If you were planning to hold a secret meeting like the one Prime Minister Benjamin Netanyahu reportedly had with Saudi Crown Prince Mohammed bin Salman on Sunday night, then it would make perfect sense to fly there on a private jet and keep your foreign affairs and defense ministers in the dark. It would also make sense to have the meeting in Neom.
Neom is supposed to be Saudi Arabia’s ticket to a glorious post-oil future, a city of one million people with flying taxis, robot maids and an artificial moon in the middle of a desert wasteland. As the crown prince envisages it, Neom will be a high-tech and financial hub and a vacation playground all in one, at a cost of $500 billion.
But today, three years after the plans were announced to extraordinary fanfare, all Neom has so far is a smallish airport. No city. For a meeting of two masters of the universe, it’s the equivalent of a dark alley.
No one expected Neom to be up and running after just three years, although how far along it was supposed to be by now is anyone’s guess. The kingdom has spent heavily on public relations for the venture, including a few million dollars retaining a pair of high-powered PR firms. But when it comes to updates on actual progress, the developers turn uncharacteristically silent. Apart from the airport, contracts to build a green hydrogen power plant for the city and to develop basic infrastructure have been signed but no ground has been broken.
Media reports say that Mohammed bin Salman is determined no matter what to go ahead with Neom, the biggest, flashiest and costliest bit of his Vision 2030 plan to transform Saudi Arabia. That’s what you would expect from a princeling who amassed power quickly and doesn’t hesitate to use it, whether it is locking up the kingdom’s oligarchs in a luxury hotel or (allegedly) ordering the murder of journalist Jamal Khashoggi.
Unfortunately, as other despots have discovered, there are some obstacles you can’t order into submission, and the coronavirus is one of them. It’s one of two challenges the crown prince has encountered that he can’t defeat with money, intimidation or marketing.
The other is the stubbornly low price of oil, the stuff that was supposed to pay for Vision 2030.
- As Gulf economies shrink, foreigners are jumping ship
- Iran is just an excuse for the Gulf to embrace Israeli tech
- The UAE needs Israel more than Israel needs the UAE
Suddenly borrowing in Saudi Arabia
Oil has been in a slump for the last six years. For most of that time its price has been below the $67 a barrel Saudi Arabia needs to cover its expenditures. The coronavirus reduced oil demand further this year, but even if a vaccine rescues the world from the pandemic, few expect the price to recover significantly in the long term.
Without the oil cash flow, the kingdom has had no choice but to draw down on its capital, raise taxes and cut spending for everything – everything but Neom and the Vision 2030 mega-projects. The credit rating agency Fitch projects that Saudi Arabia’s government debt as a percentage of GDP will nearly double by the end of 2021; including debt by government-related entities, the figure is even higher. The kingdom has even started to borrow and sell assets to cover its budget and investment plans.
Riyadh still hopes to attract private capital from abroad, but that hasn’t been forthcoming, partly due to the coronavirus and partly because few see any way of making a return investing in Neom. That’s why, in spite of the crown prince’s enthusiasm, progress in Neom is, reportedly, so slow.
The crown prince is betting the house that he can engineer a social and economic transformation with the kingdom’s diminishing wealth.
There was a time when Saudi Arabia could afford a daring bet like that; today, the money to play such a high-stakes game is no longer there. The reason the stakes are so high is the so-far extreme challenge of turning Saudis into some hybrid of Israeli high-tech mojo, German business prowess and Chinese drive. Unfortunately, that’s something you can’t buy or impose from the top down, though Saudi leaders have tried.
Saudi Arabia has good universities and subsidizes study abroad. Its infrastructure is good by global standards and digitization is well advanced. The crown prince is easing up on Islamic strictures that weigh on the job market and business, like opening up more opportunities for women.
But it hasn’t achieved much so far. The kingdom’s graduates make little use of their training. The innovative, tech businesses Mohammed Bin Salman dreams of don’t exist. The private sector remains stunted.
The plans for Neom tacitly acknowledge that the kingdom lacks the human raw material. The idea is to create a non-Saudi city, where women can dress as they please and the atmosphere is freer than elsewhere in the kingdom (though apparently there won’t be any alcohol available), in other words, a home for foreigners. The few locals that there are in the area – members of the Hawaitat tribe – are being told to leave, and if they don’t accept the cash compensation, they’re forcibly removed.
The United Arab Emirates faces similar challenges, albeit on a much smaller scale, which was one reason why it agreed to establish relations with Israel. For now, the Saudis don’t seem to be ready to make that jump. But a stalling Vision 2030 and a surge of Israeli-UAE business may change their minds.