The Abu Dhabi Developmental Holdings, a sovereign wealth fund based in the capital of the United Arab Emirates (UAE), has announced plans to invest $2 billion in Egypt by buying holdings in a number of state-owned enterprises.
Around half of the money will be used to buy about 18 per cent of Commercial International Bank, with the rest going to fertiliser and port services companies.
According to a statement from the Egyptian government, Qatar stated on March 29 that it would invest another $5 billion “in the future time” in a range of ventures and partnerships in Egypt.
The two sides agreed to form a joint higher committee led by their foreign ministries to carry out the accord.
According to Egypt’s Minister of Planning, Hala Elsaid, the proposed investments will be held by the Qatar Investment Authority, the country’s sovereign wealth fund.
Saudi Arabia was next on the list a day later. According to the Saudi Press Agency, Riyadh stated on March 30 that it has deposited $5 billion in Egypt’s Central Bank. On the same day, Egyptian Prime Minister Mustafa Madbouly announced that Egypt expects to attract up to $10 billion in investments from Saudi Arabia in the coming months, according to a Cabinet statement, after witnessing the signing of an agreement to facilitate the Saudi Public Investment Fund’s activities in Egypt.
The offer of $22 billion from Gulf governments, made in a matter of days, comes at a time when Egypt is in the midst of a serious financial crisis that has been exacerbated by Russia’s invasion of Ukraine and continuous global economic turmoil. In this context, the Gulf’s help is likely to at least temporarily neutralize some of the country’s most pressing imbalances and weaknesses, albeit at a high cost.
“The new announcements of support are [substantial] in the context of Egypt’s external financing needs, Central Bank of Egypt reserves and past support,” Krisjanis Krustins, director of Sovereigns at Fitch Ratings, said. “Besides shoring up investor confidence, [Gulf] support will directly inject foreign exchange into Egypt’s economy and financial system, reducing the need for borrowing on the international markets.”
For decades, the Gulf countries have played a significant role in Egypt’s economy. But it was after the ascension of current President Abdel Fattah al-Sisi to office in 2013 that its financial assistance, which consisted of billions of euros intended primarily at bolstering an ally government, took on a new dimension. Following a 2016 agreement between Egypt and the International Monetary Fund (IMF), which included a $12 billion loan subject to reforms and the admission of bond investors, the weight of this support lessened. Cairo had to appeal to the IMF in 2020 to deal with the economic shock caused by the coronavirus pandemic, getting two further loans.
Despite all of this help, Egypt’s economy has yet to fully recover, and it remains extremely vulnerable to foreign shocks. Even before Russia’s invasion of Ukraine, Egypt was experiencing a worrying capital flight, which was mainly blamed on the global economic crisis. According to a recent assessment by Fitch Ratings, $5 billion departed the country between September and December 2021. Hundreds of millions of dollars have left the country’s treasury markets since the start of the war as investors seek safer havens. Egypt’s immediate liquidity needs are exacerbated by the early maturity of a significant percentage of its debt, according to Fitch Ratings.
The war in Eastern Europe has also harmed Egypt’s tourism industry, which is one of the country’s most important sources of foreign cash, and it has pushed up prices of essential commodities like wheat and oil, on which the country is highly reliant. Egypt’s budget deficit is expected to be high this year as well. The central bank also said on April 7 that its net international reserves fell to $37 billion in March, down from nearly $41 billion at the end of February, marking the lowest level since mid-2020.
“Egypt has one of the highest debt burdens in the world, one of the highest shares of government revenues going on [debt] interests and one of the highest shares of government interest payments as percentage of the gross domestic product [GDP],” said Charles Robertson, global chief economist at the frontier investment bank Renaissance Capital. He said, “This $22 billion support from Qatar, the UAE and Saudi Arabia is a very big deal. It’s 4% of the GDP and it covers the current account deficit of Egypt.”
The announcements of financial support came after Sisi’s tour of several Gulf states in the first months of the year. The Egyptian president initially traveled to the United Arab Emirates, where he met with UAE ruler Mohammed bin Zayed Al Nahyan and Bahrain’s King Hamad bin Isa Al Khalifa. Sisi visited Kuwait in February. He also hosted Al Nahyan in the Egyptian city of Sharm el-Sheikh in March after a trip to Saudi Arabia. The tour’s purpose, according to government sources cited by the independent Egyptian online daily Mada Masr, was to establish direct financial cooperation agreements, particularly with Riyadh.
