In today’s Finshots, we talk about Neom, Saudi Arabia’s dream infrastructure project and see why it’s being labelled as an idea that’s doomed to fail.
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The Story
Imagine living in a 3D (3-dimensional) linear city with 9,000,000 people. It has no roads, cars or fossil fuel-powered electricity. And yet, everything you need is just a 5-minute walk away ― groceries, healthcare, offices, schools, shopping malls, you name it.
Thanks to its design, you won’t see scattered houses and buildings on an oddly shaped piece of land. Rather, all of this is consolidated into a straight line that stretches across 170 km. Corridors let you walk up, down, diagonally or horizontally inside the city, making it easy to get around. Despite having floors stacked on top of each other, you have the open sky above you. You can move from one end to another in just 20 minutes via a high-speed subway. So technically, everyone living with you is your neighbour. They could be robots too by the way. And the city is wrapped up in a 500-metre-tall mirror glass.
Now before you brush this off as an imaginary city or a scene straight out of a sci-fi movie, let’s state unequivocally that it's not. It’s a real city called the Line and Saudi Arabia is building this as part of a revolutionary hub called Neom.
Neom is a combination of two words ― ‘Neo’, the Greek word for new and ‘Mustaqbal’ which means future in Arabic. It’ll be a hub for technology and futuristic living. A region that houses advanced cities, spread across 26,500 km in the North-West of Saudi Arabia. Where people live sustainably with zero carbon emissions and desalinated water from the sea. It will have the world’s largest floating city, an all-year-round mountain destination for tourists, glow-in-the-dark beaches, the most advanced manufacturing industries, flying taxis, Jurassic Park-like islands with robotic dinosaurs and even a fake moon!
By the time everything’s ready it will be massive – nearly 33 times the size of New York! And it will connect to nearly 40% of the world in 6 hours or less.
Yeah, we know it all sounds too good to be true. But Saudi Arabia’s Crown Prince and Prime Minister Mohammed bin Salman Al Saud is hell-bent on making this a reality. Why, you ask?
Well, it’s simple. Saudi’s economy still runs on oil. In fact, 40% of all economic output can be attributed to it. It’s one of the largest oil producers in the world and the largest oil exporter.
But the problem with relying on oil is that it doesn’t help the economy grow consistently. A war between oil-producing nations can drive up oil prices, which is good. But in the same vein, oil prices could go down as well if the oil-producing nations can’t agree on limiting output. These geopolitical scenarios can lead to oil price fluctuations. And this can have a massive impact on the country’s national income. The fluctuations in income also affect other parts of the economy and can put the brakes on overall economic growth. That’s exactly why Saudi’s economic growth shrank by 0.9% in 2023.
The easy way out of it?
Diversify!
This means that Saudi needs to increase its non-oil economic activities like tourism, sports, and entertainment, which were practically… well… zero a few years ago.
But the Kingdom is working on fixing this. And it now wants to shift gears. It wants to build scenic tourist spots and entertainment centres, generate employment and create trade hubs so that its residents don’t have to fly to places like Dubai. And it’s willing to pour in $500 billion into Neom to achieve exactly that.
But can Saudi do it?
Well, the world doesn’t think so.
And that’s because this isn’t Saudi’s first attempt at diversifying its economy. In the early 2000s, the Kingdom began building economic cities like Riyadh's King Abdullah Financial District (KAFD) and Jeddah’s King Abdullah Economic City (KAEC). But these plans didn’t really turn out as expected. Construction was slow and in some places, it even came to a screeching halt. Saudi eventually had to alter its plans and figure out ways to salvage what was left.
And while some may contend that Saudi has learnt from past mistakes, there are other roadblocks in its current plans.
For instance, funds.
See, the money to build Neom is supposed to come from Saudi’s sovereign wealth fund called the Public Investment Fund (PIF). This fund has actually invested billions of dollars across the world already. It has equity stakes in Uber, the Heathrow Airport, Nintendo, Hollywood studios, French hotels and even funds run by private equity giants!
But its investment performance in global markets hasn’t been all that great of late. In fact, Saudi’s cash reserves have actually dropped to $15 billion as of September 2023. It’s the lowest since 2020. And that isn’t good for Neom since the government needs to pour in at least $270 billion into the PIF by 2030 if it wants to keep its plans intact.
And the government seems to be coming to terms with this new reality. They have already scaled back a lot of their original plans. What was thought to be a huge Line City by 2030, is now expected to span a measly 2.4 km by then. Instead of 9 million people, they’re expecting 300,000 people – a tiny fraction of the original estimation.
And that’s not all.
There are environmentalists who are concerned about the Line’s glass walls. It could confuse migratory birds who move from one place to another when seasons change. And if you think they’re the only ones who want to stop Saudi from building it, you might have to think again.
Because human rights groups across the world are concerned as well. A BBC story which broke a few days ago alleged that Saudi had wiped homes, schools, hospitals and even entire villages off the map to make way for The Line. There are also reports that Saudi may have permitted the killing of tribals who have been protesting forced eviction from the region.
And remember that huge floating city we spoke of earlier? Yeah, it’s called Oxagon. And it’s an octagonal port city being built near…. Wait for it… the Suez Canal! It’s a shipping route that connects the Mediterranean Sea to the Red Sea.
And you know what’s happening at the Red Sea, right? A Yemen-based rebel group called the Houthis have wreaked havoc there, attacking shipping vessels and disrupting trade. So unless that dies down, Saudi can’t have its floating city.
Put together, there’s a funding problem, logistical challenges, and pressure on countries working with Saudi Arabia to get them to respect human rights.
Will Saudi be able to deal with these many problems and still build Neom the way it originally imagined?
You tell us.
Until then…
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