Mohammed bin Salman envisions a new kind of Saudi Arabia, or at least the opening of a space complete with yoga studios, beach resorts, and robots in place of migrant laborers. This is the image of Neom.  

Market Watch Blog AGSIW | Karen E. Young | Oct 26, 2017

Crown Prince Mohammed bin Salman envisions a new kind of Saudi Arabia, or at least the opening of a space complete with yoga studios, beach resorts, and robotsin place of migrant laborers. This is the image of Neom, the $500 billion master project to develop an over 10,000 square mile swath of land in the northwest corner of Saudi Arabia on the shores of the Red Sea, adjacent to Egypt’s Sinai Peninsula and southern Jordan. The crown prince unveiled Neom, to be investor owned through an initial public offering on a yet to be named exchange, on October 24 in a slick presentation of the possibilities of an undiscovered Saudi Arabia, a kind of Saudi manifest destiny. A promised land to be shaped by new leadership and technology, its most important attribute is the ability to attract foreign investment and it is billed as “the world’s most ambitious project.” Neom is either overly ambitious or calibrating expectations early on.

Gulf economic development patterns tend to rely on state-planned cities, or sites of massive new infrastructure and real estate investment. These are the ultimate master-planned communities. As scholars of new Gulf urbanism have detailed, megaprojects that create knowledge systems as well as urban architecture have maximized the presence of state institutions and state power, at the expense of public space and vibrant civil society. Part of this logic is the belief that growth, both economic and societal, is best managed from above and in new, pristine environments.

The Gulf investment in Egypt’s new capital was one such plan in which foreign investment was deployed to reshape a regional ally, reorienting its economic trajectory. The results have been disappointing. Even with an influx of Chineseinvestment, the capital city has not made much progress, especially in its promise of new low income housing. Meanwhile, Cairo’s older densely populated neighborhoods need basic utility service delivery, garbage collection, and more than all else, job opportunities outside of the state and military’s dominance.

It is no coincidence that both Saudi Arabia and China have leaders who are consolidating power with visionary doctrines of domestic economic growth, paired with political aspirations for regional and international leadership. The new global capitalism is looking very much state-led, and powered by growth in new financial centers of the “global south.” As a new McKinsey Global Institute report argues, “Financial globalization is broadening as developing economies—with China at the forefront—become more connected.” The new global economy will be centered as much in hubs and connections between developing countries, as in old economy centers like New York and London.

China was the top foreign investor in the Arab world in 2016, committing $29.5 billion of investment, according to Kuwait’s Arab Investment and Export Credit Guarantee Corp. The United States trailed far behind at $7 billion. Chinese investment in new Gulf ports like Duqm in Oman also follow the logic of state-led growth and master community investment models in which new, unpopulated sites can be centers of growth. The limitation is that Chinese investors will bring their own laborers to build infrastructure, and their own related companies will act as suppliers and service providers to new manufacturing and industry. China’s rising stakes in Middle East, particularly Gulf, investments and megaprojects are a converging trend of mobile capital and state-directed economic development policy.

In the Gulf, Neom is the domestic vision of economic development for a new Saudi Arabia. Foreign investment makes it possible but the Saudi state seeks to control the vision. Riyadh is hosting the Future Investment Initiative conference, where the project was unveiled, in an effort to introduce a new Saudi Arabia to the right peoplein global finance, but also to establish Saudi Arabia’s centrality in the Arab world and beyond, as a center of finance and regional power.

In a series of high-profile gatherings, Saudi Arabia is inviting the world in, from the expansion of financial news coverage to hosting major diplomatic summits complete with pageantry. There is a sharp departure from the isolated and iconoclastic Saudi Arabia of the past. The meteoric rise of Mohammed bin Salman is the embodiment of the immediacy of the kingdom’s challenges. Saudi Arabia needs to change quickly; it must transform the structure of its political economy and its engagement with the rest of the world.

Tied to the economic agenda is a very thorny political issue: the role of religious authority. Mohammed bin Salman is tackling religious extremism head on as the first Saudi public official to formally recognize the impact of the 1979 Iranian Revolution on Saudi domestic politics – in its empowerment of the Sahwa movement to define the kingdom as the heart of political Islam and define that practice in very strict terms and enforce it among all Saudi citizens. The crown prince has taken a great risk in this acknowledgment, saying the past 30 years in Saudi Arabia were “not normal,” with the implication that a return to a normal relationship between the religious establishment and the state would entail a rebalance toward government authority. Most of the world wants him to succeed in this rebalancing, both within Saudi Arabia and in the extension of Saudi religious influence abroad. Neighboring states in the Gulf, especially the United Arab Emirates, want to see a stable Saudi government that recognizes the demands of a young population for economic mobility, international legitimacy, and quality of life.

To achieve these visions and ambitions set forth by Mohammed bin Salman and his father, the king, there is a larger trend emerging. In those states that seek to challenge the global order and reshape their regional spheres of influence and their international positions of power, there is an important centralization of authority and decision making underway. In China and Saudi Arabia, the visions of economic growth, however, exist almost separately, as parallel projects that actualize the state’s power to build in the interests of the nation, but with little citizen input. A major challenge will be incorporating Mohammed bin Salman’s target audience – young Saudis – in this aspirational vision.

Megaprojects like Neom require buy-in from international finance as well as states in the international system. Saudi Arabia’s transformation signals a larger shift in how economic development, and global capitalism, are done. The state’s role is paramount. Individual leaders are centralizing authority. Capital is directed at state programs, but benefits will have to meet the needs of the domestic population.

This article was originally published by the Arab Gulf States Institute in Washington (AGSIW)

Dr Karen E Young is a former senior resident scholar at the AGSIW. She is a resident scholar at the American Enterprise Institute in Washington and a senior advisor at Castlereagh Associates.