An IMGW News Report
“They can keep saying that, and we can keep proving them wrong,” said Saudi Arabia’s Crown Prince Mohammed bin Salman in a TV documentary aired in July 2023, addressing doubts about Saudi Arabia’s significant construction projects. Nearly a year later, some of these doubts are coming to fruition.
Neom and Vision 2030: Ambitious Beginnings
In 2017, Saudi Arabia announced Neom, a $500bn (£394bn) initiative to build 10 futuristic cities in the northwest desert region. The most ambitious of these is The Line, a linear city with two parallel skyscraper walls standing 500 meters high and extending 170km (105 miles). Initially planned to accommodate nine million residents, developers are now focusing on completing just 2.4km by 2030 as part of the first phase. When first announced, The Line was envisioned as a “carbon-free linear city” with parks, waterfalls, flying taxis, robot maids, and an ultra-high-speed train. The extent of these features in the initial phase remains unclear.
Reassessment Amid Economic Pressures
Beyond Neom, Saudi Arabia is developing 13 other ‘giga projects’ worth trillions of dollars as part of the Saudi Vision 2030 initiative. These projects include an entertainment city near Riyadh, luxury island resorts on the Red Sea, and various tourist and cultural sites. However, declining oil prices have reduced government revenue, prompting Riyadh to reevaluate these projects and consider new funding methods.
Vision 2030: Background and Challenges
Saudi Vision 2030 (Arabic: رؤية السعودية ٢٠٣٠ ruʾyat al-suʿūdiyah alfayn thalāthūn, sometimes called Project 2030) is a government program launched by the Kingdom of Saudi Arabia which aims to achieve the goal of increased diversification economically, socially, and culturally, in line with the vision of Saudi Crown Prince and Prime Minister Mohammed bin Salman. It was first announced on the 25 of April 2016 by the Saudi government. The Council of Ministers has tasked the Council of Economic and Development Affairs (CEDA) with identifying and monitoring the mechanisms and measures crucial for the implementation of ‘Saudi Arabia’s Vision 2030’.
Despite efforts to reduce Saudi dependence on oil, Saudi Arabia remains heavily dependent on oil revenue, as measured by its contribution to GDP, fiscal revenue, and exports, according to a 2022 report. Oil accounted for approximately 40% of Saudi GDP and 75% of fiscal revenue.
Funding Challenges and Strategic Adjustments
An advisor close to the government, who wished to remain unnamed, told the BBC on June 24, 2024, that the projects are under review. “The decision will be based on multiple factors,” he said. “But there is no doubt there will be a recalibration. Some projects will continue as planned, but others might be delayed or scaled back.”
The scaling back of Neom underscores the funding challenges faced by the Saudi government. Neom is financed by the Public Investment Fund (PIF), the country’s sovereign wealth fund. The official cost of Neom is $500bn, which is 50% more than Saudi Arabia’s entire federal budget for the year. Analysts estimate that executing the full project would ultimately cost over $2tn.
Since late 2022, Saudi Arabia’s government budget has been in deficit due to oil production cuts aimed at boosting global prices. The government forecasts a $21bn deficit for this year. The PIF, with assets of about $900bn, had just $15bn in cash reserves as of September. Raising capital for Neom and other large-scale projects remains a significant challenge, says Tim Callen, the former IMF chief to Saudi Arabia and now a visiting fellow at the Arab Gulf States Institute. “It is going to be increasingly challenging to fund the PIF to the levels required for these projects,” Callen says.
Exploring New Avenues for Capital
To bolster capital, Saudi Arabia recently sold approximately $11.2bn worth of shares in its national oil company, Saudi Aramco, with most proceeds expected to go to the PIF. This sale comes amid volatility in oil prices. In July of last year, the Saudi-led OPEC+ group reduced production to boost prices, but this decision was reversed this month, with production set to gradually increase from October. The IMF states that for Saudi Arabia to balance its budget, the price of oil needs to be $96.20 per barrel. Currently, Brent crude is hovering around $80 per barrel.
Saudi Arabia has also relied on selling government bonds to maintain funding flows for the PIF. Foreign direct investment remains far below targets, highlighting Riyadh’s struggle to attract private and international investors. “It’s going to be very difficult to persuade investors to come into projects that they view as being overly ambitious,” says Callen.
The Gulf: A New Mecca for Residency by Investment (RBI) Migrants
Saudi Arabia’s ambition echoes similar projects in other Gulf and Middle Eastern states like the UAE and Egypt. These nations are also pursuing large-scale developments as part of their economic diversification strategies, and granting residency rights to wealthy real estate investors, often accompanied by their families, is a growing trend.
In an interview with IMGW News in April 2024, acclaimed US author and academic Kristine Surak commented on the rise of Residency by Investment programs (often dubbed as ‘Golden Visas’): “Residence by Investment programs in the Gulf States is a very big, very important trend. Obviously what a ‘golden visa’ means in this case is something different, because the whole system of migration as well as citizenship in those countries looks very different than what it does in, say, Europe or North America or Latin America. But within that space, RBI options are now proliferating. The UAE, for instance, is now the global leader in this regard.”
Focusing on Diversification and Future Events
Saudi Arabia is also investing in tourism, mining, entertainment, and sports as part of its economic diversification strategy. The country has secured hosting rights for several major international events, including the football Asian Cup in 2027, the Asian Winter Games in 2029, and the World Expo 2030. It is also the sole bidder for the 2034 FIFA Men’s World Cup, all requiring significant investments in the coming years.
Ali Shihabi, a former banker now on Neom’s advisory board, noted that the ambitious targets set for Vision 2030 were designed with the understanding that only part of the projects would be delivered on time. “It was meant to be over ambitious, with the clear understanding that only a part of it would be delivered on time. But even that part would be significant,” said Shihabi.
Shihabi expects the government to prioritize projects with specific deadlines. “Projects where we have specific deadlines to meet will get prioritized by the nature of things,” he says.
Government’s Commitment to Adaptation
At a World Economic Forum meeting in Riyadh in April, Finance Minister Mohammed Al-Jadaan said the government is willing to adjust its Vision 2030 plan as necessary. “We will change course, we will extend some of the projects, we will downscale some projects, we will accelerate some projects,” he said.
If you wish to read more about Saudi Arabia’s ambitious Real Estate projects, you may find the following IMGW News articles of intererst:
- The Line: Saudi’s Trillion-Dollar Mirage or Modern Marvel?
- CEO Ditches $100M Neom Contract Over Saudi Human Rights Record
- The Human Cost of Saudi’s Neom
- Global Wealth Dynamics: The World’s Wealthiest Cities in 2024, and Emerging Destinations