Saudi Arabia is turning a new economic leaf, moving away from spending big to spending smart, prioritizing “quality,” according to PwC Middle East’s Saudi Economy Watch. Even though the non-oil sector currently makes up 56% of our SAR 4.7 tn economy, PwC warns that the “linkage” to oil remains uncomfortably tight. To break this oil cycle, the government is now pivoting toward an “export-oriented” strategy to build economic resilience.

Now for the hard part

The “easy” phase of diversification — driven by gigaprojects construction, domestic consumption, and massive public-sector capital injection — is reaching its limit as fiscal conditions tighten. With softer oil prices reducing projected 2025 revenues by over 13%, the government is getting more selective.

We’re moving from a “build it and they will come” model to a “produce it and sell it to the world” framework. For the private sector, this is a nudge to move up the value chain. While construction and retail provided quick Ws, they didn’t build the “transferable capabilities” needed to survive a down-cycle. The victors of the next decade will be firms that integrate into global supply chains — moving from basic assembly to engineering, R&D, and specialized services.

The cost of the oil link

The data point that matters: PwC estimates the elasticity of Saudi non-oil GDP to oil prices at 0.05, meaning a sustained 10% drop in oil prices over three years would shave roughly SAR 430 bn off cumulative non-oil GDP compared with baseline growth projections.

At the sector level, some are safer from oil than others.“Technology and tourism are probably the least elastic sectors and have already implemented many projects, so they are not seeking new finance,” MENA economist Hamzeh Al Gaaod tells EnterpriseAM. “Newer projects are more likely to face reduced market liquidity due to their funding sources’ ties to oil markets,” he added.

Looking ahead

The payoff: PwC’s growth model suggests that shifting to this productivity-led model could boost non-oil GDP by an estimated 5.5% and total factor productivity by 10% by 2035.

The pivot needs a workforce to match: The Kingdom’s next phase will depend on a labor market equipped with professionals skilled in digital and AI technologies, the report said, amid rising demand for engineers and tech specialists in growing sectors such as manufacturing, energy, and automation. Logistics and metals extraction are among the sectors where the Kingdom holds a competitive advantage, making them prime targets for localizing expertise, Al Gaaod explained.

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