Inequality of Development of Saudi Arabia

Inequality of Development of Saudi Arabia Introduction Development involves integration of modern advances in technology, democracy, social organizations, values, as well as, ethics into a single humanitarian project of making the world a better place to live. In the strongest sense, development involves using the resources of a country to improve the living standards of the poorest citizens.Advertising We will write a custom essay sample on Inequality of Development of Saudi Arabia specifically for you for only $16.05 $11/page Learn More In the weakest sense, development can be described as the use of a country’s productive resources for the benefit of a few individuals. Economic development refers to â€Å"a multi-dimensional process that not only involves economic growth but also a re-organization of the entire economic system alongside the social, political and economic spheres†. Consequently, development involves both economic growth and change. In this context, change means attai nment of specific ideals of modernization which include increase in productivity, modern knowledge, social/ economic equality, as well as, improved institutions. In strict economic sense, development has traditionally been associated with an increase in the production capacity of a country as measured by its GDP. However, GDP is not a good measure of development since it does not take into account issues such as, health, urbanization, equality, external dependence and institutional development. A more effective measure of development is the human development index (HDI). Using the HDI involves assessing a country’s level of poverty, unemployment, delivery of basic services, as well as, inequality. This paper focuses on development by assessing the level of inequality in Saudi Arabia. The distribution of national income and delivery of basic services will be discussed. Overview of Saudi Arabia Saudi Arabia is the second largest Arab country in the world and the largest in west ern Asia. Saudi Arabia is bordered by Jordan, as well as, Iraq in the north. It is also bordered by Kuwait, Qatar, as well as, United Arab Emirates in the east. The Red sea borders the country in the west while Oman and Yemen lay to the east of Saudi Arabia. Saudi Arabia covers a land area of approximately 2.2 million km2. The country has a population of approximately 27 million people.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Since its inception in 1932, Saudi Arabia operates under an absolute monarchy system of government. The king performs legislative, executive, as well as, judicial functions. The king also serves as the country’s prime minister. Consequently, he leads the council of ministers with the aid of two deputy prime ministers. Key positions in the government are held by the members of the royal family. Islam is the official religion in Saudi Arabia. The social, political and even economic policies are based on Islamic principles such as Islamic banking system. Saudi Arabia has a relatively stable political environment as compared to other Arab countries. It also enjoys strong political ties with foreign countries. However, Saudi Arabia has recently been associated with terrorist activities. This has negatively impacted its relationship with western countries, especially, the United States of America. Saudi Arabia possesses the second largest oil reserve in the world. Thus, it is also the second largest exporter of oil in the world. Currently, the oil industry accounts for nearly 90% of the country’s exports. The government of Saudi Arabia derives 75% of its revenue from oil exports. Inequality and Economic Growth in Saudi Arabia In development, inequality refers to the disparities or differences in the distribution of income and economic resources of a country. It also includes disparities in the provision of basic services . Thus, inequality can be witnessed among citizens (vertical inequality) and between different regions in the country (horizontal inequality). In 2010, Saudi Arabia’s economic growth (GDP) was estimated to be 6.4%. Through years of investments and increased oil exports, Saudi Arabia has always experienced steady economic growth. The rapid economic growth stimulated development in various sectors of the country. However, the development resulting from the rapid economic growth varies from region to region and from sector to sector. To begin with, the government has always focused on developing the public sector at the expense of the private sector. Oil as the main source of revenue in Saudi Arabia is considered a national resource. The oil industry contributes up to 45% of the country’s gross domestic product. The private sector, on the other hand, contributes only 40% of the gross domestic product. Given the significance of oil in the country’s economic growth, the government channels most of its funds towards the development of the oil industry. However, the public sector where the oil industry is classified is mainly dominated by the royal family.Advertising We will write a custom essay sample on Inequality of Development of Saudi Arabia specifically for you for only $16.05 $11/page Learn More The royal family has great control over the companies that drill and market the country’s oil. Thus, a large percentage of the oil and gas resources are controlled by the royal family and a few influential business men who account for less than five percent of the country’s population. Additionally, massive investments in the public sector in terms of jobs and salary increments have only benefited a few. This is because majority of Saudi Arabians are employed in the private sector. In light of these disparities, the government through its fourth development plan began to encourage private enterprise in 1950s. The