With Saudi Arabia's Vision 2030 past the halfway mark, the ambitious plan to redefine the nation and move away from its traditional oil dependency faces financial obstacles, prompting a scaling back of its most audacious projects.
Echoing these challenges, Finance Minister Mohammed Al Jadaan remarked at the World Economic Forum on 28 April that the kingdom would adapt to current economic and geopolitical pressures by either "downscaling" or "accelerating" certain projects under the Vision 2030 programme.
That followed comments by Al Jadaan in December 2023 that some projects would be delayed.
Crucially, it emerged in April that Saudi Arabia will scale back the capacity of its huge futuristic and green megacity, NEOM, which was originally touted to be worth $1.5 trillion.
Originally envisioned to house around 1.5 million residents in the desert, The Line - a subproject within NEOM - has now drastically scaled back its capacity to accommodate just 300,000 people.
The initial ambitious design included constructing a 500-meter-tall (546 yards), mirrored, 170-kilometre-long (105 miles) line of parallel skyscrapers. However, recent revisions have reduced The Line to a mere 2.4 kilometres (1.49 miles) in length, a reduction of 98.6%.
“I don’t think I’ve ever met anyone who believed it would be built as conceived, Saudis included,” Jim Krane, energy research fellow at Rice University’s Baker Institute, told °®Âţµş.
“Erecting a 100-mile-long skyscraper in the middle of nowhere is not a great use of scarce resources.”
Mixed signals
There are conflicting messages about the progress of Vision 2030.
While there has been a significant departure from NEOM’s original blueprint, the Saudi government has still sought to present Vision 2030 as being on track.
On 30 April, Economy Minister Faisal Al Ibrahim told CNBC at the World Economic Forum’s special meeting in Riyadh that “all projects are moving full steam ahead,” adding that “there is no change in scale” for NEOM.
Yet according to a conflicting by Citigroup in February, Vision 2030 has produced mixed results. On the one hand, it has made advanced progress in female labour participation, unemployment, and non-oil fiscal revenues.
While most other areas are proceeding as planned, what Saudi Arabia still lacks is encouraging foreign investment, tourism, and non-oil exports, according to Citigroup, showing hindrances to its diversification attempts.
As the brainchild of 38-year-old Crown Prince Mohammad bin Salman, the overarching aim of Vision 2030 is not only to shift Saudi Arabia away from its oil dependency but also to enhance Saudi Arabia’s role on the world stage.
This involves promoting sectors such as manufacturing, artificial intelligence, clean energy, sports, and entertainment, along with enhancing projects like NEOM and , a luxury tourism island in the Red Sea.
Saudi Arabia has also sought to utilise Mecca and Medina - Islam’s two holiest cities - offering lucrative packages for the Hajj and Umrah pilgrimages.
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Social reforms are also pivotal, with the government granting more rights to women and easing some social restrictions, in a bid to shake off its traditional ultra-conservative image.
Investment in renewable energy sources, including the ongoing construction of the “region’s largest” green-hydrogen plant, , is also emphasised as crucial for offsetting depressed oil demand.
“Some of the more practical giga-projects that provide housing or invest in decarbonising parts of the Saudi energy sector should be fine,” added Jim Krane.
Dependency on oil
Despite Vision 2030’s aims, oil will likely remain a fundamental part of Saudi Arabia’s economy, at least for the foreseeable future.
Indeed, the CEO and President of Saudi energy giant Aramco, Amin Nasser, in March that the world should "abandon the fantasy of phasing out oil and gas,” reflecting views within Saudi Arabia that abandoning fossil fuels might be easier said than done.
It was, after all, the discovery of oil, under the plains in Dhahran in Saudi Arabia’s eastern provinces in the 1930s, that saw the Kingdom surge into an influential regional power, with whom global actors felt compelled to engage.
Larger Vision 2030 projects depend on the state-owned Public Investment Fund, or PIF, which gets most of its capital from oil revenues. The ongoing reliance on oil may leave its Vision 2030 goals dependent on shifts that may occur in the financial markets.
According to the International Monetary Fund, international crude oil prices would need to be around $86 per barrel for Saudi Arabia’s Vision 2030 to succeed. It may arguably need higher prices given the cutbacks on oil production.
Economic shocks, ranging from the 2020 Covid-19 lockdowns, which temporarily plunged oil prices below zero, to Russia’s invasion of Ukraine, which pushed oil prices to a peak of $136 pb in March 2022, have all had varying impacts on Saudi Arabia’s spending capabilities.
When oil prices are weak, it will inadvertently squeeze Saudi Arabia’s capabilities to fund its projects.
More cutbacks likely
With that said, cutbacks to larger projects are likely to continue.
“I think there is a general challenge around the Vision 2030 giga-projects in that the budgets for many of them are very large and so far there has been very limited relief in terms of matched private investment - it’s mostly been public money to date,” Steffen Hertog, associate professor at the London School of Economics and Political Science, told °®Âţµş.
But Dr Hertog added, “some budget adjustment at this point is arguably a sign of more mature policymaking; it would have been worse to run with very large budgets for longer until the money runs out”.
He added that social and regulatory reforms could continue even if Saudi Arabia’s budgets are stretched.
Attracting investments may still be crucial. But so far, Saudi Arabia has struggled in this endeavour, partly due to projects being perceived as overly ambitious.
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“Potential investors have come to the kingdom and listened to the pitches, but few opened their wallets,” said Jim Krane. “Since foreigners won’t pay, covering the cost is down to the Saudis themselves.”
In April, Riyadh announced it was by selling bonds in local and foreign currencies, raising a record amount of debt to supply its Vision 2030. According to Bloomberg, this could mean lenders issuing at least $11.5 billion in bonds to ensure parts of its Vision 2030 remain on track.
However, regional and global tensions have also triggered more caution among domestic and international investors.
“The ongoing conflict in Gaza, coupled with increased Houthi activity [in the Red Sea] and growing unrest in Jordan, leaves the Kingdom wary about what the future may bring,” Simon Mabon, Professor of International Politics at Lancaster University, told °®Âţµş.
Saudi Arabia’s economy is to grow 2.6% in 2024, a downward revision from its 4% forecast in October, the IMF said in its latest regional outlook report, amid regional tensions and continued oil output cuts.
Riyadh will likely therefore hope that regional tensions, which have constrained its economic outlook, can subside.
Future risks in Saudi Arabia
Beyond economic risks, there’s also the question of how Saudi Arabia’s population could react if the projects don’t proceed as intended.
Despite undergoing significant societal changes, which have promised to benefit people, Saudi Arabia may risk a backlash. That includes the nomadic tribes who have been cleared to accommodate NEOM, some of whom were charged with terrorism after resisting planned evictions, to UN experts.
While Bin Salman’s reforms may have wooed the country’s younger and urban population, stagnating progress in the longer term may leave more of the public disenfranchised.
According to Simon Mabon, failure to achieve Vision 2030 goals “could prompt serious questions about the vast economic cost of these projects, particularly at a time when the cost of living in the Kingdom is increasing”.
Although Saudi Arabia is clearly on a transformative path, which has helped reshape its image internationally and domestically, the long-term success of its ambitious overhaul remains questionable.
Jonathan Fenton-Harvey is a journalist and researcher who focuses on conflict, geopolitics, and humanitarian issues in the Middle East and North Africa.
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