An evaluation of Saudi Arabia’s policies for economic diversification

Abstract

The aim of this thesis is to evaluate Saudi Arabia's policies for diversification. Economic diversification only became a realistic possibility following the first major oil price rise in the early 1970's. Not surprisingly the immediate reaction was to follow the example of western industrialised countries, and consequently very ambitious plans were discussed. This over reaction was soon rationalised. The Second Development Plan covering the 1975-1980 period, laid the foundations for diversifying the economy by providing for the creation of a much needed infrastructure. It vas left to the Third Development Plan covering the 1980-1985 period, to define a selective approach to industrialisation so that only the economically feasible projects remained. It is rather too early to assess just how successful the Third Plan has been. The most that can fairly be asked is: has the Government begun to implement its policies for economic diversification? The abrupt change in revenues almost forced the Government to rely on imports for development if it wished to take immediate action because of its limited domestic economy. Consequently, industrialisation in Saudi Arabia is largely dependent on imports, and most diversification amounts to the implementation of import substitution policies. Export diversification is virtually the export of any goods or services other than oil. It is thus essential to analyse the determinants of imports and exports and to look at recent trends.