In a bid to explain the scale of the massive project he is overseeing in Riyadh, Jerry Inzerillo points through his office window at the forest of cranes towering over a construction site.
Around 80 are there now, but “we’ll have 275 cranes by 2027,” says Inzerillo. “Last year, we poured 500,000 cubic metres of concrete.”
The New Yorker, a veteran of the hospitality industry, is now chief executive of the $65bn Diriyah Gate project, a high-end, retail, residential and cultural development beginning to take shape on the outskirts of the kingdom’s capital.
Eventually, opulent villas and Michelin-starred restaurants will butt up against the remnants of a centuries-old village of mud houses that was the ancestral home of the ruling al-Saud family.
Diriyah is one of five so-called “giga-projects”, being developed by the Public Investment Fund that are deemed vital to Crown Prince Mohammed bin Salman’s “Vision 2030” drive to modernise the kingdom, reduce its addiction to oil revenues and project it on the global stage.
They have been at the core of a frenzy of activity led by the PIF that has transformed the once conservative kingdom into one of the world’s largest construction sites and a magnet for international consultants and contractors. In tandem, the PIF has been on a global spending spree as it has metamorphosed from a near-dormant state holding company into the oil-rich Gulf’s highest profile and one of its largest sovereign wealth funds, with $925bn of assets under management.
But after almost a decade of the frenetic pace, Saudi Arabia is entering a new phase — one that interviewees describe variously as a “recalibration” or “reprioritisation,” as a sense of realism and pragmatism takes hold. Government departments are being instructed to slash spending on consultants, while state-related entities are being forced to tighten their belts; some projects are being scaled back, or phased over a longer time period.
Officials are at pains to say the kingdom’s ambitions have not dimmed and that flagship developments, such as Diriyah, remain on track. Tens of billions of dollars are still being poured into projects and new industries; in July, Diriyah awarded $4.2bn in construction contracts to Saudi and Chinese contractors.
But there is a palpable shift in the narrative after eight years of breakneck activity and an unprecedented splurge in spending, with increasing talk of the need for prudence.
“The crown prince now is in a new phase and the new phase is ‘we’re in good shape everybody, but we have to be very, very mindful of how we’re spending, just in case’,” Inzerillo says. “So there’s not anything even remotely close to an austerity programme, but on your KPIs and your deliverables, there is no margin of error now. We have to spend the kingdom’s money responsibly.”
A confluence of factors have moved the government’s hand. A key one has been a decline in oil revenue as prices have softened from their years-long highs after Russia invaded Ukraine, while at the same time the world’s top crude exporter has cut its production by 2mn barrels a day in an attempt to prop them up.
But there are also concerns that the mass of construction could overheat the economy. Then there is simply the sheer scale of Riyadh’s — and the PIF’s — financial commitments.
A number of daunting hard deadlines have also been added to the highly ambitious Vision 2030 plans laid out in 2016, including hosting duties for the Asian football cup in 2027, the Asian Winter Games in 2029 and Expo 2030. It is also the sole bidder for the 2034 Fifa World Cup.
Now the all-powerful fund, which has committed to spending at least $40bn annually in the kingdom, is coming under pressure from the government to demonstrate returns, a PIF insider says.
“We don’t have unlimited money. We need to calibrate our spending more carefully,” the insider says. “Ultimately we are confident that Vision 2030 is on the right track, but we need to fine tune things a bit. That’s hardly a surprise given the phenomenal nature of this structural transformation.”
The “vision” was launched to great fanfare at the royal court in April 2016, just over a year after King Salman had ascended to the throne and appointed his favoured son Prince Mohammed to chair the PIF and head a powerful new economic development body.
It set a range of bold targets, including reducing unemployment, ramping up non-oil revenue through the creation of new industries and luring vast sums of foreign investment. “We have an addiction to oil . . . this is dangerous,” Prince Mohammed said at the time.
He tasked the PIF, overseen by his trusted lieutenant Yasir al-Rumayyan, with spearheading the domestic projects intended to shake up the lethargic kingdom, while also rapidly building up its international exposure as Riyadh displayed a previously unimaginable appetite for risk.
