contributor perspectives

Nov 12, 2017 | 14:41 GMT

8 mins read

Saudi Arabia's New City Doesn't Have What It Takes

Board of Contributors
Jason Lopata
Board of Contributors
Viewers watch a promotional video touting Saudi Arabia's proposed new megacity, Neom, during an investment conference in Riyadh on Oct. 25, 2017.
Contributor Perspectives offer insight, analysis and commentary from Stratfor’s Board of Contributors and guest contributors who are distinguished leaders in their fields of expertise.
  • Despite the recent hype surrounding so-called new cities, the concept has ample precedent throughout history.
  • The challenge new cities face is attracting businesses and people to relocate there, either with government policy or with seamless connection to an existing economic center.
  • Saudi Arabia will probably struggle to meet these criteria and, by extension, to achieve its goals for Neom, the high-tech megacity it plans to build. 

With all the news coming out of Saudi Arabia over the past few weeks, it would be easy to overlook the announcement of the country's latest proposal for a new megacity. Crown Prince Mohammed bin Salman recently revealed his plan for a $500 billion project to build a brand-new, robot-powered metropolis that, according to a promotional video, "will change the way we live and work, forever." Neom, as the city is to be named, is in many respects like several other so-called new cities proposed or underway in Saudi Arabia and around the world. China unveiled a similar plan this year to turn land 100 kilometers (about 60 miles) south of the capital into a megacity, the Xiongan New Area, that is intended to serve as the new site of Beijing's nongovernmental functions. Not to be outdone, India's prime minister has launched the "Smart Cities" program, which aims to construct 100 new urban areas across the country. New cities are being promoted as the wave of the future.

Despite the name and the timing of these announcements, however, "new cities" aren't really so new. History is full of examples of governments and urban planners creating cities out of nothing, with varying degrees of success. A look back at the triumphs and troubles of new cities past sheds light on the prospects of future developments of the sort, including Neom.

Building for a New Political Landscape

Perhaps the most common and recognizable form of new city is the master-planned political capital. For countries with disparate and often competing regions and interest groups, founding a new national capital is a natural solution. If an established major city were named the capital, the government could be perceived to favor that city and its interests over those of other parts of the country. A new city, on the other hand, could serve as neutral territory among the nation's various interest groups. The strategy has a good track record. Washington, D.C., which came about as a compromise between the northern and southern United States, offers the most famous modern example. But the capitals of countries such as Brazil, Australia, Pakistan and Nigeria all arose from similar considerations. The presence of a national government in a city provides a strong growth stimulus for that place, provided the organs of government fully relocate there.

Governments develop the second kind of new city to slide around their own regulations. Countries may establish special economic zones — areas in which trade is more open — as a comfortable middle ground between strict government control over the economy and liberalization. For the leaders of states with heavily regulated economies, embracing free trade nationwide may seem like an invitation to economic and social upheaval. Special economic zones offer some benefits of global trade while minimizing the risks. Establishing the zones in existing major cities, however, would entail some of the same social and economic challenges that widespread liberalization would pose, and it could also give certain interest groups in the country an advantage over others. To avoid these problems, governments in this position often opt to develop new cities for special economic zones to mitigate the fallout on existing cities. 

Shenzhen, China, exemplifies this tactic. In 1980, the city — then a tiny market town with a population of 30,000 — became the center of China's first special economic zone, opened to facilitate more liberal trade with the international community. Today, Shenzhen is home to more than 10 million people, a prominent outpost in China's growing high-tech economy and the country's most successful new city. Much of its staggering growth owes to the specific economic conditions under which it was founded. One could argue that a more economically open zone in 1980s China ­— an enormous country whose reclusion was the only constraint on its latent manufacturing capacity — was bound to boom no matter its location. Absent these conditions, a special economic zone probably couldn't achieve the same results. Adding a zone with marginally more liberal trade regulations likely would yield only a marginal gain for countries that already have mostly liberalized their economies. By the same token, states without very much economic potential locked away under restrictive policies won't derive much benefit from creating a special economic zone.

