The Saudi Arabian government is reportedly planning to readjust and scale back some of its Neom City project, which has faced downsizing suspicions since last year. Insiders say the Saudi government is in serious financial trouble due to stagnant international oil prices. The scale of the Neom City construction is also expected to impact Korean companies as well.
Saudi Arabia Faces Financial Shortages Admid Stagnate Oil Prices
A Saudi government advisor, speaking on condition of anonymity, told the BBC on June 23 that the Saudi government will soon review the Neom City plan and make a decision. The advisor explained, “Government policy will be determined by various factors,” and added, “However, it is certain that adjustments will be made. Some projects will proceed as planned, while others may be delayed or downsized.”
The Saudi government, led by Crown Prince Mohammed bin Salman, announced a new economic plan in 2016 called Vision 2030 to reduce Saudi Arabia’s dependence on oil.
This plan includes various construction projects, including Neom City and the King Salman International Airport in Riyadh, which will have six runways by 2030. Neom City is a low-carbon new city being built on a 26,500 square kilometer area, 44 times the size of Seoul, in the desert near the Red Sea in Tabuk Province, northwest Saudi Arabia. Neom City consists of the Oxagon, a high-tech industrial complex floating on the sea, the eco-friendly mountain tourism complex Trojena, and The Line, all powered by eco-friendly energy sources such as solar power and hydrogen.
Among these, The Line is a super-sized building with a length of 170km, width of 200m, and height of 500m. The Saudi government claimed to create an eco-friendly new city where 1.5 million people live within this building, but major global architectural figures evaluated it as an unrealistic plan.
The budget needed for Neom City was initially estimated at $500 billion. This is more than half of the country’s annual budget. BBC cited experts and estimated that the actual total budget could reach $2 trillion.
Saudi Arabia, the world’s third-largest oil producer after the United States and Russia as of last year, fell into a fiscal deficit from the end of 2022 as government spending increased amid stagnant international oil prices. The price of Brent crude from the North Sea reached $112.24 per barrel in June 2022 but has since fluctuated and is now trading at $80 to $90. According to the International Monetary Fund (IMF), the Saudi government needs international oil prices to rise to $96.2 per barrel to overcome the deficit. The closing price of Brent crude on the 21st was $82.33 per barrel. This year’s deficit for the Saudi government is estimated at $21 billion.
Most of the budget for Neom City is known to be raised in the form of equity investments from the Saudi Wealth Fund (PIF). According to the Wall Street Journal (WSJ), PIF’s cash amounted to $15 billion as of September last year, a sharp decrease compared to 2022. The Saudi government is known to have bolstered PIF’s funds by selling $11.2 billion worth of stocks of the state-owned oil company Aramco earlier this month.
Difficulty Finding Investors
Bin Salman said in a documentary aired last July about suspicions of downsizing related to Vision 2030 projects, “Skeptics have always said so, and we continue to prove them wrong.” Saudi Arabia’s Economic Minister Faisal Alibrahim said at the World Economic Forum (WEF) special meeting held in Riyadh, Saudi Arabia last April, “All projects are in full swing.” Alibrahim emphasized, “The Neom City project will continue at the planned scale, and there will be no changes.”
However, Western media outlets cited insiders and claimed that the Neom City plan had been significantly downsized. The media reported that the length of The Line had been reduced to 2.4km, and the population had been reduced to 300,000, stating that the plan itself had been reduced by 98.6%. Regarding the 2030 Vision Project, Saudi Finance Minister Mohammed Al-Jadaan announced at the end of last year, “Some projects may be delayed by three to five years.” Al-Jadaan said at the WEF in April, “We will change the direction,” adding, “We will expand some projects, downsize some, and accelerate some.”
Ali Shihabi, a member of the Neom City Advisory Committee, told BBC that the projects of Vision 2030 were “deliberately designed at an exaggerated level.” He claimed, “The plans were originally made ambitiously, and Saudi was well aware that only part of the plans would be completed on time.” He further explained, “Even the completed part will be at a great level.”
Tim Callen, a visiting scholar at the Arab Gulf States Institute in Washington shared his thoughts on Neom City and other projects. He forecasted, “It will be increasingly difficult for PIF to cover the necessary funds.” He pointed out that the Saudi government is supplying funds to PIF by issuing government bonds and is having difficulty attracting investment from foreign investors. Callen predicted, “The Saudi government will have a hard time convincing investors to invest in projects that seem overly ambitious,” adding, “It is increasingly uncertain where the ultimate investment returns will come from.”
Meanwhile, the scale of the Neom City project is expected to affect domestic companies as well. Bin Salman visited South Korea in November 2022 and discussed the Vision 2030 project with Korean companies. At that time, the Saudi government signed 26 MOUs worth $29 billion with Korean institutions and companies, many of which were related to Neom City. As of April, the amount of actual contracts from the MOUs was known to be about $11 billion.
