Saudi prince powers ahead with futuristic city and sports giga-projects
Riyadh awards billions of dollars of contracts for flagship schemes even as it imposes swingeing austerity measures
Saudi Arabia is forging ahead with Crown Prince Mohammed bin Salman’s flagship giga-projects, awarding billions of dollars of contracts despite Riyadh being forced to impose swingeing austerity measures as it grapples with the twin shocks of coronavirus and low oil prices.
With Riyadh facing its worst financial crisis in decades, it has already taken the dramatic step of tripling value added tax to 15 per cent, suspending benefits of the civil service, which employs most Saudis, and warning that it will have to reprioritise spending.
Many Saudis had expected the three highly ambitious schemes — Neom, a $500bn futuristic city; Qiddiya, a vast sports and entertainment complex; and a high-end Red Sea tourism development — to be victims of state spending cuts.
But executives at the flagship developments told the Financial Times that Prince Mohammed had insisted that the giga-projects move ahead as planned. “He’s completely committed to this vision and he wants to make sure that everybody associated with it, from me on down, is crystal clear that we ‘stay the course, move this forward, don’t let anything get in the way’,” said Michael Reininger, chief executive of Qiddiya.
The prince has identified entertainment and tourism as vital parts of his reforms, from job creation to offering young Saudis more options and reshaping perceptions about the ultra-conservative kingdom.
Qiddiya, a more than $15bn development that will include a Formula One motor racing track, 20,000-seat stadium and Six Flags theme park, last month awarded a $187m contract for roads and bridges, one of about $2.6bn in “near-term” contracts it plans to allocate this year.
Last month, Neom, Prince Mohammed’s most ambitious plan, signed a $5bn agreement with Air Products, a US company, and Acwa Power, a Saudi company that is 40 per cent owned by the Public Investment Fund, the kingdom’s sovereign wealth fund, to develop a renewable energy project.
Days later, the Red Sea Development Company awarded its biggest contract to date, signing up Saudi companies to build an airport designed by Foster + Partners, the British architects. It expects to award more than $1bn in additional contracts this year.
The first phases of Qiddiya and the Red Sea project, which is expected to cost about $10bn and will cover five islands, are supposed to be completed in 2023. But officials hope the Red Sea will begin welcoming visitors in two years, betting that global tourism will bounce back.
“It is full steam ahead, we haven’t skipped a beat . . . he [Prince Mohammed] wants these projects delivered,” said John Pagano, chief executive of the Red Sea Development Company. “In fact, we may expand the project by another island following a recent board meeting.”
Like Qiddiya, Mr Pagano said the capital for the Red Sea development was already committed, adding that the company was also working on a debt facility with Saudi banks.
“There’s always scepticism around big projects . . . [but] the progress we are making, the [contract] awards we are making, starts to dispel any scepticism,” he said.
There are fewer details about what shape Neom will ultimately take, and its scope and ambitions far exceed the others.
Ali Shihabi, a member of Neom’s advisory board, said the project was “proceeding”, while adding that the final schedule had not yet been determined. It would probably move ahead at a more “moderate pace”, he added. Last week, it awarded a contract to US firm, Bechtel, to work on the development of its primary infrastructure.
The price of oil, the kingdom’s lifeline, is still far below Saudi Arabia’s break-even price and oil revenues declined 45 per cent in the second quarter to $25.5bn. There is little space for critical debate in the kingdom, but analysts said the optics of spending billions of dollars on the projects at a time of severe austerity were awkward. “I wish the same effort and speed being put into Qiddiya and Neom are also present in executing projects like hospitals and other government sectors,” said a young mother from the city of Buraidah in the central Qassim region.
One Gulf banker said the fact that Prince Mohammed was forging ahead with his projects was a “characteristic of the crown prince”.
“He wants to show ‘I’m not relenting, I’m committed, things will pick up’,” the banker said. The banker added that if oil recovered to $60 a barrel next year, the “projects are fine”.
“But you still have to question the viability of the projects, regardless of whether they have the money,” he said. “There will be entities that will invest, but most will be local, not many foreign. Neom will have serious problems, because for it to work investors need to see a financial return.”
The PIF is the lead developer of all three projects, but was also hoping to attract foreign investment. Riyadh transferred $40bn of its foreign reserves to the fund in March and April to support its overseas investment strategy and domestic projects.
Even before the crisis there was scepticism about the viability of some of the developments, as well as questions about how the kingdom would finance them — particularly Neom, where officials have suggested robots could outnumber the targeted 1m residents.
The PIF, which like Qiddiya and the Red Sea Development Company, is chaired by Prince Mohammed, said: “We do not believe that the current economic conditions will have significant impact on project timelines.”
Ali Shihabi, a member of Neom’s advisory board, said the project was “proceeding”, while adding that the final schedule had not yet been determined. It would probably move ahead at a more “moderate pace”, he added. Last week, it awarded a contract to US firm, Bechtel, to work on the development of its primary infrastructure.
The price of oil, the kingdom’s lifeline, is still far below Saudi Arabia’s break-even price and oil revenues declined 45 per cent in the second quarter to $25.5bn. There is little space for critical debate in the kingdom, but analysts said the optics of spending billions of dollars on the projects at a time of severe austerity were awkward. “I wish the same effort and speed being put into Qiddiya and Neom are also present in executing projects like hospitals and other government sectors,” said a young mother from the city of Buraidah in the central Qassim region.
One Gulf banker said the fact that Prince Mohammed was forging ahead with his projects was a “characteristic of the crown prince”.
“He wants to show ‘I’m not relenting, I’m committed, things will pick up’,” the banker said. The banker added that if oil recovered to $60 a barrel next year, the “projects are fine”.
“But you still have to question the viability of the projects, regardless of whether they have the money,” he said. “There will be entities that will invest, but most will be local, not many foreign. Neom will have serious problems, because for it to work investors need to see a financial return.”
The PIF is the lead developer of all three projects, but was also hoping to attract foreign investment. Riyadh transferred $40bn of its foreign reserves to the fund in March and April to support its overseas investment strategy and domestic projects.
Even before the crisis there was scepticism about the viability of some of the developments, as well as questions about how the kingdom would finance them — particularly Neom, where officials have suggested robots could outnumber the targeted 1m residents.
The PIF, which like Qiddiya and the Red Sea Development Company, is chaired by Prince Mohammed, said: “We do not believe that the current economic conditions will have significant impact on project timelines.”