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Abu Dhabi, UAEMonday 10 December 2018

IMF backs Saudi $500bn mega-city project

NEOM would create opportunities for the entire region and boost local economies, fund says

Saudi crown prince Mohammed bin Salman shakes hands with Klaus Kleinfeld , appointed as NEOM's chief executive. Reuters
Saudi crown prince Mohammed bin Salman shakes hands with Klaus Kleinfeld , appointed as NEOM's chief executive. Reuters

The IMF has endorsed an ambitious Saudi Arabian plan to build a US$500-billion mega-city, called NEOM, extending into Jordan and Egypt, saying the project could benefit the whole region.

Jihad Azour, the head of the IMF's Middle East department, said Riyadh would need to balance the huge cost of the zone and other economic projects with its drive to cut a big state budget deficit caused by low oil prices.

But the plan to develop NEOM could stimulate trade and allow the Middle East to capitalise on its location as a bridge between Asia and Europe, Mr Azour said.

"It is a signal that greater regional cooperation is back on the table," he said. "We see value and necessity in regional cooperation."

The NEOM scheme was unveiled by Saudi crown prince Mohammed bin Salman at an international conference in Riyadh last week, where he appointed Klaus Kleinfeld as the project's chief executive. It is planned to develop industries such as energy and water, biotechnology, food, advanced manufacturing and entertainment in a 26,500 square kilometre zone with its own laws and judicial system.

The project has been welcomed by Jordanian officials but so far there has been little public response from the Egyptian government, a diplomatic ally of Saudi Arabia.

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Riyadh has indicated that much of the huge cost of the zone will be borne by the Saudi government, but a large, though undisclosed, portion would come from domestic and international private investors.

Mr Azour said major private sector participation would be important for NEOM's success, with the Saudi government providing land and regulation rather than trying to be closely involved in most investment decisions.

Governments in the region are starting to look outwards again after having spent the past five or six years focused on coping with political instability and a plunge in oil prices, he added.

"Authorities in various countries are now reassessing more and more the need to do reforms and projects to grow faster and to address the issue of job creation."

NEOM could fit in with two other international economic schemes, Mr Azour said: the Belt and Road Initiative, Beijing's drive to win trade and investment deals along routes linking China to Europe, and the G20 Compact with Africa that aims to promote private investment across the continent.