government supported private investments by offering financial assistance and economic incentives to promote the growth of private firms. Consequently, the contribution of the private sector to non-oil GDP rose to 70%. However, the growth in the private sector has since been realized only in the agriculture, banking, as well as, construction industries. The oil industry is still dominated by the royal family. The first two development plans that were implemented in Saudi Arabia focused on building infrastructure. Consequently, the road network and electricity generation expanded three fold. However, infrastructure development was mainly undertaken in the cities/ urban areas and the oil mining centers. The rural areas where the poorest and minority groups live still lack adequate infrastructure in terms of roads, railways and electricity. Regional development in Saudi Arabia is relatively fair compared to other Arab countries. The government promotes development in all regions i n order to ensure equality. For instance, the government has announced plans to build six new industrialized cities by 2020. The cities will be spread across the country and will increase per capita income in each region to $33, 500 by 2020. Income Distribution Income distribution describes the manner in which a country’s GDP is shared among its population. In 2010, Saudi Arabia’s per capita income was $24,200, which was among the highest in the world. However, per capita income is not a good measure of income distribution since the actual funds might not necessarily reach the poorest citizens. The high poverty rate in Saudi Arabia is an indication of the inequality in income distribution.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The number of Saudi Arabians who can not afford food and decent housing continues to rise annually. However, the government denies claims of high poverty rates and hardly issues data on the country’s poverty levels. In 2010, over 11% of Saudi Arabians were not employed. The unemployment rate is likely to be higher since women are never included in Saudi Arabia’s statistics. The royal family that comprises approximately 6,000 individuals controls over $400 billion of the country’s currency. In general, 90% of the country’s income benefits only one third of the population. The royal family is the upper class, and approximately 20 million out of 27 million citizens belong to the lower and lower-middle class. Following the decline in economic growth in 1950s, and rising discontent among the citizens, the government decided to improve distribution of the country’s wealth. Thus, in the fourth development plan, the government embarked on privatization of state owned corporations. Additionally, the private sector was allowed to participate in the telecommunication and energy industries. The aim was to increase the private sector’s ownership of state enterprises to 70%. Through privatization, many Saudi Arabians have had a chance to own state corporations and share the income generated by such corporations. However, not all citizens are able to participate in the privatization due to the high poverty levels. Additionally, corruption in the government limits the citizens’ chances of owning state corporations through privatization. In most countries, the tax system is used to influence the distribution of national income. Governments often use progressive taxes to redistribute income from the rich to the poor. Tax rebates and subsidies are often given to the poor in order to improve their disposable incomes. As a planned economy, Saudi Arabia focuses on equal income distribution through fair taxes. The government does not levy taxes on incomes earned through employment. Additionally, individuals who are not involved in any business activity are exempted from interest and dividend taxes. However, only residents of Saudi enjoy the income tax relief. Saudi nationals who operate businesses involving commercial goods within the Kingdom of Saudi Arabia are subject to an Islamic tax. The tax is referred to as Zakat and is charged at a flat rate of 2.5% on both property and income. Corporations and individuals who engage in business activities pay an income interest of 20%. In this context, business activities include financial services, professional activity and trading activities. Employed Saudi Arabians are expected to contribute 9% of their income to the national social security fund. The fund caters for old age, disability, and death. However, civil servants, farmers and domestic savants are exempted from these contributions. The tax system is fair since it leaves citizens with high disposable income. H owever, it promotes inequality since it can not redistribute income from the high income earners to the low income earners. Additionally, only the employed citizens are able to benefit from the tax reliefs. Provision of Basic Needs A country is considered to be developing if its citizens are able to access basic services such as education, health care and security. In most countries, the basic services are defined as public goods. Consequently, they are provided by the government in order to reduce inequality in accessing them. The commitment of the government of Saudi Arabia to provide basic services and social safety nets to its citizens can be illustrated by the country’s development plans. Saudi’s third development plan which was implemented from 1980 to 1985 promoted development of infrastructure in education, health, as well as, social services. The fifth development plan was implemented between 1990 and 1995. The plan led to the improvement of the countryâ€℠¢s internal security. It also led to efficiency improvements in the provision of social services, as well as, regional development. Between 1996 and 2000, the government implemented