With Saudi Arabia expected to start placing orders related to the Neom City project in 2023, Chinese President Xi Jinping is embarking on a trip to Saudi Arabia on Dec. 7.
China’s participation will heat up the competition to win multibillion dollar orders. Currently, the Saudi Arabian government has only presented a sketch of the new city. Industry insiders predict that orders for each construction item will pour in from next year.
However, there are many things to consider, such as the absence of a detailed business plan for the US$500 billion project, political risks, investment risks and a shortage of raw materials, experts say.
Among them, analysts say that political risks surrounding Saudi Arabia are beyond what Korean companies can handle “Have you ever heard of American and European companies investing in Neom City?” said an official of a large Korean construction company. “This is because the project has not only technical problems but political risks, including conflicts between Saudi Arabia and Western countries on human rights issues.”
In October, European human rights groups strongly criticized the Saudi Arabian government after a native of Neom City’s proposed area was sentenced to death for opposing demolition work.
In response to the West’s negative attitude, Saudi Arabia is actively pursuing cooperation with South Korea and China. Chinese construction companies have been included in the President Xi’s delegation to Saudi Arabia. “The more Saudi Arabia strengthens cooperation with China, the more negative the U.S. and Europe will become towards the Neom City project,” quipped an official of the Korean construction company. “South Korea may get caught in frictions between the United States and China.”
“Unlike other Middle East projects, Neom City is becoming a geopolitical game involving the U.S. and China,” said Woo Chun-shik, senior researcher at the Korea Development Institute (KDI) who has experience in conducting research for the Saudi Arabian government. “Korean companies lack experience in dealing with a situation like this.”
Korean construction companies also point out that the Neom City project does not have a transparent schedule. “The biggest problem with the project is that it is promoted in a closed and opaque way,” said an overseas order-taking manager at a large Korean construction company. “The project’s specific schedule and bidding process have not been disclosed at all.” As the project’s order placement schedule is unclear, Korean builders expect that the completion of the first phase by 2030, which is a goal set by the Saudi Arabian government, will be difficult to achieve and the construction period may be extended.
Financing the mammoth-sized project is also a challenge. “Neom City will be promoted in a way that requires builders to cover about 70 percent of the project budget,” said an official of a Korean construction company. “The Saudi Arabian side has not come up with a specific plan for recovery of the investment.”
If and when the desert city project is put on the right track, it may encounter a shortage of materials. Even the construction of The Line, which calls for building 500-meter tall edifices along a 170-km line, can become a black hole in the construction materials market. “In the past, during a construction boom in China, raw material prices soared. Korean contractors who carried out projects in the Middle East suffered earnings shocks because materials costs eclipsed earnings from the projects,” an industry insider said. In addition, the Middle East kingdom is simultaneously pursuing other massive projects, such as the development of its Red Sea coast and the construction of the world’s largest new airport.
Recruitment of manpower is also a big hurdle to clear. Construction manpower in Saudi Arabia alone cannot handle heaps of the construction work, and manpower must be imported from Southwest Asia or Southeast Asia. However, as can be seen from the West’s criticism of the World Cup in Qatar, accidents and human rights violations related to migrant workers in the Middle East are big issues that catch the attention of people around the world. Analysts say that if the NEOM City project goes into full swing, it will require more than 300,000 overseas construction workers.
It remains to be seen whether Saudi Arabia will keep the Neom City project moving forward as planned when oil prices fall. During a high oil price boom between 2012 and 2015, Saudi Aramco, the state-owned oil company of Saudi Arabia, placed orders for large-scale construction projects one after another, and Korean construction companies almost swept the orders. However, as oil prices fell, Saudi Arabia put most of the projects on hold and orders from the Middle East stagnated for several years afterward.
Meticulous risk responses will determine whether Neom City will become a project that surpasses Dubai, which has become a symbol of the Middle East, or it will follow the same path as the new city of Bismayah in Iraq, whose construction has been suspended. Nevertheless, most Korean construction companies agree that Neom City is an attractive project that they cannot afford to ignore.
