Saudi Arabia can be characterized in three ways; as a fiercely independent Arabic country; as the home to the two holiest Muslim sites; and as the largest producer of oil in the world. Economically, it is the oil that has turned this desert nation into one of the richest on earth.
Saudi Arabia has a population of 28m and a GDP of $564 billion in 2007, according to the CIA World Factbook, making it the twenty fourth biggest by both nominal and PPP GDP.
Historically, the desert area that makes up most of Saudi Arabia has been home to nomadic Bedouin arab tribes. It was the birthplace of the Prophet Muhamed, and therefore of Islam. It contains the two holiest cities of the Muslims, at Medina and Mecca. From 1902 till 1932, the House of Saud waged a campaign to unify the tribes of the peninsula against the colonial powers of Britain and France, leading to the successful creating of Saudi Arabia. It has maintained its independence since, with the House of Saud forming it royal family and taking the official title of Custodian of the Two Holy Mosques.
Not long after independence, American geologists discovered oil, although large scale production did not start until after World War II. American and Saudi interests have been closely tied since.
Saudi Arabia is the largest oil producing country in the world. It possesses more than 20 per cent of the world’s proven oil reserves and plays the leading role in OPEC, the Organisation of Petroleum Exporting Countries.
The Saudi Arabian economy is totally driven by oil. It accounts for 90 per cent of export earnings and 45 per cent of GDP. 40 per cent of GDP is generated by the private sector, with non-oil manufacturing making up a further 10 per cent.
More than 95 per cent of oil is produced by Saudi Aramco, the national oil company that experts estimate to be the largest company in the world by revenues, thanks to booming oil prices. Historically the country has been adversely affected by swings in oil prices, both as a result of uncertainty when supply gluts took place such as in the eighties, or from the unwanted negative attention caused by pricing prices. Saudi Arabia has therefore steered OPEC towards seeking price stability, accepting the central role of production quotas in 1985.
The government would like to use oil proceeds to diversify and develop the relatively backward non-oil sectors of the economy. Although their goals have not been met, there has been considerable progress in recent years.
Many sons of prominent Saudis have been sent to study in the west, and they have brought back western economic ideas which they are attempting to implement within the context of their extremely conservative religious society. The country is largely dependent on foreign workers, with some 5.5m currently in the country.
In a bid to encourage more foreign investment into the country, the Saudis set up the Saudi Arabian General Investment Authority in 2000. However the government continues to restrict certain industries. As part of ongoing reforms, the country also joined the World Trade Organization (WTO) in December 2005.
All of these activities have helped the economy to average over 5 per cent growth in the last few years, and this pace could increase with the current rise in demand for petroleum and derivative products. Saudi Arabians are increasingly active as investors in other countries, and this should help add growth momentum.
Major challenges on that path include aquifer depletion and the rising costs of water supply, continued dependence on petroleum and political instability in the Middle East. Demographics are also a concern. With 40% of the population 15 years or old or younger, and with low education levels and high unemployment in much of the country, there is the potential for much social unrest.