Comparing non-oil diversification in the Gulf

Saudi Arabia's General Authority for Statistics reports real GDP growth of 4.5 percent in 2025, including growth of 4.9 percent in non-oil activities and 0.9 percent in government activities. Those are separately identified categories. A comparison should not assume that non-oil activities in this presentation already include the government category or that its growth rate is the growth of all activity other than oil. GASTAT, 2025 GDP release, March 9, 2026.

A Saudi official sovereign-issuance document published in 2025 supplies a useful distinction for 2024: the broad non-oil sector accounted for 69.7 percent of nominal GDP, compared with 38.4 percent of government revenue and 19.0 percent of export value. These are different denominators and classifications. The figures demonstrate why output diversification should not be relabeled as the same degree of fiscal or export diversification. National Debt Management Center, 2025 sukuk program document, economic diversification discussion.

The June 15, 2025 official release reporting FCSC national-account results for 2024 gives non-oil growth of 5 percent and a non-oil GDP share of 75.5 percent. That measure should be retained with its national-accounts presentation and year. It is not directly comparable with a Saudi quarterly activity category or a share measured on another price basis. Emirates News Agency, official 2024 GDP results.

The UAE Ministry of Finance's 2025 federal-budget presentation reports estimated revenue and expenditure of AED 71.5 billion each. This is the federal budget, not a consolidated account of every emirate and public entity. A balanced federal plan therefore cannot be used alone to establish the general-government balance or the hydrocarbon exposure of the whole public sector. UAE Ministry of Finance, Federal Budget 2025.

These observations support a comparison of measurement and economic dependence rather than a ranking based on a single percentage. Saudi Arabia's production, export, and fiscal shares answer distinct questions. The UAE production record and federal budget also have different institutional boundaries. A valid comparison would reconcile those boundaries before attributing a numerical difference entirely to a different degree of diversification.

Consider a hypothetical economy with oil value added of thirty and non-oil value added of seventy, at initial prices. Non-oil activity represents 70 percent of nominal GDP. Hold physical production and non-oil prices fixed and reduce the oil price by 20 percent. Oil value added becomes twenty-four in this simplified example, total nominal GDP becomes ninety-four, and the non-oil share rises to 70 divided by 94, or 74.47 percent.

No additional non-oil output has been produced. The share changes because the oil-price denominator changes. This is not an argument that a rising share is uninformative; it shows why the level and volume growth of non-oil activity must accompany it. A country can make genuine diversification progress at the same time as this price effect, but the two contributions need to be distinguished.

Now allow non-oil real output to rise by 5 percent with its price unchanged. Its value becomes 73.5, total GDP becomes 97.5, and the non-oil share becomes 75.38 percent. The additional share movement contains a real production effect, while the earlier movement did not. This hypothetical arithmetic is not calibrated to either Saudi Arabia or the UAE and does not use either country's published share as an input.

A fiscal version gives a related result. Suppose initial revenue is sixty from oil and forty from other sources. If oil revenue falls by 20 percent while the other revenue is unchanged, total revenue falls to eighty-eight and the non-oil share rises from 40 to 45.45 percent. The higher share does not represent an expansion in non-oil receipts. A fiscal assessment needs the amount, tax base, and durability of those receipts alongside their share.

The denominator effect can also work in reverse. If oil value added rises from thirty to thirty-six because its price increases, while non-oil output grows by 5 percent to 73.5, the non-oil nominal share is 73.5 divided by 109.5, or 67.12 percent. It falls from its original 70 percent even though real non-oil production has expanded. A share-only assessment could therefore describe both a price-driven improvement with no real expansion and an apparent deterioration during genuine expansion. Reporting sector volume growth, current-price levels, and relative prices together resolves the ambiguity. The hypothetical examples concern arithmetic and do not assign either price path to an actual economy.

A restaurant, logistics company, construction contractor, or professional-services firm supplies non-oil output. Its customers may include households paid by government, hydrocarbon companies, public investment vehicles, tourists, or businesses serving foreign markets. Those demand relationships determine how its revenue responds to an oil-price shock. Industrial classification identifies what is produced; it does not identify the ultimate source of the customer's purchasing power.

Public investment can help create activities that later earn independent revenue. The relevant test follows the transition from construction demand to an operating business with customers, productive assets, and sustainable costs. The fact that public finance supports an initial project does not establish permanent dependence. Equally, an opening announcement does not prove that the project has completed that transition. Both the initial support and subsequent commercial evidence should be visible.

