Meta-Analysis of Kingdom of

Saudi Arabia’s Economy and

Their Religious Based
Strategies
Presented to the Faculty of Business and Economics
Czech Academic City – Erbil

January 16th, 2020

 Saudi Arabia, legally known as the Kingdom of Saudi Arabia (KSA), is a country in the
middle that is mostly constituted from the Arabic peninsula. Saudi Arabia’s government system
is absolute monarchy with a legal system of Islamic Shariah law and parts of French and
Egyptian law present. Saudi Arabia is an Islamic country, Sunni Islam to be specific. However,
the main ruling religion of Saudi Arabia is very noticeable and transparently affects the business
and business strategies.

For starters, Saudi Arabian banks cannot charge interest on their clients as the Shariah
has forbidden this. Compared to western investment this is one huge difference regarding
business and economy of the country. Another notable difference is the involvement of women
in business and in the work place. It was only as of 2019 that women in KSA could drive. There
exists one other factor, and the most important one, the majority of the wealth is either owned or
goes back to the royal family.

Saudi Arabians use religion in every aspect of their internal businesses. It is true that they
are forced to follow Islamic Shariah law by the government and the religious police, the
entrepreneurs and managers must take into consideration that their strategies and plans must be
fully compatible with the religion. In KSA, religion and the royal family are two things to not be
criticized, let alone mocked. One hint of a manager’s strategy to go slightly out of the Shariah
line, it would be considered an insult and might end up getting incarcerated for it.

Westerners find it very hard to adapt to these conditions as in the western countries,
religion and work have been vastly separated and are not related at all. While in KSA, everything
is bound by their religion. Saudi Arabia is the birthplace of Islam, so out of all places they should
be expected to be like that. The way Saudi Arabia incorporated religion into the business could
be both a blessing and a curse.

A blessing as in, it is easy for others to understand all the rules and requirements to
follow. A curse as in, it will create many obstacles and drawbacks for any business. There are
even some products that simply banned because of that. That means it also reduces market
possibilities for certain products; all that has leads to less way for the government to generate
income from. Some products that simply could not be sold in KSA are alcohol for example.
Another source that gets blocked is the interest rate that the people cannot take due to religious
reasons.

On the contrary to that, this religion and religious approach is also a money maker as
well. The Muslim pilgrims who go to Mecca for the annual Islamic ritual, known as Hajj,
generate up to $12 billion annually. In addition to that amount, the pilgrims, who we can also
refer to as tourists, also contribute to the local economy of the country as well. If these
pilgrims/tourist, who add up to 2.4 million persons each year, pay $10 for a hotel per night for
the 10 days they spend in Mecca, that adds up to $24 million per day, $240 million in total. That
is if they pay only $10. Those who go to Hajj or the Kurds who have gone to Hajj have brought
back gifts and souvenirs from there. Again, this makes more money for the country.

That Hajj pilgrimage only makes up three percent of the total GDP of Saudi Arabia. We
understand that the religion does make KSA money, but at the same time, if the religious
strategies were so bad, how come Saudi Arabia’s GDP of 2019 is approximately $782 billion.
The Islamic way of trade is strange, yes, but definitely not inefficient. Furthermore, there is the
argument that Saudi Arabia has oil. That is true too.

The oil sector has taken up the biggest part of the GDP, which around %42 of the total.
The oil sector is also accountable for %90 of the total export income, as well as %88 of the
budget revenue. Saudi Arabia is also famous for owning the largest oil reserve in the world, as of
2017, they were holding in %18 of the world’s total oil. The petrol sector is owned and run by
ARAMCO, a state owned company. KSA’s crown prince, Muhammed Bin Salman has also
motivated the private sector to come into the game as well, but not the oil game. The crown
prince of Saudi Arabia would rather have educational services, health care, and
telecommunications to be handled and owned by the private sector. As there is this ideology in
the Middle East that once if it goes private, then all they will care about is profit. This is a worry
for the people; as supposedly, right now the government is sharing the wealth with the people.
This is how it is supposed to be, but anyone who criticizes the government, i.e. the royal family,
simply goes to jail. Some even got it worse.

Anyways, getting back to the beginning of how Saudi Arabia has become more
developed economically, and using Islamic based strategies and trade rules. The startup of the
economic success of KSA started in the late 1960s and early 70s. This was largely due to the
large demand of oil after the Second World War. Before becoming an oil industry and having an
established and unified country, the Arabic peninsula were and agricultural area. After the
unification and establishment of the modern day Kingdom of Saudi Arabia that we are familiar
with, and with the ending of World War II, was when KSA took the huge step of transforming.
They switched from exporting dates and wheat to exporting oil, from being a group of tribes in
the Arabic Peninsula to a developed country. KSA used the funding and revenue generated from
the petroleum industry and to build roads and means for communication. KSA also did improve
on the agriculture as well, they built in a way that they can actually provide for the country; even
if the country does not import fruits for a certain reason, the agriculture sector can provide for the
people.

