NEOM’s ambitious concept-to-project transition presents funding, feasibility challenges 

Al-Monitor Pro Members

Dr. Robert Mogielnicki  

Senior Resident Scholar, Arab Gulf States Institute in Washington, DC

Sept. 20, 2022

The ever-more ambitious concepts behind NEOM’s development have garnered global curiosity and substantial media buzz. Yet NEOM project officials must contend with serious funding and feasibility challenges. Dedicated financial resources from the state can help planners overcome some challenges, enabling various aspects of the megaproject to move ahead. The most futuristic and experimental elements of NEOM are likely to be scaled back or abandoned in place of new plans. NEOM is therefore unlikely to be a spectacular failure or a stunning success. A steady stream of new announcements will obscure slow progress on the ground and reprioritization of the megaproject’s components. Data below.

Scenario 1: NEOM is a stunning success, proving skeptics wrong. Project officials meet their development deadlines and manage to redefine mountain tourism, industrial processes and the urban living experience. Global investors and other Gulf sovereign wealth funds are early and major investors in NEOM. Saudi Arabia is rewarded with massive and continuous influxes of tourists, firms willing to establish headquarters in the country and long-term expatriate residents over the next 50 years.

• This scenario is unlikely to occur because so many dimensions of NEOM are experimental, cutting-edge or transformative. According to its website, NEOM is “an attempt to do something that’s never been done before.” While great for PR efforts, the untested nature of various NEOM components will make project implementation incredibly challenging. Global demand for redefined mountain and Red Sea tourism, a floating industrial city and linear urban development remains uncertain. Regional sovereign wealth funds with spare investment capital — namely those in the UAE, Kuwait and Qatar — may offer small, symbolic investments but are unlikely to dedicate huge sums in support of Saudi Arabia’s domestic development. Foreign investment into Saudi Arabia has been slowly creeping upward in recent years after a steep and steady decline following the 2008-09 global financial crisis. Foreign investors tend to focus on areas wherein Saudi Arabia possesses a competitive advantage, such as in the energy sector, or where this is clear demand and growth potential, such as cinemas and other entertainment-related projects.

Scenario 2: The NEOM experiment fails spectacularly or quickly becomes an enormous white elephant. MBS and NEOM planners are not able to secure the necessary funding for key phases of development. Foreign firms, expatriate businesspeople and Saudis avoid NEOM because there are no viable commercial opportunities or entertainment-related activities. Reputational issues associated with MBS and Saudi Arabia weigh heavily on efforts to attract foreign investment in NEOM.

• This scenario is unlikely to occur because MBS has invested a substantial degree of political capital in the success of this initiative. NEOM is fully owned by the Public Investment Fund, the country’s influential sovereign wealth fund with $620 billion in assets under management. Energy prices are staying higher for longer, filling Saudi government coffers with financial resources that can be directed toward the megaproject. NEOM already boasts the likes of McLaren and AFC as partners, and additional partners are likely to see commercial opportunities in NEOM. The Saudi government has the means to strongly encourage (or even pressure) local firms to support NEOM’s progress. US President Joe Biden’s visit to Saudi Arabia in July and subsequent visits by MBS to Greece and France have started to lower the reputational and commercial risks of association with the Saudi crown prince.

Dr. Robert Mogielnicki’s professional affiliations span top-tier research institutes, academic institutions, NGOs and consultancies. He is a Senior Resident Scholar at the Arab Gulf States Institute as well as an Adjunct Assistant Professor at Georgetown University and a Professorial Lecturer at George Washington University. He serves as an Adviser with Freedom House and an External Consultant with Eurasia Group. Dr. Mogielnicki is the author of "A Political Economy of Free Zones in Gulf Arab States" (Palgrave Macmillan 2021), and he is currently working on an edited volume about the political economy of sovereign wealth funds in the Middle East and Asia. He is a Term Member at the Council on Foreign Relations and a member of the Board of Advisers at Henley & Partners, an investment migration firm. The Middle East Policy Council listed Dr. Mogielnicki in their inaugural 40 Under 40 awards for influential Middle East experts. He holds a DPhil from Magdalen College, University of Oxford.