Saudi Arabia pulling back on construction spending

It appears that Saudi Crown Prince Mohammad bin Salman’s plans to build a $500 billion megacity may need to be a little less mega. 

A Saudi government committee plans to pull back billions in spending on Neom and other big projects, and even put a hold on others, as it reconsiders its economy, Bloomberg reported. 

The new plans are a departure from the country’s Vision 2030 plan to revamp its economy with projects costing an estimated $1.25 trillion. The projects are so vast that experts have predicted Saudi Arabia could become the world’s biggest construction market, Bloomberg reported.  

However, lower oil prices and projected foreign investments have created unforeseen headwinds. At least three more years of national budget deficits has forced the country to reprioritize what to work on first and how much to spend. 

The budget for Neom on the Red Sea Coast, a $20 billion mega-project including an artificial moon and glow-in-the-dark sand, is expected to be scaled down by 20 percent this year, and plans for a new airline are on hold, sources told Bloomberg.  

Neom is a project so large that it is projected to take 50 years to complete. It includes a 75-mile skyscraper dubbed the Mirror Line. Developers would have to accommodate the structures so that they could align with the curvature of the Earth. The project is said to be the prince’s vision to create a legacy that will rival the Egyptian pyramids.

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

And Farouk Soussa, a Goldman Sachs economist, told Bloomberg the “right-sizing” of the projects is a sign the kingdom is maturing. 

Even though these changes will impact local and international business, Saudi Arabia will continue to be big spenders on construction.  The kingdom still has $50 billion in capital expenditures to support the projects for 2024, Bloomberg reported. The Sovereign Wealth Fund reportedly has $70 billion in capital a year from 2025. 

Saudi Arabia is preparing to host the 2030 World Expo and potentially the 2034 FIFA World Cup. Plans to develop Rihad’s airport with a new urban development called New Murabba as well as the entertainment city of Qiddiya are to continue. 

-Christina Previte