Saudi Arabia's Neom megacity: desert destination or futuristic flop?

Saudi Arabia's Neom megacity: desert destination or futuristic flop?
In-depth: Can Saudi Arabia's planned megacity Neom function as an economically successful hub in the desert, asks Stasa Salacanin.
8 min read
22 March, 2018
Crown Prince Mohammed bin Salman envisions Neom as a "civilizational leap for humanity" [Getty]
Saudi Arabia's Crown Prince Mohammad bin Salman's plans for a megacity called Neom are a thing of science fiction books and movies.

Built from scratch, it is envisioned to be a highest-tech urban living space, an innovative business hub, and an independent economic zone, all rolled into one.

More than twice the size of neighbouring Qatar, it is to have more robots than humans - some of them talking, a fully autonomous transportation, hydroponic farms, artificial intelligence, and advanced manufacturing, bio-tech, media and airlines. It is also planned to be completely solar-powered.

Prince Mohammed pictures a megacity filled with skyscrapers, five-star hotels, and robots to free humans from repetitive labour and filled with excellent economic opportunities.

Neom is to be located furthest west of the country, overlooking the Red Sea and crossing the border both to Jordan and Egypt. It is also planned to feature the first bridge between Asia and Africa.

The area was chosen for its strategic location and proximity to international shipping routes. Egypt already signed a treaty to give the Saudis two islands essential for linking the project to the Sinai. But what is the rationale behind building a three-state city, given the political instability in the region and tensions between the governments of Saudi Arabia and Jordan due to their differing stance on the question of Jerusalem as Israel's capital and the recent the detention of the Jordanian-Saudi businessman Sabih al-Masri?

Steffen Hertog, an associate professor at the London School of Economics, sees Neom as a soft power project to tie Egypt, Jordan and Saudi Arabia together more closely.

"Should there be normalisation with Israel at some point, the city would be well-placed to extend economic integration northwards," he said. "I am not sure that the Jerusalem and Sahib al-Masri issues are a particular driver – thinking about a new city on the coast had been underway before these issues came to the fore," he told The New Arab.

James Dorsey, a Middle East specialist at Singapore's Nanyang Technological University, shares his views. "A city like this is a long-term project, and these are short-term differences, that I don't believe really matter. Especially as both Egypt and Jordan are economically dependent on Saudi Arabia," he said.

Neom will include two islands that were recently ceded by Egypt

$500 billion+ adventure

The financial projections put the cost of Neom at $500 billion, but the consensus among experts is that it could cost twice as much or even more. And although $500 billion has already been committed to the construction of the megacity by the Saudi Arabian Public Investment Fund, which will also own it, there will be a need for foreign investment. A lot of it.

As far as bold city visions go, the Gulf is full of them. Most of them sit unfinished, underpopulated or abandoned altogether. King Abdullah Economic City, a metropolis and port, after 10 years houses fewer than 10,000 people of its projected population of two million.

King Abdullah Financial District, meant to rival Dubai as an economic hub, is still incomplete after more than a decade.

There is the now abandoned Waterfront project in Dubai, the Blue City in Oman and maybe the most infamous, Dubai's The World, which is now sinking back into the sea. So does Neom offer anything that would keep it from the same fate?

The prince is trying to reform the country socially and economically, but not politically. So he will be creating an enclave in the country.

Hertog points out that Neom is different in the sense that there is more consistent backing from a more centralised political leadership. So there will probably be less haggling between different government agencies about implementation and more political pressure to get things done.

"Neom is also likely to have more regulatory and licensing autonomy than previous projects," he added. "That said, it has yet to provide a value proposition to private investors that will convince them that there is profit to be made."

Dorsey sees two issues with Neom. One is Saudi Arabia's track record with completing such projects. "But as Saudi government is quite a forceful one at the moment, this could enhance its possibilities to succeed," he said, adding that on the other hand, Saudis are looking for foreign investment as well.

"And considering the developments in the country in the last months and particularly the purge that went on in November, there will be a lot of concern what the future of Saudi Arabia will be, what political balance will be."

Another set of concerns, Dorsey noted, is even more fundamental - the question is whether these kind of cities are the way to go.

"The prince is trying to reform the country socially and economically, but not politically. So he will be creating an enclave in the country. If Neom succeeds, a lot of its practices could be emulated elsewhere in the country, but it still leaves a big question," he told us.

