Saudi Arabia is pressing ahead to realize MBS's pet projects — like a $500 billion futuristic megacity — bypassing budget cuts and shrugging off the pandemic
- The coronavirus pandemic has seen Saudi Arabia slash its budget, triple value-added tax, and scrap handouts. Oil prices also bottomed out, sending a shock to the oil-reliant economy.
- Yet work is pressing ahead at Crown Prince Mohammed bin Salman's prized gigaprojects, a key pillar of his dream of modernizing Saudi Arabia.
- The futuristic city of Neom, the Qiddiya entertainment city, and two luxury resorts — all backed by the kingdom's sovereign wealth fund — have in recent weeks signed multiple contracts worth hundreds of millions of dollars each.
- "The speed of execution may vary over time ... but its path is set," Ali Shibab, a member of the Neom advisory board, told Business Insider.
- A former US diplomat also told Business Insider that MBS's political success is "to a considerable extent tied to the success of" these projects.
Within four months of Mohammed bin Salman's becoming Crown Prince of Saudi Arabia he had made his foremost desire clear.
On October 24, 2017, he announced that a $500 billion futuristic megacity 33 times the size of New York City, would be built from scratch in the kingdom's northwestern deserts.
The city, named Neom, would be carbon neutral and have artificial rain, a fake moon, flying taxis, and robotic maids, according to early blueprints drawn up by consultants. It has since branded itself as a future hub for pioneering clean energy development.
The project is a key part of Vision 2030, the prince's plan to modernize the kingdom and shed its reliance on petrodollars amid fluctuating oil prices.
Along with Neom, Vision 2030 has dreamed up a number of other megaprojects to draw tourists and investment, and inspire awe. They are the entertainment park, Qiddiya, and two luxury coastal resorts, named The Red Sea Project and Amaala.
Together, they will be MBS's legacy, and if completed, substantiate his self-styled image as a reformer, while adding new strings to Saudi Arabia's economic bow.
Gulf watchers expected the projects to stall or even be abandoned during the coronavirus pandemic. But despite cuts to the national budget and concerns over unemployment, the cost of living, and depreciating oil prices, Saudi Arabia is pressing ahead.
MBS's political future 'tied' to Vision 2030
"The Crown Prince has sort of nailed himself to the mast — tied himself to the mast — and the success of his political future is to a considerable extent tied to the success of Vision 2030," David Rundell, a former US diplomat who spent 15 years in Saudi Arabia, including as Chief of Mission at the US Embassy in Riyadh, told Business Insider.
"There is are a lot of headwind. COVID has slowed down the plan," Rundell said of the megaprojects. "It gives them less money and a less robust economy to work with."
Rundell added, however, that MBS's plans are here to stay: "They're not giving up on Vision 2030," he said.
To date, the kingdom's Public Investment Fund (PIF) has pumped the megaprojects with money. Its total investment is at some $810 billion, according to the Middle East and North Africa Leisure Attractions Council, a nonprofit trade council set up by Dubai's Chamber of Commerce and Industry.
Neom's 'path is set'
On May 11, 2020, Saudi finance minister Mohammed al-Jadaan announced a string of measures to help mitigate the economic damage caused by the pandemic.
The state announced $27 billion of cuts to its $272 billion 2020 budget, with government departments asked in early March to submit proposals for cuts of at least 20% each.
As of June 1, government employees, military employees, retirees, and students have been stripped of their $266 cost-of-living allowance handed out since January 2018. In July, value-added tax tripled from 5% to 15%.
Yet MBS's costly passion projects are pressing ahead unhindered.
Of all the future attractions, Neom is MBS's foremost priority.
On August 10, Neom announced it had contracted the US construction giant Bechtel as a project manager for Neom. Bechtel declined to comment on the size of the deal.
"Neom is moving ahead," Ali Shihabi, a member of the project's advisory board, told Business Insider, adding that the city will include projects "that utilize its competitive advantage in solar, wind, and green desalination and hydrogen."
Shihabi said Neom is facing financial difficulties in light of this year's low oil prices, but added that everything is being done to realize MBS's dream.
"The speed of execution may vary over time as oil prices affect the Saudi budget but its path is set," he said.
Representatives for Neom declined to answer Business Insider's questions about its progress.
The clearest sign yet of the project's importance came on August 23, when the Saudi energy ministry said it was stepping in to aid Neom and help it meet the 2025 completion target.
"We have to persevere and make all our capacities available to realize this project," Prince Abdulaziz, the minister for energy, told al-Arabiya.
The pandemic has not stopped Neom from signing large deals with public-relations and construction firms either.
Between March 4 and September 15, Neom signed deals with the infrastructure consulting firm AECOM, which said it had been tasked to "accelerate the delivery" of the city; The Leaders Development Institute to act as sports advisers; and Air Products, which has been tasked to develop a carbon-free hydrogen plant for $5 billion.
