Neom: Mega Saudi Arabia project faces financial woes

ROYADH: The multibillion-dollar project, Neom, by the oil-rich Saudi Arabia, is currently facing substantial financial and operational obstacles, with recent internal assessments reportedly indicating that the projected expenditure for the ambitious project has escalated to a whopping $8.8 trillion, over 25 times the nation’s annual fiscal allocation.

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The initial phase, envisioned to be completed by 2035, is estimated to necessitate $370 billion, with the government having already committed $50 billion.

A report from the Wall Street Journal disclosed that auditors found indications of financial discrepancies orchestrated by senior executives, raising serious questions regarding accountability. For example, expected lodgings costs were artificially inflated to align with financial objectives, with some rates soaring dramatically. A boutique hotel’s nightly charge surged from $489 to $1,866, while glamping accommodations saw increases from $219 to $794.

The flagship component of Neom, also referred to as The Line, was originally conceived as a 170-kilometre-long urban corridor featuring skyscrapers reaching heights of 1,600 feet. However, the project’s scope has been significantly curtailed, with the first construction segment now limited to a mere 2.4 km. Completion is projected for 2034, but proposals to reduce the height of the towers to 1,000 feet to manage expenses were dismissed by Saudi Crown Prince Mohammad bin Salman.

The launch event for Noem at Sindalah, a luxury coastal destination, incurred costs of $45 million and showcased celebrities including Will Smith and Tom Brady. Despite the extravagant event, Sindalah remains largely incomplete, with its hotel and golf facilities yet to open for public access.

Consulting powerhouse, McKinsey and Company, emerged as a notable financial beneficiary of the initiative, reportedly generating over $130 million annually for its consultancy services. The firm faced scrutiny regarding potential conflicts of interest, given its dual role in both, the planning and validation of financial forecasts.

A spokesperson for McKinsey stated that the organisation adhered to ‘stringent protocols’ to mitigate conflicts of interest.

The resignation of Neom’s CEO, Nadhmi al-Nasr, in November last year followed allegations concerning high mortality rate among migrant labourers during construction. A new leadership team was then appointed to restore credibility and direction.

While Neom is a central element of bin Salman’s Vision 2030 for Saudi Arabia development, its future remains precarious amid ongoing infrastructure challenges, rising costs and diminishing investor confidence.

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The kingdom has begun to adjust its narrative, now characterising Neom as a ‘generational investment’ rather than a short-term economic catalyst.