Amid the twin fiscal and current account deficits recorded in Saudi Arabia in 2024, it is easy to lose sight of the continued progress made in economic diversification during the year in terms of exports, output, government revenue, and, to a lesser degree, employment. Nevertheless, the high levels of public sector spending and the associated strong growth in imports and expatriate worker remittances together with relatively low oil export volumes have disguised some of this progress. For context, however, without the diversification provided by the surge in tourism revenue in recent years, the current account deficit would have been $33 billion rather than $6 billion in 2024.

Diversification Metrics in 2024

The simplest way to track progress with diversification is to look at a time series of the relevant variables and see if they are moving in a direction consistent with a more diversified economy. For example, are non-oil exports as a share of total exports rising? However, as has been argued previously, relying solely on this approach can be misleading because year-to-year swings in oil output and oil revenue can distort the underlying trends in the non-oil economy. It is therefore important to look through short-term swings in the oil market to identify trends in diversification. This is achieved by looking at diversification outcomes in 2024 compared to those in 2018 and 2023, years when Saudi oil export revenue was similar ($232 billion in 2018, $247 billion in 2023, and $223 billion in 2024).

Exports

Export diversification continued in 2024. The share of non-oil exports in total exports of goods and services rose to 38% from 33% in 2023 and 26% in 2018. If petrochemical exports, defined as exports of chemical, plastic, and rubber products, are excluded from non-oil exports on the grounds that these products are closely related to oil, diversification progress is still evident. The ratio of non-oil, nonpetrochemical exports to total exports of goods and services rose to 27% in 2024 from 22% in 2023 and 13% in 2018.

The main driver of the expansion of non-oil exports remains the tourist sector. In 2024, revenue from nonresidents visiting Saudi Arabia increased by 14% to $41 billion. In 2024, revenue from tourism exceeded the value of petrochemical exports for the first time. There was also very strong growth in exports of machinery and mechanical and electrical equipment (79%) and transportation equipment (42%) in 2024. A significant share of this growth, however, was likely due to reexports (where Saudi Arabia imports a good and then exports it to another country without significant alteration). Reexports have nearly doubled over the past two years, possibly reflecting the increased attraction of Saudi Arabia as a logistics hub given its efforts to improve port infrastructure and the efficiency of customs operations. Even if reexports are excluded from non-oil exports, however, the upward trend of non-oil exports as a share of total exports remains.

Output

The share of the private non-oil sector in total nominal gross domestic product increased to 51% in 2024 from 49% in 2023 and 45% in 2018. A similar story has emerged for real private non-oil GDP, which accounts for inflation. However, it is likely that companies owned by the Saudi Public Investment Fund are included in the definition of the private sector, so this data may overestimate the true private sector contribution to the economy. Further, the private sector remains quite reliant on contracts from the public sector, so the correlation between private sector growth and government spending remains high, even if it has declined somewhat in recent years.

Government Revenue

Revenue from non-oil sources continued to increase as a share of government revenue and as a share of government expenditure in 2024. As a share of total government revenue, it reached 40% in 2024 compared to 38% in 2022 and 33% in 2018. Non-oil revenue as a share of government expenditure was 37% in 2024, 35% in 2023, and 27% in 2018, indicating that a growing share of government spending is being financed by non-oil rather than oil revenue. The increase in non-oil revenue in 2024 was driven by strong collections of the value-added tax.

Employment

Labor market diversification can be equated to a reduced reliance by private companies on non-Saudi workers and a lower reliance by Saudi nationals on employment in the public sector. These two indicators show mixed results for 2024. The share of employed Saudis working in the private sector increased to 59.4% in 2024 from 58.8% in 2023 and 54.8% in 2018. The share of Saudis in the private sector workforce, however, declined to 20.3% in 2024 from 22.4% in 2023 but remained above the 2018 level of 19.8%. The number of Saudis employed in the private sector rose by around 110,000 in 2024, but this was dwarfed by a 1.4 million increase in the number of expatriates employed in the private sector. About 40% of these new expatriate jobs were in the construction sector and likely linked to Vision 2030 projects.

Looking to the Future – Diversification or Continued Oil Dependence?

It is important to acknowledge the progress that Saudi Arabia is making toward creating a more diversified economy while at the same time recognizing that the economy remains dependent on oil. Indeed, spending on the Vision 2030 projects together with still subdued oil production and exports resulted in an unexpected current account deficit and a larger-than-budgeted fiscal deficit in 2024. Fiscal and current account deficits are likely to continue in the coming years unless public sector spending is significantly reined in or oil revenue recovers.

What happens in the future will depend on the success of the Vision 2030 projects. In the scenario envisaged by the creators of Vision 2030, diversification will accelerate as the projects are completed and move into their operational phase. Non-oil exports, non-oil GDP, and non-oil government revenue will increase, and new job opportunities will be created for both Saudis and higher-skilled nonnationals, while imports of goods, services, and low-skilled labor will decline as the construction phase of the projects end. Fiscal and external balances will improve, and borrowing incurred during the construction phase will be repaid. In a worst-case scenario, however, the Vision 2030 projects are either not completed as planned because of operational or financial constraints or are completed but prove to have been conceived on overly ambitious assumptions of future demand and rates of return. In this case, while imports of goods, services, and low-skilled labor will still decline, the positive impact on exports, GDP, and government revenue will be lower or even nonexistent.

While the improvements in economic governance in recent years and the still substantial financial resources available in the kingdom make the first (successful) scenario the more likely, policymakers need to work hard to ensure the second (unsuccessful) scenario does not materialize. The recent drop in oil revenue provides an opportunity for the kingdom to reevaluate the scope and scale of the Vision 2030 projects and ensure they are based on realistic assumptions and they fit within the envisaged financing envelope if lower oil prices continue.