Saudi Arabia's Industrial and Defense Sector Surge: A Strategic Opportunity for Long-Term Investors

Saudi Arabia's economic evolution under Vision 2030 has created a compelling narrative for long-term investors. The Kingdom's non-oil industrial output, military localization initiatives, and infrastructure megaprojects are converging to form a robust foundation for sustainable growth. These sectors are not isolated phenomena but interconnected pillars of a broader strategy to diversify the economy, reduce oil dependency, and position Saudi Arabia as a global hub for innovation and investment.

Non-Oil Industrial Output: A Compounding Growth Engine

From 2023 to 2025, Saudi Arabia's non-oil industrial output has demonstrated resilience and momentum. In 2024, real GDP grew by 4.2%, with non-oil activities expanding at 4.9% year-on-year in Q1 2025, easing slightly to 4.7% in Q2. The construction sector, a key driver, has seen record demand for new projects and labor, while retail and hospitality sectors have thrived on rising domestic consumption. The IMF projects non-oil GDP growth of 3.4% in 2025, with expectations of reaching 4% by 2027.

This growth is underpinned by structural reforms, including tax incentives, streamlined regulations, and public-private partnerships. The Public Investment Fund (PIF), now managing $941.3 billion in assets, is a critical catalyst. By 2030, the PIF aims to attract $2.67 trillion in assets, with a focus on sectors like renewable energy, logistics, and digital infrastructure. Investors should note the PIF's role in de-risking projects through co-investments and risk-sharing models, making Saudi Arabia an attractive destination for equity capital.

Military Localization: A Dual-Use Industrial Powerhouse

Saudi Arabia's ambition to localize 50% of its military spending by 2030 is reshaping its industrial landscape. Military expenditure in 2025 reached $78 billion, with 21% of government spending allocated to defense. The General Authority for Military Industries (GAMI) has driven localization from 4% in 2018 to 19.35% in 2024, with projections of 50% by 2030. This shift is not merely about self-sufficiency in defense but also about building advanced manufacturing capabilities in aerospace, electronics, and AI.

The Saudi Arabian Military Industries (SAMI) has emerged as a global player, ranking 79th among the world's top 100 defense companies in 2023. Strategic partnerships with Lockheed Martin, Boeing, and BAE Systems are accelerating technology transfer and domestic production. By 2030, the sector is expected to contribute $3.7 billion to GDP and create 60,000 indirect jobs. For investors, this represents a high-growth niche with long-term equity potential, particularly in defense-related SMEs and R&D-driven firms.

Vision 2030 Infrastructure: Catalysts for Equity and Infrastructure Investment

Vision 2030's infrastructure projects are redefining Saudi Arabia's economic geography. The Riyadh Metro, a $147 billion project, is a flagship example of public-private collaboration. Led by a consortium including Bechtel and Siemens, the project is on track for completion by 2026, with private equity participation in logistics and digital infrastructure. Similarly, NEOM's Spine Tunnel, part of the 28km Mountain Region project, is a $20 billion endeavor leveraging global engineering expertise.

The Jeddah Tower, set to surpass Dubai's Burj Khalifa, is another symbol of the Kingdom's ambition. Resuming construction in 2025, the tower is part of a $20 billion urban development plan, with completion expected by 2028. These projects are attracting sovereign wealth funds, private equity, and multinational contractors, with the PIF acting as a bridge between local and international capital.

Investment Thesis: Strategic Opportunities in a Diversifying Economy

For long-term investors, Saudi Arabia's industrial and defense sectors offer a unique combination of macroeconomic tailwinds and structural reforms. The compounding growth in non-oil output, coupled with military localization and infrastructure development, creates a virtuous cycle of job creation, technological advancement, and revenue diversification.

Key entry points include:
1. Equity in PIF-Backed Sectors: Renewable energy, logistics, and digital infrastructure are prime areas for equity investment, supported by the PIF's risk-sharing models.
2. Defense Manufacturing SMEs: Firms involved in advanced manufacturing, AI, and cyber warfare are poised for growth as localization targets accelerate.
3. Infrastructure PPPs: Public-private partnerships in transport and urban development offer stable returns, particularly in projects with clear revenue streams (e.g., toll roads, logistics hubs).

However, investors must remain mindful of fiscal constraints. The Kingdom's budget balance relies on oil prices averaging $96/barrel, currently below the $71 mark. This necessitates a focus on projects with clear economic returns and private-sector participation.

Conclusion: A Nation on the Move

Saudi Arabia's transformation under Vision 2030 is not a fleeting trend but a decades-long strategy to build a resilient, diversified economy. The interplay of industrial growth, military innovation, and infrastructure development creates a compelling case for long-term investors. While risks exist, the scale of ambition, financial firepower, and strategic partnerships position the Kingdom as a must-watch market for those seeking to capitalize on the next phase of global economic realignment.