Issue of Productivity in Saudi Arabia

Issue of Productivity in Saudi Arabia

Productivity refers to the ratio between output volume and the volume of the inputs. It measures how efficient production inputs like labor and capital are being used in the economy to produce the specific level of the output. Productivity is regarded as the vital source of economic growth and competitiveness, which makes it forms the necessary statistical information for most of the international comparisons and performance assessments of the country. For instance, productivity data can help in investigating the influence of the product and the labor market regulations on economic performance. Productivity growth constitutes the essential elements for modeling the productive capacity of the economies (Kouchi, Nezhad & Kiani, 2018). Besides, it allows the analysts to determine the capacity utilization that also allows one to gauge the position of the economies in the business cycle and forecast the economic growth. The production capacity also assists in assessing demand and inflationary pressures. For that matter, this project had the critical purpose of preparing the summary report on the issue of productivity within Saudi Arabia Country. This report aims at highlighting the problems of the richness within Saudi Arabia by discussing the trend in productivity and highlighting factors that have led to changes to the productivity within the country.  It also aims at indicating the way those trends in productivity have influenced the economic performance and competitiveness as well as suggest the ways Saudi Arabia nation should address this issue.

The trend in productivity in Saudi Arabia

This summary report on the productivity of Saudi Arabia is being prepared at the time of change in the Kingdom. After the surge in the prosperity with the last decade, the Saudi Arabian economy is at the transition point whereby real opportunity for the country to inject the new dynamism into the marketplace using the productivity and the investment-led transformation that will assist in ensuring future growth, employment, as well as prosperity for all the Saudis (El Mallakh, 2015). Saudi Arabian’s economy is among the largest around the world, and one of the least understood. Within the decade from 2003-2013, Saudi’s economy almost doubled in size based on the protracted boom in oil.

Within that period, the country underwent significant modernization, which led to prosperity and the change to Saudi society. The households‘ income among the Saudi nationals after adjustment for the inflation grew by around 75% during those ten years. The country was also able to create 1.7 million jobs, and it invested $450 billion in education, infrastructure, and health to boost the living standards as well as improve quality of life. Saudi’s growth model, which dependent on oil exports and public-sector spending, is a recurrent subject for more than 20 years for Saudi Arabia and international economists. Most of these people argue that the economy should not diversify away from the oil so that it can ensure sustainability (Alshehry & Belloumi, 2015). Most of the government’s five-year plans for developments have outlined the diversification as the priority objective. Currently, attaining such a goal has been essential

Factors contributing to changes to productivity in Saudi Arabia

A comprehensive model has been designed to examine the implications of the changing internal and external conditions. This model integrates the Saudi’s economic, labor market, and public finance perspectives. It proposes that Saudi Arabia may experience rapid economic deterioration within the next 15 years based on the current trends. Whether the government was to react by freezing the public spending or the intervening in the labor market, the household income could make nonetheless likely to fall, the unemployment could rise, and they will form the growing fiscal strain (Altaee, Al-Jafari & Khalid, 2016). The outcomes are never forgone conclusions. Saudi Arabia could also inject the new dynamism into its economy through the productivity-led transformation. It will mean implying significant reforms in the labor market, incorporating the business regulations, as well as management of the fiscal matters.

All these factors will call for the intrinsic potential of the non-oil economy. If these factors are implemented successfully, then the reforms would usher the new cycle of prosperity for Saudi Arabia. The transition needed for Saudi Arabia to adapt to these reforms and realize its potential may never be easy. Saudi Arabia will require the shift from the present government-led economic and the social model to the more market-based approach, which brings the country in line with the modern economies (Mezghani & Haddad, 2017). For the analysis and the conclusions, the focus has been purely on the economic factors while it is conscious that security and the politics of this region could affect the potential transition.

Within that period, the country underwent significant modernization, which led to prosperity and the change to Saudi society. The households’ income among the Saudi nationals after adjustment for the inflation grew by around 75% during those ten years. The country was also able to create 1.7 million jobs, and it invested $450 billion in education, infrastructure, and health to assist boost the living standards as well as improve quality of life (Wright Jr, 2016). Saudi’s growth model, which dependent on oil exports and public-sector spending, is a recurrent subject for more than 20 years for Saudi Arabia and international economists. Most of these people argue that the economy should not diversify away from the oil so that it can ensure sustainability. Most of the government’s five-year plans for developments have outlined the diversification as the priority objective. Currently, attaining such a goal has been essential.

