So let’s talk about King Abdullah Economic City. In today’s video, I may give the impression that it doesn’t exist. It totally does! It was established in 2005, and much like NEOM, the mega city the Saudis are currently pushing, it was supposed to revolutionize everything!!! 13 years later only about 15% of the 100 billion dollar city has been built. The other three cities that were meant to be built at the same time are somewhere between 30% and 0% completed. Their wikipedia pages make for some depressing reading. Depressingly familiar reading.
The objective of SAGIA’s “10 x 10” program, which ran from 2005 to 2010, was to place Saudi Arabia among the world’s top ten competitive investment destinations by 2010.
Launched in 2006, the Economic Cities program was designed to drive toward greater competitiveness, job creation, and economic diversification.
In developing economic cities, over a thousand of the world’s free zones were surveyed. The sixty deemed most successful were studied to determine key success factors. The objectives of the Economic Cities were to promote regional development, achieve economic diversification, create jobs, and enhance competitiveness in Saudi Arabia. Four new cities were identified and thus developed: King Abdullah Economic City, Jazan Economic City, Prince Abdulaziz Bin Mousaed Economic City, and the Knowledge Economic City, Medina.
When you read some of this 15 year old public relations copy, you realize just how familiar it all is. It’s the same thing as Vision 2030, but it’s Vision 2010. It’s all very sad. Back in King Abdullah’s time it was possible to imagine that Saudi Arabia could pull it off. Their oil was still one of the most valuable commodities in the world. An Aramco IPO back then would have yielded hundreds of billions of dollars. Instead the economic cities plans just sort of fizzled out during the extraordinary expenditures the government made to bribe the populace out of an Arab Spring. After Abdullah died in 2015, the focus shifted to new projects.
A sensible ruler ca. 2015 would have recommitted to all the plans Abdullah had made, and brought them to fruition. It would have made a lot of sense. But that wasn’t ambitious enough for King Salman, and Crown Prince Muhammad Bin Salman. They are diverting scarcer and scarcer funds to all of their new cities, and losing investments in foreign companies. They’ve gotten a lot of uncritical support in the Western Press, but that’s because they are paying for it. So yes, the King Abdullah Economic city exists, as a shell of what it could be. The bottom third is the only section of this BBC article on King Abdullah Economic City that is worth reading. After repeating the standard public relations texts, it lays out what a disappointment the project has been. NEOM might get there too. But it won’t ever become what was promised. Today’s video lays out why.
Video Transcript after the jump…
Ladies and Gentlemen, Saudi Arabia’s Vision 2030 is dead. Now that’s not to say important reforms haven’t happened. They absolutely have. Saudi Arabia’s vicious religious police have been neutered. It’s easy to mock the slow progress, but the status of women in Saudi Arabia is definitely better than it was 5 years ago. These things are important. But they are not the point of Vision 2030, these reforms were means to achieve a very concrete goal. And that goal is dead.
Vision 2030 has a website, and it’s got pillars and themes and goals for days. It talks a lot about Saudi Arabia’s strengths. But at its center is a very sensible consciousness of Saudi weakness. Saudi Arabia is a petrostate, and 70 years of attempts at diversification have all failed. Vision 2030 was an overdue acknowledgement that diversifying the Saudi economy was going to take more than building another city. It required an opening up to the world. If Saudi Arabia was going to be a hub for investment it had to be a better place, with competitive industries outside of resource extraction. Winning outside investment for the Saudi economy was the whole point of Vision 2030.
It’s now clear that this effort to win investment has failed completely. The good things that Saudi Crown Prince MBS has done are far outweighed by the fact that MBS also does crazy things that scare people away from the country. Foreign direct investment in Saudi Arabia has plummeted from around 7 billion in 2016 to 1.4 billion in 2017. And the money that is already there is leaving in droves. Capital flight was 80 billion in 2017 and is expected to be at least 65 billion in 2018 even though MBS is acting more and more violently to keep the money in the country.
If you only hear about MBS in US media this picture may be surprising. For the past three years, he has had the best Public Relations money can buy, from New York Times columnists to US Presidents. All of this can’t cover up for the crazy things MBS keeps doing however. His war in Yemen has been a catastrophic failure. Almost no progress has been made against the Houthis in Yemen and Saudi cities are now regularly subjected to richly deserved rocket attacks. In November 2017 MBS arrested many of the kingdom’s richest and most powerful people, making the kind of insecurity investors can expect very clear. He also briefly kidnapped the prime minister of Lebanon that month. In August of this year, MBS launched a diplomatic crisis with Canada, making it clear that Saudi Arabia is incapable of playing nicely with the most polite and boring country in the world. And it is now looks increasingly likely that the Saudis kidnapped and possibly assassinated a Washington Post journalist last week. Saudi Arabia’s investment climate is not going to improve anytime soon.
And that’s a problem because outside investment is the core of Vision 2030. As I have said over and over again, none of those mega projects are getting built without foreign money. Which now means that none of these mega projects are getting built.
The Aramco IPO is now paused. It will never be restarted. Just last week we learned that that 200 billion dollar solar field Saudi Arabia was going to build with SoftBank is never happening. NEOM, the supposed 500 billion dollar megacity has already lost the foreign leadership that was going to find all that money. NEOM’s great future already looks like a mirage.
Vision 2030 is well on its way to being forgotten. Like King Abdullah Economic city and many other projects before it we will just stop hearing about it over the next year or so. The spike in oil prices we are currently experiencing means that Saudi Arabia will get away with this in the short term. In the long term they will not. A couple years from now, when Saudi Arabia’s post-MBS leadership tries to sell us another reform program, let’s remember what happened to Vision 2030.
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