40 The Geography and History of Southwest Asia (Middle East)
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Directions: Read the article and answer the questions in complete sentences.
CIA World Factbook Saudi Arabia: Economy – Overview
Saudi Arabia has an oil-based economy with strong government controls over major
economic activities. It possesses about 16% of the world’s proven petroleum reserves, ranks
as the largest exporter of petroleum, and plays a leading role in OPEC. The petroleum sector
accounts for roughly 87% of budget revenues, 42% of GDP, and 90% of export earnings.
Saudi Arabia is encouraging the growth of the private sector in order to diversify its economy
and to employ more Saudi nationals. Over 6 million foreign workers play an important role in
the Saudi economy, particularly in the oil and service sectors; at the same time, however, Riyadh
is struggling to reduce unemployment among its own nationals. Saudi ofﬁcials are particularly
focused on employing its large youth population, which generally lacks the education and
technical skills the private sector needs.
In 2016, the Kingdom incurred a budget deﬁcit estimated at 13.6% of GDP, which was
ﬁnanced by bond sales and drawing down reserves. Although the Kingdom can ﬁnance high
deﬁcits for several years by drawing down its considerable foreign assets or by borrowing, it has
cut capital spending. Plans to cut deﬁcits include introducing a value-added tax and reducing
subsidies on electricity, water, and petroleum products. In January 2016, Crown Prince and Deputy
Prime Minister MUHAMMAD BIN SALMAN announced that Saudi Arabia intends to list shares
of its state-owned petroleum company, ARAMCO - another move to increase revenue and outside
investment. The government has also looked at privatization and diversiﬁcation of the economy
more closely in the wake of a diminished oil market. Historically, Saudi Arabia has focused
diversiﬁcation efforts on power generation, telecommunications, natural gas exploration, and
petrochemical sectors. More recently, the government has approached investors about expanding
the role of the private sector in the healthcare, education and tourism industries. While Saudi
Arabia has emphasized their goals of diversiﬁcation for some time, current low oil prices may
force the government to make more drastic changes ahead of their long-run timeline.
1. According to the article, who controls the major economic activities?
2. Why has Saudi Arabia begun to encourage diversiﬁcation of its economy?
3. Historically, on what sectors has the government focused its diversiﬁcation efforts?