Saudi Arabia's Vision 20-30 plan began its life in 2016 as a
white paper. It was a fairly dull document,
filled with a combination of management speak and religious
references, and it wouldn't shock me if I'm the only person
to have read it in full, other than maybe the people who wrote
it. It's the kind of document that's
written so that people can point at it in meetings, but no one
actually reads anything other than the table of contents.
The white paper sets out a goal for Saudi Arabia to become a
global investment powerhouse, to transform the country into a
global hub, which it describes as an epicentre of trade and the
gateway to the world. I don't really know what they
mean by a gateway to the world or who's outside the gate and
where they even are. None of that's explained.
But as I said, I'm not really sure anyone was meant to read
it. There's a bit in there about
improving fiscal health by cutting government spending, a
bit about the need for less onerous business regulations.
It says that they plan on expanding the variety of
government digital services so that they can reduce delays and
cut tedious bureaucracy. There's talk of wide-ranging
transparency and accountability, and of the need to measure the
performance of government agencies and hold them
accountable for any shortcomings.
In many ways, it's a bit like Dodge, but without the jumping
around and of course, the saluting.
Next up, there's a section on living healthy and being
healthy. It says that there aren't enough
sports facilities in Saudi Arabia and that this needs to
change. It says that they'll encourage
widespread and regular participation in sports and
athletic activities so that Saudi Arabia can be amongst the
leaders in selected sports both regionally and globally.
There's a bit about improving schools, a bit about equal
opportunities, you get the idea. A fairly standard government
document saying that while the country is great, these are the
areas we plan on improving over the next 10 to 15 years.
There's no mention in the 2016 white paper.
A building, a 110 mile long city, an upside down skyscraper,
a ski resort in the desert, an Octagon shaped industrial
complex floating in the Red Sea. There are no robot dinosaurs,
artificial moons, flying cars or beaches that glow in the dark
like the face of a watch either. Like I said, it's fairly dull.
Surprisingly, the document reflects on the mistakes made in
developed the King Abdullah Financial District, a Saudi mega
project that had started 10 years earlier and was by 2016
plagued by delays and a lack of enthusiasm from potential
tenants and investors. The white paper points out that
the biggest mistake was that the King Abdullah Financial District
had been started without consideration of its economic
feasibility. They explain that its challenges
were deepened by the fact that it had been developed in a
single phase which pushed up construction costs and could be
partially blamed for a lot of the delays.
They highlight that this massive development resulted in a large
oversupply of commercial space and then renting out the
3,000,000 square meters of built up areas at reasonable prices or
even achieving decent occupancy rates would be extremely
challenging. They finish up by saying that
their commitment is clear, that they'll seek to eliminate waste
and make spending more efficient.
They quote a Quranic verse. I won't read it out to you, but
it calls for moderation. The white paper was authored by
Mohammed bin Salman, who's known as MBS.
He was the deputy Crown Prince, Minister of Defence and
secretary general of the Royal Court at the time.
A year later, the Saudi king decided to depose his nephew,
who had been next in line for the throne, and replace him with
his son MBS, who became the de facto ruler of the Kingdom of
Saudi Arabia. In October 2017, MBS announced
the first plans to build a new city, Neon, promising a
lifestyle not available in today's Saudi Arabia.
He told the press that the new city would be powered by clean
energy and would have no room for anything traditional.
Other than that there were no real details.
At the time no room for anything traditional was interpreted as
meaning a Dubai style city with a few solar panels and
windmills. Today we all recognize the term
no room for anything traditional as meaning that you plan on
drilling a huge hole into the ground to build an upside down
skyscraper. Along with other non traditional
ideas like robot dinosaur parks and a giant artificial moon that
will live stream images from outer space.
Now, I'm of course very positive about this idea, but the Wall
Street Journal came out with an article this week discussing
some of the difficulties being faced at Neon.
Now, a few viewers of my earlier video accused me of only being
positive about Neon because I'm afraid of being murdered and
dismembered, but I'm not even slightly worried about that.
I've been in hiding over the last year for entirely different
reasons, and anyhow, no one's out to get me anymore.
They told me that if I hid an air tag in the pocket of and
Tumi's trench coat that I'd be off the hook.
And so everything is fine now anyway.
As a fan of non traditional architecture and the TV show
Grand Designs, I was delighted to see the Saudi Vision 20-30
plan transform from a bit of rezoning and government cost
cutting to hiring a Marvel Studios concept artist to design
an impossible to build 30 story high chandelier because the
Prince likes The Avengers pictures.
