Saudi Arabia’s Crown Prince blew everyone away with his sci-fi plans to build a $500 billion development project called NEOM. We now have the first sign that many of those plans are going to fall by the wayside. The first casualty: The Line. The bigger question: Are the Saudis running out of money?
Umm, the same NEOM as those Twitter ads…
Yes, indeed. Prince Salman still has plenty of money to spend on ads… sadly. Ok, let’s quickly talk about NEOM (lots more detail in this older Big Story)
First, some background: The futuristic megacity is part of 2030 Vision—unveiled months after Prince Mohammed bin Salman (aka MBS) was anointed as the heir to the Saudi throne. The city is part of a strategic plan to wean the Saudi economy off oil—and expand sectors such as health, education, infrastructure and tourism. Equally important aims:
- Give Saudi Arabia a PR makeover—recasting the nation as modern, tech-forward and dynamic.
- Remake a country known for its repressive conservatism as a glittering tourist destination that can rival neighbouring Dubai.
- Use the city—and its lucrative contracts—as a tool of ‘soft’ diplomacy to rehabilitate MBS’ image as a ruthless dictator. As of now, he is best known for ordering the brutal killing of Washington Post columnist Jamal Khashoggi.
- Keep the nation’s very young and highly unemployed Saudi population happy.
Quote to note: Once an international pariah, MBS recently took a trip to Europe—where he was warmly welcomed by the likes of French President Emmanuel Macron. As one rights activist bluntly puts it:
MBS is doing it again: reviving a dystopian vanity project to distract from an abysmal human rights record, while indifferent Western leaders are welcoming him after he learned to hide his fingerprints from ongoing atrocities.
About that name: NEOM is a portmanteau word that combines the Greek word for “new” (neo) and the Arabic term for “future”—mustaqbal. Happily, it is also the first letter of the Prince's name.
The basic deets: The city-state—spread over an area of 26,500 square kilometres—is located on the Red Sea in northwestern Saudi Arabia. The entire project will be made up of 41 islands. The project is slated for completion in 2025—and is expected to house over 2 million residents by 2030 and 9 million by 2045.
The two key words used most often to describe NEOM are ‘futuristic’ and ‘sustainable’. According to the Saudis, all energy in NEOM will be 100% renewable with zero emissions—powered by solar, wind and hydrogen-based electricity. As for the tech, well, more on that later. Let’s just say that MBS calls it a “civilisational revolution” and “the best liveable area—by far—in the whole planet.” You can watch the promo video below:
It’s kinda unreal: The plans for NEOM include a number of wildly expensive projects—with the emphasis on ‘wild’. A recent roadshow for foreign investors in China unveiled all sorts of wonders:
A private showcase provided attendees with an "immersive experience" exploring The Line, a 105-mile-long futuristic city, along with Oxagon, which promises to redefine the "traditional industrial model"; Trojena, NEOM's mountain resort; and Sindalah, a luxury island in the Red Sea that opens to the public later this year.
The response was ‘neutral’—with one investor saying, "I'll visit for fun, but I won't live there. It's like something out of 'SimCity.'" That’s the polite version. The Wall Street Journal was less kind when it got a peek at confidential plans in 2022—which included: flying taxis, robot maids, dinosaur robots in a fake Jurassic Park, glow-in-the-dark sand, and a giant artificial moon. One American exec quit the project because he couldn’t handle the “complete absence of being tethered to reality.”
And now it’s in trouble… because?
According to a Bloomberg scoop, those outlandish (literally) plans have been dramatically scaled back. The first casualty is The Line. What’s that you ask?
Drawing The Line: It is the jewel in the NEOM crown—a 170-kilometre metropolis that will run in a straight line through the desert—and house five million residents. It consists of “two skyscrapers as tall as the Empire State Building running in parallel, connected by walkways.” Also this:
The linear city, powered by 100% renewable energy, will shun cars and roads in favour of high-speed underground train lines. It will feature walls of ‘vertical’ farms to feed its residents. A dazzling entertainment offering will include a sports stadium up to 1,000 feet above the ground and a marina for yachts between the two buildings.
To truly appreciate MBS’ vision, you can check out the promo video below or more photos here.
Redrawing The Line: According to Bloomberg News, that vaulting vision has died a quiet death—at least for now. A 170-km city expected to be ready by 2030 will only be a paltry 2.4 km by its due date. It’s a staggering 98.6% reduction in scale. Though it will house 300,000 residents—which is a lot of people to squeeze into that space. As one Guardian columnist sarcastically put it:
This makes Prince Mohammed, or MBS as he is known, the Nigel Tufnel of petro-despots – the guitarist in This is Spinal Tap who accidentally ordered an 18-inch Stonehenge as a stage prop, when he meant to get one 18-feet high.
To be fair: Not all NEOM projects have experienced severe downsizing. A luxury tourist destination called Sindalah is on track to open this year—which looks mostly done—as you can see below:
But the more grandiose plans have moved on to the back burner:
Finance Minister Mohammed Al-Jadaan has also acknowledged a funding shortfall and flagged the issuance of more debt… “There was a gap,” he told the Thmanyah’s Socrates podcast. “We called it the Gap Study.” Postponing and scrapping some projects will plug that hole, he said, without going into detail.
Saudis with money issues? That’s wilder than NEOM…
Well, ‘money issues’ is a relative term—MBS has insanely rich people problems. It essentially centres on the $925 billion Public Investment Fund.
