Saudi Arabia is pushing ahead with multibillion-dollar plans to build a spate of new cities despite the coronavirus pandemic and depressed oil prices, betting that projects closely associated with the crown prince will kick-start its economic recovery, The Wall Street Journal reports.
The developments include a futuristic city-state called Neom in the country’s remote northwest Tabuk province, a sports and entertainment city outside Riyadh, luxury tourism resorts spread across an archipelago of pristine Red Sea islands and an ancient Arabian trading post turned wildlife reserve called al-Ula.
They are all part of Crown Prince Mohammed bin Salman’s plan to diversify the economy away from oil by attracting foreign investment and boosting domestic consumption.
The giant projects are designed to spawn industries such as tourism and entertainment that haven’t existed before in cloistered Saudi Arabia, even as those sectors suffer globally under social-distancing guidelines imposed to curb the spread of the virus.
“It seems like that will be a real uphill battle,” said Robert Mogielnicki, resident scholar at the Arab Gulf States Institute think tank in Washington, D.C. So far, he said, “The broader aim of attracting global multinational companies…hasn’t panned out.”
After introducing tourist visas last September for the first time, the kingdom issued about half a million before the pandemic hit and it closed its borders, including to its most vital source of tourism income: religious visitors.
Despite the downturn, the authorities say they remain committed to attracting 100 million visits a year by 2030, up from about 40 million last year.
Hosam Alqurashi, chief marketing officer at the Royal Commission for Riyadh City, which oversees $800 billion in plans to double the capital’s population in a decade, said the kingdom’s leadership saw the quarantine period as an opportunity to accelerate some projects.
“Overall, the direction from the crown prince was to press on and move as fast as we can and as hard as we can with the projects, no slowdowns on anything,” Alqurashi told a U.S. Chamber of Commerce event last month in remarks reviewed by The Wall Street Journal. “The country is determined, our projects are pretty much on track and nothing will slow them down.”
With a budget deficit expected to reach nearly 13% of output this year—above International Monetary Fund benchmarks for emerging-market economies—Saudi Arabia’s finances are coming under strain. The authorities have already tripled the value-added tax rate to replenish government coffers and cut cash handouts meant to cushion a rising cost of living, the Journal added.
With nearly $450 billion in foreign monetary reserves and the world’s second-largest proven oil reserves, Saudi Arabia is unlikely to run out of money soon.
The kingdom’s roughly $300 billion sovereign-wealth fund, the Public Investment Fund—headed by Prince Mohammed—finances the biggest projects; it recently got a $40 billion injection from the central bank.
A representative said that PIF’s financial commitment to the projects remains unchanged and that their timelines won’t be significantly affected by current economic conditions.