Saudi crown prince's $500-bn desert dream: Flying cars, robot dinosaurs

Saudi Arabia's crown prince turned to US consultants for help imagining a massive new city-state in a barren section of his kingdom

This seaside corner of northwest Saudi Arabia is so barren that the only abundant resources a group of consultants could identify were sunlight and “unlimited access to salt water.”

But Saudi Crown Prince Mohammed bin Salman didn’t see a wasteland when he landed in his helicopter here a few years ago. He saw the future— and hatched a plan for a $500 billion city-state to cover 10,000 square miles of rocky desert and empty coastline to attract the “world’s greatest minds and best talents” to the world’s best paying jobs in the world’s most livable city.

They’ll fly drone taxis to work while robots clean their homes. Their city will supplant Silicon Valley in technology, Hollywood in entertainment and the French Riviera as a place to vacation. It will host a genetic-modification project to make people stronger.

These ideas are laid out in 2,300 pages of confidential documents by consultants at Boston Consulting Group, McKinsey & Co. and Oliver Wyman that The Wall Street Journal reviewed, and discussed in interviews with people involved in the project called Neom, a portmanteau of the Greek word for “new” and the Arabic word for “future.” The documents, dated September 2018, offer the most detailed look inside Neom and its planning since the project was unveiled in 2017.

Tasked by the crown prince, known as MBS, to help turn his imaginary city into a reality, the consultants created an expensive mix of science fiction and corporate buzzwords interrupted by uncomfortable realities: Local tribes would be forcibly relocated. A court system developed by law firm Latham & Watkins and labeled “independent” would have judges reporting directly to the king, and operating under Shariah law, or Islamic jurisprudence. 

“This should be an automated city where we can watch everything,” Neom’s MBS-led founding board said, according to the documents—a city “where a computer can notify crimes without having to report them or where all citizens can be tracked.”

Neom’s board has adopted the consultants’ recommendations, the documents show. The consulting firms and Latham declined to comment on the documents, which were completed before MBS’s underlings allegedly killed journalist Jamal Khashoggi last fall, according to Saudi officials. Former Neom employees and people familiar with the project say they don’t know how much of the plan will become reality due to potential funding issues and technological limitations.

The Saudi government didn’t respond to a request for comment on the plans for Neom. 

“Neom is all about things that are necessarily future-oriented and visionary,” Neom Chief Executive Nadhmi al Nasr said in an emailed statement. “So we are talking about technology that is cutting edge and beyond—and in some cases still in development and maybe theoretical.” He said that construction is under way. The first projects include an airport and a resort, Neom said in a statement. The government has also built a palace at the site.

Neom is the centerpiece of MBS’s effort to transform an insular, oil-dependent kingdom into a country with an outward-looking, diversified economy. Rather than relying on petroleum revenue to fund purchases from foreign countries, MBS has said he wants Saudi Arabia to produce goods and services that Saudis currently buy abroad. He has proposed Neom as a Massachusetts-sized area with auto factories, hospitals, tech companies and resorts to keep Saudis spending domestically.

But the plan to spend $500 billion building Neom from scratch, rather than investing in existing Saudi cities, reflects the kingdom’s long-standing problems as much as MBS’s ambitions. Foreign companies have long avoided investing there due to an opaque legal system, corruption, and social strictures banning alcohol and requiring women get a male relative’s permission to travel. MBS found those structures so entrenched that it was easier to develop a new city than to change existing ones.

“Starting Neom from scratch, with independent systems and regulations, will ensure the availability of best services without social limitations,” he said at Neom’s first board meeting, according to the documents.

Neom is the biggest, and most ambitious, in a series of futuristic cities that Gulf leaders have developed to help diversify away from oil dependence. In the United Arab Emirates, Dubai and Abu Dhabi have become major commercial hubs, as has Qatar’s capital, Doha. 

