Saudi Arabia - International Spotlight

Saudi Arabia

Saudi Araljia is a large country in the Middle East cover- ing 856,000 square miles. The country borders the Persian Gulf to the north and the Red Sea to the south. About one-fifth the size,of the United Statos, its natural resouraes include petroleum and natural gas (among the largest in the world), iron ore, gold, and copper. The two major holy cities of Islam are in Saudi Aratria: Mecca and Medina.l?5

With just ovar 2'l million people, Saudi Arabia is almost entirely Arab Muslim (approximately 90 percent Sunni and 10 percent Shia). The county's population growth rate is estimated at 1.46 percent. Additionally, the counfy's population is overwhelrningly (approximately 90 percent) yourger than 55 years of age. According to U.N. reports, 30 percent of the country's population con- sists of immigrants.r26

The country's GDP in 2014 was tlS$746 bi11ion.127 From 2011 through 2013, annual GDP growth plummeted from 1"0 percent to 2.7 percent. With low oil prices world- wide, Saudi Arabia's GDP growth remains stunted at about 3.5 perceni.128

Saudi Arabia operates its government as a monarchy, wherein the king makes all important official decisions. The king appoints ministers who act as his advisers. In 2011, women were granted the right to vote and run for seats in municipal elections, though gender oppression is still commonplace and integrated into the legal system. The country's laws are based on Islamic 1aw with some Western elements incorporated. For many years, Saudi Arabia has enjoyed favorable relationships with many Western nations. As it is a large exporter of fossil fuel, Western natioRs are somewhat dependent on maintaining civility with the Saudis despite alleged human rights vio- Jations. In recent years, however, the Saudi monarchy and royal family have been suspected of aiding terrorism efforts, leading ,to somewhat strained relations with countries in Europe and the U.S.12e

The government maintains strong conffols over the coun- try's economy, which is highly reliant on extraction and production of oil and gas. It is the largest exporter of petro- leum, is the leada of the Organization of Petroleum Export- ing Countries (OPEC), and accounts for approximately

16 percent of prwen petroleum r€serves. Forergn workers play a vital role in the economy, with more than 6 million expatriates empioyed in a variety of industries, especial$ construction afid manufacturing. The govemment is making efforts to diversify its economy by growing ihe private sec- tor and by seeking to employ more nationals, balancing the workforce.l3o

As oi1 prices have plummeted, in recent years due to a variety of factors, Saudi Arabia and ihe other OPEC coun- tries have been keeping outprt levels relatively high, resulting in'huge losses. While the country can cover the deticits for the time being, a prolonged period of low oil demand could have devastati*g effects on the economic health of the country.lsl

You Be the lnternatianal Management Consultant

As oil prices ,continue to drop, Saudi Arabia is actively seeking foreign investors to come into the country, espe- cially in sectors such as kansportation, health care, tour- ism, and building materials. The country has also opened the retail sector to companies seeking complete ownership of their business, negating the need forjoint venture part- nerships. The Saudi officials courting foreign lnvestors say that, despite falling oil prices, the countryls other sec- tors are still growing and provide excellent investment opportunities. Moreover, officials have said they are will- ing to discuss modifying any rule or regulation that might impede investment by a major fcreign company.l32 .

Questions

1. Given that the country is actively seeking foreign irwestors and appears to be creating a pro-business atmosphere, what non-oil businesses do you think would be best suited for expanding into Saudi Arabia?

2. If you were a foreign investor, what concerns would you have about the country? Wbuld you make an investment in the countrv?

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