Saudi Arabia’s Crown Prince Mohammed bin Salman on Tuesday announced plans for a new $500 billion city to be built in the country’s northwest coast.
The project, dubbed ‘Neom’, will be built on untouched land along the country’s Red Sea coastline near Egypt and Jordan. The ambitious project could lead the way in the use of drones, driverless cars and robotics.
The economic zone is to be built through financial backing from the Public Investment Fund (PIF) and the government of Saudi Arabia, as well as private and international investors. The city would be run entirely on alternative energy sources and “push the boundaries of innovation,” according to a statement released on the opening day of the conference.
Prince Mohammed announced the project at a major investment conference in Riyadh aimed at shining a spotlight on the country’s efforts to overhaul its economy and society after being jolted into action following a plunge in oil prices that threatened the kingdom’s main source of revenue and its long-term stability.
World’s largest sovereign wealth fund
The conference, dubbed the Future Investment Initiative, is being hosted by Saudi Arabia’s sovereign wealth fund. The event is being attended by giants in the business world and top Saudi officials.
At the heart of the conference are Saudi reform efforts to transform its sovereign wealth fund into the world’s largest. The kingdom hopes to do this by listing less than 5% of state-owned oil giant Aramco on the Saudi stock exchange and an international exchange, and transferring ownership of Aramco to PIF.
Saudi Arabia says this could put some $2 trillion under PIF’s control — double that of Norway’s sovereign wealth fund, which is currently the world’s largest. It’s unclear exactly how much PIF currently controls. Analysts have also suggested Aramco’s market value could be half of the government’s projection.
Recently, reports emerged that Saudi Arabia was considering holding off on the international portion of the IPO in favor of a private offering from a key investor like China. Saudi officials, however, insist Aramco is on track for listings as early as next year.
PIF managing director Yasir al-Rumayyan, who is also on the board of Aramco, addressed those concerns at the forum in Riyadh on Tuesday. “Everything in on track, 2018 is our target. There is nothing that I know about which can take us off track,” he said.
Saudi Crown Prince Mohammed bin Salman, attends the Future Investment Initiative conference in Riyadh, Saudi Arabia on October 24, 2017.
‘Headline-grabbing’ international investments
Despite possible delays to the Aramco listing, PIF has steamed ahead with its own headline-grabbing international investments, including $3.5 billion in ride-hailing service Uber last year. It’s also joined forces with Japan’s Softbank and other leading technology and investment funds to create a massive fund to invest in technologies like artificial intelligence.
Mr. Al-Rumayyan said on Tuesday that PIF was contributing $20 billion to a $50 billion health care and real estate fund with U.S. private equity firm Blackstone. The Saudi fund already has $20 billion invested in a U.S.-focused infrastructure fund with Blackstone.
It’s a start departure from the past four decades, when PIF invested mainly in domestic companies.
New projects at home
At home, PIF is embarking on a number of new projects.
Aside from Neom, the other plan backed by PIF is the development of semi-autonomous islands off of Saudi Arabia’s Red Sea coast, where the kingdom’s ultraconservative rules on gender segregation and women’s dress will likely not apply. Virgin Group’s founder Richard Branson, who’s scheduled to speak at the investment forum Thursday, recently visited some of the kingdom’s future tourist destinations.
The fund is also creating a company to build new hotels and prime real estate around Muslim holy sites in Mecca and Medina. It launched an entertainment investment company to cater to the needs of Saudi Arabia’s youth and oversee the development of a Six Flags theme park outside the capital, Riyadh.
All of these projects are aimed at creating tens of thousands of jobs for young Saudis. Over the next decade, an estimated five million young Saudis will enter the workforce, creating an urgent need for the government to support rapid job creation.
The crown prince
Crown Prince Mohammed bin Salman, who chairs PIF, is seen as the force behind these rapid reforms. A key marker of the changes taking place was the kingdom’s decision last month to lift the ban on women driving . That decision is expected to boost the economy by freeing up money women spend on drivers and transportation. It also gives women greater mobility to work, which could boost household incomes.
The 32-year-old prince’s Vision 2030 is a blueprint that lays out specific targets to wean Saudi Arabia off of what he’s said is its “addiction to oil”. The transformation of PIF is critical to Vision 2030 and the government’s ability to spend big on major projects.
To keep the fiscal deficit in check amid these changes, the government has tried to rein in spending and raise revenue through the introduction of taxes and the lifting of subsidies.
Currently, most Saudis hold jobs with the government. The public sector wage bill eats up about half of the government’s total expenditure. As part of Vision 2030, the government plans to trim the public sector workforce by about 20 percent while spurring enough jobs in the private sector to keep up with demand.
“That poses enormous challenges for the Saudi government,” said Middle East economist at Capital Economics Jason Tuvey.
