Saudi Arabia's grandiose construction projects, centerpieces of Crown Prince Mohammed bin Salman's Vision 2030 economic diversification program, are facing a sobering reality check. Recent reports suggest that the kingdom may be forced to scale back or delay some of its most ambitious "giga-projects," including the futuristic city Neom and its showpiece linear city, The Line. This reassessment comes as Saudi Arabia grapples with funding challenges and the economic impact of fluctuating oil prices.
At the heart of Saudi Arabia's transformation plans is Neom, a $500 billion project announced in 2017 to build 10 futuristic cities in the country's northwest desert region. The most talked-about component of Neom is The Line, a proposed 170-kilometer-long linear city consisting of two parallel 500-meter-high skyscrapers. Originally envisioned to house 9 million inhabitants, recent reports indicate that developers may now focus on completing just 2.4 kilometers by 2030 as part of the first module.
The potential scaling back of these projects highlights the financial strain facing the Saudi government. The Public Investment Fund (PIF), the kingdom's sovereign wealth entity responsible for funding Neom and other mega-projects, is feeling the pinch. Despite controlling assets of about $900 billion, the PIF had only $15 billion in cash reserves as of September. This cash crunch is partly due to Saudi Arabia's budget deficit, which began in late 2022 when the world's largest oil exporter started slashing production to boost global prices.
To address these funding challenges, Saudi Arabia is exploring various avenues to shore up capital. The kingdom recently sold $11.2 billion worth of shares in its national oil company, Saudi Aramco, with most of the proceeds expected to go to the PIF. Additionally, the government has been selling bonds to maintain funding flows for the sovereign wealth fund. However, foreign direct investment has remained below targets, underscoring Riyadh's struggle to attract funding from private companies and international investors.
The reassessment of these mega-projects also reflects the broader economic realities facing Saudi Arabia. The International Monetary Fund estimates that the price of a barrel of oil needs to be $96.20 for Saudi Arabia to balance its budget. With Brent crude hovering around $80 a barrel, the kingdom faces a significant shortfall. This economic pressure is forcing the Saudi government to prioritize its investments and potentially adjust its Vision 2030 timeline.
Despite these challenges, Saudi officials maintain that the ambitious targets set for Vision 2030 were deliberately designed to be overly ambitious. Ali Shihabi, a former banker now on Neom's advisory board, argues that even if only a part of the vision is delivered on time, it would still represent significant progress. However, skeptics question the feasibility and economic viability of projects like The Line, which was initially billed as a "carbon-free linear city" with futuristic amenities such as flying taxis and robot maids.
As Saudi Arabia navigates these economic headwinds, it is also balancing its investments across various sectors, including tourism, mining, entertainment, and sports. The kingdom has secured hosting rights for several major international events, such as the 2027 Asian Cup, 2029 Asian Winter Games, and 2030 World Expo. These commitments will require substantial investments in the coming years, potentially forcing further prioritization of projects. While the Saudi government has indicated a willingness to adjust its Vision 2030 plans as needed, the coming months will be crucial in determining the fate of its most ambitious mega-projects and the overall trajectory of the kingdom's economic transformation.
