Saudi Arabia -SAGIA Harvard Case Solution & Analysis

: Introduction

1.1  Background of The Study

The present global environment has become far more dynamic than ever before where the concept open economies prevail. Here every organization wants to expand and grow on the basis of making the best possible decisions.This phenomenon is not only restricted to corporations or businesses to expand globally, but Government administrations of every country want to exploit the advantages associated with having an open economy.

But certain problems and limitations may hinder such an intent of Government administrations. Here certain problem solving is required so that solutions to such problems are found on the basis of analysis as a result of which relevant recommendations are made. In relation to this case certain problem solving is required in order to find solutions and remedial measures for it as well which will be the aim of this study.

Saudi Economy

Saudi is referred to as the God gifted land of black gold in the form of being amongst the largest oil producers in the world. This phenomenon of being a natural resource-rich country has rendered the economy of Saudi into a rental economy. It is because revenues of Saudi economy are chiefly generated in the form of rental proceeds that are received as remuneration of its enormous oil reserves.

At the verge of the 21st century, Saudi Arabia was ranked as the largest oil exporter in the world. But despite this fact, a certain degree of diversity lacked from the Saudi Arab's international trade. As this particular country also ranked as the 39th in the importer's list as well. Coupled with this fact Saudi government was unable to diversify their earnings as this ratio of import will be significant and continues threat to their long run prosperity.

Deprivation of Foreign Direct Investment

At the brink of the 21st century, Saudi economy lacked the constituents of a modern and contemporary open economy and there was a deficiency that a certain degree of diversity lacked from this particular economy because the country was solely reliant on the export of oil.

This problem was further amplified as a result of an intense surge in the population of the country that was the outcome of the culture prevailing in Saudi Arab related to their belief and lifestyle. Coupled with an investment in health care at the start of 1970s and led to an expansion in population from nine million to twenty million for the period of 1980 to 2004.

In this very period, the oil exports also fell to a massive 40% when compared in real terms with the previous year. Resulting in a severe decline in the Gross domestic Product per Capita, more precisely, from USD 23,000 in the year 1980 to a mere USD 5,000 by the year 2004. (Wilson and Malik 2004)

At the same time, Saudi Administration was also carrying the burden of financial obligation, including a debt of USD 175 billion that had accumulated as a consequence of its 1991 Gulf War participation. Second was the result of welfare state activities involving the provision of retirement plans, free health and education for their communities?

Ballooned Young Population

Another challenge associated with the Saudi population was observed that the young population was overstuffed. At the start of this century, 45 percent of the entire population was under the age of 15, massive as compared to 20.8, 17.9 and 14.3 of the USA, UK and Spain respectively. However, UN report suggested that this surge will be reduced down to 20 percent by the year 2050 as a result of increasing demand of jobs. (Cordesman 2004). However, Government reports suggested that by 2020, an estimated five million new jobs will be available to cater their youth.

Saudi Arabian General Investment Authority

In the Year 2000, on a recommendation from the Majlis-e-Shura and Supreme Economic Council of Saudi Arabia the Council of Ministers passed a law by name of Foreign Investment Law. It was the first ever law in the kingdom that advocated the safeguard of the rights of foreign investors. A comprehensive ownership right for foreign investors, allowing the permission to own any real estate property that is required by that particular project in the Kingdom. Further, foreign companies were now given rights and protection equivalent to their national companies. Visa regulations were made more flexible, allowing licensee a self-sponsored visa despite being a non-Saudi employ. Soon a new body as a result of Foreign Investment Law was created by the name of Saudi Arabian General Investment Authority. This agency had the core responsibility of creating a favourable environment to attract, nurture and grow foreign investment inflows into the Kingdom.

1.2Statement of the problem

From its phase of inception in the year 2000, Saudi Arabian General Investment Authority had a clear agenda of improving the economy and business environment by providing a promising.................

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