Grand Neom vision is unrealistic, but politically useful

In this setting, he has just hosted a prominent guest. Mohamed bin Salman, Saudi Arabia’s powerful Crown Prince, came to Egypt and promised further support to el-Sisi. The two leaders pledged to establish a $ 10 billion fund that will promote infrastructure development and urbanisation near Sharm el-Sheikh, the Red Sea resort at the southern tip of the Sinai peninsula. Saudi Arabia will lease Egyptian land there and invest in the projects.

For Egypt, a poor nation with 95 million people but no natural resources, this undertaking looks very promising. Seen from the other side of the Red Sea however, it is only a small part of a much bigger project. MbS, as the crown prince is commonly called, wants to build a new high-tech mega city which will be called Neom. Investments worth an estimated $ 500 billion will be needed. The new agglomeration is supposed to reach into the territory of Egypt and Jordan. It will include two uninhabited islands in the Red Sea that el-Sisi has conceded to Saudi Arabia some time ago.

The vision is grand. MbS wants Neom to become a hub of industry and commerce, attracting financial institutions as well as manufacturing and tourists. On the one hand, Neom is supposed to become something like a special economic zone (SEZ), where the laws of Saudi Arabia do not apply, so it will be easier to foster businesses and attract investors. On the other hand, however, the zone will not have the competitive advantage that SEZs normally rely on at first. If, as planned, Neoms economy is to be marked by innovative robots and advanced information technology, labour costs cannot be low. The obvious reason is that robots and computers will do a lot of the cheap work.

Experience tells us that an SEZ can be very successful. In South China, Shenzhen grew from a small fishing village to an industrialised mega city of some 10 million people within a few decades. Economists have studied this example well. Initially, garments, toys and other low-tech items were made there, but in the meantime Shenzhen has become a centre of the electronics industry.

Experience also tells us, however, that it is close to impossible to start a high-tech hub in the middle of nowhere. The reason is that high-tech companies need high-tech services. Otherwise, it is hard to solve sudden, unforeseen problems, which are sure to arise when taking innovative approaches. This is why hubs of high-tech industries typically grow in near established urban centres where physical and social infrastructures – from power supply all the way to research intensive universities – are firmly in place.

Silicon Valley, for example, has always benefited from the strong infrastructure of the San Francisco Bay area. And it is no coincidence, of course, that Shenzhen is close to Hong Kong and Guangzhou. Neom will not have that kind of an economic environment. The vision is bound to fail.

At the moment, I doubt that either el-Sisi or MbS worry much about whether the Neom vision is realistic at all. They promote the vision because it makes them look strong and confident.

Both el-Sisi and MBS know that the viability of Neom will not be critically assessed by their nations’ media. Their governments strictly limit the freedom of expression. MbS is eager to show off his modernising ambitions. The Neom scheme serves that purpose. For el-Sisi, Neom does not matter that much. Ever since grabbing power in a military coup in 2013, el-Sisi’s regime has depended on Saudi Arabia’s financial support. The new urbanisation fund for the Sharm-el-Sheikh area is only the latest instalment.

From el-Sisi’s point of view, however, Neom does have a downside. Some patriotic Egyptians were upset when the two islands mentioned above became Saudi Arabian territory. All in all, however, el-Sisi probably thinks that attracting Saudi money for improving infrastructure on the Red Sea coast probably does more to boost his standing – not least, because Egyptian media are not going to emphasise the islands.