It proposes that Saudi Arabia may experience rapid economic deterioration within the next 15 years based on the current trends. Whether the government was to react by freezing the public spending or the intervening in the labor market, the household income could be nonetheless likely to fall, the unemployment could rise, and they will form the growing fiscal strain. The outcomes are never forgone conclusions. Saudi Arabia could also inject the new dynamism into its economy through the productivity-led transformation. It will mean implying significant reforms in the labor market, incorporating the business regulations, as well as management of the fiscal matters.

All these factors will call for the intrinsic potential of the non-oil economy. If these factors are implemented successfully, then the reforms would usher the new cycle of prosperity for Saudi Arabia. The transition needed for Saudi Arabia to adapt to these reforms and realize its potential may never be easy. Saudi Arabia will require the shift from the present government-led economic and the social model to the more market-based approach, which brings the country in line with the modern economies. For the analysis and the conclusions, the focus has been purely on the economic factors while it is conscious that security and the politics of this region could affect the potential transition.

How trends in productivity have impacted economic performance and competitiveness in Saudi Arabia

The Saudi economy moved up from its position of 27^th most significant around the world to 2003 when it became the 19^th A comprehensive model has been designed to examine the implications of the changing internal and the external conditions. This model integrates the Saudi’s economic, labor market, and public finance perspectives. It proposes that Saudi Arabia may experience rapid economic deterioration within the next 15 years based on the current trends. Whether the government was to react by freezing the public spending or the intervening in the labor market, the household income could make nonetheless likely to fall, the unemployment could rise, and they will form the growing fiscal strain. The outcomes are never forgone conclusions. Saudi Arabia could also inject the new dynamism into its economy through the productivity-led transformation. It will mean implying significant reforms in the labor market, incorporating the business regulations, as well as management of the fiscal matters.

The living standards among Saudi Arabians have improved substantially over these decades. The revenues earned from the oil exports have supported the growth strongly in the income per capita of the country as it also introduces the volatility. Conversely, the development is composed of more elements than just the more significant profit. Saudi Arabia has improved on the Human Development Index (HDI), which reflects a higher life expectancy with broad access to education. Oil is like to remain valuable for the foreseeable future of Saudi Arabian with the substantial reserves of fat that are remaining.

Saudi Arabia is the largest oil exporter around the world, and it derives around 90% of the government revenues from oil. The country experienced a sharp increase in the oil prices that went up from $30 per barrel in 2003 to a sustained peak of $110 for every barrel in 2011-2013 before it could drop back in 2014. This sharp rise in the oil prices to the peak fueled the doubling of the country’s GDP within that decade. Saudi Arabia has been the rare exception during the growing indebtedness among the leading developed and emerging economies from the 2008 financial crisis. The nation eliminated the national debt as well as increased the reserve assets up to $732 billion, which is equivalent to around 100% of the GDP in 2014.

For the households of Saudi Arabia, the decade demonstrated the rising prosperity with the average incomes per household rising by 75% within ten years. It was mainly driven by the public sector that employed over two-thirds of all the Saudi workers. The public sector also grew by over 1 million employees within this boom decade. Considering the economy of Saudi Arabia as a whole, the country created 4.4 million job avenues that the Saudis occupied 1.7 million of those jobs. The state also experienced a sizeable increase in free social transfers. Notably, the new unemployment benefit schemes were launched in 2011 as the country developed the welfare condition during that booming decade.  The share of income for the households that were coming from the government through the public sector wages or social transfers during this period also rose from two-thirds to around 80%.

The household figures were only applicable to the Saudi nationals but not to growing numbers of the non-Saudi migrant laborers who were mostly from South Asia. The foreign workers, together with their families, formed were on fixed short-term contracts that constitute the on-third of the population. The increase in the number of these foreign workers contributed to a 36% increase in the community of Saudi Arabia from 22 million, which grew to 30 million.

