In a notable shift, Saudi Arabia has significantly scaled down its grand vision for a futuristic, renewable energy-powered city known as “The Line” in the Kingdom’s eastern province of Tabuk. Originally planned to stretch 106 miles into the Red Sea, the city was envisioned as a cutting-edge urban hub capable of accommodating 1.5 million residents by 2030. However, the once-ambitious project faces a bleak future after Saudi officials recently revealed that the Line will be significantly smaller than planned, covering just a one-and-a-half mile stretch. The project has essentially been scrapped in all but name.
Back when the idea was mooted in 2019, the Line’s project developers promised everything from flying cars to a giant artificial moon. The funding to build this utopian dream has, however, not been forthcoming. The Line’s budget for 2024 remains in limbo, awaiting approval from Saudi Arabia’s Public Investment Fund (PIF). This delay is unusual in a Kingdom synonymous with vast oil wealth.
Investors Refuse To Bite
According to Torbjorn Soltvedt, principal analyst at risk consultancy Maplecroft, the Line was scaled down primarily because foreign investors had not “bought into the crown prince’s vision.” While PIF is the main backer of the planned city, Saudi Arabia is counting on foreign investors to come on board for the project. Investors, however, are not convinced of its viability amid headwinds such as fluctuating global oil prices and uncertainties stemming from the war between Israel and Hamas, says Soltvedt.
The decision to whittle down the original plans for the Line represents a setback for Crown Prince Mohammed bin Salman. The ambitious leader is keen on cutting the Kingdom’s reliance on oil sales through the Neom project – a $1.5 trillion development along the Red Sea coast that includes the Line, along with other developments such as an industrial city, ports, and multiple tourism developments. The first phase of this mega project is expected to cost 1.2 trillion riyals ($320 billion) by 2030, half of which is expected to come from PIF, which the Prince chairs.
According to Bloomberg, PIF’s cash reserves dropped to $15 billion as of September — the lowest level since 2020, the earliest year for which data is available. This could explain why the sovereign wealth fund has had to reassess its priorities and scale back funding on the Line.
“The bigger picture of the backdrop of the Saudi economy is that they returned to running a budget deficit in 2023, about 2pc of GDP,” says James Swanston from Capital Economics. “This has come as they started to loosen fiscal policy to support the kingdom’s non-oil economy and invest in projects like Neom. To support this level of spending they need a higher oil price.” Saudi Arabia needs the price to be at least $93 to balance its budget,” according to Swanston.
Far From Doomed
Although the Neom project has run into headwinds with the scaling down of the Line, the overall project is far from doomed. Work continues on other parts of the broader Neom project and officials remain committed to their wider objectives of diversifying Saudi’s economy. For example, the development of a more than $8 billion project to build solar and wind farms that will be used to create so-called green hydrogen has largely been a success. Similarly, another development within Neom that is turning an island in the Red Sea into a luxury tourist destination known as Sindalah is slated to open later this year.
Neom is also important for geopolitical reasons as it has opened a new front for greater economic cooperation between Saudi Arabia and foreign investors. This includes an unexpected partnership with a nation that has historically had strained relations with the Kingdom and the wider Arab world – Israel.
Analysts argue that Saudi Arabia may be interested in improved economic relations with high-tech industries in Israel required to bring the technological vision of Neom to life. According to a report in the Jerusalem Post, there is evidence of coordination between Arab businessmen and diplomats in Tel Aviv, with companies in Israel said to be ready to secure contracts worth billions of dollars. The Saudi Arabian government is also reportedly involved in these negotiations, albeit through backchannels and other indirect means.
“The Saudis are not so willing to cooperate with the Israelis formally, but when a VC [venture capital firm] is coming from the private sector, it’s much easier to create all kinds of cooperation on water, energy, ag-tech, foodtech. This is the stuff that the prince of Saudi Arabia wants to promote in the smart city,” said a source in Israeli venture capital who is familiar with the project.
A number of Israeli companies are already selling cybersecurity tools to the Saudi government. In the past Saudi Arabia has purchased the controversial Pegasus spyware from Israeli company NSO Group. Any official confirmation of cooperation between Saudi Arabia and Israel on the Neom project is, however, unlikely to materialize any time soon in view of current events. The crisis in Palestine and the escalation of tensions in the Middle East region following Iran’s recent missile and drone attacks on Israel pose significant challenges.
Human Rights
The other challenge that Saudi Arabia faces in developing the Neom project is convincing foreign investors to set aside concerns over the Kingdom’s poor human rights record. Part of the Neom site is home to the Huwaitat tribe, who have lived there for generations. Around 20,000 tribe members now face eviction due to the project. Abdul Rahim al-Huwaiti, an outspoken activist, resisted eviction and posted videos online in 2020 criticizing the forced removal. Tragically, he was later shot and killed by Saudi security forces, who claimed he had opened fire on them.
This dark episode has, however, done little to slow the momentum behind Neom and it remains the flagship project in Crown Prince Mohammed bin Salman’s plan to cut the Kingdom’s reliance on oil. Saudi Arabia has tried to counter criticism and win over international support for Neom by pledging support for global sporting events. Neom is set to host the Asian Winter Games in 2029 at a mountain resort called Trojena.
Author: Acutel
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