The Impacts of COVID-19 on Saudi Arabia’s Economy
The impacts of the global pandemic, COVID-19, have been felt all around the world. The implications are evident in all sectors of society, including the economic sector. COVID-19 has led to the implementation of a variety of rules and regulations by the affected nations all around the world (Hedeshi & Hartwich, 2020). These implemented rules have been adopted to ensure that the spread of the novel Coronavirus, which has caused COVID-19. Due to these rules, many activities that had the world operating have come to a halt. Therefore, it is apparent that COVID-19 has greatly affected normal operations across the globe. Based on statistics, the outcome of the impacts of COVID-19 on the global economic sector has the potential of leveling with the previous financial crisis in 2008. However, since the affected nations are continually becoming aware of the potential economic risks posed by the global pandemic, they seek to implement more flexible measures in their economic activities (Nicola et al., 2020). This step aims to ensure that irrespective of the enacted laws related to reducing the spread of COVID-19, the businesses continue operating, and there is adequate cash flow in the economy. However, all these approaches are introduced with the aim to mainstream the proposed rules and laws.
Similarly, in Saudi Arabia, a country in the Middle East, specifically in Western Asia, is also going through the same series of events, from the implementation of measures to ensure that the spread of the global pandemic is controlled and reduced to having significant impacts in its economic sector (KPMG, 2020). Since the topic of focus is a continually researched topic, there is the need to establish the actual impacts of COVID-19 on the economy of Saudi Arabia. Based on various studies on the dynamics of the economy of Saudi Arabia, the economy is significantly made up of and contributed to by the revenue sourced from oil (Hedeshi & Hartwich, 2020). The nature of the economy in Saudi Arabia creates the potential risk of greatly being negatively affected by COVID-19 for various reasons. A good example is a fact that COVID-19 has resulted in lockdowns, which have significantly restricted the movement from one place to another. As a result, the demand for oil has greatly decreased, which has led to a decrease in prices. Since the economy of Saudi Arabia is based on the revenue obtained from oil, it may be negatively affected. However, this is just an example of the estimated impacts of COVID-19, which creates the need to establish more consequences. As a result, it leads to the question of how did COVID-19 affects Saudi Arabia’s economy? This research paper will focus on answering this research question.
Short-term impacts of COVID-19 on the economy of Saudi Arabia
Saudi Arabis is one of the countries in the Arab Region, with a high number of COVID-19 patients (Hedeshi & Hartwich, 2020). Therefore, there is a need for healthcare resources such as human resources and equipment necessary for the treatment of COVID-19. Without adequate financial resources to support the treatment and management of this global pandemic, many nations will be affected, including Saudi Arabia. COVID-19 has led to both short- and long-term effects on the economy of Saudi Arabia. Regarding the short-term impacts, they are defined as the results felt soon and not later in the future. In this case, various short-term effects of COVID-19 are evident in the economy of Saudi Arabia.
One of these impacts includes a considerable decrease in the demand for Saudi Arabia’s primary source of revenue, which is oil. Based on various studies conducted to establish the dynamics of the economy of Saudi Arabia, oil exports make up the highest contribution to its economy. More so, one of the global added laws is a lockdown to the affected countries and restricted movement to other places. As a result, the first and current impact is the reduced demand for oil since people no longer even drive to work. According to Nicola et al. (2020), a meeting held at the Organization of the Petroleum Exporting Countries (OPEC) in March in Vienna, Russia, advocated for continued oil production irrespective of the decreased demand. As a result, Saudi Arabia is expected to continue producing oil with reduced demand.
Due to the decreased demand for oil, this has led to the need to establish measures that will ensure the demand somehow comes up. As a result, the second short-term impact of COVID-19 is the drastic decrease in the original prices of oil in the global market. The occurrences being witnessed currently regarding the oil industry were lastly seen almost thirty years ago (Nicola et al., 2020). Therefore, due to the decreased movement as defined by the laws enacted to curb the spread of the novel Coronavirus, there is no more need for oil since now people can work from home to avoid any social contact. As a result, Saudi Arabia took up the strategy of reducing the price of oil, anticipating an increase in demand; however, there is no change. This impact is termed as a short term since once the laws of staying home and being on lockdown are lifted, then people will go back to going about their economic activities, including transporting both goods and people.
