The Red Sea appeal grows with a $500bn Saudi non-oil idea
NEOM, this $500bn 100% renewable city was born from what is now known as the “Davos in the Desert’. Crown Prince Mohammed bin Salman unveiled the project, following the announcement of development projects on 50 virgin island off the Red Sea as well.
Watch Saudi Vision 2030 come to life here.
Something about the Red Sea is luring Saudi money away from now shelved mega projects and into greener pastures, but there is nothing wrong with fluid ideas like these to prove that the Kingdom is making a clean break from an oil-dependent past.
NEOM is not just another city development. In fact, it’s a $500bn super mega project on the Red Sea coast located at a strategic junction linking 3 countries, Saudi, Egypt and Jordan, and connecting Asia, Europe and Africa.
NEOM is raising eyebrows from observers who can’t fathom where the money will come from, during times of rationing resources and austerity measures.
First, is this wishful thinking?
A dream in the making
It was during the Future Investment Initiative, an event by Saudi’s Public Investment Fund (PIF), that Saudi Crown Prince Mohammed bin Salman said: “This project is not a place for any conventional investor […] This is a place for dreamers who want to do something in the world.”
Klaus Kleinfeld, former CEO of Siemens and Alcoa, was picked to be at the helm as CEO of NEOM.
Giving a hint of the funding’s source, the Crown Prince indicated the country’s sovereign wealth fund PIF as well as local and international investors who will jump in the fray.
The PIF has now approximately $230bn of assets under management (AUM), but Yasir Al Rumayan, Managing Director of PIF, told Bloomberg at the same event that the Kingdom’s fund aims to have at least $2trn of AUM by 2030.
He added that the sovereign wealth fund was targeting investment returns of 8 to 9 per cent.
An event statement described the project as a 26,500 sqkm zone, to be powered entirely by renewable energy. It will focus on energy and water, biotechnology, food, advanced manufacturing and entertainment.
This project portrays Saudi in a completely new light and positions the Kingdom as an international partner in innovation, trade and sustainability.
This follows a July 2017 announcement that another Red Sea project will cover 50 islands and 34,000 square kilometers and be developed to attract luxury travellers from around the globe and be as well financed by the PIF. “The project will create as many as 35,000 jobs and contribute $4 billion to Saudi Arabia’s gross domestic product,” said a PIF statement then.
This attraction towards seaside developments makes sense from tourism and investment perspectives and cements the strategic direction of the Kingdom away from oil and into investment-fueled schemes.
After all, from building an entertainment city to lifting the ban on women drivers, providing full ownership rights to foreign companies operating on Saudi soil and the right to purchase a ten per cent stake in Saudi owned companies, lifting the ban on VOIP, and IPO-ing five per cent of Aramco’s shares, we’re looking at the tip of the iceberg for just some of the projects that Saudi is undertaking to diversify its income.
But at what cost?
Unfinished and shelved
Reuters published a scathing report this year saying that Saudi was ordering its ministries and agencies to audit unfinished infrastructure and economic development projects worth billions aiming to either shelve, postpone or restructure them.
“Riyadh’s Bureau of Capital and Operational Spending Rationalization, set up last year to make the government more efficient, is compiling a list of projects that are under 25 per cent complete,” sources told Reuters.
Earlier this year, Saudi Finance Minister Mohammed al-Jadaan said that the Kingdom saved $21.33 bn through the bureau’s efficient procedures.
The majority of these developments are leftover works from boom years, when oil money was plenty and attitudes towards efficiency were more relaxed.
“In a report at the end of last year, it (Saudi Government) estimated the cost of completing all capital spending projects currently underway at about SAR1.4trn ($381bn),” said Reuters.
It said that consultants Faithful+Gould estimated that at least $13.3 billion of government projects were at risk of being cancelled in Saudi Arabia in 2017, because of fiscal pressures and changing government priorities.
“The government is likely to prioritize projects with strong social welfare and business justifications […] while less essential projects such as sports infrastructure, transport systems and perhaps nuclear energy could be cut back,” it said.
According to a BNC Report on Ongoing Mega Projects commissioned by the Big 5 Saudi 2017 organizers dmg events, Saudi’s top 10 construction projects are worth a collective $92 billion.
Of these are included Jeddah’s 1km tower, valued $1.8 billion and due for completion by March 2020, as well as Mecca’s Abraj Kudai Development, valued at $3.5bn and due for completion by end 2017, which coincides with Mecca’s own $17bn expansion project.
Staying with projects geared to religious tourism as per Vision 2030, the Prophet’s Mosque in Madinah will see a $6.7bn expansion with completion estimated at end 2017.
The Mall of Saudi by Majid Al Futtaim Group is a $3.2bn entertainment and shopping paradise projected to see the light in 2022.
Finally, the $23bn Riyadh Metro project with a 2020 completion mandate will change the landscape of commuting in the Saudi capital.