The Impact of Foreign Trade on Economic Development

What is the impact of foreign trade on economic development?

The country’s involvement in foreign trade and its interest in it, achieves growth in the GDPs, which is affected by the volume of exports and imports. Raising the level of export efficiency is important in order to compete in global markets, generate revenues that contribute to encouraging investment, increase the positive impact on the economic movement in the country, and increase economic growth overall.

The interest of the Kingdom in foreign trade is evident through the establishment of the General Authority for International Trade in 2019, with the aim of enhancing the international commercial gains of the Kingdom and defending its interests in the fields of foreign trade, and then contribute effectively to economic development.

Because the export process is the first step in the country’s launch to foreign markets, therefore, it was necessary for the Kingdom to seek to support the export process as an affirmation of its interest and support for foreign trade, and this was through approving the establishment of the Saudi EXIM Bank in 2020.

How does foreign trade support economic development?

 Foreign trade supports economic development through the following:

Expanding the target market for companies

Foreign trade increases the number of markets available to companies to display their products, which enhance the process of production and sale of products locally and internationally. Because the continuous growth of business is what necessarily leads to the enhancement of economic development.

The Kingdom has come a long way in this, according to the annual report for the year 2021 issued by the Saudi EXIM Bank, among its most important achievements in that year was the arrival of Saudi products to more than 50 countries.

Generating more revenue

Companies in many countries are working in light of foreign trade to increase the production of services and goods. This enhances the increase of revenues over time and encourages more investments that support economic development.

Achieving higher growth rates

The companies’ access to new markets increases the opportunity for the hosting markets to know the services provided by these companies, and thus the growth of demand for the products and services they provide will often be at better prices than the local market, which supports economic development.

This growth will be more tangible if these companies choose a field of their own to be known through. As its efficiency and competitive advantage will increase, and its share in the global market will grow to achieve economic development in its best form.

Providing job opportunities

In addition to the job opportunities offered by foreign trade, the process of expanding companies to target markets will increase their ability to provide products and services. This will create more need for various job opportunities in the target markets, and increase the profits of these companies, thus achieving support in the field of economic development for both countries.

Improving risk management

Risk management is an important step in the world of business, as it allows companies to study threats to capital and profits, whether at the level of legal responsibilities, technology problems, mismanagement, or even natural disasters.

Here comes the importance of foreign trade. The expansion of target markets makes companies less dependent on local markets which improves risk management, because companies will remain economically thriving and contribute to supporting economic development, without worrying about risks that may harm the local market.

Especially, if these companies diversify their production line by constantly finding new markets and a new customer base, which means continuous demand and production.

Making the local industry a competitor in the global markets

Foreign trade allows companies to try their products and services at the global level, which leads to an increase in the possibility of enhancing the reputation of some companies in the global market and increasing demand for what they offer. This is what can make the local industry compete on the level of global markets and increase the demand for its products. Such an increase will revive the economy and achieve a higher level of economic development.

Therefore, Saudi Arabia launched the National Industry Development and Logistics Services Program in 2019, which aims to create a local industry that competes in global markets.

Adopting a reliable brand

In the event that companies expand in new foreign markets other than the local markets, it may face little competition that raises its quality. This will make it dominate these markets and build a reliable brand to take its share of the market and support economic growth in the long term.

How can foreign trade be supported to achieve economic development?

So that foreign trade supports economic development in the country, the foreign trade must be supported in it, and this is achieved through the following:

Developing effective strategies for foreign trade

These policies and strategies must be developed with both the governmental and private sectors, and this is what the General Authority for Foreign Trade in the Kingdom is doing. As it prepared the national strategy for foreign trade in 2021.

The National Foreign Trade Strategy aims to promote and enable foreign trade in the Kingdom. This is done by setting policies that allow the Kingdom’s exports to access foreign markets and developing capabilities in this field in cooperation with the public and private sectors.

The Kingdom has reaped tangible results in the field of foreign trade. Merchandise exports increased in November of 2022 around 113 billion riyals (35 billion USD)  by 3.6% over November of 2021 which was around 109 billion riyals (29 billion USD) , that is an increase of 4 billion riyals. As for imports, they increased in November of 2022 around 63 billion riyals (16 billion USD) by 26% over November of 2021 which was around 50 billion riyals (13 billion USD; That is, an increase of 13 billion riyals. The following bar graph – according to a report issued by the General Authority for Statistics in 2023 represents the increase in the value of merchandise exports and imports in the Kingdom.

Providing financing products for the development of exports

Based on the importance of providing financing products, the Saudi EXIM Bank provides direct and indirect financing services to enhance the development of Saudi exports. It also cooperates with commercial banks and financial institutions, whether local or international, to provide integrated financial services, in addition to studying and following up the improvements in these services and improve as much as possible.

Enhancing participation in organizations concerned in the foreign trade

This is what the General Authority for Foreign Trade is concerned with, which represents the Kingdom in organizations and forums related to foreign trade affairs, whether regional or international, with the aim of strengthening the international presence of the Kingdom and its effective participation in a group of organizations concerned in the of international trade.

In order to enhance its role in this field, and according to the Authority’s report for the year 2021, it made an inventory of all trade agreements and reviewed them, then proposed a set of solutions for the Kingdom to benefit from in this regard, and studied the economic feasibility of concluding foreign trade agreements with a group of countries and then presented its priorities in this regard to the Gulf Cooperation Council, to review and identify priority countries in order to resume work with them.

Developing trade exchange of goods and services

The development of trade exchange with international partners, which is the creation of common commercial interests for the exchange of goods globally, improves economic growth, especially if it is in the field of providing local and distinct products that are unique to the country and reap a global demand.

The commercial attachés of the General Authority for Foreign Trade contributed to the development of trade exchange in the Kingdom. It succeeded in enabling the entry of dates into global markets, in order to achieve being the first global exporter of dates, and it achieved clear results in that, according to the annual report of the Commission in 2021 and contributed to increasing the Kingdom’s exports of Saudi dates to the Korean markets by 52%, and it also coordinated meetings with the 30 largest importers in the USA region, and other efforts.

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