Nonetheless, the strategies used to achieve what has been achieved; all have abided the
Islamic laws for trade. Islamic trading does give KSA slight obstructions for trading, but it also
has its beneficial factors. One of those factors is that, the trade laws used in Islam do not go
against trade laws of any other place. In partnerships for instance, when there is a loss, risk is
shared along with profits. That idea when implied in a bigger stage, even in the case of shares
and shareholders, losses are shared alongside profits depending on the size and quantities of
owned shares. Islamic laws also allow any product to be traded with, whether bought or sold,
under one condition. That condition is that this trade is not prohibited if there is a chance of loss
in the trade. This explains why interest is prohibited, because when money is put in a bank, it just
increases even if the money has been used to invest.

There are many exceptions to that “only allowed if chance of loss exists” law. These
exceptions are that the industry of trade, as well as the products and services prohibited by Islam.
Examples of such products are alcohol, adult films, night clubs…etc. In addition to that, Saudi
Arabians are also prohibited from taking profits from firms who deal in these as well. Let’s
assume that 25% of the total returns from investing in a firm is from prohibited services, a Saudi
Arabian is not allowed to take it, nowadays the government encourages the people that this 25%
to go back into charity.

This set of rules, laws, and ethics of Saudi Arabia has got them here. Their economic
situation is actually impressive, they are ranked 18th on world’s best economies. This is due to
the successful religious based strategy they have been using from the beginning. Achieving such
success is very difficult for any country, but to do it in the Middle East where there is way less
stability when compared to the western countries. Perhaps this religious strategy best fits the
region of operation.

There are some arguments that Saudi Arabians are fatalists, as in they largely believe in
fate and acts of God. One might assume that if this is true, then it makes KSA very lucky. It
might be true and might not be true. It is no argument that these Saudis do use the term “Insha’
Allah” quite a lot in their daily lives as well as in business. Insha’ Allah translates directly to
“God Willing”. Saudis get much criticism for using that in business, because when they say that,
people assume that they Saudis will sit back, relax and let God take care of their duties; the
assumption is that Saudis believe in the totality of “if God wishes it, it will happen”. On the
contrary to that belief, Islamic ways make them do the opposite of that. Their belief in God’s will
makes them even more motivated because Muslims are familiarized the God will aid you if you
work in a “Halal” way. As in the harder they work the bigger the reward from God.

The usage of Saudi Arabia of religion in their business strategies applies to the way they
motivate the staff as well. In Islam, their income must be made in a Halal manner. There are
many conditions for an employee to make his or her paycheck Halal; some of those are as
follows. First thing to do is to show up on time. Second, be fair. Third, do not waste time during
work. Fourth, respect everyone. Fifth, do not take bribes. There are many more conditions, but
they all lead to an efficiency and productivity from the workforce.

These conditions generally lead to ethical employees who show up and leave on time, or
as they are required to do. In theory the organizations must not be worried about employee theft,
a large issue for firms on global level. Nonetheless, Saudi Arabia cuts the hands of thieves. The
employees will also complete their tasks, duties and responsibilities if they abide to the
conditions. “To be fair”, this is directed to those who works in service sector, for example police.
Theoretically, the employees must not loiter during working hours, as this also applies to theft in
Islamic labor law. Respect is also a very important in Islam in general, let alone in the
workplace. One more KSA law that is religion based and affects the strategy in HR management,
is the fact that all employees get around 30 to 60 minutes of rest during each prayer time. This
rest depends on how far the nearest mosque is that the employees can go to. The government has
also allocated and created a religious police force to assure that this break is given by all firms,
organizations, and companies whether they be private or public. This break is given in the name
of allowing employees to go pray, while sometimes also gives them a chance to loiter, eat,
smoke or even have a chat with colleagues and friends.

Furthermore, there is also the factor that women have no freedom or liberty in KSA.
Although nowadays the government has changed that and the percentage of women working in
the country are on the rise. With the appointment of Muhammed Bin Salman Al Saud as king in
2017, women’s rights have only been on the rise. Under King Muhammed bin Salman’s rule,
women also do not require an approval from their walis to travel somewhere. A wali is a male
relative to the woman, whether it is the brother or the father, who is responsible for the woman.
Basically, KSA has disregarded gender equality and has not given women the same rights as
men. Only about %17 percent of the total Saudi workforce is women. The government is
planning to raise this figure up by %8.8 by the end of 2020. In 2019, official statistics from the
Saudi government showed that most of the women working, are working in retail sector, %40 to
be precise. It is not good for the country to not let women work alongside the men as this
increases employment rate, and unemployment is a sign of a weak economy.

