Question

Evaluate the reasons why Venezuela and Saudi Arabia economic growth of the 2 economies/countries varied. Discuss how international trade influenced the strength of each economy. Discuss the role of value chains and value-added production?

Answer 1

Venezuela is said to have the largest crude oil reserve in the world, whereas Saudi Arabia has been world's largest exporter of crude oil in the world economy.

The GDP growth of Saudi Arabia has been revolving at around 2% to 4% in the last three years. The economy of Saudi Arabia is heavily reliant on earnings from crude oil exports. However, many geo-political factors, such as increase in shale gas production in the US, increase in crude oil production in Canada and Russia have caused oversupply of crude oil which has led to a steep fall in crude oil prices. Lower crude oil prices have meant a fall in surplus revenue which Saudi Arabia has consistently faced when crude oil prices were high. This has caused a relatively slowing down of economic growth in the country. A strong value chain and value addition of its products for exports as well as domestic consumption has made the economy of the kingdom resilient.

On the other hand, Venezuela has seen civil war in the country for many years which has consistently deteriorated the economic and political situation in the country. Economic sanctions on the country by the US has meant no earnings from crude oil export which is its biggest contributor to economic growth as well as exports earnings. Not just crude oil, but other sectors of the economy have been equally devastated due to the on going civil war and power struggle in the country. There has been no value addition in the last 3-4 years of economic upheavel in the country. This has caused Venezuels's GDP to fall by more than 100% in the last 2-3 years.