The effects of covid-19 on Saudi Arabia’s economy

Introduction

Covid-19, the emerging pandemic, has been recognized worldwide in recent months, where infections such as influenza and fatalities have risen massively . Undoubtedly, the pandemic has caused social, economic, and health crisis and is the biggest threat that the world has faced ever since the Second World War. Not only has the pandemic caused a major global health crisis, but it has also changed the way people work in their daily lives. According to World Health Organization (2020), Covid-19 has caused more than 2.5 million deaths globally, with total confirmed cases in Saudi Arabia at 376, 021 and a total of 6475 confirmed deaths as of 25th Feb 2021 (Figure 1) (World meter, 2020). Through this, the government has enacted certain measures to contain and safeguard the citizens against Covid-19 infection.  According to Nurunnabi (2020), these measures include; maintaining social distancing, proper sanitization, use of face masks at all times, travel restrictions, lockdown, and curfews. This essay explores the demographic, job, and market impact of Covid-19 in Saudi Arabia.

Figure 1: Coronavirus cases in KSA

EFFECTS ON GDP.

Saudi Arabia has been regarded as one of the largest producers of crude oil globally, accounting for a 12.4% production rate and with a production capacity of 12.2 million barrels of oil in a day in 2019(Statista,2020) (figure 2).

Figure 2: Global oil production by country

According to Mirza (2020), Saudi Arabia’s oil export production was 7.24

million barrels per day. However, The International Energy Agency (IEA) estimates that oil and gas sales for various main suppliers will plunge by about 50 to 85% in 2020, based on an oil price of USD 30 per barrel.  However, according to Collins (2020), the COVID-19 pandemic has decreased global crude oil demand and has negatively impacted domestic operations; through this, a deep slump is threatening the world’s largest oil exporter. As stated by Oxford Business Group (2020), the pandemic has also contributed to a substantial decrease in global oil demand, leading to a price drop from an annual peak of just under $69 per barrel on 6^th January to $26.82 by the end of March. In addition, provided that the supply of oil accounted for 63% of national revenues, the fall in demand for oil products would greatly add pressure on the total government budgets (Kitous, Saveyn, Keramidas, Vandyck., Santos, & Wojtowicz,2016)

Effects on Unemployment

Measures have been introduced throughout the world to prevent the epidemic from spreading further. Steps such as complete lockdown within the nation have caused major businesses to shut down completely. According to Plecher (2020) (figure 2), With a total population of 33million, most of Saudi Arabia’s inhabitants heavily rely on the oil and gas industries; as a result, huge unemployment rates have been recorded due to the foreclosure of enterprises within the nation as a result of the pandemic. Consequently, about 3.6% of the total population have been affected by the pandemic. Plecher (2020) further explains that in 2020 approximately 5.86% unemployment rate was recorded in 2020 (figure 3).

Figure 3: Saudi Arabia: Unemployment rate from 1999 to 2020

In addition, the unemployment level was clearly primarily due to government regulations to prevent the epidemic from spreading further throughout the country.

Effects on Markets

Without a doubt, Saudi Arabia’s market for crude oil was greatly affected by the pandemic. The pandemic greatly influenced the overall output of Saudi Arabia, which is renowned for commercial oil production; hence the overall government revenue in the country decreased. Besides, dairy products’ demand and consumption decreased significantly by 60-70 percent; in reference to decreased consumption of dairy products, large restaurants experienced low consumer engagement and decreased online orders centered on dairy products (Roy, 2020). On the contrary, from a previous study, according to Mirza (2020), during the pandemic, 41% of respondents identified that trade and online retail industries mainly benefited from the pandemic. According to Oxford Business Group (2020) (figure 4), A local online retailer firm claimed that the average revenue on a period of 10 days had risen by 200% since the outbreak of the Covid-19 while its average order value soared by 50% and an addition of 400 percent of users downloading their software.

Figure 4: Improvement of selected product /services during Covid-19 pandemic

Conclusion

In conclusion, the pandemic has caused major drawbacks globally but more significantly on Saudi Arabia’s oil-producing companies. However, the government has developed strategies that have helped foster economic cohesion with much of the suspension of industries and intense macroeconomic strain. Government financing has made it possible for industries such as the digital development market and the corporate sector to thrive even during the pandemic. Considering the various risks posed by the pandemic, especially in Saudi Arabia, the government has developed measures and means to protect human lives while promoting peace and security among all people living in Saudi Arabia. It is fair to state that Covid-19 has encouraged major innovation in the distribution of online services, considering the negativity that Covid-19 brings. Yet, more significantly, it has revealed the future advantages of e-commerce to millions of people in Saudi Arabia during the devastating pandemic era.

Reference

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Kitous, A., Saveyn, B., Keramidas, K., Vandyck, T., Rey Los Santos, L., & Wojtowicz, K. (2016). Impact of low oil prices on oil exporting countries. JRC Science for Policy Report.

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