The Saudi government also used revenue from oil to invest in different developmental priorities. The public spending experienced a quadrupled expenditure within that period, and around $450 billion of the federal capital investment were deployed in the programs to enhance the education, social welfare, health, infrastructure, as well as transport. The public projects involved the new financial district situated in Riyadh, along with King Abdullah Economic City located on the Red Sea (Kouchi, Nezhad & Kiani, 2018). Those projects also included the new universities, new metro transit lines, and the 81 new hospitals. The physicians’ numbers also doubled, with the drop in infant mortality by two-thirds, while the life expectancy in Saudi Arabia has increased by around seven years to 76 years, which is higher than Turkey, China, and Hungary. The education within the country currently accounts for about 25% of the government spending, and approximately 60% of every age cohort is registered for tertiary education, which is the portion that is the same as the case with Germany and France.

Unfortunately, the country did not spend all its investment productively or produced the desired outcomes. The general education quality of Saudi Arabia remains low. The schoolchildren of Saudi Arabia score poorly in the international comparative tests, and the rate of the university dropout is around 50%. Some of the country’s infrastructure spending has been clouded by the long delays and the budget overruns for the large prestige projects (Khursheed, 2015. For instance, in the healthcare sector, Saudi Arabia has the highest prevalence of obesity and diabetes around the world, which all the new hospitals and the high number of physicians have not managed to reduce.

Approximately 80% of the country’s population lives in the cities, which creates the urbanization degree that is larger than some of the Western European nations. MGI research indicates that vibrant cities are the major key driving factors in economic growth. For that matter, the high degree of urbanization of Saudi Arabia is considered an asset. A number of the urban activity has been concentrated on five main large metropolitan clusters whereby Jeddah-Mecca-Taif situated in the Red Sea forms the largest with a population of 7 million individuals while Riyadh, which is the capital, has the population of 6 million individuals.

The number of women of Saudi Arabia participating in the country’s workforce has increased, albeit from the low base, and attained 1.2 million in 2014. It doubled the number of women in the workforce in 2013. The women of Saudi Arabia have experienced their fastest job growth emanating from the private sector with partial government drive that made the push to ensure that women get into specific kinds of employment like retail. Conversely, the female unemployment totals to 33% and participants women rate of 15% for youths and 35% of senior adults (Kouchi, Nezhad & Kiani, 2018). This unemployment rate of the women within the country is still lagging behind that of the adult men in Saudi Arabia of 65%. The restrictions on the mixed-gender work settings and the female drivers impose unique challenges and barriers to raising female participation and employment. This limited women’s role within the labor force of Saudi Arabia is not a unique aspect.

How Saudi Arabia should best address the issue of productivity

Productivity involves the ratio between output volume and the volume of the inputs. It measures how efficient production inputs like labor and capital are being used in the economy to produce the specific level of the output. Productivity is regarded as the vital source of economic growth and competitiveness, which makes it forms the necessary statistical information for most of the international comparisons and performance assessments of the country. For instance, productivity data can help in investigating the influence of the product and the labor market regulations on economic performance. Productivity growth constitutes the essential elements for modeling the productive capacity of the economies.

Besides, it allows the analysts to determine the capacity utilization that also allows one to gauge the position of the economies in the business cycle and forecast the economic growth. The production capacity also assists in assessing demand and inflationary pressures. For that matter, this project had the critical purpose of preparing the summary report on the issue of productivity within Saudi Arabia Country (Khorsheed, 2015). This report aims at highlighting the problems of the richness within Saudi Arabia by discussing the trend in productivity and highlighting factors that have led to changes to the productivity within the country.  It also aims at indicating the way those trends in productivity have influenced the economic performance and competitiveness as well as suggest the ways Saudi Arabia nation should address this issue.

This summary report on the productivity of Saudi Arabia is being prepared at the time of change in the Kingdom. After the surge in the prosperity with the last decade, the Saudi Arabian economy is at the transition point whereby real opportunity for the country to inject the new dynamism into the marketplace using the productivity and the investment-led transformation that will assist in ensuring future growth, employment, as well as prosperity for all the Saudis. Saudi Arabian’s economy is among the largest around the world, and one of the least understood. Within the decade from 2003-2013, Saudi’s economy almost doubled in size based on the protracted boom in oil (Mahalik et al., 2017). It proposes that Saudi Arabia may experience rapid economic deterioration within the next 15 years based on the current trends. Whether the government was to react by freezing the public spending or the intervening in the labor market, the household income could make nonetheless likely to fall, the unemployment could rise, and they will form the growing fiscal strain. The outcomes are never forgone conclusions. Saudi Arabia could also inject the new dynamism into its economy through the productivity-led transformation. It will mean implying significant reforms in the labor market, incorporating the business regulations, as well as management of the fiscal matters.

