Economic Diversification and the Reincarnation of Saudi Arabia

Economic Diversification and the Reincarnation of Saudi Arabia

The purpose of this article is to examine the driving force behind Saudi Arabia’s NEOM project and how it contributes to economic diversification in the country.

NEOM and Diversification in the Saudi Vision NEOM, Saudi Arabia’s future that is in line beyond fossil fuels has been put forward as a project that represents more than an imaginary place. The place is planned to cost 500 billion USD and be a smart city with emphasis on environmental sustainability and advanced technology located on the Red Sea. The city is expected to be a leading biotechnological center in the world with reference to other industries that will shape the world’s economy.

The overarching goal behind Vision 203 is for Saudi Arabia to move away from being a monolithic oil-based society into one based more on multiple sectors like tourism, arts and entertainment industry, banking as well as technology-related enterprises. Given the inherently unpredictable nature of oil price shocks coupled with the emergence of clean renewables as a challenge in many nations economically., this kind of change has become pertinent. During periods of low oil prices, Saudi Arabia has been exposed to economic shocks due to its overdependence on fossil fuels. Besides attracting foreign investments, NEOM and other gigaprojects such as the Red Sea Project or Qiddiya are meant to create jobs and new industries.

The idea of big projects like NEOM is not new in any way. Some countries have taken such steps with different levels of success. UAE, Malaysia and Nigeria have all embarked on ambitious diversification projects at some point in their history but they have all yielded mixed results in the long run. For instance Dubai and Abu Dhabi, the main cities of the United Arab Emirates, are today financial and tourist centres with global recognition while many other countries find it hard to achieve more than almost insignificant progress in this respect.

Most megaprojects face a common obstacle which involves significantly high costs. There are few nations which can continuously fund such big developments until they are completed and then put to use for several years. For instance, with the NEOM project, there exist ample resources from Saudi Arabia’s Public Investment Fund (PIF) as well as high oil earnings but it is common with megaprojects to encounter unexpected cost overruns and time delays. Maintaining investor confidence in such a volatile environment remains a challenge particularly when there are economic fluctuations.

Another challenge is the possibility of creating mega cities which are high-tech but do not meet the demands of local economies. They say Not many projects translate these futuristic notions into practical reality by training an indigenous labor force that enables them to take over such new economic structures. For instance in some situations wealth generated from such schemes is confined to few privileged people without necessarily igniting overall economic growths. Malaysia’s Iskandar was trying to be Singapore’s success story; however, it still has not been able to attract residents or investors at the same level owing to its high cost approach amid local economies.

Saudi Arabia’s Unique Advantages and Challenges
However, the resources’ vastness and advantageous location stand Saudi Arabia apart in its quest for economic transformation from most nations. As a result of its geographical position at the confluence of Asia, Europe and Africa; this kingdom enjoys logistical benefits that would enable it to become a global trade and transportation centre. Besides this, the country has instituted various reform programs which make it likely that NEOM and Vision 203 can succeed within its borders.

One, Saudi Arabia boasts of financial backing which is not found in others. In particular, the funds that have been set aside by Public Investment Fund worth more than seven hundred billion dollars for such investments as NEOM and other projects related with Vision 203 provide this capability. Most nations do not make long-term investment in such projects because they lack levels of investments that would act as buffers during times of economic crisis.

Two, Saudi Arabia has introduced measures that are aimed at boosting entrepreneurship in its land. This includes doing away with some business requirements; supporting SMEs and increasing transparency amongst others. Moreover, recent changes in its labor and visa rules are meant to encourage both high-skilled foreigners interventions and easiness when doing business within its borders. On the other hand; initiatives intended at modernizing the country’s financial sector such as developing digital currencies and reforming stock exchange laws are creating better conditions for taking investments decisions

However; there are still numerous issues confronting Saudi Arabia. For the economy to grow it must attract foreign direct investments and at the same time build internal capacity for entrepreneurship in ICT and science based industries. In this regard, more than 60% of Saudi’s population are youth hence they need skills that will enable them engage fully in activities under these sectors including NEOM.Successfully addressing challenges facing education (especially STEM) gender disparities in the labor market through enhanced female participation among others remains paramount

In addition, there is a need for a delicate balancing act between the traditional Saudi Arabian culture and the global outlook required for NEOM to be successful. Besides, while Vision 203 was concerned with social reforms, NEOM’s success lies in its ability to attract a wide range of talent.

Prospects for NEOM and Saudi Arabia’s diversification
Several things will determine whether NEOM becomes successful or not. These factors include the continuous input of money into NEOM from various sources, its integration with Saudi Arabia’s general economy and ability to adjust to changes in international business environments. Hence, despite being one industry based nation Saudi Arabia has decided that it should not rely solely on oil for its development. Especially when one considers that green technologies are becoming more important worldwide and that NEOM is designed to be run on clean energy entirely. By taking a lead in eco-friendly innovation, this might give her an edge over others in the global market

Nevertheless, there is need for Saudi Arabia if they are to avoid repeating the mistakes made in other parts of the world where large scale projects like NEOM failed, to ensure that these benefits from NEOM flow widely within society so as not only depend only on foreign firms but also include local businesses and workers among others. Thus, a comprehensive approach focusing on education systems nationally, legal frameworks simplifying business operations in NEOMs other regions besides ensuring equitable distributable development throughout the entire country could transform it into a sustainable model for the kingdom.

In conclusion
Vision 203 together with projects such as NEOM represents a bold and complex process aimed at reviving the Saudi Arabian economy. Consequently, if Saudi Arabia can pull this off, then she will have a unique opportunity of liberating herself from overreliance on oil to become a diversified economy through investments at large scales alongside reforms and strategic plans. In the meantime, aspiration for socio-economic structures based on major government-initiated projects highlighting common but untested concepts present an impending danger towards it all happening. And, with continued reformations that assure developing human resource capable of ensuring that every citizen equally benefits from new economic opportunities and therefore holding a potential for long-term economic transformation.