Looking forward for a way to diversify from the traditional oil business the Saudi Arabia government is looking to float the new and upcoming $500 billion mega-city on financial markets. In a recent interview the Crown Prince Mohammed bin Salman also stated that Saudi Aramco, the oil giant controlled by the government, will also be selling the shares in the market.
If the recent reports are true Aramco’s initial public offering is on track for next year valued to be more than $2 trillion USD, which as per the investors is drastically too much.
Prince Mohammed’s surprise announcement about the listing of NEOM, a 26,500-square km zone that will extend into Jordan and Egypt, is the latest and most extraordinary in a slate of privatisation programmes led by the floating of Aramco.
The highly sophisticated and futuristic tech-hub is said to fill in the job requirements for the local residents and entrepreneurs, who are dependent on the state.
“The first capitalist city in the world – this is the unique revolution that we are looking to be,” said Prince Mohammed, heir to the throne of the largest Arab economy, an absolute monarchy.
“Without a doubt, at the end of the day NEOM will be floated in the markets. The first zone floated in the public markets. It’s as if you float the city of New York.”
The 32-year-old spoke on the side-lines of the Future Investment Initiative conference, which has attracted nearly 4,000 delegates from around the world to Riyadh this week.
Switching between English and Arabic, sometimes in the same sentence, the prince seemed most excited discussing his plans for the new city.
Perpetual growth to be aimed
NEOM will serve as a gateway to the proposed King Salman Bridge, which will link Egypt and Saudi Arabia. The proposed project site is adjacent to the Red Sea and the Gulf of Aqaba and near maritime trade routes that use the Suez Canal, gaining a higher accessibility and importance.
The zone will be fully owned by Saudi Arabia’s sovereign Public Investment Fund (PIF) until its listing and will attract investments from companies in renewable energy, biotechnology, advanced manufacturing and entertainment.
“It won’t be listed in the markets until the idea is mature enough,” Prince Mohammed said. “It might be after 2030, it might be before, but the idea and the strategy is to float it eventually.”
The new city will not follow the rules and regulations enforced in the rest of Saudi Arabia, which imposes sharia law based on a strict Wahhabi interpretation of Islam.
It will offer residents a more liberal lifestyle, allowing musical concerts and entertainment in a remote corner of the desert kingdom. Saudi Arabia has already started to relax some long-standing rules, including what was an effective ban on women driving.
Prince Mohammed said the city could appoint a board of directors and governor (chief executive) whose only responsibility will be to stimulate economic activity.
“In New York, the governor is appointed to meet certain needs, including growth, but in NEOM the governor (CEO) doesn’t have to deal with any of those problems. He only has growth in mind,” he said.
The name mixed “neo”, meaning new, with M, the first letter of the Arabic word for future, he added.
The new city is part of the crown prince’s ambitious Vision 2030 plan to overhaul the economy of Saudi Arabia, OPEC’s largest producer, and provide jobs for an overwhelmingly young population in the face of a global oil price decline since 2014.
But many executives at this week’s conference – dubbed “Davos in the Desert” – said they remained concerned about Riyadh’s ability to execute its plans. But the crown prince has pledged new rules and regulations to overcome past pitfalls.
An undeveloped legal system, sluggish bureaucracy and poor labour productivity have deterred foreign investment and frustrated many Saudi economic plans in the past. A recession triggered by low oil prices and austerity policies has brought private sector growth down near zero.
The establishment of NEOM’s economic and marketing corridor to the more accessible future will hopefully change the current situations we are facing. Providing what many are looking for will help us regain our momentum in the market and provide with better solutions, says the prince.