of oil peaked, and demand started decreasing as a result of recessions in industrialized nations and more efficient oil use, which produced surpluses. This created a worldwide oil glut, with the price of oil dropping from approximately $36 per barrel in 1980 to approximately $14 by 1986. Saudi oil production, which had increased to almost per day during 1980–81, fell 80% to about in 1985. Budgetary deficits developed, and the government drew down its foreign assets.GDP per capita (PPP) shrunk by 0.8% on average during the 1980s, grew 2.1% during the 1990s and 4.4% during the 2000s. (source: GDP (PPP) per capita trend during 1980–2010) Annual imports grew 44% on average during the 1970s, but shrunk 1.9% during the 1980s, grew again 2.4% during the 1990s and 14% during the 2000s.(source: Saudi Arabian imports grew 14% during the 2000s ) As a result of the oil glut and the pressure from declines in production, after 1985 Saudi Arabia started enforcing production quotas more harshly for the OPEC members.
In June 1993, Saudi Aramco absorbed the state marketing and refining company (SAMAREC), becoming the world's largest fully integrated oil company. Most Saudi oil is exported by tankers from oil terminals at Ras Tanura and Ju'aymah in the Persian Gulf.
In the 1990s, Saudi Arabia experienced a significant contraction of oil revenues combined with a high rate of population growth. Per capita income fell from a high of $11,700 at the height of the oil boom in 1981 to $6,300 in 1998. Taking into account the impact of the real oil price changes on the kingdom's real gross domestic income, the real command-basis GDP was computed to be 330.381 billion 1999 USD in 2010. Increases in oil prices in the early 2000s helped boost per capita GDP to $ in 2007 dollars (about $7,400 adjusted for inflation), but have declined since oil price drop in mid-2014.
However, beginning in late 1997, Saudi Arabia again faced the challenge of low oil prices. Because of a combination of factors—the East Asian economic crises, a warm winter in the West caused by El Niño, and an increase in non-OPEC oil production—demand for oil decreased and pulled oil prices down by more than one-third.
Saudi Arabia was a key player in coordinating the successful 1999 campaign of OPEC and other oil-producing countries to raise the oil price to its highest level since the (Persian) Gulf War by managing petroleum supply and production. That same year, Saudi Arabia established the Supreme Economic Council to formulate and better coordinate economic development policies to accelerate institutional and industrial reforms.
Saudi Arabia joined the World Trade Organization (WTO) in 2005 after many years of negotiations.
Foreign investment Before 2000, there were strict limits placed on foreign direct investment in Saudi Arabia. The 1979 Foreign Investment Act prohibited foreign ownership in some sectors of the economy, allowed foreign investment only if the investor qualified for a license based on their expertise, and gave priority to businesses that were Saudi-owned or partially Saudi-owned.
However, in the mid-1990s, foreign ownership rules were relaxed, with investment sought in telecommunications, utilities, and financial services.Tripp, Culture Shock, 2009: p. 225 The 2000 Foreign Direct Investment Act made substantial changes to the rules on foreign investment, including allowing projects to be run by 100% foreign-owned companies for the first time.
According to UNCTAD's June 2018 report, Saudi Arabia's foreign direct investment was only $1.4 billion in 2017, down from $7.5 billion the year before and as much as $12.2 billion in 2012. The fall in investment is attributed to negative intra-company loans by foreign multinationals and various divestments. In the first quarter of 2018, net capital outflows were running at approximately 5% of GDP, compared to less than 2% of GDP in late 2016. However, according to a report published in Trading Economics, in the second quarter of 2018, foreign direct investment in the country raised by $882 million. Moreover, SAGIA's data indicate that licenses provided to foreign investment increased by 130% in the first quarter of 2018 as a result of reforms in the economy.
As Saudi oil income declined in the late 2010s, the kingdom's international debt soared. In December 2018, Saudi Arabia announced it would be issuing bonds worth approximately 120 billion riyals ($32 billion) to cover its 4.2% GDP deficit of 131 billion riyals. In January 2019, the kingdom sold bonds worth $7.5 billion. In almost two and a half years, bonds worth $60 billion were sold by Saudi, which became one of the biggest borrowers globally.