Driving KSA’s economic diversification but with less reliance on oil revenues
For Saudi Arabia to continue the growth of its non-oil economy, the next few years should focus less on scale and more on competitiveness, productivity and export capability, according to PwC’s latest Economy Watch for the Kingdom.
Following over a decade of massive investments in its non-oil economy under the banner of Vision 2030, Saudi Arabia recently hit a major milestone when its non-oil economy became larger than its oil economy. Today, non-oil sectors account for around 56% of Saudi Arabia’s SAR 4.7 trillion economy. This expansion has been supported by activity across sectors such as retail, tourism, hospitality and services.
PwC’s report shows however that for the next phase of economic diversification, the drivers of future non-oil sector growth are closely linked to the development of the oil sector. In other words, if oil revenues drop, this could impact the growth of non-oil sectors. That ratio stands at 20:1 according to PwC’s economists – meaning a 10% change in oil prices is associated with a 0.5% change in non-oil GDP.
In GDP terms, the report suggests that a sustained 10% decline in oil prices could reduce cumulative non-oil GDP by around SAR 430 billion (2024 constant prices) over three years, relative to projected growth.
With oil prices currently at sustained lower levels as compared to the 2022-2023 period, Saudi Arabia is facing more challenging fiscal conditions – and more rounded investment decisions to take. “As fiscal conditions evolve, the composition of investment is becoming more important than its volume,” noted PwC’s researchers in the report.
Growth with less oil reliance
To sustain growth with less reliance on oil revenues, the authors recommend that policymakers focus on activities that raise productivity, build export capability and attract private investment. “Future growth is expected to be shaped less by scale and more by competitiveness, productivity and export capability.”
The report outlines an export-oriented growth framework to guide investment decisions as the non-oil economy matures. Rather than prioritising output expansion alone, the framework emphasises tradable competitiveness, capability development, domestic value creation, skills intensity and private sector participation.
Modelling from PwC indicates that shifting towards productivity- and export-oriented growth could raise non-oil GDP by an estimated 5.5% by 2035.
Riyadh AlNajjar, Middle East Chairman of the Board and KSA Senior Partner at PwC, commented: “Saudi Arabia has made decisive progress in expanding non-oil activity. The next phase of diversification will be shaped less by scale and more by the quality of investment, with greater focus on productive capabilities, private sector participation and activities that can compete in external markets.”
Faisal Alsarraj, KSA Deputy Country Leader at PwC, added: “Reducing exposure to oil cycles is ultimately about building businesses that can compete beyond the domestic market. Investment that strengthens supply chains, raises productivity and attracts private capital creates resilience that public spending alone cannot deliver.”
