Israeli companies talking to Saudi Arabia about $500b. ‘Smart City’

Ties remain under the table, as long as impasse with Palestinians continues.

Ex-MK and venture capitalist Erel Margalit at the JOURNEY Conference
When Saudi Crown Prince Muhammad bin Salman announced on Tuesday a $500 billion “Smart City” project to be located a few kilometers from Eilat, he mentioned establishing a joint economic zone with Jordan and Egypt, omitting one country wedged in between.
A number of Israeli companies are talking to the Public Investment Fund of Saudi Arabia about developing the proposed 26, “Smart City” zone, The Jerusalem Post has learned, a blow to the decades-long Arab League boycott of the Jewish state. The sovereign wealth fund is owned and controlled by the Saudi state.
Nicknamed NEOM – from neo (new in Latin) and the first letter of “mostqabal,” an Arabic word meaning “future” – the “Smart City” would host hi-tech companies working in a range of fields, including solar energy, water, biotechnology, robotics and food technology, all of which are fields where Israeli start-ups and firms are more established than competitors in Arab countries.
Due to the diplomatic sensitivity of the project, no Israeli company could go public with details of the contact with the Saudi fund, which has some $230b. in assets under management, according to Reuters.
“The Saudis are not so willing to cooperate with the Israelis formally, but when a VC [venture capital firm] is coming from the private sector, it’s much easier to create all kinds of cooperation on water, energy, ag-tech, foodtech. This is the stuff that the prince of Saudi Arabia wants to promote in the smart city,” said a source in Israeli venture capital who is familiar with the project.
The Post has seen correspondence between Arab diplomats and Israeli businessmen confirming that talks are ongoing over economic cooperation, and a number of Israeli companies are already selling cybersecurity tools to the Saudi government.
Many of the Israeli companies would be able to publicly operate – and the Israeli government could openly cooperate with Saudi Arabia, Jordan and Egypt – if a diplomatic breakthrough with the Palestinians were to emerge, said an Israeli businessman who is intimately familiar with the Smart City project.
In the meantime, the Israeli firms will be forced to operate under the table as they compete for billion-dollar contracts.
The zone is adjacent to the Red Sea and the Gulf of Aqaba, and close to the Suez Canal, a major shipping terminal. Picked to run the NEOM project is Klaus Kleinfeld, the former CEO of American aluminum manufacturer Alcoa Inc. and previously CEO of German engineering company Siemens AG.
To build a multibillion-dollar smart city that’s run on renewable energy and manned by robots, the Saudi government would need technological expertise, and it might be impossible to rely entirely on domestic companies.
That’s where Israeli companies could step in.
Addressing the annual JOURNEY business conference in Tel Aviv on Wednesday, ex-Labor MK and founder of JVP venture capital fund Erel Margalit spoke about economic opportunities for Israel in the Smart City project.
“What politicians don’t understand: things don’t happen unless there are business opportunities,” said Margalit, who earlier this year visited a number of Arab Gulf countries to discuss economic cooperation with the Jewish state. He stepped down from the Knesset some two weeks ago, after losing the primary to lead the opposition Labor Party.
“There’s a lot of discussion with Arab businessmen and political figures; most of these discussions are very quiet and private,” Margalit told the Post. “The fact that [Prince bin] Salman came up with this announcement to call for cooperation on a regional level... it’s giving Israelis an opportunity to speak in the name of regional economic cooperation through the concept of innovation.
This is going to be the biggest drive of change in the region.”
Margalit also spoke about proposed joint-infrastructure projects between Israel, Jordan, Egypt and Saudi Arabia, specifically building an airport with four terminals, allowing passengers to disembark and travel to any of the four countries. That would be on hold until Israel reaches a peace agreement with the Palestinians, he added. The Jordanian-Israeli peace treaty in 1994 included plans for a joint airport near Aqaba and Eilat, but that never materialized.
“Governments need to be informed; they don’t always lead. You need to build a business plan that’s very concrete and that has the interest of many investors and companies, which will compel the politicians to open their eyes and ears,” Margalit said.