Building for the Modern World

A third kind of new city has less to do with government and politics than it does with logistics. Many cities around the world sprang up long before the dawn of modern business, and, as a result, they are ill-suited to the demands of today's industries. Older cities are often overcrowded, hard to navigate, and short on the physical space and amenities modern companies need for their day-to-day operations. Building a new city nearby offers a way to alleviate these problems while also relieving some of the population pressure on the established urban hubs. In India, the city of Delhi has undergone this process at least twice in its history: New Delhi formed in the early 20th century to ease the crowding in Old Delhi, and in the late 20th century, the city of Gurgaon developed with a similar goal in mind. Shanghai's Pudong district is an archetypal example of this pattern. Located just across the river from historic Shanghai, Pudong provided the modern amenities — and impressive skyline — the city needed to thrive in the 21st century.

The practice of building new cities to complement or upgrade existing ones isn't limited to the developing world, either. Many European capitals have added modern high-rise business districts, such as Canary Wharf in London and La Defense in Paris. Dozens of master-planned regional subcenters, such as Century City and Irvine, sprouted up across the Los Angeles area in the latter 20th century, seeking to supplant and improve on the old urban core. Many advanced economies have gone even further and largely "redeveloped" their traditional urban cores, flattening what was there and rebuilding to improve the areas for modern business.

Putting Neom in Context

Of these three strategies, Saudi Arabia's plan for Neom most closely fits the third. The kingdom's megacity is meant to be a modern environment built to accommodate the modern world more effectively than its other urban centers can. I recently spoke with Shirish Patel, an experienced Indian urban planner and one of the chief architects of Navi Mumbai, about how to develop such places. By the 1970s, Bombay, as it was then called, was running out of room to build adequate housing and transportation infrastructure, situated as it is at the tip of a long, narrow island. Patel and his colleagues decided to build a well-planned new metropolis, Navi Mumbai, across the bay from the old city center to extend and ultimately supersede it.

During our conversation, Patel identified three key conditions that are critical for a new city to be successful, if it's not planned as a political center. First, a substantial number of business operations must move there. Second, the new city must offer convenient transportation to a vibrant established economic area, facilitating the transfer of business activity. Finally, a special regulatory environment could help make the new place more attractive to people and companies. Navi Mumbai struggled to achieve these fundamental goals, though the city generated enough revenue to finance its construction. The bridge and high-speed ferry proposed to connect the old and new Mumbai never materialized; businesses kept the bulk of their operations back in the old city, moving mainly back offices to Navi Mumbai. And while the government provided some incentives to draw residents and businesses across the bay, it neutralized that effort by continuing to encourage development in the old city center.

Considering what it takes for a new city to thrive, Neom's chances for success look dim. Saudi Arabia is not planning to move its capital to the new development. A special economic zone around Neom would do little for the city's prospects, since the kingdom’s economy is already mostly open to the world. Furthermore, Neom will be located far from the other cities in the country, meaning it won't be able to lean on their economies very much as it works to build its own.

Given the factors working against it, Neom's best hope is that major domestic and international businesses relocate there. The Saudi government may try to cajole the country's companies to set up shop in the city. But what will encourage the rest of the world's businesses to move in? Most multinational corporations currently maintain their regional headquarters across the border in the United Arab Emirates. Persuading them to uproot their operations from the neighboring state, with its established cluster of business and financial hubs, its comparatively liberal society and its relatively warmer ties with the region's Shiite communities, will be a steep task for Riyadh.

A new city called Neom may well come to fruition in some form or another. The odds are slim, however, that it will live up to its promises as a sprawling urban landscape 33 times the size of New York City, spanning three countries and pioneering nine different cutting-edge industries. Contrary to what the promotional video touts, Neom will probably never become the "place where we can prepare together for the next era of human progress." Nevertheless, it will provide a valuable lesson to future city builders.

Jason Lopata writes on topics related to globalization and urban development. He has a background in land use consulting and has served on the Business Team of Los Angeles Mayor Eric Garcetti. Mr. Lopata received his bachelor's degree from Stanford University and completed programs of study at the University of Oxford and UCLA's Anderson School of Management.

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