Saudi Arabia's Industrial Production Gains Highlight Diversification Gains Amid Sectoral Shifts

The Kingdom of Saudi Arabia’s industrial sector expanded by 2% year-on-year in March 2025, according to the General Authority for Statistics (GASTAT). While the headline number is modest, the underlying details tell a more compelling story of economic transformation. The growth is anchored in sectors like manufacturing and water/waste management, which are driving diversification efforts aligned with Saudi Vision 2030. But not all sectors are thriving: declines in mining and energy-related industries hint at both challenges and opportunities.

The standout performer was water supply, sewerage, waste management, and remediation activities, surging 15% year-on-year. This reflects aggressive infrastructure spending under Vision 2030, which aims to modernize public utilities and reduce reliance on fossil fuels. Meanwhile, manufacturing activity rose 5.1%, signaling progress in building a more robust industrial base.

The non-oil sector—the linchpin of Saudi Arabia’s economic rebalancing—delivered an impressive 5.6% growth, now accounting for 53.2% of GDP. This segment, encompassing construction, manufacturing, and services, is where the most promising investment opportunities lie.

But the data also reveals vulnerabilities. Oil-related activities contributed just 0.5% to the overall growth, underscoring the sector’s stagnation. Mining and quarrying dipped 0.2%, while electricity and gas supply fell 0.9%. The contraction in energy-related sectors may reflect efficiency gains or reduced demand, but it also highlights the risks of overexposure to hydrocarbons.

Investors should note that the non-oil sector’s outperformance aligns with global trends favoring economies less dependent on commodities. However, the energy sector’s decline raises questions about the sustainability of growth if oil revenues weaken further.

The manufacturing boom is particularly encouraging. Sectors like petrochemicals, plastics, and machinery are benefiting from initiatives like NEOM’s tech-focused industrial parks and the Red Sea Project’s infrastructure demands. The 5.1% growth in manufacturing suggests that Saudi Arabia is gradually transitioning from being an oil exporter to a value-added industrial player.

Yet, the water/waste sector’s 15% surge—driven by urbanization and environmental regulations—is perhaps the most striking. With 70% of Saudi Arabia’s population expected to live in cities by 2030, investments in sustainable infrastructure will only accelerate.

The challenge remains balancing growth in new sectors with the need to stabilize energy-dependent industries. The March data shows the non-oil economy is maturing, but the energy sector’s stagnation could become a drag if global oil demand wanes.

Conclusion:

Saudi Arabia’s industrial production report offers a mixed but ultimately optimistic snapshot. The 2% headline growth masks a deeper story of structural change: non-oil sectors are now the engine of expansion, accounting for over half the economy. Manufacturing and infrastructure investments are paying off, while the energy sector’s decline underscores the urgency of diversification.

For investors, the data points to long-term opportunities in Saudi Arabia’s industrial transformation. Sectors like manufacturing, renewable energy, and waste management are poised for sustained growth, particularly as Vision 2030 targets are met. However, caution is warranted in energy-related equities, given their declining contribution to GDP.

The key statistic to watch: if non-oil GDP continues to outpace oil by such margins, Saudi Arabia could solidify its position as a global industrial hub—regardless of oil price fluctuations. The March numbers suggest this transition is already underway.