Saudi Arabia’s NEOM: A Bold Vision or a Pipe Dream?

11.05.17
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World News /05 Nov 2017
11.05.17

Saudi Arabia’s NEOM: A Bold Vision or a Pipe Dream?

While in power, King Abdullah recognized that to succeed in the future the Saudi Arabian government needed to adopt policies that demonstrated vision, broke with the country’s ultra-conservative tradition, and dispensed with the shackles of oil dependency. The construction of six ‘economic cities’ under his leadership were designed to enhance economic competitiveness, create new jobs, and help to diversify the economy. However, the progress of building these cities was slow even before the collapse of the price of oil – the result of the realities associated with undertaking grand objectives under an inefficient economic model. So the announcement of the government’s intention to build NEOM, a 13,000-square mile luxury tourism destination on the Red Sea, is evidence of Crown Prince Mohammed bin Salman’s (MBS) desire to continue to march boldly forward in the direction of economic diversification and religious moderation, but also raises serious questions about how realistic such dramatic change can be in the kingdom, while drawing attention to the plethora of issues that continue to plague it.

The aptly named NEOM stands for a new operating model, a fundamental adaptation to new realities. The kingdom’s new operating model is Vision 2030, which foresees Saudi Arabia as the epicenter of the Middle East’s economic future, but also a global leader in embracing the Fourth Industrial Revolution (FIR) – a fusion of technologies that blurs the lines between the physical, digital, and biological spheres.

For having the tenacity to embrace NEOM as the centerpiece of the kingdom’s future, MBS deserves credit, for he sees NEOM not only as a near-term objective, but as a springboard that he hopes will help guide Saudi Arabia’s long-term orientation. MBS envisions an Artificial Intelligence (AI)-driven city, where drones hover above a thriving futuristic metropolis that integrates 3D and block chain technology, and where robots busily supplant human activities.

The FIR is already disrupting national economies around the world, but not every country has the financial resources and indigenous labor force to make such visions a reality. The kingdom is already burdened by a persistently low oil price (which accounts for more than 90% of its national revenues), substantial entitlement obligations to its citizens, and financial commitments to its existing national projects. The $500 billion MBS has already committed to making NEOM a reality must be seen as a conservative estimate of its ultimate cost, given its grand objectives, and should perhaps be seen as a trillion dollar outlay before it is completed. Unless the price of oil were to leap beyond $100 per barrel soon and stay there for an extended period of time, one has to wonder where all this money will come from. The kingdom had a $98 billion budget deficit in 2015 and a $79 billion deficit in 2016, yet the government has been increasing spending in 2017.

The government is already actively promoting international investment to fund NEOM, and a number of investors have already expressed interest. On the heels of King Salman’s recent visit to Moscow, the Russian Direct Investment Fund has said it would commit billions of dollars toward bringing high tech Russian companies to NEOM. Richard Branson has spoken of building one or two hotels in the city, and Japan’s SoftBank Vision Fund is already active in the kingdom. But first, NEOM must be built, and once it is built, it must compete with other FIR cities that will also be built in the coming decades throughout the region and the world.

So, are prospective investors likelier to flock to a futuristic metropolis in a country that has the ‘prospect’ of matching its style of governing and indigenous challenges with what an FIR city promises, or are they likelier to be driven to the same in a country that already matches its persona with its reality? That of course remains to be seen, but there is naturally doubt about whether NEOM will turn out to represent the future Saudi Arabia, or merely a parcel of land divorced from present day Saudi Arabia, which will differ little in a dozen years from what it is today.

There are substantial risks associated with embracing the NEOM vision. The income inequality and religious tension that plagues the country will not magically disappear just because NEOM will be built. Although the King and MBS have embarked on a reformist path, it will take decades for the daily reality of life in the kingdom to come close to matching the vision its current leaders have for the country. While much of NEOM’s success will ultimately depend on the price of oil over the next decade, so too will the degree to which the government’s narrative resonates with international investors.

It is one thing to declare the undertaking of such a grand initiative, but quite another to make it a reality. The King and MBS deserve much credit for having the tenacity to so publicly pursue a vision as bold as NEOM. The same degree of initiative will need to be devoted to addressing the plethora of socioeconomic issues that plague the majority of Saudi Arabia’s citizen. Only then can the disruptive nature of a futuristic city be aligned with the economic potential represented by millions of Saudis who yearn for a better life, in a modern nation that enables them to reach their own potential.

This article was originally posted in the Sunday Guardian.

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