Assessment of economic diversification in Saudi Arabia through nine development plans

• Published date: 01 March 2018
• Date: 01 March 2018
• DOI: http://doi.org/10.1111/opec.12116
• Author: Abdullah Ibnrubbian,Waheed Banafea

Assessment of economic diversification in

Saudi Arabia through nine development

plans

Waheed Banafea* and Abdullah Ibnrubbian**

*Associate professor, Department of Economics, Institute of Public Administration, P.O.Box 205, Riyadh

11141, Saudi Arabia. Email: banafeaw@ipa.edu.sa

**Assistant professor, Department of Economics, Institute of PublicAdministration, P.O. Box 205, Riyadh

11141, Saudi Arabia. Email: ibnrubbian@ipa.edu.sa

Abstract

This paper aims to assess the efforts of the Saudi government in diversifying its economy. A

descriptive analysis was used to evaluate the efforts the Saudi government exerted to enhance

economic diversification through nine development plans covering 45 years (from 1970 to 2014).

Two measures of economic diversification were applied, instability of private gross domestic

product (GDP) and its relation to oil price instability, and relative contribution of private and

public sectors to GDP. The research concludes that Saudi government has succeeded in moving

towards economic diversification in the last two development plans compared to the previous

seven development plans, although the economic diversification was a slow-paced process. The

performance of the private sector is still low which calls for a prompt intervention from the Saudi

government to improve the legislative environment, competition, and attracting big international

companies to enter Saudi market and raise the level of efficiency of the private sector and achieve

its main goal of being less dependent on oil sector and its revenue.

1. Introduction

Economic diversification is a hot issue in economies that depend heavily on natural

resources, such as Gulf Cooperation Council (GCC) countries [Kuwait, Bahrain, United

Arab Emirates (UAE), Qatar, Oman, and Saudi Arabia]. ESCWA (2001) defines economic

diversification within the context of GCC countries as reducing the degree of dependency

on the oil sector/export by developing non-oil sector, non-oil export and non-oil revenues.

Reducing such dependency is based on the idea that natural resources are finite, and that the

supply of natural resources and the demand for them are not stable over time.

An economy that depends on natural resources might achieve some economic

growth but not economic development. Kusuv in 1979 indicated that an economy may

experience growth in gross domestic product (GDP) but may not experience real

©2018 Organization of the Petroleum Exporting Countries. Published by John Wiley & Sons Ltd, 9600 Garsington

Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.

42