Saudi Arabia is one of the most oil rich countries in the world, and the largest oil producer. The country took advantage of the competitiveness of the international market for oil, and received extremely high revenues for over 40 years. As such, the oil industry is considered to be the main engine of the country’s economic development (Albassam, 2015).
Since the 1980s, the industry has contributed to half of the total Gross Domestic Product (GDP), according to the Central Department of Statistics and Information of Saudi Arabia. Although the oil industry has contributed significantly to the economic development in Saudi, relying on it has created a major problem for the economy. The non-diversified economy that has emerged has resulted in unsustainable development and a weak private sector, which contributed 10% to total GDP between 2004 and 2013 (Aldarwish et al.
, 2015). Additionally, the private sector could not generate high-skilled job opportunities. Instead, the majority of job opportunities in the private sector are low-skilled and low-wage jobs that has resulted in an increase of foreign workers in this sector of up to 50% (Khorsheed et al., 2014). As around 57% of job seekers in Saudi are highly educated, they refuse to take low-skilled jobs that do not require high academic qualifications.
In addition, the private sector does not provide the necessary training programs to enhance skills and productivity to engage the local workers to the private sector (De Bel-Air, 2014). Consequently, diversifying the economy is necessary to decrease the risk of volatility and uncertainties in the international oil market that could cause problems for the economy (Walker, 2015), and to help generate suitable job opportunities in the private sector. Furthermore, a diversified economy would assist in achieving sustainable growth away from the oil industry through strengthened productivity and contribution of the private sector (Aldarwish et al., 2015). The Saudi government have adopted policies to strengthen private sector and achieve diversification by enhance the business environment and reform the labour market to increase the employment rate in different development plans have been issued, with the latest covering 2015-2019 (Albassam, 2015).
Economic diversification has been a main target of the government in all 10-development plans, according to the Saudi Arabian government’s first development plan (1970-1975), one of three objectives was: “diversifying sources of national income and reducing dependence on oil by increasing of other productive sectors in gross domestic product” (Ministry of Economy and Planning, 2014, p.23). Even though economic diversification has been the main goal of development plans in Saudi Arabia since 1970, the result of the current analysis shows that the oil sector remains the engine driving the economy. Many reasons have been suggested to explain the government’s lack of success in diversifying the economy.
Among them there are the absence of clear plan that addresses in detail the process of diversifying the economy, the government support provided to industries that are profoundly dependent on oil (e.g., petrochemical industries), the almost complete dependence of the private sector on government spending and projects, and lack of clear and specific plan support non-oil sectors (agriculture, service).