Saudi Arabia’s Economy, Labour Force and Inflation

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Saudi Arabia is located in the Middle East and is the most expanse Arab nation in the region. It has several neighbors including Oman, Iraq, Kuwait and Yemen among others. The official name of this country is the Kingdom of Saudi Arabia. Its population size is about twenty eight million people with a land mass size of eight hundred and thirty thousand square miles. Both Mecca and Medina are found in Saudi Arabia and these two locations are highly valued by Muslims as holy grounds (Nation Master, 2010).

A complete Monarchy run by Islamic ideals is characteristic of the government in Saudi Arabia. This type of Islamic governance has been criticized severally by the international community like Human Rights Watch group. A democratic system of electoral process and voting is not in place. Moreover, there are no recognized political parties. The Saudi regime has been considered to be highly authoritative where subjective political opinions are not accommodated.

About three-quarters of government revenue is derived from oil resources which the country is well endowed with. Indeed, mining of oil is the main industry in Saudi Arabia. Besides oil, Saudi Arabia has some well established industries which support its economy. For instance, the Saudi Arabian Basic Industries Corporation (SABIC) is primarily concerned with the manufacture of chemical-based products like plastics and fertilizers. Another notable industry is the Madem Company which deals with mineral resources that the country is endowed with (SABB, 2010).

The country’s GDP

The Saudi Arabia’s Gross Domestic Product (GDP) is mainly supported by the revenues derived from oil. In fact, oil resources support about 54 percent of Gross Domestic Product. The private sector is also an equal contributor to the GDP bearing in mind that the sector contributes about 40 percent to the Gross Domestic Product. Currently, Saudi Arabia’s total output in terms of GDP stands at 592.886 billion dollars while the nominal value stands at 469.426 billion dollars (NationMaster, 2010). By 2009, the GDP growth was estimated at -0.6 percent. By the same year, the official rate of exchange was 379.5 billion dollars. The chart below illustrates the Saudi Arabia’s GDP growth since 2007.

From what can be observed, there was a slight drop in GDP growth in 2008 moving to 2009. The 2007 GDP growth was the lowest when the three years are compared.

The income category of citizens is at the upper middle level. Moreover, the consumer prices as depicted in the rate of inflation stood at 4.1 percent (World Fact Book, 2010). Although the GDP growth has been fairly impressive, the national debt has grown a bit higher and is one of the factors which contributed to the slump economic growth of Saudi Arabia in 2009. The public debt was accounting for 24.3 percent of the Gross Domestic Product. A five year comparison of the GDP growth has been estimated at 6.56 percent on an annual basis in spite of the 0.6 percent drop in 2009.

Although unemployment is not a major concern for the country, the average wage earning per day is still low compared to other well established economies. As at 2007, the average wage earning was ranging between 76 and 92 U.S dollars per day. As already mentioned, petroleum is the main driver of the Saudi Arabia GDP. Most of the earnings derived from exports are as a result of oil export both to neighboring countries and overseas (90 percent) (Economy Watch, 2010). The Saudi workforce is another important component of Gross Domestic Product.

There are about 5.5 million international workers in Saudi Arabia and they are pertinent in pushing up the GDP growth. In order to strengthen GDP growth for the Saudi economy, the government has embarked on a relentless effort of incorporating the private sector in creation of employment and alleviating overdependence on a single resource for GDP growth. Indeed, the growing Saudi Arabia population is a real asset as far the country’s economic growth is concerned. In fact, the government is currently working out modalities of creating a conducive environment for foreign investment. One of the target areas is in the telecom sector which has been identified as a major player in the GDP growth of Saudi Arabia. Moreover, there is an ever growing demand for energy resources and as a result, the private sector is being consulted over possible investment in the power generation scheme.

Maintaining a positive growth in the Saudi economy has not been easy and that is why the country gave a nod to the World Trade Organisation pact way back in 2005 so that foreign investors could have a chance of contributing to the economy by diversifying economic activities.

The total export margin in 2009 was 180.5 billion dollars compared to import value which stood at 86.61 billion dollars (SABB, 2010). The country is therefore a net exporter and its economic prospects in future are bright.

The labor force

Tremendous changes has characterized the Saudi Arabia labor force since the advent of the 20th century with a radical shift from the traditional means of livelihood to the adoption of modern way of earning a living. Most of the Saudis are now entrenched into either government service or other contemporary economic way of life. Moreover, the private sector has also played a significant role in absorbing foreign workers who are equally instrumental in the shaping up and fortifying the country’s labor force.