Additionally, COVID-19 has led to the implementation of laws related to SMEs’ operation in the private and public sectors. Consequently, this has led t a significant impact on the overall labor force of Saudi Arabia (Hedeshi & Hartwich, 2020). More so, these enacted laws have been implemented for the safety of everyone in the country and to reduce the spread of the novel Coronavirus. A part of the labor force was relieved off their duties, especially the daily laborers and those without a well defining contract with the employers. As a result, employers are trying to reduce their expenses during tough economic times and the reduction of crowding in the workplaces. Others in the workforce are now expected to comply with the adopted reduction of payment by not more than 40% of their overall amount due to the reduced working hours. Lastly, another portion of the workforce is expected to comply with the added unpaid leave according to Article 116 of the Labor law (Hedeshi & Hartwich, 2020). This effect is termed as short-term since all these measures have been adopted due to the presence of COVID-19.
Long-term impacts of COVID-19 on the economy of Saudi Arabia
Long-term effects are defined as effects which will occur over a long period of time or are related to the future. In business related research studies, most impacts felt or present in the economy are in most cases long-term impacts. The current negative impacts being faced in the economy of Saudi Arabia are most likely to also play a part in what will be experience in the future. These impacts will be greatly felt since Saudi Arabia falls under the categorization of countries that have a less diversified economy, since it mainly focuses on the production oil ().
One of the felt long-term impacts of COVID-19 on the economy is the country’s GDP. GDP is the acronym for gross domestic product which incorporates all the goods and services produced by a nation for sale. Therefore, it measures the value of sold goods and services within a specific period of time. In this case, the GDP of Saudi Arabia is partly made up of oil, which contributes about 50% of the total GDP (). Therefore, with the decreased prices of oil and the over production of oil will greatly influence the GDP of Saudi Arabia. Other contributors to a negatively impacted GDP include the decrease in productivity. During this global pandemic, the overall productivity in the global economy has greatly reduced. Similarly, the productivity of businesses and industries in Saudi Arabia have also reduced due to the closure of businesses, the reduction of employees, and the working time. However, this will not be felt until the analysis is done in comparison with the 2019 GDP.
During this global pandemic period, flights to other nations and continent have been cancelled in various affected countries including Saudi Arabia. As a result, the tourism sector that is the second top contributor to the nation’s revenue has been greatly affected. The most famous tourism destination to Saudi Arabia is related to the religious tourism which is implemented by the Hajj Pilgrimage which is an annual event held in Mecca, the holiest city in Saudi Arabia. Muslims from all over the world travel to Mecca to celebrate this event. Therefore, once closed for this year, 2020, due to COVID-19, it will lead to the downfall of the economy of Saudi Arabia. These negative impacts on the economy do not match the spending in the healthcare sector of the nation since more equipment and personnel are required for the treatment of the increasing COVID-19 cases. As a result, the nation is spending more than what it is gaining. In the next few years, the impacts will be felt due to the decreased revenue generating activities and increased spending in the healthcare sector.
The US is globally used by other nations to access their economic condition, including Saudi Arabia. Therefore, the current analysis of the various economies in different countries, are all measured with the US as the gauge. During this period of COVID-19, all nations have been affected irrespective of their development status, that is including the US. therefore, this aspect may affect the economy of Saudi Arabia in the long run, especially after the global pandemic has subsided. After the end of this global pandemic, the US has the potential of being adversely affected since currently, the country has a large number of COVID-19 patients that make up a quarter of the global number of infected cases. Since the effects of COVID-19 are felt in all sectors in the society, the economy of the US will not be exempted. As a result, Saudi Arabia will not be in a position to clearly gauge its economy based on the US dollar, due to the difference in the adverse effects.
