In recent months, Saudi Arabia has seemingly scaled back plans for its vast desert development project Neom, which is the centrepiece of Vision 2030.This is the economic diversification programme spearheaded by Prince Mohammed, the Gulf state’s de-facto ruler, to transition the country’s economy away from oil-dependency.
But low oil prices have impacted government revenues, forcing Riyadh to reassess these projects, and explore new funding strategies. An advisor, who is associated with the government but wished not to be named, tells that the projects are being reviewed, with a decision expected soon.
Announced in 2017, Neom is a $500bn (£394bn) plan to build 10 futuristic cities in a desert region in the north west of the country. The most ambitious of them, and the one that has gained all the headlines, is The Line. This will be a linear city consisting of two adjoined, parallel skyscraper walls standing 500m high - taller than the Empire State Building. Yet they will have combined width of just 200m, including the gap between them.
The original plan was that they would extend for 170km (105 miles), and become home to nine million inhabitants. But according to people familiar with the details – and as already leaked to the press - the project developers will now focus on completing just 2.4km by 2030, as part of the first module.
When The Line was first announced it was billed as a “carbon-free linear city” that would redefine urban living, with amenities for residents like parks, waterfalls, flying taxis, and robot maids.
The city would have no roads or cars, and would be made up of interconnected, pedestrianised communities. It would also include an ultra-high-speed train, with a maximum journey duration of 20 minutes anywhere within city limits.
Along with The Line, Neom is also due to include an octagon-shaped floating industrial city, and a mountain ski-resort that will host the Asian Winter Games in 2029.Ali Shihabi, a former banker now on Neom's advisory board, says the targets set for projects under Vision 2030 were deliberately “designed to be over ambitious”.
The scaling back of Neom has put the spotlight on the funding challenges that the Saudi government is facing. Neom is being paid for by the Saudi government through its sovereign wealth entity, the Public Investment Fund (PIF).
The official cost to build Neom, $500bn, is 50% more than the country’s entire federal budget for the year. But analysts estimate that it would ultimately cost more than $2tn to execute the full project.
Saudi Arabia’s government budget has been in a deficit since late 2022, when the world’s largest oil exporter began slashing production to accelerate global prices. The government has forecast a deficit of $21bn for this year. The PIF is feeling the pinch. It controls assets of about $900bn, but it had just $15bn in cash reserves as of September.
According to the International Monetary Fund, the price of a barrel of oil needs to be $96.20 for Saudi Arabia to be able to balance its budget. Brent, one of the main benchmarks for crude, has been hovering around $80 a barrel.
The country has also relied on selling government bonds to maintain funding flows for the PIF. The other challenge has been that foreign direct investment has remained far below targets, underlining Riyadh’s struggle to attract funding from private companies and international investors.
The Gulf state is also funnelling money into sectors such as tourism, mining, entertainment, and sports as part of the economic diversification strategy.