A very expensive dream: MBS’ has been on an astronomical spending spree in recent years—as the Wall Street Journal notes:
Saudi Arabia has been a conveyor belt of flashy spending plans over the past year: a $48 billion property development anchored by a quarter-mile-tall cube; a global airline to rival aviation giants; a merger with the PGA Tour; a $100 billion investment in chips and electronics.
The gargantuan project to transform Saudi Arabia into the “new Europe” is expected to cost at least $1 trillion. All of it—including NEOM—is being funded by the country’s sovereign wealth fund.
About the PIF: The Public Investment Fund was first launched in 1971 to manage Saudi Arabia’s oil money. In 2015, MBS rehauled the fund—and made himself its chairman. It now operates like a family office—with its fingers in all sorts of investment pies—from EV cars to AI tech and football. Under the Prince, the PIF kitty has been growing by leaps and bounds:
It has been handed tens of billions of dollars that would normally have gone to the Finance Ministry or the central bank, along with land grants and an 8% stake in state oil giant Saudi Aramco, the world’s biggest crude exporter. Its goal is to reach $2 trillion in assets by 2030, becoming the world’s biggest wealth fund. It’s now No. 6, with Norway topping the list at $1.4 trillion.
Money problems: Despite its staggering size, it has been spending more than it earns. Many of its investments haven’t fared too well. It was hit by an $11 billion loss in 2022—and cash levels have fallen to $15 billion. Not helping matters: Oil prices have not kept pace with Saudi expectations:
Yet for all that the cuts [in oil production] have restricted supply, prices remain below what the crown price requires to fund his grand ambitions. When accounting for domestic spending by the PIF, the kingdom needs crude of at least $108 a barrel to balance its budget, according to Bloomberg Economics. Brent’s jumped in recent weeks but remains below $90.
Saudi Arabia is expected to run a budget deficit of $21 billion this year—about 2% of the country’s gross domestic product. Not very much by any country’s standards—but it’s unprecedented for the Saudis.
Point to note: For all that the Saudis pretend the PIF is like some investment fund, it is funded entirely by the kingdom’s oil money. An investment banker describes it as “raising money from one public pocket at the expense of the other.” When oil revenue goes down—or doesn’t rise when needed—it’s a problem for the fund.
Surely they’re not going broke…
Of course not. But it shows that money can’t solve all problems—or make all your dreams come true. Despite the Saudis putting their entire financial muscle behind the vision, the PIF has so far failed in its core goal: “to lure foreign money into the country by kick-starting new industries.” The mantra being—‘if we spend, they will come’.
That has not happened so far—despite MBS’ best efforts. The Saudis want to hit $100 billion in foreign investment by 2030. But it only attracted $17 billion between 2017 and 2022. And the preliminary numbers for 2023 are around $19 billion. That $100 billion target now seems like a pipe dream.
The real failure of The Line: Some experts say that the plans for the city were outrageous for good reason:
The point of The Line, in particular, was to create a raison de parler – for people to actually talk about Saudi Arabia… That buzz was supposed to attract investors who wanted to be a part of this, help Saudi Arabia build a city of the future, and try to do something completely outlandish and absolutely unconventional.
Turns out even a 170-km skyscraper can’t overcome investor scepticism about a conservative Islamic society—with a spotty record with foreigners. To put it bluntly: Riyadh isn’t Dubai.
Not helping matters: The war on Gaza. Unrest in the Middle East—torn between Israel and the Arabs—has always been a key hurdle for investors. That’s why Riyadh was getting ready to sign a peace deal with Israel. The US, Israel and the Arabs would together build a ‘new Middle East’—making money not war:
Israel’s geographic proximity to northwestern Saudi Arabia, its technological advancement, and its vibrant startup culture position the occupation state as a promising partner for Vision 2030 and the NEOM project, particularly in biotechnology, cybersecurity, and manufacturing.
There was no place or interest in a free Palestine in this vision—which is why Hamas launched the October 7 attacks to fight irrelevance.
The real failure of the Saudis: was to misread their own neighbourhood—including their soon-to-be bestie Israel. The IDF has spent months killing over 35,000 Gazans—most of them women and children. The US has done little to stop the massacre. Riyadh will first have to figure out how to rebuild Gaza—to the satisfaction of the Arab world—before recruiting Israelis to build NEOM. In fact, the war and its aftershock will dent the economies of almost all Gulf nations. Despite the show of great support from US investors, long-term prospects of even Israel look grim.
The bottomline: George Hay argues that the best investment the PIF could make is in Gaza. It will help cast MBS as peacemaker—rather than a journalist-killing despot—and earn him great goodwill in both the region and abroad. The kingdom has spent billions of dollars in the West to whitewash its reputation—when it ought to be throwing that money at a good cause in its backyard. That it might help some Palestinians will be kinda nice.
Reading list
Bloomberg News has most of the reporting on NEOM, but it’s under a paywall. It broke the story of the scaling back of ‘The Line’ and also looks at why MBS’ $100 billion investment quest is just a pipedream. Wall Street Journal (splainer gift link) has an excellent feature on Saudi Arabia’s extravagant spending. The Cradle looks at why the Gaza war has made it difficult for Riyadh to get spending. George Hay in Reuters has a must-read on how Gaza will be the Kingdom’s best investment.
