Saudi Arabia’s Public Investment Fund (PIF) has reported an $8 billion hit to its high-profile gigaproject investments in 2024, marking a rare setback for the kingdom’s flagship vehicle for economic transformation. While the fund’s total assets under management surged to nearly $1 trillion, the decline in these ambitious domestic projects underscores the growing financial strain from volatile oil prices and rising budgetary pressures.

Gigaprojects Under Pressure

The PIF’s portfolio of gigaprojects — massive, futuristic developments designed to reshape the Saudi economy — fell in value by 12.4% to about $56.2 billion by the end of 2024. These projects, once accounting for 8% of the fund’s assets, now represent just 6%. The writedown comes despite the overall growth of the fund, which saw its assets expand by 19% from 2023.

Flagship projects like Neom — a $500 billion mega-city planned in the kingdom’s northwest — have been hit particularly hard. Envisioned as a hub for innovation, renewable energy, and next-generation urban living, Neom has faced budget overruns, delays, and scaled-back ambitions. Sources familiar with the project’s operations point to logistical challenges, high construction costs, and slower-than-expected private sector investment as contributing factors. While the vision remains intact, the timelines and scope of certain phases have been adjusted in response to financial realities.

Oil Price Volatility and Fiscal Strain

The writedown coincides with a period of falling global oil prices, which remain the primary source of revenue for Saudi Arabia despite years of diversification efforts. A barrel of crude in 2024 traded well below the fiscal breakeven price the kingdom needs to balance its budget, deepening the deficit and limiting available funds for large-scale investments.

The PIF’s reliance on oil-linked revenues is twofold: directly through its holdings in Saudi Aramco and indirectly through government transfers fueled by oil earnings. Lower crude prices not only reduce Aramco’s dividend payouts but also diminish the government’s ability to inject capital into the fund. This financial squeeze has heightened the urgency for the PIF to seek alternative funding sources, such as issuing nearly $10 billion in public debt and $7 billion in private loans over the past year.

Economic analysts note that the PIF’s long-term investment strategy is being shaped by these oil market dynamics. While domestic diversification projects remain a priority, the fund has also been channeling capital into high-growth international sectors, particularly artificial intelligence, renewable energy, and advanced manufacturing. However, the share of international investments has fallen from 20% to 17% of the portfolio as more focus is directed toward national development goals.

Vision 2030 Ambitions and Challenges

The setbacks to gigaproject valuations highlight the delicate balance between ambition and financial sustainability in Crown Prince Mohammed bin Salman’s Vision 2030 plan. Launched in 2016, the initiative aims to wean the Saudi economy off its dependence on oil, create millions of jobs, and position the kingdom as a global leader in tourism, technology, and innovation.

Projects like Neom, The Red Sea Project, and Qiddiya were intended to be the crown jewels of this transformation. Neom alone is designed to feature multiple urban zones, including “The Line” — a 170-kilometer car-free linear city — and Oxagon, a floating industrial complex. The scale of these developments, combined with cutting-edge infrastructure requirements, has driven up costs significantly.

By 2024, however, it became clear that even Saudi Arabia’s deep pockets had limits. Global inflation in construction materials, higher borrowing costs, and cautious investor sentiment have all played a role in slowing the pace of delivery. In some cases, components of these mega-developments have been postponed, with resources redirected toward projects with faster economic returns.

Still, the PIF remains committed to these ventures, viewing them as central to the kingdom’s economic rebranding. Officials emphasize that while adjustments are being made, the long-term vision for these projects is unchanged. The focus, they say, is on ensuring that investments are sustainable, deliver tangible returns, and align with the broader objectives of Vision 2030.

A Balancing Act for the Future

The $8 billion hit has not derailed the PIF’s status as one of the world’s largest sovereign wealth funds. Its diversified portfolio — which includes stakes in global companies like Uber and Tesla, ownership of sports franchises such as LIV Golf and Newcastle United, and investments in renewable energy — gives it resilience. However, the scale of domestic spending needed for Saudi Arabia’s transformation means the fund will continue to walk a tightrope between ambition and fiscal discipline.

In the near term, oil market trends will remain a key determinant of the PIF’s investment capacity. With some industry forecasts projecting continued softness in crude prices, the fund may need to further prioritize projects, strengthen partnerships with private investors, and explore more innovative financing mechanisms. At the same time, strategic bets on emerging industries such as AI and green energy could provide new revenue streams less tied to the volatility of fossil fuel markets.

(Adapted from CNBC.com)