As Saudi Arabia’s non-oil sector reached 50% of GDP for the first time last year, the Gulf country marked a turning point in its diversification away from dependence on fossil fuels.
Government data released last month showed the real GDP growth rate for non-oil activities was about 4.4%, and the value of the sector was estimated at about 1.7 trillion Saudi riyals (about $453 billion). This puts the kingdom on track to achieve the goals set out in Vision 2030, its broad policy and reform program in which economic diversification is one of the main goals.
“The oil and gas sector is very capital intensive and does not generate the influx of jobs needed to meet the labor supply of a young and increasingly educated population,” says Nasser Saidi, an economist and former Lebanese Minister of Economy and Trade. noting that about 30% of the Saudi population is under 30 years of age.
To address this problem, the government has introduced incentives to boost both services and manufacturing growth. As a result, most of the non-oil sector’s growth last year was driven by private consumption in areas such as entertainment, hospitality and tourism. Together they accounted for 40% of economic activity last year.
The tourism sector, which has recently attracted $13 billion in private investment, is a particularly strong area, Saidi notes, attracting 27 million foreign visitors last year in addition to 77 million domestic travelers.
However, these achievements did not prevent the kingdom from experiencing a 4.3% year-on-year decline in real GDP in 2023. The main reason was a drop in activity in the oil sector, caused by voluntary production cuts by OPEC countries amid market concerns and rising production outside the group. Moreover, most of Saudi Arabia’s wealth is still underground, even without oil production. Last year, the mining industry accounted for a third of total non-oil production. Outside of these sectors, manufacturing accounted for more than 15% of real GDP, while real estate and construction accounted for 14%.