Saudi Arabia’s Lofty Tourism Goals Get A Reality Check

Saudi Arabia is investing an unprecedented amount of money in tourism, in an effort to diversify the economy away from oil. I’ve been watching this with great interest. Not only have we never seen such a large investment in tourism, but so many of the country’s projects look downright outlandish, like they’re not even real.

Will this investment pay off, and will Saudi Arabia actually see a huge increase in non-religious international tourism? Or will this all be a money pit that’s eventually abandoned? There have definitely been some signs that things aren’t going quite as planned, though at least officially, Saudi Arabia is still moving forward with its major projects. Along those lines, there’s an interesting update…

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Saudi Arabia’s NEOM development faces major challenges

The Wall Street Journal has published a fascinating story entitled “What Went Wrong at Saudi Arabia’s Futuristic Metropolis in the Desert,” about NEOM, which is Saudi Arabia’s single most ambitious tourism project.

This story provides a fascinating look at how the costs for these projects has apparently been soaring and their viability has been brought into question, all while the crown prince has been shielded from these realities.

The story is reportedly based on reviewing project documents, including internal audits, plus interviewing both current and former employees. Let me of course emphasize that spokespeople for the project suggest the story is “incorrectly interpreting” certain details, and that NEOM “champions excellence, professionalism, diversity and ethical conduct,” while declining to provide any further information.

In October 2024, we saw the official launch party for Sindalah, one of NEOM’s simpler projects. This party reportedly cost $45 million, with all kinds of A-list celebrities in attendance.

However, the project was three years late, and three times over budget, with hotels unfinished, and much of the site under construction. The crown prince even no-showed, with many viewing that as reflecting his disapproval. Weeks later, NEOM’s boss quit.

Looking at the big picture of the project, an internal audit report reportedly found “evidence of deliberate manipulation” of finances by “certain members of management.” For what it’s worth, McKinsey & Co. has been consulting on this project, with fees being paid to the company topping $130 million in a single year.

Here are some of the more interesting details, as I see it:

• NEOM is expected to be completed to its “end-state” by 2080, at a cost of $8.8 trillion, more than 25 times Saudi Arabia’s annual budget
• While a good portion of NEOM was supposed to be completed by the end of the decade as part of the country’s “Vision 2030,” this is now being referred to as a generational investment that will bear fruit in decades to come
• Apparently a lot of NEOM’s over-the-top architectural and design choices are because the crown prince is a big fan of video games and sci-fi movies, but this has made the project infinitely more complicated, as many of these developments defy physics
• “The Line” is NEOM’s most ambitious project, and apparently the initial architect wanted to express concerns about costs to the crown prince, but NEOM executives rejected his requests
• One way that executives tried to hide the increasing costs of these projects was to beef up profit assumptions, by fudging the internal rate of return figures; for example, a “boutique hiking hotel” was first planned with an assumption of nightly rates being $489, but that was increased to $1,866, to make the math work
• The person who oversaw the vision for NEOM told colleagues and McKinsey consultants in an email to “not proactively mention cost at all,” and someone was “removed after they challenged cost estimates,” according to an audit report
• When it comes to “The Line,” the initial plan was for it to be 10 miles and have nine million residents by 2030; now the goal is for it to be 1.5 miles by 2034

Let’s see how Saudi Arabia’s ambitions evolve

It’s anyone’s guess how Saudi Arabia’s tourism ambitions evolve over the coming years. I think at this point we can all agree that Saudi Arabia was way over ambitious in its projections, with “The Line” being the perfect example. We’ve gone from a 10-mile structure by 2030, to a 1.5-mile structure by 2034… and that’s best case scenario.

But how, specifically, will this evolve?

• Will Saudi Arabia keep at least publicly claiming that everything is going along full speed ahead, pretending everything is great?
• Will Saudi Arabia keep investing in these projects, but in a scaled back manner?
• Will Saudi Arabia eventually realize that this isn’t the best way to ensure a sustainable future, and just cut its losses and move on?

Saudi Arabia of course has a young and large population, at least compared to other Gulf countries. So it certainly has the ability to diversify its economy, and increasingly become a business hub in the region. However, would it maybe make more sense to invest in other areas, rather than trying to build its own version of the Maldives, endless beach resorts, etc.?

From a points perspective, it’s funny to me how there are now two Marriott Bonvoy properties in the Red Sea, including a St. Regis and Ritz-Carlton Reserve. The rates there are outrageously high, and based on everything I’ve heard, these properties are basically empty.

I had a reader stay at the St. Regis recently, and he said that only two other rooms were occupied. I… can’t decide if that sounds awful or amazing.

Bottom line

For years now, Saudi Arabia has been investing heavily in tourism, with hopes of diversifying the economy. Saudi Arabia’s tourism projects are futuristic, to the point that they’re unlike anything we’ve seen before.

However, not surprisingly, there are some challenges. These projects are consistently over budget, and in some cases, their viability is also uncertain. The crown prince has reportedly been shielded from a lot of these challenges, since he’s the one pushing for these projects, and those who have expressed concerns have been fired. Only time will tell how this evolves…

How do you see Saudi Arabia’s tourism ambitions evolving?