Building Neom will require money Saudi Arabia doesn’t have. The country has recently run budget deficits, and MBS has committed to bets like a $45 billion investment in a Softbank Group Corp. fund. The kingdom has used money borrowed from abroad to fund Neom’s first stages, according to people familiar with the matter.

Neom’s reliance on foreign consultants reveals another deeply entrenched challenge. As a young nation without a single university until 1957, Saudi Arabia historically lacked expertise in planning, engineering and management. It turned to foreign experts like McKinsey, which has worked in Saudi Arabia for more than 40 years. McKinsey increased its Saudi staffing by acquiring a local consultancy called Elixir in 2017.

Recently, the reliance on foreigners has been a sensitive topic for the Saudi government and its international partners, according to government officials. In 2017 the government detained Elixir’s founder—a McKinsey partner—during a corruption crackdown. He was locked up and beaten over the course of a year, the Journal previously reported, before being released without explanation. McKinsey and the Saudi government have declined to comment on the case.

Government officials—including MBS, say people who’ve spoken with him recently—have questioned whether the kingdom pays Western consultants more than they’re worth. Neom in a statement said the consultants have not used this project as an opportunity to run up the bills from Saudi Arabia. “The involvement of consultants has been productive and valuable,” it said.

The Neom documents illustrate the broad scope of the consultants’ work. In addition to recommendations on urban planning, economic, legal and regulatory systems, McKinsey details using “big data” - the use of computers to sift through volumes of information - and a “13-pillar liveability framework” to quantify how much people would like living in Neom and objectively prove it’s the world’s most livable place.

The planning documents are also awash in leaps of faith. Neom aims to have “zero work/stress-related diseases,” with residents working at startups or companies like Amazon.com Inc., which Saudi officials are trying to lure with incentives like free energy and subsidized labor, according to the planning documents. An Amazon spokesman declined to comment. Residents’ children would be schooled in the “leading education system on the planet,” with innovations like “hologram faculty.”

Though Neom is surrounded by desert, it will have many farmers markets. Temperatures will be cooler than Dubai, the documents say, and moderated by “cloud seeding” to make it rain. Because they live in the city with the “highest GDP per capita,” the documents say, a resident could indulge in a fancy dinner; Neom aims to have the “highest rate of Michelin-starred restaurants per inhabitant.”

To keep Neom safe, cameras, drones and facial-recognition technology will let Saudi intelligence services track everyone. “Everything can be recorded,” the founding board declared. Neom planners have talked with International Business Machines Corp. about building facial-recognition software, say people familiar with the conversations. IBM said it wasn’t planning to bid for contracts related to facial-recognition technology at Neom and declined to comment on other potential work related to the project.

Neom in a statement said the project is about “technology in all sectors such as mobility, livability, health and medical, all of which will ensure we are providing the most attractive living environment on the planet.”

A major goal is to attract large Western companies. Neom’s board in 2017 suggested guaranteeing Tesla Inc. billions in annual government purchases in exchange for Tesla moving automotive production to Neom —and giving the kingdom a stake. Saudi Arabia’s sovereign wealth fund last year spent $2 billion to buy 5% of Tesla. CEO Elon Musk later said he was taking Tesla private with the help of Saudi Arabia, but subsequently reversed himself and said he didn’t plan to do that.

MBS also wants Neom to host innovations like the “Apollo” project with Softbank, which will create “a new way of life from birth to death reaching genetic mutations to increase human strength and IQ.” Softbank declined to comment.

One potential reward for foreign companies is an investment fund that will commit money to businesses “that can contribute to Neom’s vision and future,” the Neom spokesman said, “either by locating their headquarters there or selling goods and services in Neom.”

Officials have asked foreign companies to invest in Neom as a condition for getting contracts, say people involved in those talks. One person involved in making such offers to IBM and other companies became concerned about whether the proposals were unethical, this person said.

Neom in a statement said its governance standards help “ensure the fair and competitive award of services.” IBM declined to comment.

