Tuesday, October 17, 2017

Economic Diversification

Economic Diversification Name: Institution: Course: Tutor: Date: 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 f 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 mproving the telecom sector of the IJAE.

Introduction to Saudi Arabia and its Economic development 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 ector 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 oreign 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 ctivities. 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 he oil boom in the world (Ugo and Iqbal, 2003).. Balance of trade refers to difference between the value of a countrys 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 2009 of about IJS$ 32638. 2 despite being the largest oil exporter.

This is because it imports machinery and equipment, food, chemicals and most basic commodities. However it has maintained surplus in all other years from 2000. The inflation rates in Saudi Arabia has been showing an upward trend from 2001 where it stood at 0. 31% to 11. 08% in 2008. However it gradually reduced to 5. 51% in 2010. Unemployment rate refers to the number of people in the labour market who are willing and able to work but remain unemployed. From the year 1999 to 2009, Saudi Arabia''s unemployment rate has been averaging at 10. 5% with its highest rate at 12%.

This is not a favorable trend in the economy as there is an upward trend. The decisions regarding interest rates are vested on the Saudi Arabian monetary agency (Ahmed, Abdullah, Monica and Rodney 012). Interest rate is the price of lending and borrowing and has been showing a diversification in Saudi Arabia Concentration ratios measures the output produced by a given number of firms in the industry. Common ratios applicable are the CR4 and CR8 which measures the market share of the four and eight largest firms respectively. They are used to show the extent of market control by the largest firms.

The diversification quotient is equal to the inverse of the concentration ratio and provides a numerical baseline through which countries can make future economic development decisions. A low concentration ration and a higher diversification quotient show a diversified economy. Concentration ratios are calculated as the percentage of market share of the largest companies in relation to the whole industry. A low concentration ration indicates high competition in the industry while a higher ratio indicates that the industry is dominated by the major companies.

Economic diversification of the GDP in 2005 has been estimated at 28% while the diversification quotient was at 3. 63. The growth in the non oil industries is having significant influence on their prices of oil. According to Diop, Marotta and World Bank (2012) this could lead to contagion effects which is the tendency of failure in one sector spilling over to other sectors. Using the estimates in 2005, 28% is relatively low showing that there is high competition among different sectors of the economy.

GDP by economic activity in (million of Saudi riyals) from 1995 - 2000 Sector/ Year 1995 1996 1997 1998 1999 2000 Agriculture , Forestry & Fishing 31,598 32,162 33,400 33,901 34,443 34,973 Mining & Quarrying 165,891 202,493 203,256 131,865 175,566 262,399 a) Crude Petroleum & Natural Gas 163,777 200,941 29,480 173,102 259,847 b) Other 2,114 2,172 2,315 2,385 2,464 2,552 Manufacturing 51,359 57,965 62,350 58,094 62,800 68,290 a) Petroleum Refining 17,014 18867 19,852 1 5,554 18,021 21,084 34,345 39,098 42,498 42,540 44,779 47,206 Electricity , Gas and Water 6,931 7,196 7,591 7,860 8,174 8,515 Construction 36,440 38841 39,027 40,314 41,724 Wholesale & Retail Trade, Restaurants & hotels 35,430 36,072 38,654 42,359 45,992 47,832 Transport , Storage & Communication 24,903 25,068 26,112 26,811 27,893 29,103 Finance , Insurance , Real Estate & Business Services 65,227 68,730 71,185 70,172 73824 6,204 a) Ownership of Dwellings 38,208 41 ,457 42417 40,757 42,221 43,056 b) Others 27,018 27,273 28,768 29,415 31,603 33,148 Community , Social & Personal Services 19,307 19,713 20,447 20864 21,377 22176 Imputed Bank Services Charge 10,461 10,860 11,523 12,340 13,334 Producers of Government Services 99,447 104093 117,640 115,918 116,789 119,123 Total 526,004 581,873 608,802 536,635 593,955 697,007 Import Duties 7,500 8,875 9,100 10,013 9,634 9,650 Gross Domestic Product 533,504 590,748 617,902 546,648 603,589 706,657 GDP by economic activity in (million of Saudi riyals) from 2001 2001 2002 003 2004 2005 35,708 36,101 36,454 - 2006 sector/ year 39,641 230,250 236,926 294,111 384,921 571,892 227,607 234,206 291 381 ,582 567,992 2,643 2,720 2,785 3,339 3,900 69,206 72,975 86,267 100,254 117,466 19,356 20,434 29,732 32,435 39,453 49,850 52,541 56,535 67,819 78,013 8,928 9ß03 9,870 16,055 16,753 44,739 47, 137 53,529 58,380 49,793 51 ,735 53,856 66,652 77,122 30,559 31,934 33,224 38,977 43,576 Finance , Insurance , Real Estate '' & Business Services 78,873 82,072 85,843 97,132 108,339 43,935 44,989 45,979 49,664 52,333 34,938 37,082 39,863 47,468 56,005 23,064 24,124 25,114 26,666 7877 13,991 14,714 1 5,244 16,740 123,589 124,486 139,929 1 55,371 176,350 679,163 699,680 796,561 961 ,458 7,133 7,386 8,087 8,825 10,115 686,296 707,067 804,648 970,283 GDP by economic activity in (million of Saudi riyals) from 2006 2006 2007 2008 2009 2010 2011 41,619 43,182 45,161 45,926 47,063 48,163 669,827 734,756 - 2011 Sector/ Year 608,783 821,228 665,276 729,361 601 ,593 813,147 4,550 5,394 6,339 7,189 8,081 8,767 135,471 1 54,959 175,100 174,600 218,171 252,003 43,710 46,691 45,975 46874 63,771 64,216 91,761 108,268 129,125 127,726 1 54,400 187,787 17,571 18,562 18,412 21 ,575 26,281

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