Saudi Arabia, officially the Kingdom of Saudi Arabia (KSA), is the sovereign state in the Middle East with the largest economy in the area as of October 2018. It takes the 18th place in the world. Due to the discovery of oil in 1938, Saudi Arabia has become the world's second largest petroleum producer and exporter, and is considered an "energy superpower". The kingdom is categorized as a World Bank high-income economy and is the only Arab country to be part of the G-20 major economies. Saudi Arabia is a participant of Gulf Cooperation Council (GCC), is also an active member of the Organisation of Islamic Cooperation and OPEC. Saudi Arabia is a full WTO Member since December 2005.
Logically, the economy of the country is petroleum-based. However, Saudi Arabia also has a significant gold mining sector and other mineral industries, an agricultural industry based on vegetables, fruits, etc. and livestock. The country is dependent on foreign labor force, with about 80% of foreigners employed in the private sector. Challenges to the Saudi economy include halting or reversing the decline in per-capita income, improving education to prepare youth for the workforce and providing them with employment, diversifying the economy, stimulating the private sector and housing construction, and diminishing corruption and inequality.
More interesting facts from Saudi Arabian economy
The country has the third highest total estimated value of natural resources, valued at $34.4 trillion in 2016. The Kingdom controls the second largest oil reserves in the world.
The petroleum sector accounts for roughly 87% of Saudi budget revenues, 90% of export earnings, and 42% of GDP.
Another 40% of GDP comes from the private sector, as the government has encouraged its growth for many years to lessen the kingdom's dependence on oil.
The country plans to launch six "economic cities" in an effort to diversify the economy and provide jobs.
The Saudi Vision 2030 Program
This initiative was originally introduced in 2016 by the Crown Prince Mohammad BIN SALMAN and is devoted to the development and diversification of the country’s economy. The vision has 3 main pillars:
the status of the country as the “heart of the Arab and Islamic worlds”;
the determination to become a global investment powerhouse;
and finally to transform the country’s location into a hub connecting the 3 continents (Asia, Europe, Africa).
In addition to prioritizing innovative technologies like blockchain, the program aims to develop infrastructure, healthcare, tourism, education, as well as military spending and manufacturing.
Key milestones in the development of crypto industry in Saudi Arabia
It became known in September 2017 that the Islamic Development Bank will use blockchain-based financial platforms to reach out to Muslim customers; the Islamic Research and Training Institute started seeking to create sharia-compliant platforms.
In February 2018, Saudi Arabian Monetary Authority (SAMA) and Ripple announced an agreement to provide support for Ripple’s cross-border payments technology to banks in the KSA.
In July 2018, it became known that IBM partners with Riyadh Municipality will jointly develop a strategy to streamline government services and transactions on а blockchain.
Despite the positive stance on blockchain, on 12 August 2018, SAMA has announced that trading digital currencies is illegal in the country. The warning was issued by the Standing Committee for Awareness on Dealing in Unauthorized Securities Activities in the Foreign Exchange Markets.
In September 2018, the Saudi British Bank (SABB) has become the first entity from the KSA to join enterprise software firm and global banking consortium R3’s blockchain ecosystem.
The state cryptocurrency is a new challenge with other cryptos being prohibited
Media reports indicate that Saudi Arabia has been working on its own cryptocurrency for a while. Just recently, the state cryptocurrency was announced to have reached its design phase. Right now, the results are being evaluated by the SAMA. The cryptocurrency is due to be launched in 2019 according to the plan — by now, the name of the token and the details of the project are unknown. SAMA’s head Mohsen AL ZAHRANI pointed out that they are collaborating on the project with the UAE.
Mubarak Rashed ALl-MANSOURI, the governor of UAE’s central bank, said that the Kingdom decided to launch its own digital currency because it wanted to adopt the latest financial technologies. The governor says there are still a lot of challenges for adoption, where the consumer protection is one of the main issues. He recommended that both Saudi Arabia and UAE’s financial market regulators look into the regulatory requirements of introducing a new currency — which would serve as a legal and official medium-of-exchange (MoE).
This news is quite controversial in lights of a recent prohibition on other cryptos in the Kingdom, among with a step-by-step adoption of blockchain technology and collaboration with Ripple. It seems that the Saudi officials are very careful and consequent in their choice and adoption of financial instruments — they are not in a global isolation situation unlike their adversaries from Iran who didn’t prohibit the circulation of crypto, but also took several steps towards the issuance of a state-backed cryptocurrency.
According to the official statements, the authorities of Saudi Arabia and UAE intend to use the state-backed cryptocurrency to conduct faster and more cost-effective cross-border payments. Mostly, the digital currency is planned to be used for bank-to-bank transactions. The Saudites are known for strict rulership, laws, and autocracy — thus the development of the events, with the concentration of crypto regulation within the hands of the rulers seems quite logical. However, it doesn’t sound like the compliance to their own proposed diversification model, and that means the Kingdom is not ready for a true insight of decentralized financial instrument, still considering it a “high risk”. It seems that with every interference of governments into regulating the crypto markets, the genuine idea of decentralized currencies is slowly fading away.