Saudi Arabia’s growing industrial sector is evolving toward more complex manufacturing
There is an ongoing transformation in Saudi Arabia as the economy shifts from its traditional reliance on oil toward advanced manufacturing and knowledge-intensive exports. According to a report by Strategic Gears, the Kingdom is experiencing solid growth in complex manufacturing, pointing to significant future potential while also highlighting the need for continued investment in innovation, skills, and infrastructure.
Recent data shows that the industrial base of the KSA is expanding in both scale and sophistication, with industrial activity reaching record levels in 2025. By the third quarter of 2025, non-oil business activity rose 48% year-on-year, signaling a broadening private sector.
This shift is part of a larger strategy to diversify the economy and strengthen national autonomy, as seen in the defense sector where localization rose from 4% in 2018 to nearly 20% by the end of 2023.
Growth in complex export markets
Over the past five years, the range of manufactured goods expanded to 612 in 2024 – that is 54 more than in 2020. The number of complex, knowledge-intensive products increased from 100 in 2020 to 123 in 2024, highlighting a strengthened manufacturing capacity.
There has been a notable increase in complex products, which are goods requiring high levels of technology and specialized knowledge to produce. These exports average $3.3 billion annually, which is around 7% of all non-oil exports.
Within the past five years, the reach of these complex manufactured goods expanded to 126 global destinations. Currently, three major sectors account for approximately 90% of the total value of these complex exports: Those are plastics, organic chemicals, and nuclear reactors or boilers.
While core complex products are likely to remain as is, several less-developed sectors also show promising potential. For example, optical and photographic equipment could grow 12 times its current export size to eventually reach $149 million, which would make it the sixth-largest complex sector. Electrical machinery could also grow by 85%, from $63 million to $117 million.
Economic impact and job creation
The move toward complex manufacturing offers benefits that extend beyond simple trade revenue. For every industrial job created, evidence suggests that two additional jobs are supported across the wider economy.
Firms that integrate into complex global value chains often see sustained productivity gains of up to 9%. To support this growth, the Saudi government previously waived expatriate labor levies for industrial establishments, saving more than 8,000 companies an estimated $1.3 billion in cumulative costs. Although this waiver ended in December 2025, it allowed firms to invest capital into technology and workforce development to prepare for a more competitive environment.
The untapped potential of Industry 4.0
Looking forward, there is significant room for growth within the current industrial framework. The unrealized export potential of the existing complex basket is estimated at $1.85 billion, according to Strategic Gears.
By identifying 29 complex products across ten sectors that are adjacent to current capabilities, the Kingdom could push this untapped potential to $2 billion in trade returns. A major part of this transition involves the Future Factories Program, which aims to migrate 4,000 factories to Industry 4.0 standards. This migration taps brings in AI and automation to help drive efficiency.
Industry 4.0 refers to a new phase of industrial evolution marked by upgrades in factories that integrate advanced, higher-quality production systems. This transition involves knowledge-intensive technologies like automation and robotics, which help drive significant gains in manufacturing productivity.
Strategic directions for sustainability
To maintain this momentum in manufacturing, the Kingdom is focusing on two primary tracks: Strengthening existing competitive products and venturing into new, related opportunities.
Some of the strategic goals include aligning human capital with industrial demand by training workers in robotics and digital control technologies. KSA could also look to establish industrial innovation platforms that provide shared R&D and prototyping centers to lower entry barriers for manufacturers in emerging fields such as precision instruments and optical equipment.
By linking fiscal incentives to measurable productivity and technology adoption, Saudi Arabia could soon be well on its way to creating a more resilient and diverse manufacturing output in line with the principles of Industry 4.0.
