Sunday, October 28, 2007

Saudi Transformation

Sources: Financial Times – Saudis Build on Boom

Saudi Arabia has begun following in the footsteps of its Gulf neighbors. The Saudis are extremely ambitious in their new construction projects, which involve building roads, railways, plants, and housing units. The investment is estimated at $320bn. The recent oil boom in Saudi Arabia is paying for the high cost in construction.

Saudis expect the oil boom to cover the costs of many projects to come. The new construction has been catching the attention of foreign and local investors. Saudis hope that the oil boom will cause a ripple effect in other industries, especially since the little growth of 1980s and 1990s. As a result, the Saudis may have more economic diversity and security in the future.

Saudi Arabia produces 25% of the world’s oil reserve. However, they are facing difficulties in improving services, reducing “its dependence on oil,” and improve skills of local workers. Unemployment in Saudi Arabia is currently at 12%. The government must address the high rate of unemployment to reach its new economic goals.

In previous years, Saudi Arabia invested approximately 17% of its GDP. However, currently, it is investing about 35%. Saudis will have difficulty keeping up with the high paced growth. Inflation is at a 7 year high, which will directly affect the pace of construction. All in all, growth is expected to continue at this rate until 2015.

Discussion questions:Will the recent oil boom create further investment by outside financiers? Will Saudi Arabia be able to compete with other countries in the Gulf (i.e. Dubai)?

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