Plans are being drawn up for what is being billed as the most advanced technological city in history. Saudi Arabia’s $500bn Neom project is the latest attempt by the country to diversify its economy away from a dependence on oil. But the design and financing of the city remains unknown, along with how exactly the government intends it to operate within the international landscape.
Tom Rogers, economic adviser at the Institute of Chartered Accountants in England and Wales and associate director at Oxford Economics, said the project could be a major driving force behind a diversified economy. “Saudi Arabia enjoys a number of key strengths as far as the attractiveness to foreign investors is concerned. The low level of public debt, and relatively stable political and social environment are both key in this respect, and are particularly crucial for infrastructure investors.”
With Saudi Arabia being the largest economy in the Middle East and north Africa region, and one that boasts a large young population, there are solid grounds for expecting Neom to be a success. Besides a government commitment to Vision 2030 and the proposed initial public offering of national oil company Aramco, some believe Neom signals a turning point for the country. With many underserved and underrepresented sectors in the Saudi market and a changing attitude towards foreign investment, there could be many opportunities to attract international investors.
“The global business community has certainly taken notice of the ambitious plans for Neom – both from the perspective of the opportunity it could provide for investors, but also the impact it might have on the global technology race,” said Mr Rogers. “It is crucial that the government makes the new mega-city more attractive to both inward and domestic investors, in order to ensure public investment delivers the best possible return in future growth.”
Some investors see recent government decisions to allow women drivers and new tourist visas signalling changing times in Saudi Arabia, which could mean viable economic opportunity. But as the policies of crown prince Mohammed bin Salman gather pace, others wonder whether some of the policies could increase uncertainty – should relations between Saudi Arabia and regional arch-rival Iran continue to sour, Saudi Arabia will be among the emerging markets at greatest risk.
“The kingdom is going through a transitional period and relaxing many of its previously restrictive laws,” said Ibrahim Albuloushi, country head of JLL KSA. “These efforts will work towards extending its economic reach locally, and promoting an investment-friendly environment.
“As with any city being built from scratch, Neom offers a plethora of investment opportunities – particularly those looking to invest in less saturated markets,” he added. “The immediate impact to the surrounding area of the Neom project will likely include an influx of activity as advisers, consultants and engineers descend on the area once work begins. This will likely see demand for accommodation, transport and other services surge in nearby cities and towns while work is ongoing.”
Previously restrictive laws on foreign investment have meant limited participation from international investors in Saudi Arabia. Although never a democracy, the country has operated on consensual decision making within the royal family. With prince Mohammed bin Salman now holding more power than any Saudi leader in history, it is yet to be seen whether his influence will transform the economy to stimulate the wished-for investment activity.