Electronic Flies Target Kuwait for Refusal to Fund MBS's NEOM — What's the Story?

New international media leaks confirm that Saudi Arabia has asked Kuwait for a loan exceeding $16 billion to fund projects, including NEOM, due to declining foreign investment in the project and businessmen's reluctance due to its lack of profitability.

On April 4, 2024, Bloomberg highlighted a setback in Crown Prince Mohammed bin Salman's plan to raise $100 billion in foreign investment by 2030, as experts found the goal unattainable at present.

The report explained that despite the kingdom's burning through money, as the report put it, it is intensifying efforts to attract more foreign funds. Hence, it requested $16 billion from its neighbor Kuwait for the NEOM project.

NEOM is a Saudi project to build a smart city in the desert, launched by bin Salman on October 24, 2017. Located in the far northwest of the kingdom, in the Tabuk Province's Duba City, it stretches 460 km along the Red Sea coast and has faced numerous setbacks and investment reluctance, especially with "The Line" project to build a high-speed train.

Then, on April 5, 2024, Bloomberg reaffirmed that the kingdom might scale back its NEOM 2030 project plans.

Did Kuwait Reject?

The kingdom has not officially announced requesting a loan from Kuwait, and Kuwait has not announced rejecting any loan to Saudi Arabia. However, what Bloomberg published, quoting sources, and the ensuing exchange between Saudi and Kuwaiti activists indicate the news seems accurate.

Analysts speculate that the Kuwaiti parliament would reject this loan if offered for investment in NEOM, as they view it as an economically failed project, conflicting with Kuwait's policy of not providing unsecured loans.

Saudi anger toward Kuwait began to surface, with Saudi cyber activists and media directing their content to attack Kuwait.

Saudi tweeters began to hint at Saudi Arabia spending $50 billion to repatriate Kuwaitis after the former Iraqi President Saddam Hussein's invasion, implicitly demanding the return of this amount.

Activists anticipate upcoming clashes between Saudi and Kuwaiti tweeters in the coming days.

Al-Estiklal newspaper noted the launch of another Saudi campaign led by activists and media personalities that does not refute Bloomberg's report about a Kuwaiti loan to Saudi Arabia. However, it promotes it as an "invitation for investment rather than a request or a loan."

Others viewed Bloomberg's mention of the loan as "a complete fabrication and untrue," stating that the report by the American agency is "paid for" to disrupt Saudi projects and cast doubt on them.

Analysts perceive Kuwait's refusal to provide a loan to Saudi Arabia, along with Saudi electronic campaigns against Kuwait, as indications of a potential campaign, conflict, and perhaps even a Saudi blockade against Kuwait, similar to what occurred with Qatar previously, which ended with the retreat of the blockade states.

On February 12, 2024, Kuwait announced a new policy to cease providing grants and loans without linking them to achieving economic or political benefits, following Saudi Arabia's earlier declaration of reviews in this framework.

The Kuwaiti Foreign Minister stated that his country "intends to review the way it provides assistance to Arab and developing countries through the Kuwaiti Fund for Arab Economic Development."

Kuwait's arrears to some countries amounted to 163.5 million Kuwaiti Dinars ($535 million), including 146 million Kuwaiti Dinars ($477.8 million) owed to Arab countries and 17 million Kuwaiti Dinars ($55.63 billion) to other borrowing countries.

To maintain the same level of financial flows for these costly projects, the kingdom resorted to "a tool it had avoided in recent contracts, borrowing," alongside selling shares in the giant oil company Aramco, according to The Wall Street Journal on February 20, 2024.

Aramco concluded two debt deals in early January 2024, offering bonds worth $12 billion, and a few weeks later, the Public Investment Fund separately sold another $5 billion in bonds.

The kingdom's debt is expected to reach 26% of GDP by 2024, after dropping to its lowest level at 1.5% a decade ago.

The Saudi Central Bank's foreign exchange reserves are around $400 billion, down from $700 billion in 2015.

