At the present day, the economy of Saudi Arabia can be classified as revolutionized based on the radical changes experienced through the nation history. The paper intends to explore the history of the economic development of Saudi Arabia and explain how that path tells about its future. Until the 1930s when the oil was discovered, the economy of Saudi Arabia was solely characterized as subsistence agriculture with a large population of nomads and impoverished people.
The oil discovery became the first phase of the economic turnaround for the Saudis. For regulation the petroleum production Saudi Arabia formed the Organization of the Petroleum Exporting Countries (OPEC) with other well-established exporters including Kuwait, Iran, Iraq, and Venezuela composing their first five-year development plan in the year 1970 which has sequentially continued marking 2015 as the beginning of their tenth five-year plan. During 1973 oil crisis, Saudi Arabia embarked on a rapid growth hitting the climax around 1980 and at the time the country joined the fastest-growing economies globally.
From the 1970s to the current date the monarch government has channeled support to various diversification measures that have contributed to the economic development of the country. Some of the major changes happened in the different sectors include the employment, foreign investment, infrastructure, private sector, and trade. Most of the changes were contributed to the launch of the five-year development plans.
The appearance of these large development projects and capital became the verge point of the previously underdeveloped country into a contemporary state. It is important to outline these historical changes in a systematic manner for one to understand modern Saudi Arabia and the future for the development of its economy.
To begin with, the economy of Saudi Arabia lacked the manpower needed to exploit the oil industry. The potential that the oil industry indicated in the 1970s required large workforce to carry the technical and menial tasks. Since the country leadership did not provide the needed workforce, loads of foreign workers and expatriates were imported to help the country alleviate the deficit of ones. This contributed the private sector being dominated by foreign workers while the Saudi government employed most of the nationals. Over the years, the foreign workforce has continued to growth and so the unemployment of the Nationals continued to escalate.
With the five-year plans, the government realized that the country cannot deal with the industrialization without food and channel some of the resources to the domestic food production. The agriculture sector revived from the simple Arabia farming of keeping sheep, goats, and camels to reclaiming of dry lands through irrigation which has led to the observation of self-sufficiency in wheat, milk and eggs production. Water supply and poor soils remain one of the biggest challenges of the agricultural sector.
The government realized that the economic development requires vibrant manufacturing and finance sectors for the country to sprout into a modern state fully. The expansion of the manufacturing sector began in the late 1970s when Saudi Basic Industries Corporation was established. The aim was to develop petroleum-related industries where then rolled steel, fertilizers, copper wire and cable, and pipes manufacturers have emerged.
The establishment of Saudi Arabia Monetary Agency (SAMA) back in 1952 was needed for the Kingdom to regulate the both commercial and development banks among other financial institutions. SAMA was also mandated with controlling the stability of the national currency and managing the foreign investments and reserves.
The history of the economic development in Saudi Arabia can be summarized by the chronology of five-year plans. Through the first two five-year development plans the country emphasized on the growth of the infrastructure including the power generation, seaports, and highways. The third plan focused solely on education and other social services. The fourth plan still focused on education and training and encourage private enterprise, foreign development, and supporting joint venturing between private and public sectors.
The fifth wave of development plans focused on harmonizing the country defenses; improving the efficiency of social services, and increasing opportunities for the nationals while reducing the number of foreign workers. The sixth plan included reducing the cost of government services through diversification of the economic. The diversification of the economic was more emphasized in the seventh plan including bringing on board the private sector solely to create more jobs for the nationals.
Despite the economic development in the per capita, the population growth of the Nationals has dropped and is alarming among a number of young people. With the reluctance of the private sector to employ the Nationals, the unemployment rates are likely to increase in the future. Consequently, as the government tries to cover the employment demand for the national level, these may create an unmanageable wage bill in the future. However, with the coming waves of development plans the government working with the private sector can establish laws that will “Saudinize” the employment sector to absorb more nationals and reduce the foreign workforce.
The future of Saudi Arabia will rely mostly on technological innovation to drive the diversification process in ensuring the country does not deplete the oil reserves due to the overdependence of the economy on this sector. With well-tailored future development plans, the kingdom has the ability to adapt to dynamic changes happening both locally and internationally making even bigger economic development strides that those observed over the last nine development plans.