According to the Wall Street Journal piece, the Crown Prince
compared the project to the Egyptian pyramids.
And in truth, when compared to the pyramids, NEOM is quite a
success as no one lives in the pyramids today either and the
pyramids don't have sustainable flying cars or a Hyperloop.
But you don't see anyone writing hit pieces called What Went
Wrong at Egypt's Futuristic Pyramids in the Desert.
If you're a fan of innovation and technology, you'll
definitely love neon. According to Reuters, they plan
to use personal data as a currency.
The data will be collected from smartphones, homes, facial
recognition cameras, and multiple other sensors around
the city. Apparently, the data sweep will
help the developers predict and customize every resident's
needs, according to The Wall Street Journal and after
spending more than $50 billion, The crown prince's sci-fi
inspired dreams of an arid mountain ski resort, a floating
business district and a 106 mile long pair of Empire State
Building height skyscrapers that's neon centrepiece have
collided with reality. They say that costs have soared,
delays are ubiquitous, and the decision last year to reduce
Neon's first phase threatens to deprive the desert city of the
critical mass of inhabitants needed to make it a modern
business hub. Now, first up, the Wall Street
Journal are understating the ambition of the line.
It's not going to be as tall as the Empire State Building.
The Empire State Building is only 381 meters tall.
The line is going to be 500 meters tall.
I mean, there'd be no point in building a long narrow city with
a Hyperloop underneath and gene editing facilities if it was
only as tall as them. Empire State Building.
And anyway, the line was initially budgeted to cost $200
billion to build. And according to the images
online, they've already dug a big hole in the sand.
And that's probably the hardest part of the job.
Once you've dug the hole, all of the other stuff like the 106
mile long building, the flying cars, and the artificial moon
are easy. I think they're most of the way
there. Basically, some people are
saying that it'll just be another fancy place for rich
people to live, but the great thing is that it'll all be
affordable housing as. Think about it, if you can house
9 million people at a cost of $200 billion, that's just
$22,000 per person. Where else can you live so
affordably? Oh sorry, hold on.
If you keep reading, it says that they now expect it to cost
$8.8 trillion, which is it's a bit more and they've downscaled
the size of the project too. Apparently $8.8 trillion is 25
times the Kingdoms annual budget.
Well, I still think that it's great.
And as I mentioned in the last video, they've scaled the size
of the line back a little bit. Instead of building 106 mile 500
meter tall building, they at first reduced it to 10 miles and
then to a mile and a half by 20-30.
Which still involves constructing the equivalent of
all of the office buildings in Midtown Manhattan three times
over in the next 5 years, according to the Wall Street
Journal, which the articles says would require a significant
portion of the world's available steel and glass.
OI, guess I can see why you might not build a full 106 miles
all at once. They have already dug some of
the hole, which is a big deal, and I guess it's actually pretty
smart of them to scale it back. As if you remember, the original
white paper pointed out that it had been a mistake building the
King Abdullah Financial District in a single phase as it flooded
the market with unused office space that was impossible to
rent out if they build a modestly sized building.
Something equivalent to three times the square footage of all
of the buildings in Midtown Manhattan.
That should be much easier to rent out.
The article says that some of the cost overruns are due to the
fact that they're building these mega projects in the middle of
nowhere, meaning that there's virtually no labor, no sizable
port, few roads, and insufficient electricity.
And, and yeah, I can see how that would make construction
difficult, but the article then goes on to say that the design
involves an amusement park built 1000 feet in the air with
theatres suspended between parallel towers, and that's just
going to attract people. Construction workers love
amusement parks. I figure as soon as the
amusement park is built, people will rush to get construction
jobs in the region so that they can go to the amusement park
after work. And just to be clear, for all
the negativity in the Wall Street Journal, there are all
sorts of new projects being added all the time.
There's some sort of Japanese dragon themed amusement park
being built, There's A50 hectare E sports and video game
facility, whatever that is, and a royal palace, which should be
nice. This article from last month
says that you can even get some sort of experimental brain
implant tested on you at Neon, which will probably only hurt
for a while. The article says it'll allow you
to control external devices, which are thoughts.
You probably have to put one of those wireless phone chargers
under your pillow to charge it up.
Who knows? The article says that former
managers and executives at Neon told the Wall Street Journal
that some of the projections were completely unrealistic, but
the plans were pushed ahead regardless.
Apparently the executives made the project work on paper by
beefing up profit assumptions. So it seems to me that they have
a spreadsheet which says it'll work.
They've all of those CGI graphics showing the buildings.
