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Middle East

Is NEOM’s New Focus on Sports Saudi Arabia’s Winning Move?

by Press Xpress November 16, 2024
written by Press Xpress November 16, 2024
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As NEOM costs spiral, Saudi Arabia prioritizes sports facilities and adjusts its ambitious vision to focus on manageable, phased developments.

Saudi Arabia’s $500 billion mega-city project, NEOM, has taken a strategic pivot. Originally envisioned as a sprawling 26,500-square-kilometer futuristic urban hub, the project’s sheer scale and ambitious architecture have forced the kingdom to adjust its scope. Rising costs and a shift toward hosting major international sports events have redefined NEOM’s immediate priorities, focusing on sports venues and phased development to meet more immediate goals. Sources close to the project revealed that this recalibration follows the recent departure of NEOM’s longtime CEO, Nadhmi al-Nasr, as well as the realization that initial financial projections for the project were far too optimistic.

Saudi Arabia’s Neom project CEO had to exit abruptly

NEOM’s Evolving Role in Vision 2030

NEOM remains central to Crown Prince Mohammed bin Salman’s Vision 2030, a sweeping economic plan to diversify Saudi Arabia’s income streams beyond its hydrocarbon-heavy economy. Oil revenues, which constitute nearly 70% of Saudi Arabia’s budget, have been hit by volatile global prices and production limits imposed by OPEC+. Despite a recent uptick in oil prices, lower production quotas and fluctuating demand have squeezed the Saudi economy. In response, the kingdom has redirected NEOM’s focus, reducing its scope to create tangible value in the shorter term while still aiming for long-term transformative goals.

Financial Recalibrations: NEOM’s Trillion-Dollar Projection

When NEOM was first announced in 2017, the project’s cost was estimated at $500 billion, funded through the kingdom’s sovereign wealth fund, the Public Investment Fund (PIF), which oversees assets worth over $700 billion. However, the financial realities have changed: just one part of NEOM, known as “The Line,” is now projected to exceed $1 trillion in costs, according to consultants with direct knowledge of the project. This colossal estimate has forced planners to focus on more feasible, modular developments that can attract global attention and generate revenue sooner, such as sports venues and tourism destinations.

Key Priorities: “The Line” and Trojena

A critical component of NEOM is “The Line,” a 170-kilometer-long urban strip envisioned as a 500-meter-high mirrored structure containing modular zones for residential, commercial, and recreational use. The Line, initially intended to showcase the latest in urban design and renewable energy, will now be built in phases, starting with a 2.4-kilometer segment that includes a stadium slated to host the final of the 2034 FIFA World Cup. This event, among the most-watched sporting events globally, is projected to attract billions in sponsorships, advertising, and tourism revenue, allowing NEOM to leverage international exposure.

Another key feature is Trojena, a mountainous resort area within NEOM that aims to host the 2029 Asian Winter Games. Saudi Arabia’s high-profile bid for this regional event aligns with the kingdom’s goal of becoming a global sports destination. Trojena, planned as a world-class skiing and snow sports location, reflects Saudi Arabia’s ambitions to attract niche tourism markets that could inject billions into the economy while diversifying its tourism sector.

Breaking Down NEOM’s Phased Approach

With these revised priorities, NEOM has shifted from a monolithic vision to a phased, segmented approach. “NEOM has been scaled down and broken into chunks,” said a consultant familiar with the project. By segmenting the development, the PIF hopes to ensure steady progress while managing costs, a move echoed in similar large-scale projects globally where modular planning has proven more financially viable.
The revised strategy also addresses internal project management issues, with NEOM aiming to streamline operations and reduce overlaps. Previously, many project teams worked in silos, leading to inefficient resource use. The phased approach enables more effective coordination across multiple development teams, ensuring that resources are directed where they’re most needed.

Leadership Transitions Amid Project Deadlines

The leadership changes in NEOM’s executive team have sparked questions about the project’s long-term feasibility. Al-Nasr’s departure reportedly stemmed from difficulties in meeting project milestones and integrating complex components within NEOM’s timeline. As NEOM pursues its revised goals, additional leadership changes are expected, with several high-ranking officials closely associated with Al-Nasr potentially exiting in the coming months.

Financial Realities: The Oil-Dependent Kingdom

Saudi Arabia’s reliance on oil revenue remains a pivotal factor in NEOM’s future. Despite oil’s recent rally to approximately $90 per barrel, production constraints mean that Saudi’s income from oil is not as high as anticipated when NEOM was first conceptualized. According to the IMF, Saudi Arabia needs an average oil price of $80 per barrel to balance its budget, yet the unpredictable nature of global oil markets complicates long-term financial planning.

To maintain momentum, the PIF has sought additional investment through joint ventures and partnerships, yet challenges remain as the project scales down. The goal is to attract international stakeholders interested in developing specific NEOM sectors, such as sustainable energy, urban design, and advanced technology, which aligns with Saudi’s longer-term goals for economic diversification.

Global Sports as a Revenue Catalyst

Saudi Arabia’s focus on sports as a central aspect of NEOM’s development underscores the country’s strategic pivot toward tourism. Events like the FIFA World Cup and the Asian Winter Games are expected to draw a global audience, potentially boosting the country’s tourism income, which currently contributes around 3% of GDP. By 2030, Saudi Arabia aims to increase tourism’s share of GDP to 10%, making it a critical component of Vision 2030.

With high-profile sports facilities and international events, NEOM can create a lasting impression as a tourism hub, in turn attracting additional investments for subsequent project phases. The kingdom’s investments in sports have already shown success, as seen in recent acquisitions of European football clubs, sponsorships, and partnerships with sports leagues.

Lastly, NEOM’s shift to a modular, sports-focused approach reflects Saudi Arabia’s pragmatic strategy to achieve Vision 2030. By prioritizing short-term, high-return projects, the kingdom balances immediate gains with its long-term diversification goals.

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