the sixth development plan. The sixth plan focused on reducing the cost of providing basic services without reducing the number of services provided by the government. From 2005 to 2010, the government implemented the eighth plan which focused on education and empowerment of women. The plan led to construction of new universities and collages. The current plan focuses on expansion of education, health and housing sectors. The objectives of the current development plan will be achieved by 2014. In the context of equality, the effectiveness of these development plans can be explained as follows. Education The government of Saudi Arabia has taken cognizance of the importance of education in development. Consequently, free education is provided by the government in order to enhance access. Enrollment in Saud i’s primary schools is at 98.1%. In order to proceed from primary to intermediate level, students must qualify by passing an exam. This leads to a reduction in enrollment at the intermediate level to 95.9%. At the secondary level, the enrolment further drops to 91.8%. In general, these percentages indicate that there is equality in accessing basic education. Additionally, the literacy rate is above 90%. Even though access to basic education is high, the quality is still low. In particular, the curricular is dominated by religious teachings and rote learning. Consequently, most high school and collage students lack technical skills that are needed at the workplace. Access to high quality education remains the preserve of the rich who are able to send their children to overseas universities. Health Care Health care services are financed by the government. However, the medical services are delivered by both the government and the private sector. The ministry of health oversees t he provision of preventive, curative, as well as, rehabilitative health care services. The services are provided through a network of over 1900 public medical centers. There are also 220 public referral hospitals that offer specialized treatment. The ministry of education provides health care to students while the ministry of labor and social affairs provides rehabilitation health care. Overall, good access, as well as, effective care has been reported for services such as immunization, maternal care, as well as, disease control. The high access rate is an indication of equality. However, the poor access to treatment for chronic diseases is an indication of inequality. Water Water is a very important commodity due to its scarcity in Saudi Arabia. In order to increase access to clean water, the government has invested heavily in water distribution, treatment of waste water and desalination. Additionally, the government finances the provision of water for domestic use. However, majori ty of Saudi Arabians can not access clean water on a regular basis. For instance, statistics for 2011 indicates that residents of Riyadh, Saudi’s capital, were able to access water only once in every three days. In Jeddah, the citizens were able to access clean water only once in every nine days. It is only the rich, especially, the royal family who can access clean water on a daily basis. Human Rights The socio-cultural norms and the Islamic laws that govern Saudi Arabia restrict the freedom of women. Such restrictions are reflected in women’s participation in economic activities and the political process. The law in Saudi Arabia grants women the right to own land, property, as well as, to enter financial contracts. However, women’s rights to ownership can hardly be exercised due to social norms and other laws. For instance, women who intend to operate a business must employ male managers before receiving licenses for their businesses. Additionally, women are l egally under the guardianship of their male counterparts. This limits women’s ability to independently own property or a business. Apart from access to economic resources, the inequality between men and women also exists in education. For instance, the literacy rate for men is 95% while that for women is 89%. Saudi Arabia’s Relationship with the World Globalization is an integral aspect of every country’s development. As economies embark on economic growth, they must also search for new markets for their surplus produce. This has necessitated international trade and globalization. For a country to effectively participate in international trade, it must have good foreign relations with its trading partners. In light of this requirement, the government of Saudi Arabia has focused on fostering strong political and economic ties with the rest of the world. This can be illustrated by the country’s membership in world organizations. In 1945, Saudi Arabia became a member of the United Nations (UN). Saudi Arabia is also a â€Å"member of the Arab League, Gulf Cooperation Council, Muslim World League and the Organization of the Islamic Conference†. As a leading oil producer, Saudi Arabia belongs to the OPEC group of countries. Saudi Arabia plays a key role in the formulation of OPEC’s pricing policy. Generally, the country focuses on stabilization of international oil prices through OPEC in order to protect the interest of Western economies. Saudi Arabia is also a member of the World Trade Order (WTO). From 1970s to 2002, the government of Saudi Arabia spent over $70 billion in foreign aid. The funds were used to support development projects in various countries in Africa, Asia and the Middle East. However, Saudi Arabia’s generous foreign aid has been associated with promotion of Wahhabism. Wahhabism is an Islamic sect that is linked to terrorist attacks and intolerance to non-Muslims. Most Arab countries consider Saudi Arabia to be a close ally of western countries, especially, America. For instance, in 1991, Saudi Arabia assisted the US