They spent $50 billion digging the hole, probably doing some
research on how to get the giant moon thing and the glow in the
dark sand working. So there's no reason to believe
that this won't work. They also had a big opening
party in October. Will Smith, The Fresh Prince, he
was there. Tom Brady, the guy from the FTX
commercials, he turned up to Alicia Keys.
She attended. Come on.
You know Alicia Keys, She had that big song about 25 years
ago. She's not going to get involved
in a failing project. Come on, you.
You remember her? She was hired as the creative
director of BlackBerry back in 2013.
You remember that? Back when everyone was ditching
their iPhone to buy a BlackBerry.
Yeah, her. It says that the party alone
cost $45,000,000, so it was probably a good party.
It was to open Cindela, which is one of the Neon projects.
It's an island with some restaurants, hotels, shops and a
yacht Marina. They probably should have
invited the island boys if that's who you really want at an
island opening party. There were a few hitches, I
guess. Apparently the hotels were
unfinished. High winds disrupted ferries and
golf, and much of the site was still under construction.
But other than that, I bet it was great.
It says in the article that the Crown Prince wanted the project
to achieve an internal rate of return of 9%, which is Matt
Levine at Bloomberg points out, is significantly higher than the
standard wild vanity project rate of negative Infinity.
According to the Wall Street Journal, an internal audit that
they got access to found evidence that Neon executives,
with assistance from McKinsey consultants, used overly
optimistic financial projections to justify surging costs.
The audit cited deliberate manipulation of figures by
certain members of management. One example is that at the
planned ski resort, the audit found that costs had surged by
over $10 billion, which caused the IRR, or internal rate of
return, to fall below the projects target return rate.
And that sometimes does happen when you spend $10 billion more
than you planned on spending. To cover the gap, the nightly
cost of camping, which they describe as glamping at the ski
resort, was adjusted up from $216 per night to $704.00 per
night in the spreadsheets. Now, I've never gone on a desert
ski resort camping trip, and I don't judge you if you have.
But it's my belief that a huge wave of human effort was
required to get us to a state where we sleep indoors and have
access to modern plumbing, heating and air conditioning.
And I feel that if we start paying hundreds of dollars to
sleep outdoors on holiday, it would just be disrespectful to
my ancestors and all of the effort they went to to get us
where we are today. Now, I'm going to guess that
glamping is a bit better than camping, as otherwise they'd
just call it camping. But $704.00 per night does sound
a bit expensive for glamping in the middle of nowhere to me.
But I'm fairly sure that I'm not the target customer, and so if
you have desert ski resort glamping experience, let me know
in the comments section if that's the standard rate.
In another example, the price of a boutique hiking hotel room was
marked up to $1866 per night from $489 a night.
Once again, I don't know what a boutique hiking hotel room is,
but I'm guessing it doesn't come with a parking space one way or
another. These adjustments help to push
the projects IRR up to 9.3%, which is above MBSS target of
9%. That's really the The great
thing about spreadsheets is the same way that you can design any
building you want in CGI, you can achieve any IRR that you
want in a spreadsheet. It it always works.
According to the Wall Street Journal, officials tried to
shield MBS from the harsh realities, too.
An e-mail revealed that one of the managers told consultants
that we must not proactively mention cost at all before a key
meeting. So look, not everything's going
well at Neon, but they do have plans to get things back in
line. Officials mothball digging an 18
mile tunnel through a mountain to cut costs.
The head of the country's wealth fund suggested cutting costs by
using new technologies to reduce the labour force.
So maybe AI robots? From what I've read it might be
a struggle to get wage costs a whole lot lower.
Neon CEO stepped down in November after an ITV
documentary alleged that 10s of thousands of foreign workers had
died working on the project. The current plan is to open the
first half mile section of the line, topped by a football
stadium to host World Cup matches by 2034.
The development lead told an audience in January.
Will start to go vertical, hopefully at the end of this
year. Saudi officials say that neon
will eventually attract private investment, but so far that's
not happening. Investors so far remain wary,
concerned about the scale and complexity of the projects.
Many pulled their money out of Saudi Arabia after the murder of
Jamal Khashoggi in 2018, too. There are some winners, however.
According to the Wall Street Journal, consulting giant
McKinsey and company is reportedly earning more than
$130 million annually for its services.
A McKinsey spokesperson denied any allegations of wrongdoing
and told The Wall Street Journal that the firm has strict
protocols to prevent conflicts of interest in their
engagements. Thanks for tuning into this
week's podcast. If you found it interesting,
please tell a friend as that will help the podcast grow.
Have a great day and talk to you again next week.
Bye.