Economic crisis in Saudi Arabia – Stats that can’t be ignored
Saudi Arabia is well known for being among the wealthiest countries in the Middle East. Since 1984, the GDP of Saudi Arabia has grown over six times its initial value, much of which can be attributed to their petroleum and polymer exports.
Of course, oil naturally dominates the Saudi Arabian economy, acting as their primary source of revenue through the industrial sector and the backbone of the economy as a whole. The two most significant contributors to the Saudi Arabian GDP are their industrial and service sectors, which account for 47.4% and 50.4% of their GDP, respectively. However, 2020 proved to be a great struggle for the oil industry as countries that depended on this resource as a significant export experienced both a price war and the trials of the COVID-19 pandemic.
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Oil space drives whole industrial sector in the country
Saudi Arabia’s industrial sector is still primarily driven by the oil industry and employs 24.7% of the country’s workforce. A host of different circumstances brought about the oil price war of 2020. However, the COVID-19 pandemic was a significant contributor to the emergence of this conflict. The oil price has fluctuated dramatically by the surge of shale oil production in the United States, which forced many countries to work together to maintain the price at an economically healthy figure, including Russia and Saudi Arabia. Upon the outbreak of COVID-19, many countries worldwide took measures to reduce the effects of the virus on their healthcare systems. This included lowering things like travel and manufacturing, which are significant consumers of oil products. This incited a price war between Russia and Saudi Arabia. Ultimately, a price was negotiated, and this drop in demand forced a proportional drop in production which hurt the Saudi Arabian economy and caused the country to cut capital expenditures. However, after the pandemic subsides, likely, the oil sector will swiftly recuperate.
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GDP also get pressure from ‘service industries’
Although dependent on the health of the industrial sector, Saudi Arabia’s service sector holds a majority share of the country’s GDP and employs 73% of the country’s workforce. This encompasses insurance and banking services, which are closely related to oil production and therefore negatively affected by the pandemic and tourism services. As would be expected of a global pandemic, the tourism sector was shut down shortly after the outbreak as countries enacted travel bans and the Saudi Arabian government implemented their COVID-19 regulations. However, despite travel issues during the pandemic and the anticipated worldwide lag in the journey after COVID-19 subsides, tourism in Saudi Arabia is expected to bounce back relatively quickly. This is because Saudi Arabia is home to Mecca, a pilgrimage site for Muslims around the world.
Prediction is hard
It is difficult to say how the oil industry will weather in the near future. That being said, Saudi Arabia is expected to make economic recovery in 2021 and experience a 3.2% expansion after the contraction it withstood in 2020. This exhibits a positive outlook for Saudi Arabia and may indicate an optimistic future as it continues to develop and diversify its economy.
Predicting is very hard because OIL price was manipulated hard during the first pandemic wave. Watch video where CNBC Business team explained shortly why it's impossible to predict OIL prices in the future