Saudi prince’s trillion-dollar makeover faces funding cutbacks

Saudi Arabia is likely to cut billions of dollars in spending on some of its biggest development projects, and place other plans on hold, as the kingdom grapples with the scale of its vast economic makeover, according to Bloomberg.

A government committee led by the de facto Saudi ruler, Crown Prince Mohammed Bin Salman, is close to completing a sweeping review of mega projects including the sprawling desert development known as Neom, people familiar with the matter said, asking not to be identified as the information is private.

Neom, which is being developed on the Red Sea coast, is expected to be allocated 20 per cent less than its targeted budget for this year, the people said. Its plans to launch a new airline for the area are on hold, they said.

Other developments being curtailed include Qiddiya Coast, an unannounced tourism and entertainment project in Jeddah on the Red Sea that had a potential budget of $50 billion at one point, according to the people.

The cuts mark a shift in priorities for Saudi Arabia, which under its Vision 2030 plan to reshape the economy has announced projects costing an estimated $1.25 trillion. Lower oil prices, weaker-than-projected foreign investment and at least three more years of deficits in the national budget means it must now decide what to focus on first and at what pace.

“The reality is that this kind of spending would create some sort of overheating in the economy and that’s not really desirable,” said Jean-Michel Saliba, Bank of America Corp’s Middle East and North Africa economist. “There’s also a risk to the profitability of projects if they go ahead sort of unabated without financial constraint.”

Saudi Arabia had said in December that some projects would be delayed or accelerated after the government reviewed its ability to finance its commitments without affecting its credit rating. In particular, the capital Riyadh is benefiting as developments there take priority over ones like Neom, some of the people said.

While Vision 2030 may not mirror Saudi Arabia’s initial intentions, the “rightsizing” of projects is a sign the kingdom is maturing, said Goldman Sachs Group Inc.’s MENA economist, Farouk Soussa.

“What they’re doing in terms of adjusting these projects gives us a lot of comfort,” Soussa said. “They’re basically saying they’re not going to go for broke or bet the house on any one particular thing. If it’s possible, they’ll do it. If not, they won’t. They’re being quite sensible.”

MBS unveiled his economic transformation plan eight years ago. The kingdom has since announced projects so vast that real estate consultant Knight Frank has projected that it could become the world’s biggest construction market.

Neom, MBS’s most high-profile development, is now facing the first ever significant cuts to its targeted spending, people familiar with the matter said. Its signature project -- a pair of mirror-clad towers expected to eventually span the length of about 105 miles called The Line -- has already seen some plans scaled back, Bloomberg has reported.

Further downsizing of others is expected as the government committee delivers its decisions, they said. The kingdom’s plans for its projects remain flexible, with most still under review, all final decisions taken by the crown prince and further changes possible at any time, people familiar with the matter said.

Officials for Qiddiya declined to comment. Officials at Neom and in the Saudi government didn’t comment.

Prioritizing

Any change in the scale or pace of large Saudi developments would have ramifications for both local and international businesses. A person familiar with the work of one Chinese company on a project inside Neom said it had been scaled down substantially, though the firm is seeing new demand in Riyadh.

Even though some spending will be crimped, Saudi Arabia will continue to be a big spender on construction.