Coronavirus, Plunging Oil Prices Cast Shadow over Saudis' $500b Futuristic Mega City with Artificial Moon

How Mohammed bin Salman is revolutionizing Saudi Arabia

Saudi Arabia has been hit by twin blows in the form of the coronavirus pandemic and plunging oil prices, leading the world's largest oil exporter to rethink how it spends its billions.

Last week, Saudi Arabia announced some "painful" austerity measures which included tripling the value-added-tax (VAT) from 5 per cent to 15 per cent and halting the special 1,000 riyal (approximately $267) cost of living allowance which it gives to each of its state employees. The impact of the coronavirus-led slowdown and low oil prices on the Gulf kingdom's economy has been so bad that many of Crown Prince Mohammed bin Salman's dream projects, including the construction of the $500b futuristic mega city NEOM, seem to have been delayed.

Saudi Prince's Dream Smart City's Bleak Future

The futuristic tech-hub, which will be built to run entirely on alternative energy, is part of the prince's ambitious VISION 2030 campaign and was scheduled to be completed by 2025. But the austerity measures due to the plummeting oil prices and the economic slowdown seem to have put the future of the mega city at risk, according to a Times report.

The 10,230 square mile high-tech residential complex which will reportedly have several Moroccan-style opulent buildings and palaces, complete with helipads, a marina, and a golf course, is supposed to be home to over one million multi-millionaires from Saudi Arabia and elsewhere. The city will be lit by a moon of its own – a giant artificial moon. However, so far only a few palaces and helipads have reportedly been spotted in NEOM, an acronym for "new future."

"NEOM" is constructed from two words – the first three letters of the Greek word "neos", meaning new, and the fourth letter from the Arabic word "Mostaqbal", meaning future. It was first used by Salman himself when he announced plans for the smart city in 2017 as part of his ambitious reform drive. The aim is to create jobs, permitting new freedoms for Saudis, such as allowing its women to drive cars, and changing the image of Saudi Arabia from that of an ultra-conservative Islamic kingdom to a modern and hip Arab oasis. Efforts are on to encourage tourism and foreign investment in a bid to lower dependence on oil revenue.

The smart city is supposed to open the doors to Saudi Arabia's new future away from its religious puritanism.

The city of NEOM is planned to stretch across the Tabuk region's border with neighboring Jordan and will function as both a tourist destination and a "smart city." The 34-year-old crown prince and de facto ruler of Saudi Arabia is said to be on a mission to improve his country's international reputation and make it a tourism hub like neighboring Dubai.

An Independent City Within the Kingdom

NEOM would operate independently of the rest of Saudi Arabia, with different laws for workers and more relaxed women's rights, as well as more freedom to foreign visitors such as the right to drink alcohol, which is forbidden in Saudi Arabia.

However, the futuristic city comes at the expense of forcing the Howeitat tribe of Bedouin Arabs, who have lived in the areas bordering Jordan for hundreds of years, to relocate.

A Wall Street Journal report from 2019 said that up to 20,000 Howeitat tribals could forcibly be removed from the area to make room for the dream city. In April, the project was criticized by human rights activists around the world after reports of a Saudi activist named Abdul Rahman al-Howeiti of the tribe was allegedly killed by Saudi security forces after he refused to leave his home on the land that was slated to house the futuristic project.

Last, year, analysts expressed concerns that NEOM could create funding pressures as Saudi Arabia faces a huge budget deficit due to its lower income and heavy expenditure. Saudi Arabia reported a $9b budget deficit in the first quarter of 2020, and the fact that the kingdom's non-oil economy remains slow also puts the project in the realm of uncertainty at least for the near future.

Not that Saudi Arabia or even the UAE haven't seen any "incomplete projects" in the past. One can see thousands of "abandoned" projects, mansions and palaces across the Gulf, but if a project of this magnitude and media hype were to remain a dream, it will reportedly be a big shame for the kingdom.

Why is Saudi is Investing in Hollywood and Football?

Another thing that has caught the attention of the media is Salman's interest in Hollywood studios and English football clubs. The Saudi Public Investment Fund (PIF), the sovereign wealth fund of Saudi Arabia, has reportedly invested around $7.7b in several major blue chip companies including Citi, Facebook, Boeing and Cisco. It has even bought a $500m stake in American entertainment giant Live Nation, and is also looking to invest in Warner Brothers Music.

Also under the spotlight is the PIF's (which is again headed by Salman) £300m (approximately $374m) proposed takeover of English Premier League football club Newcastle United. The move is seen by many as a "sportswashing" attempt to airbrush Saudi's international reputation and its tainted human rights records, especially in the wake of the Jamal Khashoggi murder. These investments are said to bolster Saudi's economy in the light of the falling oil prices.

Saudis Unhappy

Despite the financial crunch and the dwindling oil revenue, Saudi citizens enjoy a generous social security net, but they are unhappy with the austerity measures taken by their rich country.

According to Ali al-Ahmed, the Saudi journalist who reported the austerity measures, it is "probably the greatest economic challenge" that Saudi has ever faced.

"People are not happy," said Ali Shihabi, a US-based analyst on the NEOM advisory board.

"'Even the well-to-do are not happy with cost increases. But on balance the social safety net is very effective."

More than half of Saudi Arabia's native workforce or nearly 1.5 million people are employed by the public sector, where the average wages are 58 per cent higher than in the private sector. But the austerity measures are likely to increase criticism of the government's multi-billion dollar push to host entertainment and sporting events as part of Salman's economic diversification plans, while some supporters of the crown prince are hopeful that the crisis will pass soon.

Related topics : Coronavirus