Tim Callen, a researcher at the Institute of Gulf States in Washington, noted that the kingdom is forced to borrow due to the sheer number of projects, which he called "mind-boggling."

Callen affirmed to Business Insider on February 21, 2024, that Saudi Arabia may need to raise another $270 billion for the Public Investment Fund by 2030.

Phantom Projects

Bloomberg slapped the Vision 2030 projects with embarrassing evidence and numbers for the government, describing them as insanely expensive plans and hinting that Riyadh has begun begging Kuwait for billions of dollars to fund its projects.

The American agency considered Mohammed bin Salman's investment in Lucid Motors, an electric vehicle company, one of his riskiest bets, confirming that this investment consumes Saudi money to stay afloat and the project does not yield significant returns, increasingly draining funds.

This company received $1 billion in funding from the government and $5.4 billion from the Saudi Public Investment Fund.

Lucid serves as an example of foreign companies investing in Saudi Arabia's economic transformation plan, Vision 2030, valued at trillions of dollars.

However, Lucid's need for Saudi money is a sign that the country's rushed attempt at innovation is being paid for with Riyadh's own money, as the kingdom heavily relies on its oil wealth to lure companies.

Bloomberg emphasized that signs have emerged indicating that achieving partial goals of Vision 2030 is currently far-fetched, prompting foreign investors to be cautious.

The Saudi government's late review prompted it to recalibrate its approach, initiating the downsizing of giant projects designed to reform its economy in order to address the financial deficit it had not anticipated.

Mohammed bin Salman's ambitions included involving foreign investors in financing projects such as NEOM ($500 billion) and Qiddiya ($1 trillion) to transform remote areas into carbon-neutral and robot-filled zones.

However, he failed to raise the necessary capital, resulting in these projects being fully funded by the Public Investment Fund at exorbitant expenses, necessitating their review and downsizing, with some being canceled, such as the Hyperloop project — the high-speed rocket train that failed.

Between 2017 and 2022, the average annual inflow of foreign direct investment into the kingdom was slightly over $17 billion.

Preliminary data for 2023 indicates that foreign direct investment is below target, at around $19 billion, according to a statement issued by the Ministry of Investment in March 2024.

A Bloomberg report on April 5, 2024, confirmed that Saudi Arabia is scaling back its ambitions for NEOM 2030 by about 75%.

It explained that the kingdom has scaled back its medium-term ambitions for developing the desert in NEOM, the largest project within Crown Prince Mohammed bin Salman's plans to diversify the oil-dependent economy, according to people familiar with the matter.

It mentioned that the Saudi government once hoped for there to be 1.5 million residents living in The Line, a futuristic city sprawled across the desert, planned to be contained within mirror-clad skyscrapers by 2030.

However, Saudi officials now expect the project to accommodate less than 300,000 residents by that time, according to a person familiar with the matter.

The plans to downsize The Line come at a time when the kingdom's sovereign wealth fund has yet to approve NEOM's budget for 2024, indicating that the financial realities of investments worth trillions of dollars are beginning to raise concerns at the highest levels.

The "Are Saudi Arabia's Oil Riches Enough to Realize Neom?" report by Surface Mag on March 27, 2024, mentioned growing concerns about whether the country's wealth is sufficient to realize Mohammed bin Salman's entertainment plans.

It noted fears that Saudi Arabia is spending too much on extravagant projects, leading to depletion of its cash reserves, especially with the cash in the Public Investment Fund declining by three-quarters to $15 billion, its lowest level since December 2020.

To continue spending on Mohammed bin Salman's projects, the government resorted to borrowing and planning to sell large amounts of state-owned shares in Aramco, which is the cause for even greater concern.

The magazine cited experts predicting that Vision 2030 projects would be scaled back or postponed due to significant financial pressure on the kingdom's budget and increasing spending on Mohammed bin Salman's plans, to which he continues to add new projects.

A report published by Business Insider on February 21, 2024, pointed out that future giant projects in Saudi Arabia are extremely costly, to the extent that its oil wealth may not be sufficient.