in the Gulf War by hosting the latter’s troops. Saudi Arabia’s association with America has always been opposed by other Arab countries and some Saudi nationals. Consequently, Saudi Arabia has since limited its association with America. The relationship between Saudi Arabia and America suffered a major setback when the latter associated the former with the Al-Qaeda and Taliban terrorist groups. In the Arab world, Saudi plays an important role in promoting peace. For instance, the country supports America’s inversion of Iran in order to destroy Iranian nuclear program. Saudi Arabia has also helped to mediate peace between Palestine and Israel. Currently, the main trading partners of Saudi Arabia include USA, Japan, China, as well as, South Korea. Overall, Saudi Arabia has a good relationship with the rest of the world. This has promoted equalit y in Saudi Arabia by enabling its citizens to benefit from globalization. For instance, Saudi nationals are able to access higher education in foreign countries. Additionally, the country’s citizens can access foreign goods and markets. Causes of Inequality in Saudi Arabia Political system The monarchy system of governance is partly blamed for the escalation of inequality in Saudi Arabia. To begin with, non- royal family members have been locked-out of the leadership of the country. The democratic space is limited and views that contradict the perspectives of the ruling class are never tolerated. Additionally, formulation of economic policy is dominated by the ruling class. Lack of public participation in policy formulation has resulted into implementation of policies that promote inequality instead of reducing it. Lack of democracy also promotes corruption within the royal family and government cycles. The ruling class takes advantage of their positions to enrich themselves with the country’s oil and gas resources at the expense of the citizens. Expenditure by the royal family, for instance, accounts for a large portion of the country’s budget. Corrupt government officials also illegally acquire resources that are meant to benefit the most vulnerable groups. Wealth Concentration Less than a quarter of Saudi Arabia’s population controls more than three quarters of the country’s wealth. In particular, the royal family and a few business men control most of the country’s wealth. Concentration of wealth in the hands of a few is partly promoted by the tax system. The government charges a fixed income tax for all income groups and businesses. Since the tax is not progressive, income can not be redistricted from the rich to the poor. The tax system has significantly contributed to the development of an extremely rich class and an extremely poor class in the same economy. The middle class is consistently reducing in size. Dev elopment Patterns Empirical studies reveal that countries experiencing slow development have relatively low levels of inequality. However, as a country begins to experience rapid growth, more wealth is generated and owned by the owners of capital, thereby causing inequality. As a rapidly growing economy, Saudi Arabia has been able to generate a lot of wealth in the last decade. The government’s commitment to expand the private sector has promoted capitalism and ownership of private property. Consequently, the balk of the country’s income is controlled by the owners of capital. Inequality is perpetuated by the lack of effective social welfare programs to reverse the inequality in wealth distribution. Responses to Inequality The government of Saudi Arabia can consider the following recommendations to reduce both vertical and horizontal inequality in the country. First, equity can be achieved by dispensing the revenues accruing from oil and gas directly to the citizens. I n this case, the uniform transfer of cash to citizens will act as a progressive tax. Thus, it will help in reducing the rich to poor disposable income ratio, thereby reducing vertical inequality. Second, in order to prevent widening of the gap between the rich citizens and their poor counterparts, the government should promote productivity, as well as, export growth in the manufacturing and agricultural sector. The government can also create jobs in the public sector for the citizens rendered jobless in the private sector. Pro-poor policies can also be adopted by the government to improve the socio-economic status of the poor groups. Third, horizontal inequality can be reduced through equitable sharing of revenue between the central government and the local governments. In a nutshell, the oil revenue should be decentralized. Conclusion Saudi Arabia is one of the richest and fastest growing economies in the Arab world. The country derives over 75% of its revenues from its vast oil re serves. Despite having a lot of wealth, inequality and poverty still exist in Saudi Arabia. High levels of inequality exist in the distribution of the country’s income. Most of the financial and other economic resources are controlled by the royal family and a few business men who account for less than one quarter of the population. Even though basic services are provided with relatively high levels of equality, the quality of most services such as education and health is still poor. The relationship between Saudi Arabia and the rest of the world remains strong. The main causes of inequality in Saudi Arabia include the political system, wealth concentration and development patterns. The inequalities can be addressed through equitable distribution of national income and implementation of pro-poor policies. Ahmed, Syed. Professional Insights: Business Women in the Kingdom of Saudi Arabia. International Journal of Equity, Diversity and Inclusion 30.7 (2011): 610-614. Print. Alb atel, Abdullah. 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