There has been some foreign financial interest in the project so far. Russian Direct Investment Fund has announced that it would invest billions of dollars in Neom by establishing several companies in sectors of energy, artificial intelligence and high-speed transport.

Japan's SoftBank Group announced it will contribute to building up the solar energy industry in Neom via direct investments of up to $15 billion. And Richard Branson has spoken of building one or two hotels in the city. 

Initial ground-breaking will be in the last quarter of 2019, with phase one completed in 2025, according to a tour of the city given to delegates attending the Future Investment Initiative in Riyadh.

There already are reports of the first contracts being awarded with a total value of SAR 15 billion. According to Reuters' unnamed source, the palaces for the king, crown prince and other senior royals are among the first contracts awarded for Neom.

Saudi Binladin Group, the country's biggest construction firm, has been mandated to build one of the palaces and banks have started offering financing. A project design document seen by Reuters showed luxurious buildings with modern and traditional Moroccan-style architecture featuring Islamic designs and colourful ceramic tiles. The complex of palaces will include helipads, a marina and a golf course.

How many hubs does the region need?

In projects like Neom, financial institutions conceive, design, and execute a completely new city as a private venture, then list it on the stock exchange. The city is thus specifically and systematically engineered and designed with the explicit aim of generating profits. But can one isolate a city from the inefficiencies of the host country's economy?

A city as an isolated unit cannot be successful, but a city integrated into a country's economic system that works - that being a precondition - possibly."

It all depends on specifics, Hertog said. "Most of Dubai's free zones have been very successful and Neom could in principle be insulated from the inefficiencies of the mainline Saudi bureaucracy.

"But it could be challenging to find sufficient high-skilled staff to run the place and most investors will first want to see proof of concept that they can turn a profit." As he sees it, although Neom has a possibility of success, there are many ways to better spend that money.

Dorsey on the other hand, doesn't believe Neom could function as an economically successful island in the desert.

"The assumption here is that it's going to be a part of the economic and social environment that is being developed and will be inductive to economic development. So a city as an isolated unit cannot be successful, but a city integrated into a country's economic system that works - that being a precondition - possibly."

Another thing to keep in mind is its location, he said. The fact that it's going to be located on the border with Egypt and designed to be a cross-border trading and investment hub could be of help. 

Neom is not supposed to rival Dubai, but is still presented as a future hub. Doha also has plans for becoming a hub for all number of industries. But how many hubs does the region need and, above all, is able to sustain?

"This is a good question and can be asked also about airlines," Dorsey pointed out, adding it is also one we don't know the answer to. "We also see it with region's airlines, where there's a lot of government support, and the competitive element is compromised."

Saudi Arabia's strength in the competition of hubs, he said, is obviously that it is the Gulf's wealthiest country. But it also is a johnny-come-lately. Dubai has a tremendous first starter advantage, plus a port. Abu Dhabi and Doha have a significant advantage too. "It's going to take quite some time before Saudi Arabia's infrastructure, legal environment, and other systems get developed to the point where it can rival those hubs," Dorsey noted.

A country within a country?

At least as important as all the high-tech Neom promises, is its lifestyle vision, and its tax and law landscape. The city will operate independently from the "existing governmental framework" with its own tax and labour laws and an autonomous judicial system.

The promotional video advertises autonomous regulations and social norms, created specifically to be in service of economic progress and the well-being of its citizens. It shows a Western lifestyle, with women jogging in leotards in public spaces, working alongside men and playing instruments in a musical ensemble.

But can Saudi Arabia, as a strongly traditional society, deliver on its promise of, what is from its side, extreme liberalisation?

"What we are essentially talking about is economic and financial incentives and confidence in the legal system," Dorsey said, adding that to achieve that, one needs to establish it in the whole environment not just an isolated enclave.

According to Hertog, more liberal social rules for Neom are plausible because of the remoteness of the location, the recent centralisation of power in Saudi Arabia, and the crown prince's clear social liberalisation agenda. However, he sees the challenges regarding administration and economic rationale as much more significant.

At the moment it seems that the building of Neom will almost entirely depend on the Saudi leaders' determination to come through with the project the Crown Prince Mohammed bin Salman envisions as a "civilizational leap for humanity". But maybe the second part of the vision - to create the kind of place that people would choose, not be forced, to live - is even more uncertain. 

Stasa Salacanin is a freelance journalist who has written extensively on Middle Eastern affairs, trade and political relations, Syria and Yemen, terrorism and defence.