“They can keep saying that and we can keep proving them wrong.”
This was the response of Saudi Arabia’s Crown Prince Mohammed bin Salman in a television documentary broadcast in July 2023, as he spoke about the skepticism surrounding Saudi Arabia’s major construction projects.
Almost a year later, some of the doubts are turning out to be true.
In recent months, Saudi Arabia has apparently scaled back plans for its vast Neom desert development project, which is the centerpiece of Vision 2030.
This is the economic diversification program led by Prince Mohammed, the de facto ruler of the Gulf State, to transition the country’s economy away from dependence on oil.
In addition to Neom, Saudi Arabia is also developing 13 other large construction projects, or “gigaprojects”, as they are called, worth billions of dollars. These include an entertainment city on the outskirts of the capital Riyadh, several luxury island resorts in the Red Sea and a host of other tourist and cultural destinations.
But low oil prices have impacted government revenues, forcing Riyadh to reevaluate these projects and explore new financing strategies.
A councilor, who is linked to the government but did not want to be identified, told the BBC that the projects are being reviewed and a decision is expected soon.
“The decision will be based on several factors,” he says. “But there is no doubt that there will be a recalibration. Some projects will proceed as planned, but some may be delayed or scaled back.”
Announced in 2017, Neom is a $500 billion (£394 billion) plan to build 10 futuristic cities in a desert region in the northwest of the country.
The most ambitious of them, and the one that grabbed all the headlines, is The Line. This will be a linear city made up of two parallel, adjacent walls of skyscrapers 500 meters high – taller than the Empire State Building. However, they will have a combined width of just 200 m, including the distance between them.
The original plan was for it to stretch 170 km (105 miles) and house nine million inhabitants.
But according to people familiar with the details – and as has already been disclosed to the press – the project promoters will now focus on completing just 2.4 km 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 robotic maids.
The city would have no roads or cars and would be made up of interconnected, pedestrianized communities. It would also include an ultra-high-speed train, with a maximum travel time of 20 minutes anywhere within the city limits.
It’s unclear how many of these features will be part of the first phase.
Along with The Line, Neom will also 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 who now sits on Neom’s advisory board, says the targets set for projects under Vision 2030 were deliberately “designed to be too ambitious”.
“The goal was to be overly ambitious, with the clear understanding that only a portion would be delivered on time. But even that part would be significant,” says Shihabi.
Neom’s drawdown has highlighted the funding challenges facing the Saudi government.
Neom is being paid by the Saudi government through its sovereign wealth entity, the Public Investment Fund (PIF).
The official cost to build Neom, US$500 billion, is 50% higher than the country’s entire federal budget for the year. But analysts estimate that executing the entire project would cost more than $2 billion.
Saudi Arabia’s government budget has been in deficit since late 2022, when the world’s biggest oil exporter began reducing production to accelerate global prices. The government forecasts a deficit of 21 billion dollars for this year.
The PIF is feeling the pinch. It controls assets worth around $900 billion, but had just $15 billion in cash reserves as of September.
Tim Callen, former head of the IMF in Saudi Arabia and now a visiting fellow at the Arab Gulf States Institute, says raising capital for Neom and other large-scale projects is a key challenge going forward.
“It will be increasingly difficult to finance the PIF at the levels required for these projects”, says Callen.
The Gulf State is exploring other avenues to bolster capital.
Earlier this month, he sold about $11.2 billion worth of shares in his national oil company Saudi Aramco. The majority of these funds are expected to go to the PIF, which was also the biggest beneficiary when the company went public in 2019.
The sale comes amid volatility in oil prices. In July last year, in an attempt to boost prices, the group of oil-producing countries OPEC+, led by Saudi Arabia, reduced production.
Riyadh voluntarily cut its supply by one million barrels per day. However, this month, OPEC+ reversed the decision and will gradually begin increasing production from October.
According to the International Monetary Fund, the price of a barrel of oil needs to be $96.20 for Saudi Arabia to balance its budget. Brent, one of the main references for oil, has been hovering around US$80 a barrel.
The country also depended on the sale of government bonds to maintain PIF funding flows. The other challenge has been the fact that foreign direct investment has remained well below targets, underlining Riyadh’s struggle to attract financing from private companies and international investors.
“It will be very difficult to persuade investors to join projects that they consider overly ambitious,” says Callen. “It’s not clear where their returns will come from.”
The Gulf state is also channeling money into sectors such as tourism, mining, entertainment and sport as part of its economic diversification strategy.
In recent years, Saudi Arabia has won the hosting rights to several major international events, such as the football AFC Asian Cup in 2027, the Asian Winter Games in 2029 and the World Expo 2030. It has also emerged as the sole bidder for FIFA 2034 . Men’s World Cup. All these projects will require massive investments in the coming years.
Shihabi hopes the government will prioritize these international events as they approach. “Projects where we have specific deadlines to meet will be prioritized due to the nature of things,” he says.
In April, at a special meeting of the World Economic Forum held in Riyadh, the country’s Finance Minister, Mohammed Al-Jadaan, said that the government did not have an “ego” and that it would adjust its Vision 2030 plan to transform its economy accordingly. necessary. .
“We are going to change course, we are going to extend some of the projects, we are going to reduce some projects, we are going to accelerate some projects,” he said.