Thus, it calls for designing a comprehensive model to examine the implications of the changing internal and external conditions. This model integrates the Saudi’s economic, labor market, and public finance perspectives. It proposes that Saudi Arabia may experience rapid economic deterioration within the next 15 years based on the current trends. Whether the government was to react by freezing the public spending or the intervening in the labor market, the household income could be nonetheless likely to fall, the unemployment could rise, and they will form the growing fiscal strain (Belloumi & Alshehry, 2015). The outcomes are never forgone conclusions. Saudi Arabia could also inject the new dynamism into its economy through the productivity-led transformation. It will mean implying significant reforms in the labor market, incorporating the business regulations, as well as management of the fiscal matters.

Saudi Arabia needs diversification so that it can create jobs and mitigate the impact of the uncertainty in the oil markets. Even though the climate of the business should be enhanced and the remaining gaps in infrastructure addressed, the reforms should be beyond those areas. The diversification within Saudi Arabia of creating the jobs for the nation should be held back by the impacts of the relatively high wages and the effects on the cost competitiveness (Albassam, 2015). The country requires creative solutions to address the impact of senior government wages and employment on competitiveness. The industry policies should be held to overcome the incentives, which encourage the companies to focus on the non-tradable sector with careful handling having in mind the lessons from the experience of other countries. The export orientation, along with the competition, is an essential mechanism that the county should adopt so that it can ensure the discipline. Saudi Arabia should also strengthen the human capital so that it can raise the productivity and the offer the workers with skills required in the private sectors since they are essential for the success of the country’s economic growth.

Nevertheless, Saudi Arabia requires significant economic diversification so that it can create jobs for the Saudis to increase the resilience of the country’s economy and assist in preparing it from the future decades. Oil production within the country offers minimal employment opportunities to the population, yet it represents the large share of the economic activity with exports and fiscal revenues.

References

Albassam, B. A. (2015). Economic diversification in Saudi Arabia: Myth or reality?. Resources Policy, 44, 112-117.

Alshehry, A. S., & Belloumi, M. (2015). Energy consumption, carbon dioxide emissions, and economic growth: The case of Saudi Arabia. Renewable and Sustainable energy reviews, 41, 237-247.

Altaee, H. H. A., Al-Jafari, M. K., & Khalid, M. A. (2016). Determinants of economic growth in the Kingdom of Saudi Arabia: an application of the autoregressive distributed lag model. Applied Economics and Finance, 3(1), 83-92.

Belloumi, M., & Alshehry, A. (2015). Sustainable energy development in Saudi Arabia. Sustainability, 7(5), 5153-5170.

El Mallakh, R. (2015). Saudi Arabia: Rush to Development (RLE Economy of Middle East): Profile of an energy economy and investment. Routledge.

Khorsheed, M. S. (2015). Saudi Arabia: from oil kingdom to a knowledge‐based economy. Middle East Policy, 22(3), 147-157.

Kouchi, A. N., Nezhad, M. Z., & Kiani, P. (2018). A study of the relationship between the growth in the number of Hajj pilgrims and economic growth in Saudi Arabia. Journal of Hospitality and Tourism Management, 36, 103-107.

Mahalik, M. K., Babu, M. S., Loganathan, N., & Shahbaz, M. (2017). Does financial development intensify energy consumption in Saudi Arabia?. Renewable and Sustainable Energy Reviews, 75, 1022-1034.

Mezghani, I., & Haddad, H. B. (2017). Energy consumption and economic growth: An empirical study of electricity consumption in Saudi Arabia. Renewable and Sustainable Energy Reviews, 75, 145-156.

Wright Jr, J. W. (Ed.). (2016). Business and economic development in Saudi Arabia. Springer.