Thursday, May 30, 2024


Dhaka Tribune

Why are the Gulf states ‘buying up’ Egypt’s coastline?

  • A $35 billion investment into Egypt is being celebrated as a turning point for the country’s struggling economy
  • Experts are asking whether it will really change anything
  • Skeptics are wondering why it’s happening now
Update : 10 Mar 2024, 09:00 AM

It has been described as a “turning point” in the worst economic crisis Egypt has dealt with in decades. The country is hugely indebted and suffering from a shortage of foreign currency, which has led to damaging inflation and rising prices that many ordinary Egyptians are finding hard to handle.

But last week, Egyptian leaders announced that the United Arab Emirates (UAE) would invest $35 billion directly into the Egyptian economy, mostly via a construction project at Ras al-Hikma, a Mediterranean peninsula near the city of Alexandria. It is thought to be the biggest such investment in Egypt’s history.

The first tranche of money has already been deposited. Much of this came from cash the UAE already held in Egypt’s central bank. The rest is expected to arrive within two months, according to Egyptian officials.

The deal's impact and the release of the first tranche of funds from the central bank had an impact almost immediately, improving Egypt’s financial position in various ways.

The deal will also make it easier for Egypt to fulfill conditions the International Monetary Fund (IMF) set. Egypt and the IMF are in the final stages of negotiating another multibillion-dollar bailout, likely worth over $10 billion, to stabilize the Egyptian economy.

The IMF’s conditions for a deal involve devaluing the Egyptian pound to align it with the real exchange rate, as opposed to that set by the government, and to privatize state assets further. Basically, this means taking them away from the all-powerful Egyptian military and selling them to private investors.

And there are rumors of another similar deal coming soon. These suggest Saudi Arabia will invest a further $15 billion into a Red Sea tourist destination, Ras Gamila.

Egyptian economy needs more than ‘fancy new beach resort’

Not everyone has been so enthusiastic about the deal. This investment project is just part of a pattern, said Hossam el-Hamalawy, an Egyptian researcher and activist now living in Germany who writes a regular newsletter on Egyptian politics.

“[Egyptian President Abdel Fattah] el-Sissi has been borrowing left, right and center for years, to complete megaprojects that satisfy his irrational economic decisions,” said el-Hamalawy. “And he is always counting on the fact that he will get bailed out by regional or international powers because of the notorious saying, ‘Egypt is too big to fail’.”

The Egyptian government “has squandered past injections of cash with extraordinary speed,” added Timothy Kaldas, deputy director of the Washington-based Tahrir Institute for Middle East Policy. “An injection of cash buys Egypt temporary investor confidence. But what is key for long-term confidence are serious reforms and a clear sign from the country’s leaders that they are using this opportunity to change course [...] it will take more than a windfall and a fancy new beach resort to rebuild [that],” he told DW.

El-Hamalawy and others have also pointed to protests by Ras al-Hikma residents who are threatened with displacement once construction starts. One of the UAE’s sovereign investment funds, ADQ, will be in charge of this project and has said work will begin in early 2025. Environmental standards are also a concern in this coastal area, according to critics of the plan.

At the moment, the idea that Egypt is “too big to fail” is particularly compelling. The nation is under political and economic pressure due to the ongoing conflict in Gaza. Fighting there has meant important income earners for Egypt, like tourism and shipping through the Suez Canal, have been throttled.

Nobody wants to see public unrest in Egypt due to an economic collapse right now. “With the ongoing Gaza war and the civil war in Sudan, the stability of Sissi’s regime has become a paramount concern for his allies, even if this means allowing it to avoid much-needed [economic] reforms,” political commentator Maged Mandour wrote in an op-ed for online publication Middle East Eye earlier this week.

Gulf states engaging in ‘bailout diplomacy’

So how are the incoming UAE billions connected with conflict in Gaza and the potential IMF deal?

The coincidence is “somewhat striking” and the US, one of the IMF’s main backers, has been known to use the financial agency to punish or reward foreign allies, said Hasan Alhasan, an expert on Middle East policy at the International Institute for Strategic Studies. However, the heads of the IMF as well as senior Egyptian and Emirati officials have all said the $35-billion deal has nothing to do with any of that, the Bahrain-based analyst noted.

But it does have to do with a decades-long tradition of wealthy Gulf states engaging in what Alhasan and others call “bailout diplomacy.”

This can be defined “as the practice of disbursing large packages of financial or in-kind assistance to bail out states facing financial or economic crises [and] has been a key instrument of Gulf foreign policy since the early 1970s,” Alhasan and Camille Lons, a visiting fellow at the European Council on Foreign Relations, wrote in a 2023 research paper on the topic.

“These recent deals speak to a broader trend in Gulf bailout diplomacy,” Lons told DW. “The Gulf states have been bailing out the Egyptian economy since the 1960s and it’s the country that has received the largest share of direct budget support, at least $108 billion.”

Recently, both she and Alhasan agree, this practice has changed somewhat.

“We have tracked a greater appetite on the part of the Gulf states to leverage the influence they gain through bailout diplomacy to securing preferential access to state-owned assets that are being privatized,” Alhasan explained.

Deals not transparent

Gulf states now own Egyptian companies that operate ports, are involved in petrochemicals and in the financial and retail sectors, as well as a series of historic hotels. The newly announced deals are another aspect of this, said Lons.

Alhasan said the most recent UAE deal, as well as the rumored Saudi one, likely have to do with all of the following: it’s a good investment because Gulf states realize they might never get their loans to Egypt back; they know Egypt is too big to fail; and they’re aware the Gaza conflict is putting more pressure on.

But there are some significant differences with this latest UAE investment, Alhasan told DW. “There is more money at stake and the timing is more concrete,” something that has not often been the case.

“[The timing] seems to be an indicator that this might come to pass,” he suggested. “But again, things can go wrong, oil prices can shift and you may see a change in the appetite for investment in the Gulf. It’s certainly an important announcement, but so long as we haven’t seen all of the details of the deal, we need to be circumspect about how likely it is that the full deal happens.”

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