Measuring the expansion of Saudi Arabia's non-oil economy

The 2025 Article IV report reports 2024 non-oil real growth of 4.5 percent and overall real growth of 2.0 percent, alongside a 4.4 percent contraction in oil GDP. Its discussion explains the May 2025 national-accounts rebase from 2018 to 2023 and associated methodological revisions. Those revisions make it inappropriate to splice an older GDP level onto the new series without reconciliation.

The report identifies retail, hospitality, and construction among the leading non-oil activities. That composition is economically informative, but it does not identify the ultimate financing of each customer. A private construction contractor can serve a publicly sponsored project, and hospitality demand can combine resident spending, business travel, and foreign visitors.

A non-oil share of nominal GDP also responds to oil prices. The share can rise when the value of oil production falls, even if non-oil real output is unchanged. Evidence of diversification should therefore retain real growth, nominal shares, employment, and income sources rather than presenting a single share as sufficient proof.

Comparisons over time need consistent classifications and price measures. A revised estimate can change the measured level of an industry without creating new activity on the publication date. An assessment should identify the vintage used and distinguish statistical revision from economic growth. This is especially important when a headline has been widely circulated before a later benchmark update.

An establishment can be privately owned while depending heavily on public procurement. Its employees and management operate in the private sector, but its revenue may be sensitive to a government project's schedule. Conversely, a business can sell to a state-owned enterprise on competitive commercial terms while bearing meaningful operating risk.

The useful classification follows both ownership and customers. It distinguishes sales to government, government-related entities, resident households, independent domestic businesses, and foreign customers. It then examines whether those customers' own spending depends on oil-related fiscal income. The objective is to identify exposure, not to assign a simplistic public or private label to every transaction.

Some state-supported investment can create genuinely independent future revenue. An airport, logistics facility, or tourism asset may initially depend on public capital and later attract commercially priced foreign demand. The transition should be demonstrated through operating receipts, utilization, and costs. Construction expenditure alone cannot establish that the eventual business model has reached that stage.

The opposite pattern is also possible. A nominally private project can remain reliant on repeated subsidies, guaranteed purchases, or preferential financing. Such support may have a policy rationale, but the associated risk should remain visible. Counting private legal ownership as complete transfer of economic risk would overstate the independence achieved.

Consider a hypothetical non-oil business sector with sales of 100 monetary units. The table separates immediate customers; it does not claim to reproduce Saudi industry accounts.

Sales rise 20 percent. Direct state-linked demand contributes 8 units of that increase, independent resident customers 3, and foreign customers 9. Foreign sales rise as a share from 15 to 20 percent. That shift would provide stronger evidence of a broader customer base than total growth alone.

Nevertheless, these are gross sales rather than value added, and the resident-customer category may itself contain indirect oil-income exposure. A complete assessment would subtract intermediate inputs and trace important customer links. It would also examine whether foreign receipts cover operating and capital costs without recurring support.

The example illustrates the evidence required for an autonomy claim. It does not prescribe a desired share or imply that state-linked demand has no value. Public demand can support useful infrastructure and human capital; the distinction concerns what would happen if its growth slowed.

Infrastructure, administrative reform, and investment in skills can improve the return to private enterprise. Better transport can widen a firm's market; reliable utilities can reduce operating uncertainty; clearer procedures can lower the cost of entry. These effects differ from the immediate demand created by construction contracts.

At the same time, a large project program can compete with independent firms for labor, contractors, land, credit, and management capacity. Higher demand can raise input prices or delay other investment. The net effect depends on available capacity and the design of procurement and financing, rather than the public or private label alone.

An evaluation should therefore distinguish the demand impulse from the productivity effect. The former is visible in orders and expenditure during implementation. The latter requires evidence of lower costs, improved reliability, greater market access, or higher output from existing resources after the asset or reform becomes operational.

Project sequencing matters. Completing a complementary network can unlock private activity more effectively than beginning several disconnected assets. Conversely, an impressive construction pipeline can leave firms waiting for the last connection or operating agreement. Measuring the productive service delivered helps separate effective enabling investment from expenditure that has yet to yield its intended capacity.

Oil-linked demand also reaches firms through household balance sheets. A public employee spending wages at a private retailer creates private sales financed through a fiscal channel; an independent exporter selling abroad has a different immediate demand source. Neither transaction should be excluded from non-oil production. The distinction matters when testing sensitivity to expenditure restraint. A scenario should identify which incomes and contracts change, their timing, and the ability of businesses to replace customers. Applying one uniform percentage reduction to all non-oil activity would conceal those differences and overstate the precision of the exercise.

For suppliers, payment timing provides another test of resilience. A contractor with a diversified order book can still face liquidity pressure if a large customer delays settlement. Revenue dependence, working-capital exposure, and the ultimate ownership of the customer should therefore be measured separately.

Employment growth provides evidence that non-oil activity reaches households. It should be divided by nationality, occupation, industry, hours, and employment status where the data permit. Saudi nationals entering stable private employment represent a different adjustment from temporary overseas labor recruited for construction, even though both contribute to resident production.

Participation and unemployment must be read together. A lower unemployment rate can result from more people finding work, fewer people searching, or both. A higher participation rate can initially raise measured unemployment if new entrants do not immediately find jobs. No single rate establishes the entire labor-market outcome.

Earnings and productivity are also essential. A larger headcount does not necessarily imply higher income per worker, while rising output per worker can reflect capital deepening or a changing industry mix. The most informative evidence follows employment alongside real compensation, hours, and industry value added.

Household spending then depends on housing and other essential costs, financial obligations, and confidence in future earnings. Employment opportunities can improve even where some households face pressure from rent or financing. Aggregate consumption growth should not be interpreted as a uniform improvement across all household groups.

Non-oil exports and internationally supplied services can diversify the origin of demand. Their contribution should be measured after imported inputs and income payments to nonresidents. A large gross export value can contain substantial foreign content, while a smaller specialized service may generate a high domestic contribution.

Tourism requires particularly careful separation. Visitor arrivals, visitor expenditure, hotel occupancy, and resident value added are distinct measures. Domestic tourism redistributes spending within the country and can reduce purchases abroad; international tourism brings foreign demand. Combining both groups without explanation obscures the external-earnings channel.

A durable external business also needs customers willing to pay prices that cover costs under plausible conditions. Temporary promotional support can accelerate market entry, but a continuing dependence on support would alter the income and fiscal assessment. Utilization, repeat demand, operating margins, and capital maintenance provide stronger evidence than an announcement of potential visitors or capacity.

A persuasive assessment would combine consistent real non-oil accounts with customer composition, employment quality, productivity, and net external earnings. It would examine the sensitivity of firms to a slower public project pipeline and identify the support still necessary for operations. These tests can distinguish a transition underway from a transition already completed.

The relevant counterfactual is not an economy without government or oil. All economies combine public services, private production, and external income. For Saudi Arabia, the question is whether productive capabilities and commercially diversified revenues are expanding sufficiently to reduce vulnerability to the hydrocarbon cycle over time.

The observed non-oil expansion establishes a meaningful change in production. Stronger evidence of autonomy would come from firms retaining customers, investment, and earnings as public demand changes, supported by infrastructure and institutions that improve productivity. Keeping those claims distinct permits recognition of real progress while preserving an economically rigorous account of the dependencies that remain.