Can non-oil sectors shape the future of Gulf economies?

Sectors such as tourism, manufacturing, logistics, and healthcare have the potential to continue growing as a share of the Gulf states’ overall revenue and to provide employment for the future

Fayez Nureldine / AFP

People visit the Global Logistics Forum in Riyadh on October 13, 2024.

Can non-oil sectors shape the future of Gulf economies?

Amer Ziab Al-Tamimi

last update on 04 May 2025

Gulf states are seeking to transform their economies away from oil by strengthening the role of non-oil sectors, but the process is not easy. While some have chalked up a degree of success, fully ending states’ reliance on oil revenue will remain challenging for a period.

There are several drivers behind this diversification, not least the decline in oil revenue over the past decade, as the United States—for decades, a client—ramped up its own oil and gas production to become an exporter. It did so following the development of shale oil and gas extraction technologies, which have proven to be both efficient and cost-effective.

The type of energy consumed is also changing. Solar power is now produced at increasingly low costs, and renewable energy more widely plays a greater role in electricity generation, which is becoming more important as auto manufacturers move from oil-derived fuel (petrol and diesel) to electric vehicles (EVs).

While the world still largely runs on oil and gas, the trends are now clear, posing significant challenges to oil-dependent economies, including the Gulf states. The question, therefore, becomes not ‘whether’ their economies should transition and diversify away from hydrocarbons but ‘how’ and ‘how fast.’

Tourism sector

Gulf countries need to understand whether and where they have a comparative advantage in a given economic activity, and if so, how it can best be leveraged to contribute to the nation’s gross domestic product (GDP) and how it can best boost the participation of national labour in the workforce.

There are several drivers behind this diversification, not least the decline in oil revenue over the past decade

An important sector with growth potential is the tourism sector. According to a December 2024 report by the Gulf Cooperation Council (GCC)'s Statistical Centre, 68.1 million international tourists visited Gulf countries in 2023, up 42.8% from 2019 (the last full year before the COVID-19 pandemic).

International tourism accounted for $110.4bn in Gulf revenue, spent across the region's 10,800 hotels, but the distribution varied. The UAE had 28.1 million visitors, Saudi Arabia had 27.4 million, Bahrain 5.6 million, Qatar 4.1 million, and Oman 2.8 million. Kuwait registered 400,000 visitors.

Tourism's contribution to the Gulf economies is notable. According to the report, the sector accounted for 10.8% of regional GDP in 2023 and 14.2% of regional employment, though the workforce is still composed largely of expatriates.

Other key non-oil industries include manufacturing. In October 2024, GCC Secretary-General Jasem Al-Budaiwi said the manufacturing sector in Gulf economies contributed approximately $204bn to GDP in 2022, accounting for 12.5% of the region's GDP a year later.

As with tourism, this industry remains heavily dependent on expatriate labour, but these are encouraging figures. In Saudi Arabia, for example, there are now established manufacturing industries not just in oil refining but also in food and beverage production, wood processing, textiles, furniture, paper, chemicals, pharmaceuticals, rubber, and plastic.

The Saudi manufacturing sector (excluding oil refining) contributed almost 10% to the national GDP in the second quarter of 2024, according to official data from the Kingdom's General Authority for Statistics.

Logistics and healthcare

Another sector becoming increasingly important within GCC states is logistics and related services, including e-commerce, land and maritime transport, and storage. The total value of contracts for logistics services across the region was $9.16bn in 2024, but by 2029 it is expected to be worth $12.9bn, as demand grows.

Speaking to Alkhaleej Online in October 2024, Saudi Minister of Transport and Logistics Services Saleh Al-Jasser said the National Transport and Logistics Strategy aims to invest around $266bn in the sector by 2030, with $53.2bn already spent, highlighting its role in the Kingdom's plans.

Likewise, healthcare and education are two further sectors earmarked for growth. Healthcare expenditure in the region has been estimated at $159bn by 2029, with annual growth rates ranging from 4% to 8.8%.

The total value of contracts for logistics services across the region was $9.16bn in 2024, but by 2029 it is expected to be worth $12.9bn

Since the oil boom, healthcare in the region has traditionally been seen as a government responsibility, but the role of the private sector has expanded over recent years, with an increase in health insurance contracts. Given the regional demographics, its ageing population is expected to require increasingly specialised medical care, creating commercial opportunities.

Furthermore, historic deficiencies in education strategies and a neglect of vocational training have left labour markets across many Gulf states still lacking a sufficiently skilled national workforce, a problem exacerbated by societal perceptions prioritising comfortable office jobs and university degrees.

Technological advances and the evolving landscape of professions and trades mean that this view is increasingly outdated and not aligned with the Gulf states' need to diversify economically. The $30.4bn spent on education across the Gulf states in 2024 is therefore not addressing the business needs of today, since many graduates still enter oversaturated fields, while others lack the skills needed for emerging industries.

The economic diversification required by Gulf nations in non-oil sectors requires a well-trained, home-grown workforce. Strengthening this will contribute to wealth creation through knowledge and innovation in the long term.

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