Finding NEOM?

The One Thing Missing From Saudi Arabia's Dream City

The area Prince Mohammed carved out for a tech zone is bigger than Israel, but Saudi Arabia is going to need more than Saudis to make this work.

Saudi Crown Prince Mohammed bin Salman, right, employing Klaus Kleinfeld as CEO of NEOM. Riyadh, Saudi Arabia October 24, 2017.
Saudi Press Agency via Reuters

Kurdistan’s and Catalonia’s dreams of independence may be going up in flames, but the semi-sovereign state of NEOM is about to be carved out of a chunk of Saudi Arabia.

Of course, that’s not quite how Crown Prince Mohammed bin Salman framed his ambitious plans, unveiled Tuesday.

According to the official materials, NEOM will be a global center for high-tech and entertainment rising out of the desert wasteland in the kingdom’s northwest. It is to be peopled by investors, entrepreneurs, executives and business people.

“NEOM is positioned to become an aspirational society that heralds the future of human civilization by offering its inhabitants an idyllic lifestyle set against a backdrop of a community founded on modern architecture, lush green spaces, quality of life, safety, and technology in the service of humanity paired with excellent economic opportunities,” its fact sheet promises.

But read between the lines of this purple prose and you see the outlines of a quasi-state in the making.

Bikinis and booze in, burkas optional

Geographically, NEOM is not going to be just big, but gigantic, certainly by the standards of economic free zones. It is to cover 26,000 square kilometers, an area about 20% larger than Israel.

Economically, NEOM is planned to generate annual gross domestic product of $100 billion by 2033. In 2016 terms, that would make it the world’s 59th-largest economy, or about the size of Morocco’s.

Assuming a generous GDP per capita of $70,000, that adds up to a population of more than 1.4 million people, the size of a small country.

Moreover, legally NEOM will be an “independent special zone,” which means it will have its own judicial system, regulations and legislation (although Saudi Arabia will have control over foreign policy and the military).

Socially and culturally, NEOM, it seems, will ignore Saudi Arabia’s strict Islamic codes. In a Saudi version of Newspeak, the NEOM fact sheet declares that “social norms will adopt leading practices to improve standards of livability for its residents and visitors,” which appears to be saying that bikinis and booze are in, and burkas are optional.

Between the differing laws and social norms, it's hard to imagine that Saudi Arabia won't set off NEOM from the rest of itself with border stations.

The man behind the initiative is Prince Mohammed bin Salman, designated successor to King Abdulaziz. Why would he do such a thing?

One snag

Understand that NEOM is the latest initiative by the prince to wean Saudi Arabia from oil. He’s overhauling rules and regulations to encourage Saudis to work in the private sector and start businesses. He’s planning to float shares in the giant petroleum company Aramco, cut subsidies, and trim the government’s bloated budget. He also most recently ended the country’s infamous ban on women driving.

Bin Salman's plans make sense, but they are risky. They threaten the symbiotic relationship between the royal family and the mass of Saudis, who are being weaned from the nanny economy and forced to accept the vicissitudes of a capitalist system, and the social upheavals likely to arise from a freer, more liberal society.  

To help mitigate the risk, NEOM aims to create a new Saudi Arabia side by side with the old one. But in doing so the prince faces a fundamental problem.

There’s no way he can build NEOM populated just with Saudis.

Even after decades of spending on education and infrastructure, the kingdom lacks the skills and innovative capacity to develop the kind of sectors NEOM aspires to, such as biotechnology, advanced manufacturing, or even world-class entertainment.

Only 26% of Saudis ages 25-34 have a tertiary education, far below the 42% average for developed countries. Nearly a third haven’t finished high school. Saudi students score at the bottom of international achievement exams.

The only way NEOM will ever happen is if it’s populated by expats, and they won’t come if they can’t live a Western lifestyle, with places of entertainment and alcohol and no religious police enforcing official morality. The problem is that is anathema to the average Saudi and even more so to the kingdom’s clerical establishment, so that only a brave few Saudis are likely to settle there.

NEOM looks like it will be Dubai writ large. The Gulf city-state has grown prosperous by a combination of economic free-zones, luxury tourism, relentless real estate development and marquee attractions like a giant indoor ski slope and the world’s tallest tower. NEOM, so it seems, aims to imitate that, adding a dash of Silicon Valley to the mix.

The problem is that Dubai works because it is populated by expats – locals make up just 15% of the population. Thus, if NEOM has the same kind of population mix as Dubai, we’re talking about a home for maybe 200,000 Saudis, which is not going to do much to absorb the estimated five million young Saudis who will be entering the labor force over the next decade, much less those being cut from the public sector.

Give the Saudi prince credit: He knows that Saudi Arabia as it is now is economically unsustainable and he has the drive and courage to chart a new course. By creating the quasi-state of NEOM, he hopes to bring the 21st century to a remote corner of the country without upsetting the heartland. But, even if he pulls it off -- and that’s a big if -- it won’t do much to solve the kingdom’s problems.