Neom also signed two heavyweight PR firms amid a string of scandals that hung over the project, including reports that Saudi security forces shot dead a tribal activist who opposed the project.
On April 29, Neom hired Burson Cohn & Wolfe at a cost of $1.1 million, documents filed in the US under the Foreign Agents Registration Act (FARA) show. And on May 20, Neom signed a $1.7 million deal with Ruder Finn, according to documents filed under FARA.
'A signal of defiance'
Members of the Saudi royal family are also doing all they can to raise Neom's profile, and help attract the investment that will see the city become a reality.
MBS spent much of the coronavirus pandemic isolating in the area, chairing royal court cabinet sessions via video link. His father, King Salman, first chaired a council of ministers meeting in Neom in July 2018.
On September 1, 2020, White House Senior Advisor Jared Kushner flew to Neom to meet MBS for talks. Weeks before, on August 13, King Salman flew to there to recover from gall bladder surgery.
"The political significance of these projects is as important, if not more important, than their economic significance to Saudi Arabia and to Vision 2030," Yasmine Farouk, a visiting fellow at the Middle East Program at the Carnegie Endowment for International Peace, told Business Insider.
Farouk added the domestic Saudi media, which is ostensibly privatized but monitored heavily by the state, has poured cold water on any reports that the projects would be delayed.
"I think the doubling down in the media, especially in the Saudi media, in terms of reporting on these projects, to insist that they are going to continue is a way to begin sending a signal of defiance to the foes or opponents of the Crown Prince, whether in the western press or in policy circles," she said.
The projects could leave Saudis poorer
At the height of the pandemic, in March and April, the Saudi royal family approved a $40 billion transfer from the kingdom's central bank to the PIF to help invest in domestic and foreign projects. It is unclear if any of MBS's gigaprojects received added investment.
But while spending on Neom has not stopped amid the pandemic, evidence shows that it has slowed.
"While it is true that the government seems intent on continuing with some megaproject spending — despite at the same time cutting fiscal spending on social programs and raising the value-added tax to 15% — there is still a broad tightening of fiscal space," Dr Karen E. Young, a resident scholar at the American Enterprise Institute and an expert on the Gulf political economy, told Business Insider.
Young added that the state's commitment to seeing the projects through may be felt in the pocket of working Saudis.
"There is political commitment to these projects, both near Riyadh and the Red Sea coast, and there will be more spending and awards to come, but they will come at a cost to other fiscal priorities and that will become more apparent to Saudi citizens," she said.
Luxury resorts on the Saudi riviera
Neom is one of several megaprojects underway, and not the only one seemingly shrugging off the impact of the pandemic.
Work is currently underway turning 22 islands into the luxury Red Sea Project resort.
On July 13, The Red Sea Development Company signed a deal with two construction companies — Nesma & Partners Contracting Co. and Almabani General Contractors — to build an airport, designed by the British architecture company Foster + Partners, to serve the resort.
The company is set to award $933 million in new contracts by the end of 2020, according to World Cement.
"It is full steam ahead, we haven't skipped a beat ... he [MBS] wants these projects delivered," John Pagano, chief executive of the Red Sea Development Company, told the Financial Times on August 16.
Further down the coast, building at another luxury resort is racing ahead: the 1,460-square mile resort of Amaala, located 200 miles south of Neom.
In June, Amaala hired Foster + Partners as executive architects and to build an airport serving the resort, after which Saudi Arabian Parsons Limited, a construction company, was contracted to supervise the construction of the first section.
"Most things, given the challenges we are facing with COVID-19, are still moving forward: with our contracts, with our signings," a spokeswoman for Amaala told Business Insider. "It's affecting maybe the timeline, but we are on schedule so we are not postponing or delaying anything."
"We aim to have the entire projected completed in line with the realization of Saudi Vision 2030. We are on track to break ground on the main project this year."
Young, of the American Enterprise Institute, told Business Insider that while work is pressing ahead at Amaala, the pandemic has taken a toll.
"There is spending and work moving forward on the Red Sea projects, but I would not think it is at the same pace or sustainable at the trajectory we saw early in 2020," she said.
An entertainment-based city
The kingdom is also constructing an entertainment-based city on the outskirts of Riyadh, called Qiddiya.
"We are proud to be on schedule with our key infrastructure projects at Qiddiya and thankful to our development partners for their support during this time," Salman Alhubeis, executive director of project development, said on July 7.
And on July 20, Qiddiya awarded a contract worth more than $186 million to a local construction company.
MBS has been clear that none of the megaprojects should falter, according to Qiddiya CEO Michael Reininger.
"He's completely committed to this vision and he wants to make sure that everybody associated with it, from me on down, is crystal clear that we 'stay the course, move this forward, don't let anything get in the way,'" Reininger told the Financial Times.
It's clear the kingdom is doing everything to realize MBS's dream. Not even a pandemic can get in his way.