Over the next 18 months the fund announced itself to global investors, taking a $3.7bn stake in Uber, pumping $45bn in SoftBank’s Vision Fund and committing $20bn to a Blackstone infrastructure fund. In the kingdom, Prince Mohammed, who was named crown prince in 2017, unveiled his showcase domestic project — a futuristic, $500bn PIF-led development along the Red Sea coast known as Neom.
Myriad other schemes were announced related to tourism, sport, real estate and entertainment. Knight Frank said in a report last month that since 2016, Riyadh had announced real estate projects with a total value of $1.3tn, and awarded $164bn of contracts in the sector.
In tandem, the PIF has established 93 domestic companies, from a Saudi coffee entity to mortgage business, waste recycling and gaming firms, in the drive to create new industries, diversify the economy, and project the kingdom as a regional hub.
From the outset, Prince Mohammed has robustly driven the process, setting strict targets for executives and ministers and relentlessly scrutinising their progress — he is the hands-on chair of the boards of all the giga-projects, as well as many of the companies the PIF has set up.
He has also sought to control the narrative as scores of critics, activists, clerics and royals have been detained, leaving little public debate about the pros and cons of the projects and spending that has been undertaken.
Privately, some Saudis have long expressed scepticism about the value of the more extravagant projects, and concerns that the PIF is making risky bets, at home and abroad, with the nation’s oil surpluses.
But at the same time many Saudis have welcomed the efforts to develop the kingdom and a raft of social reforms, despite the deepening autocracy and shock over the grisly 2018 murder of veteran journalist Jamal Khashoggi by Saudi agents. Younger Saudis in particular point to new social freedoms, including the decision to allow women to drive, the push to get them into work, and the creation of entertainment options where few existed.
Over the past couple of years, unemployment has fallen to historic lows, while women’s participation in the labour force has soared past the 30 per cent target set for 2030.
Raising non-oil growth and non-oil revenue are core targets of the transformation plans and Riyadh has made progress in some areas, particularly tourism and entertainment.
Yet while there has been a rise in non-oil exports, at 24.2 per cent of non-oil GDP they are “well short” of the target of 50 per cent, according to Capital Economics. The kingdom has also struggled to attract the levels of foreign direct investment it is seeking, despite efforts to relax regulations and lure global companies.
Direct investment inflows were $12.3bn last year, according to Capital Economics, a stark contrast with Prince Mohammed’s target of $100bn annually by 2030.
In this context “there are more questions being asked, particularly as oil prices slide, around the PIF’s returns,” the insider says. “We cannot currently show decent returns given the nature of our investments.”
The insider says the PIF understood the finance ministry’s focus on “fiscal sustainability”, but adds, “our core argument is that if we put a brake on our investments then the whole Vision 2030 projects could stall, and no one wants that.”
The fund is also facing questions about overheating the economy through its project spending. The insider says there had been inflationary pressures in the construction sector, but argues that this is due to supply-side constraints as much as demand. Historic payment delays by the kingdom have put off many US and European contractors, which has led to tight labour supply in particular, he adds.
Inzerillo cites a consultancy report that predicted after Vision 2030 was announced, the kingdom would exhaust its domestic supply chain resources, including manpower, by the end of 2023.
In reality, he says, that happened in 2022, so “we had to start looking at what’s in the Gulf, the Red Sea” and elsewhere, creating an opening for foreign contractors, with the Chinese and Koreans “all over the kingdom”.
Despite having to manage inflationary pressures on the supply chain for construction, Inzerillo says Diriyah is “in very good shape”.
But an executive at a consulting firm working with government entities says many projects are not delivering on time or on budget. “There’s just a fundamental need to recalibrate,” the executive says. “I don’t have a sense that means any diminished ambition, only a bit of pragmatism and recognition of the complexities of delivering this.”
Consultancy firms, who flocked to the kingdom over the past decade, are among those feeling the pinch. Virtually every government department or state-affiliated entity has been using an army of consultants to produce strategies geared towards achieving the targets of so-called “Vision Realisation Programmes,” or VRPs.
“Everyone is tightening belts,” says another executive at a consultancy firm, adding that Neom’s spending on consultants has plummeted by 20 to 30 per cent over the past six months.
