- Saudi Arabia will look to accelerate its ambitious plans for its new USD500bn NEOM city, that forms a cornerstone of Vision 2030.
- Over 2021, key projects such as ‘The Line,' OXAGON, the world’s first public Vertical Take-Off and Landing mobility system, and the fabrication of a green hydrogen production facility have been leveraging construction partners such as Air Products, Volocopter and Thyssenkrupp. This will see a strong boost in technology infrastructure and logistics.
- Ongoing progress and stronger government revenues in 2022 will serve as a boost to investment and diversification prospects, particularly in the short- to medium-term as tenders and construction increase.
- While various areas of the project such as transport and infrastructure have been frontloaded, we at Fitch Solutions believe it is overly ambitious that NEOM will be fully operational by 2030.
In an effort to promote economic diversification and inward investment, in line with Saudi Arabia’s Vision 2030 plan, the Kingdom plans to create a USD500bn smart green city called NEOM in the Tabuk province along the Red Sea. Announced in October 2017, NEOM‘s developments will focus on building a tech-enabled, sustainability-driven and foreign investor-friendly environment. NEOM will span an initial planned area of 26,500sq km, and it is positioned within a 4-hour-or-less flight from 40% of the global population. The city will run entirely on renewable energy and will utilise artificial intelligence to streamline transport and utilities networks.
- In 2018, Egypt and Saudi Arabia signed a USD10bn deal for NEOM to use 1000sq km of land in southern Sinai. In 2019, the construction of the first urban area, NEOM Bay, was set to start, with the construction of homes, lifestyle and tourist facilities, innovation centres, and hotels. Construction is yet to start (as of February 2022), although, NEOM Bay Airport opened in 2019.
- In 2021, two major development announcements were made: ‘The Line’ and OXAGON. OXAGON will serve as NEOM’s industrial city located on the coast of the Red Sea, with a significant portion floating on the Red Sea, serving as the largest floating industrial complex in the world.
- The Line will be a 170km long urban development “of multiple, hyper-connected communities, with pedestrian-friendly neighbourhoods integrated with public parks and the natural landscape” according NEOM’s website. The Line will house over one million people and is set to be a vehicle-free and zero-carbon emission area. The design will allegedly allow for all necessities to be within a five-minute walk, while any commute along The Line, via the transport and logistics layer ‘The Spine’, will be a maximum of 20 minutes. Infrastructure and supporting services such as transportation, utilities, digital infrastructure, and other logistics features will run in an ‘invisible’ layer along The Line. Construction on The Line reportedly started in November 2021 and NEOM’s chief projects officer confirmed in February 2022 that early grading work was in progress.
- Tenders for the construction of 31km of tunnels in the city opened for bidding in September 2021; bids were due by December 30 2021.
- In December 2021, a joint venture between NEOM and Volocopter was established to design, implement and operate the world’s first public Vertical Take-Off and Landing mobility system. NEOM has placed an order of 15 Volocopter aircraft, set to commence initial flight operations within the next 2-3 years. In the same month, Air Products selected Thyssenkrupp to engineer, procure and fabricate a green hydrogen production facility. Engineering and procurement processes have already begun and production should commence in 2026.
- The first tenders to build a renewable power grid for NEOM are expected to be released later in 2022, according to the executive director of Neom Energy.
NEOM To Anchor Wider Economic Diversification Strategy
The strategic framework of Vision 2030 that involves diversifying the economy away from oil-reliance will reduce risks to growth from oil price shocks, particularly as the global economy decarbonises in the long run. While the kingdom enjoys one of the largest trade volumes in the MENA region, its export basket comprises mostly of oil and chemical products, and inward FDI accounts for only around 29.8% of the country's total GDP (2019 data), compared to the MENA average of 42.2%. Consequently, the government of Saudi Arabia is making considerable efforts to encourage greater foreign participation in order to stimulate growth, knowledge transfer and job creation in targeted private sector industries. Overall, 2021 provided significant stepping stones to NEOM’s prospects. That said, our Infrastructure Team's Risk/Reward Index score for Saudi Arabia is currently 62.2 out of 100. While the country scores competitively on a regional basis, key areas that weigh down its index performance include low construction industry real growth outlook and relatively high risks surrounding construction contracts. Although we believe several NEOM project areas will see continued progress, there remains a risk that the full USD500bn development plans may run into delays and some sub-sectors may not reach full completion within the tight deadline of 2030.
Nevertheless, we believe that these nascent developments set to spearhead investment, trade and innovation and continued reform momentum, will support the country's investment attractiveness and increase opportunities for economic diversification in the years ahead. At present, Saudi Arabia scores 48.5 out of 100 for Economic Openness which is its lowest scoring area in the Fitch Solutions Trade and Investment Risk Index. The country ranks 11th out of 18 MENA markets for Economic Openness and a low 101st out of 201 markets globally. This highlights the competitiveness gap in Saudi Arabia's current trade and investment profile, especially when compared to regional peer, the United Arab Emirates (UAE), which boasts diversified sectors and high levels of foreign investment as shown by its score of 73.4 our of 100 for Economic Openness. The UAE ranks first out of 18 MENA markets and a high 24th out of 201 markets globally.
Stronger Reform Momentum Required To Attract Investment
Saudi Arabia & MENA Region - Trade & Investment Risk
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