The Saudi Crown Prince Mohammad bin Salman has announced on Thursday plans to launch a $500 billion project of building a mega city, dubbed NEOM.
The 26,500 square kilometer city will be built in northwest of the country, extending to Egypt and Jordan.
Mohammad bin Salman appointed Klaus Kleinfeld, a former chief executive of Siemens and Aloca, to run the NEOM project.
Unveiling the ambitious plan during an international business conference in the Saudi capital Riyadh, the crown hoped that a privatization program, including the sale of 5 percent of the shares of the national oil giant Aramco, will raise $300 billion for the project.
What are bin Salmans objectives?
The project comes as part of the Vision 2030, a document providing a roadmap to help the Arab monarchy cut reliance on the oil revenues, which was unveiled by son of the King Salman in late April 2016. The Visions key aspirations were said to be touching zero reliance on oil incomes, transforming Saudi Arabia into a top economic power in the region, and presenting a new picture to the world of the highly conservative Arab kingdom.
Bin Salman said the NEOM project, which is also an economic zone, will help economic growth and diversity, domestic industry development, new jobs opportunities, and giving "a picture of the future human civilization." The city will lie on the coasts of the Red Sea and will be accessible from Europe, Asia, and Africa within less than 8 hours.
The use of the cutting-edge technology will be key feature of the new city in a bid to expand tourism, as well as industrial production. It is clear enough that the project is aimed at economic conditions improvement as the kingdoms various economic sectors have critically been bearing the brunt of sagging oil prices over the past three years.
So, the general goals of the plan can be outlined as following:
- Cutting dependence on oil revenues
- Attracting foreign investment
- Weathering the hard economic conditions,
- Overshadowing the ongoing war in the neighboring Yemen
- And burnishing the Saudi Arabian image and presenting it to the world as a modern and civilized, not traditional, country
NEOM project’s financial propulsion
As was mentioned above, over half of the finance necessary to complete the project will come from selling about 5 percent of the state-run Aramco, the world’s largest oil company. Additionally, as the Vision 2030 prefigures, the Saudi officials want to absorb foreign investment, though the Saudi ability to attract foreign finance has always been subject to questions. Third, and perhaps the most important source of funding the project, is the crude oil income in addition to the cash made by the religious tourism as the country hosts two Muslim holy cities of Mecca and Medina.
But the megaproject faces certain roadblocks:
Lack of planning and predictions for the vision
It seems that the Saudi leaders have not worked out detailed plans for implementation of this project as well as the ambitious 2030 document. After all, one of the main conditions of the Vision 2030 was to break the “dangerous” addiction to oil by reaching zero effect in the nation’s economy. But oil remains the leading source of funding the NEOM city.
Military adventures and heavy military spending
Saudi Arabia is the third country with the world’s largest military budget. Surprisingly Saudi Arabia spends only 2 percent of its military budget at home. The Vision 2030 aims at increasing this figure to 50 percent. But raising the national budget will take cutting the military spending, a necessity Riyadh is yet to address.
The Saudi war against the neighboring Yemen has cost it so much so far. According to a Foreign Policy magazine’s report, the Saudis during the past three years of war spend a total amount of $725 billion. To make up for cash flow disruption as a result of low oil prices amid war, the Saudis had to sell part of Aramco. Saudi Arabia also supports a set of terrorist groups in Syria, Iraq, Libya, and Afghanistan in a bid to cultivate influence for running its regional policy. With this still ongoing, military spending cut, which is a prerequisite to realization of NEOM and Vision 2030, looks impossible.
Foreign investors reluctance to bring money to Saudi Arabia
The Saudi authorities are very optimistic about bringing in the kingdom investors from around the world. The direct foreign investment in Saudi Arabia between 2010 and 2015 witnessed a considerable drop, moving down to $8.141 billion in 2015 from the $29.233 billion in 2010. The 2015 figures show meager growth compared to 2014, though. The kingdom ranked 37th among 203 world countries by attraction of $8.141 billion in 2015. It, on the other side, invested $5.520 billion in other countries, showing $124 million increase. Riyadhs investment in other countries between 2010 and 2015 saw a regular growth. For many foreign countries and big companies, Saudi Arabia is a consumption market and oil supplier not a zone worth investing in. Moreover, with regard to its system of governance, foreign and domestic policy, and more importantly its military intervention in regional countries the investors find entry to the Saudi projects a risky work. So, to proceed with planning of the futuristic document, Riyadh needs to resort to the oil cash, which means even tightened reliance to oil.
Absence of political will, imbalance between modern project and traditional society
The Minister of Commerce and Investment of Saudi Arabia Majid bin Abdullah Al Qasabi believes that success in the NEOM aspiration takes a constant political will. Nevertheless, after Salman assumption of power in 2015, the tensions escalated between the royal circles. Additionally, given the historical course of the Al Saud ruling family, one can hardly conceive of existence of such a will that is vital for such big ambitions as the NEOM mega city or the Vision 2030. Moreover, the social ground is crucial. The Saudi society is highly conservative and traditional, while the project eyes fast change and radical modernization of the nation, something that will certainly draw opposition of a large part of the society as well as the hardline Wahabbi clerics.
Therefore, taking into account the economic, political, and social problems and limitations, the NEOM city looks like a pipe dream of the Crown Prince Mohammad bin Salman. To be precise, unveiling this mega project, like the much-vaunted earlier political reform steps, is simply a media campaign meant to cover up the major foreign and home troubles the kingdom is grappling with.