BREAKING

Saudi Arabia's Vision 2030 might be lacking a financial vision

By Al Mayadeen English
Source: Agencies
9 Apr 2024 17:52
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Bloomberg reports that the kingdom is facing significant obstacles in financing key projects such as Neom and The Line and is cutting back on some of its ambitions.

Rendered images of The Line released by Saudi Arabian authorities after announcing Neom in Riyadh, Saudi Arabia on January 10, 2021 (Saudi Arabian authorities)

Saudi Arabia's plans for Neom, a futuristic city integral to Crown Prince MBS Mohammed Bin Salman's Vision 2030 economic transformation plan, are encountering persistent hurdles and financial setbacks, casting doubt on the project's feasibility and success, a Bloomberg report said.

Since 2017, Saudi Arabia has been working on developing Neom in a desert area along the Red Sea. The country has committed at least $500 billion to this project but continues to actively seek additional investments to support its development.

One significant issue is the reduced estimates for the number of people expected to settle in Neom, particularly in The Line, a key component of the project. This could impact the city's viability and economic sustainability.

According to sources within the Saudi government cited by Bloomberg, The Line was originally intended to accommodate 1.5 million people by 2030. However, it has since been scaled down, with plans now aiming for a population of 300,000 residents. Additionally, the length of the innovative linear city has been reduced from an initial 170km to a mere 2.4km, while reports are stating that workers at the site in northwestern Saudi Arabia are being laid off.

Sources have revealed that Neom's budget for 2024 has not yet received approval from the Public Investment Fund (PIF), the entity led by MBS responsible for investments abroad and the swift overhaul of Saudi Arabia's infrastructure.

Bloomberg reported that officials have indicated that certain projects outlined in the Vision 2030 plan will be postponed beyond the initial deadline.

Becoming your own investor

In another report published earlier this week, Bloomberg revealed Vision 2030 plans are on shaky grounds as the Kingdom finds itself having to pay out of pocket for investors to come rather than the other way around, leading to a financial bleed in the oil-rich country's funds.

Despite this, the country aims to reach $100 billion in foreign direct investment (FDI) annually by 2030, a goal significantly larger than its historical achievements and about 50% more than what India currently attracts.

From 2017 to 2022, the Kingdom averaged just over $17 billion in annual FDI inflows. Meanwhile, the 2023 FDI target is set at about $19 billion according to the country's Investment Ministry.

Reaching the 2030 goal appears to be unattainable presently, with foreign investors showing caution, Bloomberg reported, citing bankers, legal advisors to investors, and individuals knowledgeable about Saudi Arabia's fundraising efforts.

This cautious approach has prompted the government to reassess its strategy, considering the possibility of financing a larger portion of its economic transformation itself, within a tight timeline.

Despite some foreign companies agreeing to joint ventures at Neom, Riyadh still bears the responsibility of financing nearly all of the cost, which is approximately half of its current economic output.

Finance Minister Mohammed al-Jadaan has acknowledged a funding gap and indicated the possibility of issuing additional debt. He has been involved in a committee led by MBS that analyzed Vision 2030's extensive funding requirements and compared them with the Kingdom's projected revenue.

“There was a gap,” he told the Thmanyah’s Socrates podcast. “We called it the Gap Study.”

He pointed out that delaying and shutting down some projects entirely would close this gap.

Sources familiar with the matter informed Bloomberg that additional projects envisioned under Vision 2030 will be halted or significantly reduced in scope.

“Some of them were strategies where we said to ourselves: we actually do not need to spend on this,” al-Jadaan said.