Why non-oil GDP growth is essential for Saudi Arabia’s economic sustainability 
Saudi Arabia primarily relies on its oil resources for economic growth and development. However, in recent years, the Kingdom has been moving toward diversification of its economy, and away from oil dependency to maximize the handling of underlying economic risks. In 2023, Saudi Arabia reached the significant milestone of attaining a non-oil gross domestic product share of 50 percent. Such economic progress highlights Saudi Arabia’s successful diversification efforts.
Non-oil GDP represents the economic output from sectors other than oil, such as agriculture, tourism, manufacturing, technology, and telecommunications. This shift is crucial because oil prices are highly volatile, leading to economic instability. By focusing on non-oil sectors, Saudi Arabia aims to shield its economy from global oil price fluctuations. Non-oil commodities generally maintain stable prices, unlike crude oil. Thus, the growth of non-oil GDP indicates that Saudi Arabia is making significant strides in diversifying its economy.
Saudi Arabia’s transition toward a non-oil GDP involves policies and strategies aimed at supporting micro, small, and medium-sized enterprises, as well as the National Investment Strategy. Schemes like the Kafala program reflect the government’s approach to funding SMEs to boost the non-oil economy. The National Investment Strategy further supports this transition by fostering innovation, promoting private sector growth, and setting targets for key industries. Together, these initiatives demonstrate Saudi Arabia’s commitment to diversifying its economy away from oil.
Saudi Arabia's diversification of its economy offers several benefits, including protection against oil price fluctuations, increased local job opportunities, and enhanced economic growth and sustainability. By reducing oil dependency, Saudi Arabia is less vulnerable to price swings and other shocks related to global oil markets. This is crucial as studies suggest that countries heavily reliant on oil revenue could face declines due to the rise in renewable energy or unforeseen events like pandemics.
Another advantage of diversification is the expansion of local job opportunities. New industries drive demand for local labor, leading to a more robust jobs market. This contributes to a stable economy and boosts the private sector, fostering growth and innovation.
A key challenge in Saudi Arabia’s economic transformation is attracting foreign investors. The country still has room to improve in terms of foreign direct investment and achieving the investment scale needed for economic diversification.
Economic diversification also lays the groundwork for sustained economic growth by promoting a broader range of exports and encouraging per capita income growth. For example, Saudi Arabia’s focus on non-oil industries helped it achieve a record $84.4 billion in non-oil exports, with manufacturing and services sectors growing by 15 percent in 2022. This diversification underscores Saudi Arabia’s efforts to protect its economy from oil-related risks, stimulate local employment, and create a more stable and sustainable future.
A key challenge in Saudi Arabia’s economic transformation is attracting foreign investors. The country still has room to improve in terms of foreign direct investment and achieving the investment scale needed for economic diversification. Saudi Arabia is addressing this by initiating private and public-private partnership programs. The Saudi privatization program aims to boost private sector involvement in the national economy, enhancing efficiency and productivity. For example, the country has identified 140 projects, including four major airports, that are open to private investment under its privatization and economic diversification plans. These initiatives are designed to boost investor confidence in non-oil sectors and support Saudi Arabia’s diversification goals.
Saudi Arabia in the future will probably facilitate increased government spending for continued non-oil GDP growth and social and cultural reforms to sustain its economic diversification. For instance, the Saudi Public Investment Fund plans to launch IPOs, bond sales, and equity offerings to raise more funds for its economic diversification under Vision 2030. The Saudi government may be urged to keep offering such equity in order to fund the realization of its non-oil plan.
Another critical area of focus lies in Saudi Arabia’s quest to reform its social and cultural setting for an investor-friendly environment supporting its economic diversification. The Kingdom has made major reforms associated with reopening cinemas, lifting the ban on women driving, removing male guardianship, and allowing gender mixing. Such social and cultural reforms highlight the Kingdom’s future path toward relaxation of its social and cultural environments, making foreign investors more welcome for their later involvement in economic diversification opportunities.
In conclusion, the Kingdom’s economic strategy of diversifying from an oil-based GDP minimizes its exposure to global oil shocks and fluctuations, which could put its economy at risk. Such economic diversification into a non-oil GDP also enables Saudi Arabia’s economic growth, sustainability, and a rise in job employment.
However, Saudi Arabia’s economic diversification model means global implications associated with cutting down its oil exports, which will attract changes in crude oil supply and demand. Ultimately, we believe that Saudi Arabia offers a remarkable model for other global nations willing to diversify from oil dependency, as it sets a path for creating a non-oil-based GDP.
• Majed Nezar Al-Qatari is a sustainability leader, ecological engineer and UN youth ambassador with experience in advancing environmental, social and corporate governance and sustainability goals in corporate businesses, nonprofit organizations and financial institutions.