Another topic of discussion is the Saudi Arabian development plans. The first one started
in 1970, and it lays out the development plans for the 5 years afterwards. The plans are changed
every 5 years. The first plan that was made effective on September of 1970, laid out plans that
the GDP must increase by %9.8 each year constantly, and the majority of the growth must be
from other sectors than oil. They ended up, one could say, getting lucky because the oil industry
was booming at unbelievable rates, rates the planners never thought of happening. I guess their
fatalism did work. The GDP from the sectors excluding oil had about a %12 increase over the
course of the five years.

The second plan, which was from 1975 to 1980, had similar goals to that of the first plan
with one notable addition, to improve civilian living conditions. It was their goal to provide free
education and healthcare for the people. It was also in this stage that the majority of the roads
were built. Unlike the first 5 year plan, this time they expected large amount of revenue from
exporting oil to foreign countries, hence they had a bigger budget for expenditure.
 The third development plan, 1980 to 1985, the main objective was to be able to adapt to
and control the changes of the rapid development and tried to slow it down a little bit. For the
next five years, the government only finished the buildings that had already been started to be
constructed as they did not want to make any more buildings. However, this did not mean that
they did not civilians to build houses and make small shops and restaurants. Anyhow, during this
stage the oil revenues dropped, and so did the annual GDP with. On the other hand, other sectors
saw rapid growth, like manufacturing, industrial, and agriculture sectors. In this stage, the
government’s main focus was on human development and building a strong infrastructure.

The former three stages and plans are referred to as the development stage. In the plans
after that from 1985 to 1995, the main concern was to build a human resource stronghold. The
government/monarchy wanted Saudis to be able to perform the jobs available. The goal was to
reduce foreign employment inside Saudi Arabia. The government wanted Saudi experts in all
sectors of the country whether it is agriculture or oil. Furthermore, the Saudi government’s plans
for these 10 years were to also improve the living conditions of its people, regarding healthcare,
education and security. Simply put, the 10 years from 1985 to 1995 were dedicated to human
development.

The sixth five year plan, from 1995 to the year 2000, the plan was to apply the Shariah
law in its totality. The government used the common religion of Sunni Islam to gain social
stability. They also use Islamic law to get security for the region as well. It was also at this stage
that most of the foreign workers were replaced by Saudis. This is where the trade law was
redefined based on Shariah law. Everything was going steady for KSA until 1997, when oil
prices dropped by %40 of its original price. The price drop proved very difficult for the
government and its expenditures, it kicked them off balance. Nonetheless, there are some claims
that if it was not for the Islamic law, KSA would have lost internal peace and stability with
sudden slump of the economy.

As for the seventh five year plan, from 2000 to 2005, the plans were pretty much similar
to those of the sixth five year plans. To make sure everything goes based on Islamic Shariah law,
and so on, with one little exception, to improve the services provided for the Islamic pilgrimage.
The things about using the common religion of the whole nation as a useful tool of ethically
running a nation is that, the nation feels a strong urge of loyalty towards the country. Anyhow,
this time Saudi Arabian government’s plan was to also push the underdeveloped areas towards
development as well.

The major result expected from the eighth five year plan, from 2005 to 2010, was to
diversify the economy and to spread the wealth. The plans also included employment plans in
order for to get the unemployment rate to a minimum, specifically amongst the youth. Although
in this time period, some certain sectors were not adapting sufficiently with the technological
advancements. The government is not to be blamed as technology is a factor that is dynamically
changing regardless of the fact that they actually did plan for adaptation. They failed to adapt
mainly due to lack of skilled employees who could work with the machinery, but Saudi Arabia,
with its continuous Human Resource development were able to adapt towards the beginning of
the next five years.

The ninth five year plan though, was almost like a summary of the former plans in its
main goals. The plans included: improving living standards, spread the wealth throughout the
country, and so on. But the main important thing that is present in all five year plans is that
everything must follow the Islamic Shariah law, and that is the way Saudi Arabia got where they
are now.

To sum things up, the Kingdom of Saudi Arabia is the country covering up most of the
Arabic Peninsula that is a monarchy with absolute Islamic rule. The country is the birthplace of
the religion and uses it in every aspect of the country, from running the country to economics and
trade. Like many other factors, this has both advantages and disadvantages, but has also made a
miracle of a job with a country like Saudi Arabia, from a group of nomads to one of the
wealthiest countries in the world.
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