The role of the non-oil minerals sector in the economic growth of Saudi Arabia

Abstract

The macroeconomy of Saudi Arabia has been dominated by oil exports which between 1970 and 1995 accounted for more than 85% of total export earnings. Due to the fact that oil is an exhaustible resource, the price of which fluctuates considerably, and is produced in an enclave economy, the Saudi Arabian government had recognised the needs to diversify their economy away from oil as the main source of income. Since the oil price crashed in 1986, the Saudi Arabian government has adopted a new policy to develop non-oil sectors, such as manufacturing, agriculture and more recently, non-oil minerals. The main objective of this study is to evaluate the contribution of the non-oil minerals sector to the economic growth of Saudi Arabia during the period 1970-1995, using three different approaches. These approaches are the export portfolio approach, the input-output approach and the Dutch disease approach. The empirical findings of this study show the following: 1. A non-oil export portfolio analysis provided guidance to the Saudi Arabian planners who seek simultaneously to reduce export earnings instability and achieve economic growth. An increase in the volume of machinery and transport equipment commodities could produce an optimum portfolio due to both price trends and stability of price over time. Other exports, including non-oil mineral commodities, are unstable and have relatively negative price trends. 2. Even though preliminary results indicate that the non-oil minerals sector has a relatively low integration with other sectors, when the impact of inducing final demand is taken into account, this sector shows the highest income and the second highest employment multipliers. These results indicate that if this sector were to be stimulated by increasing final demand, it may well generate more income and employment than other sectors. Therefore, the application of an input-output approach was extended further to estimate the impact of three new promising nonoil mineral projects on the Saudi Arabian economy. Moreover, the construction and operation phase's multipliers reflect the potential of the non-oil minerals sector. 3 With regard to the effect of a boom in one sector of the economy on the rest of the sectors, the oil sector boom in the 1970s in the case of Saudi Arabia conforms very closely with the assumptions of the Dutch disease theory