This is the detailed PESTLE Analysis Saudi Arabia, founded in 1932 by Ibn Saud is located in the Arabian Peninsula, known for its oil-based economy. This article entails discussion of PESTLE analysis for the country, taking the different factors into consideration. These factors determine the business environment t that is available for the existing organizations and new entrants.
Political Factors
The political system in Saudi Arabia is different from the democratic nations, as the country follows monarchy-based rule. Analysis of the current state of the country shows the presence of moderate degree of political solidity (Stares & Ighani, 2017). There remains a risk of an uprising, as in 2011 there were protests that turned violent in the Arab region.
Even though the country was not involved in the conflict, the instability caused by the violence in the Middle East caused threat to political stability. In the long term, the monarchy-based rule is likely to remain stable, indicating no significant issues for political stability. This is a positive indicator for organizations as political strength is connected to economic development.
Economic Factors
Saudi Arabia is regarded as having a stable and growing economy, and the country has maintained economic growth through the years. For many years, the economic development of Saudi Arabia was dependent on the oil-based revenues. The changing trends in the global front have encouraged the country to adopt a wider economic vision.
Some of the segments that are in growing phase include entertainment, sports, financial and green energy and the government is hoping to attract investors for these sectors. The non-oil based activities are also expected to achieve growth, indicating positive economic trends. GDP growth of Saudi Arabia was linked with the performance of the non-oil sectors.
Pandemic has affected various economies across the globe and Saudi Arabia was also impacted by the slowdown of economic activities. The SMEs were in particular influenced by the slower economic growth, leading to reduction of staff and other budget cuts. Moreover, the oil sector also experienced low revenue due to decreasing oil prices (Alharbi, 2021).
Increasing oil production combined with the higher oil prices has supported the country in counterbalancing the impact of COVID and its related issues. The future outlook of the country’s economy shows positive economic growth as the economic diversification is expected to further increase the GDP.
Social Factors
Each country has a different set of dynamics for its external environment, arising out of the varied cultural and social patterns. Saudi Arabia has a high ratio of foreign workers, which brings cultural diversity to the country. In addition, more than 50% of the country’s population is in the age bracket of 25-54, showing the availability of local labor force.
COVID resulted in higher unemployment, financial issues for households and lower spending power of the consumers. Rising ratio of poverty was another area of concern for businesses that were being affected by the lower consumer spending. The entertainment sector and flight operations were in particular impacted during the pandemic and subsequent lockdown (Islam & Alharthi, 2022).
The business interaction with stakeholders needs to be guided by the cultural and religious beliefs. In addition, the business products and services have to be developed according to the values and trends of the population. The urban regions and the major cities serve as the center for business activities and the rising urban population offers business growth opportunities.
Technological Factors
The country has shifted focus on expanding the economic growth and decided to make investment in the technology sector. There has been investment made in the R&D section, however, further investment is needed to fasten the pace of innovation. Furthermore, emerging technologies have also been a focus on investment.
The government has developed Vision 2030 aims to bring digital information and knowledge-based economy as a part of the country’s future development plans. Pandemic has disrupted business activities, but at the same time heightened the trend of digitalization. This trend can be used by organizations to connect to the consumers and other stakeholders (Mati & Rehman, 2022).
Legal Factors
The decisions made by the monarch are aligned with the Islamic ruling, thus providing the foundation for legal framework. In addition, the policies of the government are aligned with the economic development vision, creating the legal environment for the organizations. The legal environment of Saudi Arabia has both positive as well as negative aspects.
The government has adopted some policies that are in favor of the local population; however, these policies require changes in talent management process for the businesses. For example, ‘Saudization’ was initiated to ensure the inclusion of Saudi nationals in gaining access to employment through allocation of specific quota and businesses had to adapt to these policies.
Managing a business in Saudi Arabia requires following the regulations related to employment. The implementation of fee for expatriates is one aspect of doing business in the country. An increase of fee from SR400 in 2018 to SR800 in 2020 created issues for the expatriate workers, consequently leading to their departure from the country (Nasrallah, 2022).
A positive legal development is illustrated through the introduction of reforms that facilitate the businesses to flourish. The domain of intellectual property and its related regulations have also been improved. Furthermore, policies changes have been introduced to increase the inclusion of females in the workforce to fulfill Vision 2030 goals.
Environmental Factors
The government of Saudi Arabia has recognized the importance of taking necessary steps to protect the environment as climate change carries serious implications. A reflection of the emphasis on being eco-friendly is the Saudi Green Initiative. The Vision 2030 also incorporates the themes of environmental protection.
A few examples are renewable energy projects and green Riyadh (Mati & Rehman, 2022). The government has shared the aim of achieving net zero emissions by 2060, which is also a part of the Vision program. Organizations in the country have to adhere to the environmental policies to continue business operations in the region.
Conclusion
The expansion of Saudi economy through non-oil related sectors, along with the strong economic growth and political stability offers favorable business environment to the organizations. The country still needs to enhance its technological capability, which would further boost economic growth.
References:
Alharbi, R. (2021). Impact of COVID-19 on Saudi Arabia’s economy: evidence from macro-micro modelling. PSU Research Review, (ahead-of-print). https://doi.org/10.1108/PRR-08-2021-0039
Islam, M. M., & Alharthi, M. (2022). Impact of COVID-19 on the Quality of Life of Households in Saudi Arabia. International Journal of Environmental Research and Public Health, 19(3), 1538.
Mati, A. & Rehman, S. (2022). Saudi Arabia to Grow at Fastest Pace in a Decade. International Monetary Fund. Retrieved from: https://www.imf.org/en/News/Articles/2022/08/09/CF-Saudi-Arabia-to-grow-at-fastest-pace
Nasrallah, T. (2022). 1.05m foreign workers left Saudi market due to expat fees since 2018. Gulf News. Retrieved from: https://gulfnews.com/world/gulf/saudi/105m-foreign-workers-left-saudi-market-due-to-expat-fees-since-2018-1.85060348
Stares, P. B. & Ighani, H. (2017). How Stable Is Saudi Arabia? Council on Foreign Relations. Retrieved from: https://www.cfr.org/expert-brief/how-stable-saudi-arabia