Neom, Saudi Arabia’s planned futuristic megacity, is expected to drive development for decades to come. But it is unclear how Riyadh will afford to construct it amid declining oil revenues.
In June, Gulf Development International Ltd announced its plans to build one of the world’s largest volumetric modular assembly plants. The factory will be the first to break ground in Neom and could employ nearly 2,200 people with a mix of skilled and high-tech jobs.
Construction of the futuristic city is a cornerstone of Saudi Arabia’s Vision 2030, a broad-ranging set of socio-economic reforms, including moves beyond oil dependence. Funding for Neom will initially come from Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, according to Reuters sources.
But it is unclear how Saudi Arabia could eventually afford such a large-scale construction considering declining oil revenues, the kingdom’s primary source of income.
The economic situation wasn’t good even before the pandemic. In 2019, Saudi Arabia’s GDP grew by only 0.3%, equivalent to a recession given the country’s population growth. Last year, the country’s GDP contracted by 4.1%, and it decreased further by 3% during the first quarter of this year.
Saudi Arabia’s net foreign assets, an important indicator of its economic health, also continued to fall, sinking to the lowest level in more than a decade.
According to the Saudi Central Bank’s monthly report, net foreign assets fell by $3.64 billion to $432.6 billion in May. This is a significant fall from 2014 when the indicator rose to its highest point due to an oil boom, reaching $700 billion.
According to Rystad, about half of the Saudi government’s stake is at risk through 2050. Tax income from oil and gas made up 27% of the country’s GDP in 2019, and this reliance is not going anywhere in the coming decades.
Mohammed bin Salman, the Crown Prince of Saudi Arabia, announced the megacity Neom in October 2017, just four months after his controversial appointment. This created opposition within the royal family and forced the new ruler to convince the country’s predominantly young and unemployed population of his rightful claim to the throne.
Over the past half-century, the country has experienced a demographic boom, with its population growing from 5 million in the 1960s to 34 million today. A full 60% of the kingdom’s population today is under 30, with youth unemployment exceeding 42%. Despite further population growth, the goal is to reduce this indicator in the next ten years to 30%.
Neom aims to capture the interest of the young domestic population and the international audience alike through its mix of sustainability and high-tech initiatives.
It is positioned close to international markets and is planned to be powered by 100 percent renewable wind and solar energy. Saudi companies signed an agreement with Air Products last year to set up a $5 billion green hydrogen-based ammonia production facility powered by renewable energy in the kingdom.
The release of Neom’s “The Line,” a flagship zero-carbon project and 170-kilometre transportation line, showcased that the city could have an AI-regulated underground train and car traffic. Reportedly, the system envisages carrying up to one million people run by smart technology with facial recognition and 5G networks.
The city is also planned to have an independent economic zone with its own legal and tax system.
Previously, Neom’s head of technology Joseph Bradley said he wanted to collect 90% of available data from residents and smart infrastructure.
Under this plan, each resident would have a unique ID number, and the city would process data from heart-rate monitors, facial-recognition cameras, cellphones and Internet-of-Things (IoT) devices.
Residents will also have the option to choose how much personal data they submit, Bradley said, adding: “An individual’s right to privacy is theirs, but the ability to use that information is directly correlated to the value they receive.” The statements, however, sound concerning to say the least, considering Saudi Arabia’s grim human rights record.
If completed, Neom could become a model for a new high-tech city while putting a significant dent in the country’s youth unemployment problem. But for now, Riyadh’s ambitious plans for Neom remain under question. There is not enough clarity on how Saudi Arabia could actually find the large-scale economic growth to support investment to build a project of such scale.