He adds that there is still a strong pipeline of work, but some of the smaller consultancies are enduring the pain. “There are some firms that rolled into town a couple of years ago and wildly spent on recruiting people and now find themselves struggling to get paid, to win projects, struggling to keep people busy and you have a bit of lay-off,” the executive says.
Economists agree that a change of pace was needed. The IMF “welcomed” what it described as a “fiscal space analysis exercise that led to the reprioritisation of projects and sectoral strategies”, as well as “the recalibration of investment spending”.
But in a nod to the lack of clarity on what it means in practice, the IMF added in a report last month that “making public the main impact of this exercise on Vision 2030 objectives would provide clarity on government priorities and anchor investors’ expectations”.
The IMF also hinted at the fiscal pressures, saying Riyadh’s current account surplus was expected to shift to a deficit from this year onwards, while warning that a decline in oil prices and strong imports to support the myriad projects would worsen the external position.
The year of conflict in the Middle East triggered by Hamas’s October 7 attack and Israel’s retaliatory offensive in Gaza, have also cast cloud over the entire Middle East and fears of an all-out regional war that could spill over into the Gulf.
Oil prices were hovering around $70 a barrel before heightened tensions in the region after Iran’s missile attack on Israel pushed them briefly past $80, while the IMF estimates that the kingdom needs crude to be at $96 to balance its budget.
The government projects a growing budget deficit over the next three years, increasing from nearly $27bn in 2025 to $37bn, or 3 per cent of GDP, in 2027, according to the latest released figures. In its pre-budget statement last month, the finance ministry said the 2025 budget would be slightly lower than the estimated spend this year.
Non-oil revenue has doubled since 2015, but the government still remains dependent on oil for almost two-thirds of its budget and more than 70 per cent of its exports earnings.
Yet with foreign reserves of about $428bn, assets held by the PIF, and a debt-GDP ratio projected to be around 27 per cent this year, economists say that Riyadh has a significant war chest to turn to, if needed. This year, the kingdom has been the biggest emerging market debt issuer, excluding China, raising about $44bn.
“In the short term, they’ve got a very strong balance sheet, so even if oil prices go lower they will take a hit, but they can handle it,” says a Gulf-based economist. “But if prices are cruising along at $60 a barrel rather than cruising along at $80, that makes quite a difference.”
A senior Saudi official says the kingdom has been transformed over the past eight years, “socially, culturally and economically” adding that its ability to deliver on future plans is not dependent on any particular oil price.
But he acknowledges the government will constantly evaluate its priorities. “The global and regional political and economic environment is also rapidly evolving . . . [and] we have projects with deadlines that did not exist at the outset of Vision 2030.”
Saudis supportive of the development plans also are also sanguine, viewing the change in pace as a natural step in a maturing cycle.
“The path can get a bit bumpy, so what? So you prioritise and delay a little bit. People do not appreciate some of the things that are happening here. You are activating new sectors, you are creating new sectors. It will take time,” says a Saudi executive. “If you want to make change it’s going to be painful, cost-wise and time-wise. The fact they have thought through the process gives me confidence.”
The PIF, he says, is going to have to reflect “what was right and what was not”.
None predict, however, that a change in pace will make Prince Mohammed park his ambitions.
As it prepares for the Asian winter games, the kingdom plans to develop a ski resort from scratch in the relative chill of mountains within Neom. For the football world cup, it has announced building a stadium elevated 350-metres above the ground to sit atop The Line, a futuristic, 170km-long linear city that is being developed in Neom. And there is already speculation about whether the kingdom will bid for the summer Olympics.
The Saudis’ conundrum, says Farouk Soussa at Goldman Sachs, is that weaning the economy off oil requires massive spending in petrodollars.
“The transition to a more diversified economy will be lengthy and costly and hugely dependent on oil revenues,” he says. “They have some way to go in that transition and the fear is that if they take their foot off the gas on the investments at this stage, they end up with an economy that doesn’t look that dissimilar to how it was 20 years ago.”
“They are in a rush, but it’s a very hard destination to reach, and its going to take more than just investment to get there,” he adds.
Data visualisation by Keith Fray
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