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Egypt has signed a large agreement that promises to transform its current economic condition, marking a critical milestone in the country’s path to economic recovery. Egypt and the United Arab Emirates (UAE) reached an agreement that Egypt’s Prime Minister Mostafa Madbouly described as the largest in the country’s history. The agreement focuses on the development of the Ras El-Hekma.
Recently, the UAE chose to spend $35 billion in Egypt’s economy. The transaction has since been touted as the largest foreign investment Egypt has ever received.
In light of this report, here are five critical aspects about this major transaction.
1. Economic recovery
For more than a year, Egypt has been dealing with a persistent economic crisis. As a result, this agreement is primarily aimed to end the country’s greatest foreign exchange crisis in decades. In January, Bloomberg reported that Egypt’s economic troubles appeared to be increasing due to its credit outlook being lowered to negative from stable by Moody’s Investors Service. The country’s currency continued to drop on the black market. This new contract is intended to address these difficulties. The Egyptian pound currently trades at 30.90 per dollar on the official market and 60 on the illicit market.
2. Two-Part deal
The UAE’s $35 billion investment in Egypt has two components. The first is the UAE’s $24 billion acquisition of investment rights in Egypt’s Ras El-Hekma project, while the second is a $11 billion direct investment in the economy through the construction of other big projects.According to Wamda Capital, Ras El-Hekma is a next-generation tourism city with a free zone and an investment zone that combine residential, commercial, and recreational spaces.
3. Fund’s source
The Abu Dhabi wealth fund ADQ plans to pay $24 billion for the Ras El-Hekma development rights. However, Egypt will keep a 35% share in the Ras El-Hekma project. The ADQ will also make accessible the remaining $11 billion, which is expected to arrive from UAE funds deposited at the Central Bank of Egypt.
4. Project’s objective
As previously stated, Egypt’s fundamental reason for this investment is to support its economic recovery and growth. The fund aims to assist Egypt align its official currency rate of E£30.90/US$1 with the black market rate of E£60.0/US$1. However, the UAE has a specific business goal, which is to seek $150 billion in investment for the project.
5. Timeline
The UAE is likely to make upfront payments in two tranches. The first should be a $15 billion payment within a week. A third of the payment is expected to come from UAE deposits at the Egyptian Central Bank. The remaining $20 billion is scheduled to be disbursed over the next two months. This $20 billion tranche will include $14 billion in new finance and $6 billion from the UAE’s residual deposits. The Ras El-Hekma development is set to begin in 2025.
On a side note, according to the Financial Post, “Egypt’s foreign bonds surged on the news to become the best-performing sovereign debt in emerging markets on Friday. The government’s dollar notes due in 2051 jumped a record 5 cents on the dollar.”
In retrospect, the agreement is expected to assist Egypt in proceeding with a much-anticipated currency devaluation, the fourth since early 2022.