There is no adequate knowledge of how long the global pandemic will exist around the world. As a result, all affected nations have no assurance that any step they take towards formulating mitigation measures regarding their economies will be implemented (). More so, they have inadequate knowledge on the nature of mitigation measures, whether long-term or short-term. Similarly, in Saudi Arabia it is no different, although medical professionals are working towards finding a vaccine for the novel Coronavirus. The lack of mitigation measures will greatly affect the Saudi Arabia economy in the long run, since currently the economy is being negatively affected. However, some of the mitigation measures they are adopting are taking long to be implemented by the public, for example, the use of the internet to conduct businesses especially for the SMEs (). However, the recorded negative impacts of COVID-19 on the economy of Saudi Arabia require immediate implementation of mitigation measures. Failure to do so, the economy will face adverse impacts in future.
Analysis
Various international bodies have taken up the role to conduct analysis on the global economy to establish the current condition and the anticipated impacts due to COVID-19. An excellent example is the world bank which is concerned with the eradication of extreme poverty and improving prosperity of different nations conducts an analysis of the economic condition to understand the mitigation measures to implement (Thaler, 2016). Additionally, prior to any decision-making process in the economy, leaders consider the aspect of forecast, of how the strategies implemented today or in the past will impact the future in the same subject. In this case, the information acquired above guide on how the past performance can impact the outcome in the future. Based on the information from the gathered secondary sources, the use of the business cycle which includes various indicators existing in the economy will aid in the evaluation of the past performance of the economy and its future (Los & Ocheretin, 2019). The choice of this approach in this project is due to the fact that the literature review incorporated the various economic indicators and how they have been impacted by COVID-19 since the break out of the global pandemic.
The mentioned economic indicators are further divided into lagging indicators which are indicators used to define the status of the economy in the past, while the leading indicators forecast the status of the economy in the future (Los & Ocheretin, 2019). In this case, the lagging indicators include unemployment levels in the country, the GDP of the country, and the income levels. Some of the indicated short-term impacts of COVID-19 include the increase in the unemployment rates in Saudi Arabia. Therefore, since 2019 after the break of the global pandemic, the unemployment levels have adversely increased due to various factors. One of the factors is the closure of some of the businesses and industries to implement social distancing and lockdown, another factor is due to increased firing in the different organizations. As a result, some of the employees in the public and private sector are now unemployed. However, the increase in the unemployment rate has mainly resulted from the impacts of COVID-19. The GDP is usually affected by various factors in an economy. In this case, both tourism and oil exports play a huge role in the contribution of revenue to the GDP. Based on statistics, the GDP growth decreased from 2.4% in 2018 to 1.7% in 2019 (World Bank, 2020). The decrease was as a result of a decreased production of oil. Lastly, the income levels in Saudi Arabia also decreased due to the implementation of mitigation measures related to the spread of Coronavirus. As a result, the number of working hours were reduced by the government together with the income.
On the other hand, the leading economic indicators include the manufacturing levels, housing conditions, and the level of new business startups (Los & Ocheretin, 2019). In this case, Saudi Arabia has adopted various mitigation measures to help slow and stop the spread of the novel Coronavirus. One of the implemented measures is the reduction of movement and the adoption of total lockdown. As a result, there is a reduced in the manufacturing levels of various industries. However, the oil production industry still continues to produce oil, which is also a negative indication. The reduction in the manufacturing mean that in the future, the GDP will automatically decrease, other aspects that will also decrease include the employment levels among others. However, when the manufacturing levels are high and the goods do not reach the consumers like it is in Saudi Arabia, then it means that in future, there might be a huge loss due to holding of assets or goods. As a result, Saudi Arabia will lose millions of moneys in the future.
Regarding the housing sector in Saudi Arabia, the construction sector is currently affected since it is mainly characterized by a large number of laborers who work on site. Due to the implemented laws and regulations to reduce the spread of the virus, there is no possibility of continuing with the construction activities. It is essential to understand that the issuing of building permits in Saudi Arabia are still ongoing. However, other influences such as the restricted movement from one town to another has led to the decrease in the supply chain of the construction industry. As a result, there is a huge possibility that in future the real estate industry will incur losses and will then decrease the national revenue. Lastly, COVID-19 has resulted to the closure of a number of businesses in the country due to the inability to employ technology and lack of market, therefore the number of businesses in the economy has reduced. More so, there are no new business start-ups. As a result, this is an indication that there will be a continued rise of unemployment in future, thus a decreased GDP.
