Ihab Itani

Macroeconomics

2/26/2014

Saudi Arabia Income Analysis

Saudi Arabia’s economic system is market-oriented by tradition. Substantial revenues

from the export of oil and petrochemical products have enabled Saudi Arabia to take

advantage of the opportunities its underdevelopment presented and to systematically

develop the country’s economic potential.

Income is defined as the economic wealth gained by an individual or a firm in exchange

for their performance on a previously agreed upon task. Income is used to provide daily

necessities on a day-to-day basis such as food, shelter, clothes, fuel, etc. Below is a

graph representing the change in GDP per capita (in US dollars)

As you can see from the graph above Saudi Arabia From 1980 until 2011, Saudi Arabia

GDP per capita PPP averaged 21083.3 USD reaching an all-time high of 33759.0 USD

in December of 1980 and a record low of 18280.2 USD in December of 1987.

As for each citizen in Saudi Arabia earning a higher income, his or her consumption

patterns will surely be affected. These changes in consumptions patterns include

changes in the amount of money spent on durable and non-durable goods such as

food, clothes, houses, cars, jewelry, etc. During the last twenty years, Saudi Arabia has

undergone fundamental economic

and social changes. These changes

were fast and sudden and they

affected the Saudi households'

consumption expenditure behavior.

The latest value for Household final

consumption expenditure, etc. (current US$) in Saudi Arabia was $173,955,000,000 as

of 2011. Over the past 43 years, the value for this indicator has fluctuated between

$173,955,000,000 in 2011 and $1,387,872,000 in 1968.

19681971

19741977

19801983

19861989

19921995

19982001

20042007

2010$0

$20,000,000,000

$40,000,000,000

$60,000,000,000

$80,000,000,000

$100,000,000,000

$120,000,000,000

$140,000,000,000

$160,000,000,000

$180,000,000,000

$200,000,000,000

The Gini coefficient (Gini Index) measures the income distribution with a given country.

The number ranges from 0 to 1, it helps to provide an images of the gap between the

rich and the poor. When the Gini Index is 0, it represents perfect equality and when it is

1, it represents perfect inequality. The Saudi government gives little official data about

its poorest citizens. But press reports and private estimates suggest that between 2

million and 4 million of the country's native Saudis live on less than about $530 a month

about $17 a day considered the poverty line in Saudi Arabia.

Due to some problems with finding data about Saudi Arabia`s income distribution and

wealth distribution I found other relevant information that can be implemented in this

situation.

Higher Gini coefficients signify greater inequality in wealth distribution, with 1 being

complete inequality and 0 being complete equality. "The top 10 per cent owned 71 per

cent of world wealth, and the Gini coefficient for the global distribution of wealth is

estimated to be 0.804, indicating greater inequality than that observed in the global

distribution of consumption or income

Saudi Arabia

Population

(1000s)

Wealth

per Capita

Wealth

per Adult

Share of

world

wealth (%)

GDP per

Capita

Share Of

the world

GDP (%)

Wealth

Gini

Index

21484 22025 43046 0.29 12374 0.57 0.737

- Progress in the Industrial Production

Production of the manufacturing industries in the Kingdom has witnessed a steady

progress over the past years. As you can see from the graph below, total GDP (in

constant prices) achieved by the manufacturing industries increased from the level of

SR 15 billion in 1975 to more than SR 124 billion at the end of 2011.

Also, the rate of the

manufacturing

industries' growth

continued to increase throughout this period, at an average of 6% annual growth rate,

which is considered the highest among the other economic sectors. Owing to the

substantial growth achieved by the manufacturing industries during this period, the

contribution of the sector in the country's GDP has increased from 4.1 % in 1975 to

13.3% at the end of 2011.

On the hand the contribution of the manufacturing industries sector in the non-oil GDP

increased from 7.8% in 1975 to 18.3% in 2011. These rates show the success of the

development plans in pushing forward the industrial progress and the fruitful

cooperation these plans received from the private sector.

Since 1980, Saudi economic growth has failed to keep pace with population growth,

resulting in a dramatic fall in per capita incomes in constant 2000 dollars from

US$28,600 in 1981 to $6,300 in 2000

A more important aspect in the development of the manufacturing industries in the

Kingdom is indicated by the change that occurred in the sectorial composition of the

Saudi manufacturing over the past period, as the share of the manufacturing industries

(other than oil refining) in manufacturing GDP increased from (57%) in 1975 (at

constant prices) until it reached (82%) by the end of 2011. Being one of the largest

economies in the world Saudi Arabia record track it was not until the 1973 oil crisis that

the country saw rapid growth and GDP per capita (PPP) shrunk by 0.8% on average

during the 1980s, grew 2.1% during the 1990s and 4.4% during the 2000s. Annual

imports grew 44% on average during the 1970s, but shrunk 1.9% during the 1980s,

grew again 2.4% during the 1990s and 14% during the 2000s.

A strategy is being developed by Saudi Arabia to combat poverty by providing the poor

with opportunities to participate in the economy and assist them in improving their

standard of living. The plan was created to support balanced economic development,

empowerment and employment of the poor, development of human capital. Between

1990 and 2015, the first of the goals were to halve the proportion of people living on an

income of less than USD 1 a day. In 2009, the Ninth Development Plan which is a

continuation of the developmental approach adopted by the Kingdom throughout the

past four decades. This approach combines the directive planning of government

activity and indicative planning of private activity within a framework of developmental

paths and the future vision defined by the long-term strategic planning reported that

0.06 percent of families in the Saudi population live on a per capita income of less than

two dollars a day; 0.05 percent of the population lives below the extreme poverty level,

less than USD 1 per day.

Examining the role of oil revenues in

government finance makes this clear: in

2011, government revenue represented 49.9

percent of GDP, and nearly all of that

consisted of oil revenues, at 46.2 percent of

GDP.

As for other sectors of the Saudi economy, in 2009 agriculture represented 3.2 percent

of GDP, industry 60.4 percent, and services 36.4 percent. As the country grew

consumptions was alongside technological advancements and changes before because

used have a lower income then today so items that were considered to be luxury goods

have now turned into necessities and this shows the increase in personal consumption

as a percentage of the GDP. Consumers today have the willingness and the money to

spend it on item such as luxurious cars, mobile phones, personal computers etc. The

Gini Coefficient is 73.1 % which means that Saudi Arabia has an unequal income

distribution so that gives a clearer picture about the equality especially with past records

before the Gini Coefficient was less than today, that tells us that the country is increase

in inequality and different living standards across all households within the kingdom.