Private ownership and external demand should also be distinguished. A privately owned local supplier can depend heavily on public procurement, while a public enterprise can sell competitively abroad. Ownership alone does not determine the source or resilience of revenue. A comparative study should examine the product, customer, and financing contract rather than assign independence solely from a public or private label.

The same reasoning applies to a tax classified as non-oil. Consumption or business taxes can rise because the non-oil base expands, because policy changes, or because spending financed by oil income rises. Each can broaden current receipts, but their sensitivity to a future oil shock can differ. A stable fiscal base requires evidence about those links rather than a change in the revenue label alone.

Export diversification can provide demand beyond the domestic income cycle. The measure should distinguish domestic production from re-exports and goods from services. A larger non-oil goods-export value can include imported content, processing, or distribution. The domestic value-added and income effect depends on the tasks performed locally and the associated wages, profits, and services.

Trading and logistics activity can create substantial domestic value added even where the gross value of goods passing through the economy is much larger. The relevant income can be a margin, transport service, financing service, or storage fee. Treating the full re-export invoice as domestic production overstates the contribution; treating all intermediation as economically empty understates it. The production boundary matters to both conclusions.

International services also require attention to resident coverage. Tourism, transport, professional services, and finance can earn external revenue while drawing on imported inputs or foreign-owned capital. GDP records domestic production, whereas income accruing to residents follows ownership and cross-border flows. A diversification claim concerned with household income should therefore connect production with compensation, ownership, and transfers.

A comparison of Saudi and UAE diversification would be improved by a matched table of domestic non-oil exports, service receipts, re-export margins, and domestic value added. It should retain the definition of oil and petroleum-related activities, including the treatment of refining and petrochemicals. Changing that boundary can move activity between categories without changing the underlying industrial process.

A higher non-oil output share does not reveal how many residents obtain more productive work. Capital intensity, worker skills, hours, and the composition of employment matter. An activity can expand rapidly with a small direct workforce while supporting suppliers elsewhere. Another can create many positions with modest value added per worker. The evaluation should follow earnings and capabilities as well as headcount.

The ability to retain and develop skills affects the operating model. Firms need workers who can maintain equipment, manage quality, and adapt production to changing demand. Training expenditure is an input to that capability, rather than proof of its realization. Evidence on retention, task competence, and progression helps distinguish a temporary construction or service expansion from a durable production network.

Financing should be evaluated over the asset's life. A project can produce output and still require recurrent transfers if its revenue does not cover operation, maintenance, and replacement. That support may serve a public purpose, but it should be recognized. A commercial diversification claim requires a different test from a public-service appraisal. Combining their objectives can obscure the true use of fiscal resources.

Debt and guarantees add future commitments. A public investment vehicle can finance a non-oil project with a liability that remains sensitive to sovereign income or market conditions. Moving the expenditure outside a central budget does not necessarily remove public exposure. A consolidated risk assessment should identify the entity bearing the downside, while preserving the distinct legal and accounting perimeter of the published budget.

A sector's contribution to resilience also depends on its customer base. A non-oil engineering business selling to several overseas industries has a different demand exposure from one selling exclusively to domestic hydrocarbon projects. Both can enter the same broad non-oil production category. Their distinction requires customer and input information, rather than a different label for the same GDP share. This is a reason to examine the connections within diversification, including how activity is financed and where its final demand originates.

A practical comparison should begin with four parallel records: real non-oil production and its industries; external revenue and domestic value added; consolidated public revenue and commitments; and employment, hours, and earnings. The records should use a common period where possible and state the treatment of government, refining, re-exports, and public enterprises. Differences that cannot be reconciled should remain qualified.

The next test is exposure. How much demand comes from customers whose expenditure falls when oil income declines? Which projects can earn revenue from a wider market? What share of non-oil tax receipts is associated with an expanding recurrent base? How much operating and replacement spending must the public sector continue financing? These questions connect a statistical diversification measure with its economic resilience.

Saudi Arabia and the UAE have substantial activity beyond crude-oil production, as their official records demonstrate. Assessing that activity more precisely strengthens the comparison. Output diversification, export diversification, fiscal diversification, and the distribution of income are related achievements, but they are distinct. Evidence on each is necessary before a high non-oil GDP share can support a broader claim about independence from hydrocarbon income.

For price and income transmission, see Commodity income and domestic demand in two resource exporters. For the distinction between project finance and productive operation, see From investment announcements to operating capacity.