One surprising element in conservative Saudi Arabia is a proposal to allow alcohol, say people familiar with the plan. With borders encompassing land acquired from Jordan and Egypt, Neom would function largely as a separate country. That allows MBS to argue that Western norms like drinking and bare female heads won’t be introduced to the land of the Muslim holy cities of Mecca and Medina.

To develop Neom, the Saudi government plans to forcibly relocate more than 20,000 people, many whose families have inhabited the area for generations. One Boston Consulting Group relocation plan said that would take until 2025. Urged by MBS to move quickly, the date was moved up to 2022.

Residents here say they’ve heard only rumors. Some say relocation would be devastating. “You are dismembering an entire society. For us, it’s like death,” said one.

Weeks after Neom was announced in 2017, residents visited regional governor Prince Fahd bin Sultan to ask whether they would be moved. He said he couldn’t help, according to the residents. Prince Fahd’s spokesman didn’t respond to questions.

Boston Consulting Group consultants advised following World Bank standards for forcible relocations. The board decided that perhaps some residents could stay if they’re retrained to have Neom-appropriate skills. “Relocating residents in the interest of public works projects is not uncommon in the Kingdom,” the Neom statement said. People will receive compensation and benefits including a scholarship program to “gain the skills necessary to be part of the Neom vision,” it added.

Neom began about four years ago, says a person familiar with the matter, shortly after MBS’s father became king. Mulling how to overhaul the economy, the prince pulled up a map of his country on Google Earth and saw its northwest quadrant was a blank slate, according to this person.

He flew there and found a place where summer temperatures top 100 degrees, but nearby mountains get snow in the winter. In a January 2017 Neom board meeting, MBS made his ambitions clear: The prince “envisions Neom the largest city globally by GDP, and wanted to understand what he can get with up to 500 billion USD investment,” according to the planning documents.

Hoping to build a bridge across the Red Sea, MBS arranged with Egypt’s president to acquire two uninhabited islands, sparking protests from thousands of Egyptians. And he got a message to Israeli leaders feeling out their reaction to Neom. They said Israeli companies could sell technology to Saudi Arabia for the project, says a person familiar with the matter.

The government of Israel didn’t respond to a request for comment. The Egyptian government couldn’t be reached for comment.

To deliver his vision, MBS in 2017 hired Klaus Kleinfeld, who had been fired as CEO of Arconic Inc., a spinoff of aluminum maker Alcoa Corp. And costs rose. Since the bridge to Egypt couldn’t follow MBS’s route due to a seismic fault, reengineering brought the bridge’s estimate to $125 billion, according to a person familiar with the matter.

A Kleinfeld deputy’s recommendation to develop a master plan for Neom’s streets frustrated MBS. “I don’t want any roads or pavements. We are going to have flying cars in 2030!,’” the prince said, according to a person who reviewed meeting minutes. Mr. Kleinfeld and the deputy left Neom last year.

Mr. Kleinfeld, the Saudi government and Neom declined comment. 

Another challenge is what the legal system of this new city should look like. Latham found Saudi Arabia’s opaque, unpredictable and religious-based justice system presented “red flags” to foreign investors, according to the planning documents. It suggested a new structure in which all judges will be appointed by—and report to—the king. They, like the regular Saudi judges, will comply with Sharia law, planning documents show.

“Neom law will be based on best practices in the areas of economic and business law, as well as feedback from potential investors and residents,” Neom said in the statement to The Wall Street Journal.

Construction on Neom is under way using thousands of foreign workers that in one section of the development were housed six to a tiny room as of June 17. Earlier this year, MBS issued a decree about an area called Silver Beach. “I want the sand to glow,” he said, according to two people familiar with the project. Engineers haven’t figured out a safe way to do it.

Each night, he told underlings, a fleet of drones should create the illusion of a rising moon—crescent, half, full. “That’s what he wants this future to be,” a former executive said.

To make that happen, Boston Consulting Group suggested partnering with NASA to make the fake moon “the biggest in the world.”

Source: The Wall Street Journal