For a period running between 1975 and 1985, the labor force at the domestic level grew at a mean of five percent per annum. This was possible in spite of the high rate of population growth (3.5%). Between 1975 and 1980, the total population of employed persons grew from 1.7 million to 2.2 million people (NationMaster, 2010).

The employment rate has been consistently growing both in the private and public sector. The current labor force stands at 6,563,000 people. Out if this figure, the percentage of female employees is only 1.3 % while the percentage of employed males is higher at 24 % (SABB, 2010). This is under all the employment undertaken at the industry level. This implies that the number of people employed in various industries in the country is still small.

In the services sector, the percentage of employed females is extremely high at 98.1 % being the most highly rated out of 86 countries. In the agricultural sector, total employment is at 4.7% while the economic growth by females is stable at 42% (Economy Watch, 2010). In total, the services sector employs 63% of the working population, this is being the highest followed by industry employment at 25% while the agricultural sector tails the employment potential list at only 12% (SABB, 2010).

For the employed working class, they are only allowed a paid paternity leave of one day while the rate of unemployment is currently at 13% having been rated 16th out of 167 countries sampled. This unemployment rate translates to 5.2% of the total labor force (NationMaster, 2010). In the case of vacation, workers are allowed a 15 day vacation which is also the legal requirement globally. The pension scheme and remittances by workers is at its peak with 14,318,000,000 U.S dollars so far remitted. Employers are entitled to pay social security amounting to 11% while employees are expected to remit only 9% as part of social security or pension plan (Economy Watch, 2010). Finally, the labor force is calculated as follows:

Labor Force Participation (LFP) =Civilian Labor Force (CLF)/Civilian Non-institutional Population (CNIP). Hence, labor force is calculated by obtaining the quotient of civilian labor force by the civilian non-institutional population as illustrated above.


When prices of goods and services rise over and above the normal level of purchasing, the phenomenon is referred to as inflation. In order to measure inflation accurately, both the Consumer Price Index and Gross Domestic Product deflator are used. By June 2010, the rate of inflation in Saudi Arabia was at 5.51 percent. This was among the highest inflation rates recorded in the recent past bearing in mind that in a seven year period since 2003, the rate had been sustained at mean of 3.44 percent. However, in July 2008, inflation rate was extreme at 11.8 percent, the highest in the economic history of Saudi Arabia (Economy Watch, 2010).

On the other hand, the year 2004 recorded an economic boom when a 0.00 percent inflation rate was reached. There are several possible causes of inflation. To begin with, the rise in production costs can lead to skyrocketing of prices of goods and services beyond the standard purchasing power of consumers. For instance, rise in the cost of raw materials used for production will precipitate a parallel rise in the price of goods so that the profit margin of the manufacturing firms can be maintained.

Another likely cause of inflation is debt which is owed by a country or lending at the international level. Borrowing which leads to build up of national debt are usually accompanied high interest rates which are passed on to consumer products leading to the rise in the price of goods and services.

Finally, both direct and indirect taxation imposed to suppliers by government will often cause a rise in the price of goods and service because the producers also pass over the tax burden to the consumers so that they can make profit.

The future

There are strategic priorities which have been formulated as a result of budgetary constraints which the Saudi government has been experiencing in the past. The key priority areas have been identified as the health sector, education and territorial security. Boosting and increasing the vibrancy of these three key sectors of the economy have been identified as the way forward towards strengthening the GDP growth of Saudi Arabia (NationMaster, 2010). On the same note, the government is currently trying to work close with the private sector players on the possibility of revamping the agricultural sector which is still lagging behind as both the national employer and GDP contributor. The work plan for expanding the Saudi Arabia economy is already in place bearing in mind that such components like infrastructure have already been set up.

In the near future, the government is looking forward to alternative economic boosters to the country apart from oil resources which have been relied on for too long. With these measures in place, we expect the GDP of Saudi Arabia to grow significantly in the foreseeable future and this will result in better and improved standards of living for the Saudi population.


Economy Watch (2010). Saudi Arabia Economy. Web.

Nation Master (2010). Saudi Economy Statistics. Web.

SABB (2010). Saudi Arabia Economics. Web.

World Fact Book (2010). Saudi Arabia Economy 2010. Web.

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BusinessEssay. "Saudi Arabia's Economy, Labour Force and Inflation." December 12, 2022.