Recommendation
The occurrence of the identified impacts of COVID-19 on the economy of Saudi Arabia require immediate mitigation measures to reduce on the long-term negative impacts. The proposed recommendations will be based on the adopted approach of how the past performance can be used for the prediction of the future. The first recommendation is the identification of the leading economic indicators in this scenario. After these indicators have been identified, then an analysis of the outcome based on these indicators is conducted. This step is carried to ensure that all potential aspects that have the possibility of leading to any negative outcomes are identified and mitigation measures are formulated and implemented. In this case, three major leading indicators were identified which also related to the lagging economic indicators. Based on those identified indicators, the recommendations were formulated.
The first recommendation is the adoption of e-commerce in the business sector (). All businesses that can be carried out online, then it is advisable to take advantage of the platform. As a result, new businesses, especially the SMEs would then have the platform to identify a business niche and exploit it. Currently, most people are spending a lot of their time online, therefore, the online market is ready for those willing to venture into e-commerce. More so, various studies indicate that there is an increase in the online purchases for the online businesses. Therefore, the opportunity is viable. As a result, people would be observing the social distancing law due to COVID-19, while at the same time they continue with their businesses.
Another recommendation is the adoption of workers working in shifts. For the manufacturing industries, and the housing sector, employees could continue working in shifts to avoid any form of crowding. At the same time, they should implement the rules and regulations associated with the prevention of the spread of COVID-19. By working in shifts it means that various employees go to work on one day while the other group is left to go on another day. As a result, there will be reduced crowding in the workplaces and the manufacturing levels will continue being conducted. Therefore, there is a way t continue with the activities that have a huge impact on the future outcome of the economy, and once they are implemented, then the future will be secured positively.
Conclusion
COVID-19 affected the economy of Saudi Arabia negatively. Based on the information presented, almost all the dynamics involved in the economy of Saudi Arabia were affected. Some of the impacts were long-term while others were short-term. The discussed short-term impacts include a decrease in the demand of oil which is a significant contributor to the revenue of Saudi Arabia. Other short-term impacts include a decrease in the original prices of oil due to the decreased demand and continued production of oil. Lastly, COVID-19 also affected the labor force of Saudi Arabia since new laws were enacted regarding the working environment, for example a decrease in the working hours which resulted to a decrease in the salaries and wages. On the other hand, the identified long-term impacts include a decrease in the GDP of the country, lack of implementation of urgent measures to the economic crisis due to inadequacy of information regarding the period of the global pandemic. Another long-term impact identified is the reduction of tourism activities in the country due to the restriction of movements around the world.
Amid all these negative impacts, various recommendations have been proposed to reduce on the impacts of COVID-19. Some of these recommendations include the use of the approach of using leading economic indicators to identify the areas that have a huge impact on the future of the economy. In this case, the recommendations are based on the identified indicators and they include working in shifts and the utilization of e-commerce. Once the outlined recommendations have been implemented, then the impacts will be reduced.
References
Hedeshi, M., & Hartwich, F., (2020). COVID-19 impacts on industry: policy recommendations for the Arab region. United Nations Industrial Development Organization.
Los, V., & Ocheretin, D. (2019). Construction of business confidence index based on a system of economic indicators. In SHS Web of Conferences (Vol. 65, p. 06003). EDP Sciences.
KPMG. (2020). Economic Implications of COVID-19. KPMG Al Fozan & Partners Certified Public Accountants.
Nicola, M., Alsafi, Z., Sohrabi, C., Kerwan, A., Al-Jabir, A., Iosifidis, C., … & Agha, R. (2020). The Socio-Economic Implications of the Coronavirus and COVID-19 Pandemic: A Review. International Journal of Surgery.
Thaler, R. H. (2016). Behavioral economics: Past, present, and future. American Economic Review, 106(7), 1577-1600.
World Bank. (2020). Saudi Arabia’s Economic Update — April 2020. The World Bank Group. Retrieved 17 May 2020, from https://www.worldbank.org/en/country/gcc/publication/saudi-arabia-economic-update-april-2020