Mon, Mar 18, 2024 page9

• What does the UAE get for its US$35 billion investment in Egypt?

  • By Mirette Magdy, Ziad Daoud and Michael Gunn / Bloomberg
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  On a clear winter’s day earlier this year, those living on the vast Egyptian headland of Ras El-Hekma who looked up from the dun-colored scrub would have seen an aircraft circling the sky. Far above, locals were told, top United Arab Emirates officials were taking a special interest in one of the Mediterranean coast’s last great wildernesses.

  Weeks later, on Feb. 23, Egypt’s premier and the UAE’s investment minister stood before TV cameras at the inking of a US$35 billion deal that includes turning that same location into the next big thing in global tourism. Billed as the largest foreign investment in Egypt’s history, it likely saved the ravaged economy and may have averted another major crisis in the Middle East.

  The UAE’s deliberations before deciding to invest — as relayed by more than a dozen diplomats, officials and other insiders — show how the Gulf power is using its deep pockets to turn a buck while building its political sway. Deploying a sum equivalent to 7 percent of its GDP, the UAE is displaying a combination of financial strength with geostrategic aims that demonstrates a push for a key role in shaping events in the region and beyond.

  The investment should also be seen as a signal of intent at a time when Abu Dhabi is jockeying for influence with Gulf powers Saudi Arabia and Qatar, with US influence waning as the Israel-Hamas war rages, presenting new challenges in a part of the globe key to energy production and supply lines.

  The jury is out on how fruitful the UAE’s gambit will be.

  For Egypt, historically the Arab world’s beating heart and its most populous country of about 105 million people, the benefits were immediate. Within days of Abu Dhabi depositing cash, authorities devalued the pound and months-long IMF talks ended with a US$8 billion loan deal. Egyptian President Abdel-Fattah al-Sisi said he had balked at touching the currency until then for reasons of “national security.”

  About 24,000km away in the Persian Gulf, UAE President Sheikh Mohammad bin Zayed Al Nahyan had given the go-ahead with a short-term goal of shoring up a country that was at the center of the 2011 uprisings that unseated regimes across the region, people familiar with the decision said, who asked not to be identified. Egypt was too important a player to be allowed to fail.

  “The exacerbation of the economic challenges in Egypt is not in the interest of the UAE,” said Ebtesam al-Ketbi, head of the Emirates Policy Center, an Abu Dhabi-based think tank. The goal is to ensure stability and avoid a return of Islamist groups such as the Muslim Brotherhood that thrive in times of upheaval, she added.

  That wider imperative to shore up Egypt — also a core transit country for migrants to Europe — is underlined by EU plans for an aid package worth about US$8 billion, including energy and the Suez Canal Economic Zone. European Commission President Ursula von der Leyen was due in Cairo yesterday.

  The idea of developing the Mediterranean coastline did not fall out of the sky. Egyptian authorities had long-standing plans for Ras El-Hekma, although those were superseded when serious talks with the UAE began last summer, people familiar with the matter said.

  The timing of the deal, its size and the speedy delivery of the funds surprised financial markets and even the IMF. The fund, which was widely expected to be Egypt’s main supplier of emergency funding, was unaware of the discussions until much later on, three others said, who asked not to be identified discussing commercially and politically sensitive matters.

  Abu Dhabi’s investment was gargantuan, even by UAE standards; a smaller sum would likely have kept Egypt afloat. The US$24 billion for Ras El-Hekma’s development rights and US$11 billion for other projects is equivalent to Egypt’s entire foreign reserves in February. For ADQ, the wealth fund leading the deal, it would represent about 17.5 percent of its total assets under management.

  Egypt’s track record with megaprojects is spotty at best. A showpiece new administrative capital that has been taking shape in the desert east of Cairo since 2015 added to its debt woes. Boasting Africa’s tallest tower and the country’s biggest mosque and church, it has struggled to secure foreign investment and sees few visitors beyond those staffing its shiny new government ministries. It has yet to be given a name.

  The UAE is already heavily invested in Egypt, with support flowing since Russia’s invasion of Ukraine exposed long-standing risks in the North African nation’s debt-ridden economy. In a series of deals since early 2022, ADQ became the biggest shareholder in two of Egypt’s top three listed companies — Commercial International Bank and Eastern Company, the country’s main cigarette maker. It is working closely with the third — the Talaat Moustafa Group — whose chairman has become a key middleman in both the Ras El-Hekma deal and the sale of state-held stakes in some of Egypt’s most famous historic hotels. While the country’s economy languished and the currency lost two-thirds of its value in two years, Talaat Moustafa’s shares have almost tripled in dollar terms. This year alone, its stock price has nearly doubled.

  Near the north of the peninsula, a construction team with bulldozers and trucks has been preparing the ground for a multi-lane highway for more than a year — part of previous development plans that ADQ will inherit. Some Bedouin families, who live in small settlements of low-lying brick homes linked by winding and mostly unpaved roads, have already received bank checks as compensation and plan to move on.

  ADQ’s announcement was bullish on Ras El-Hekma’s potential, and people familiar with the UAE’s thinking say there is compelling economic rationale. However, with the average land price in the area being somewhere between US$100 to US$120 per square meter, the transaction was not exactly a fire sale.

  The plans are certainly grandiose for Ras El-Hekma, which is three times the size of Manhattan and sits on the coastline running west of Alexandria toward Libya — a stretch of golden sands that is a long-standing favorite for wealthier Egyptians who summer in villas and apartments. ADQ is promising high-end tourism facilities to turn an area that is better known to Westerners as the site of some of World War II’s major desert battles into a destination with international cachet.

  Work is due to start next year, with Egypt citing a target of 8 million annual tourists — a lofty goal, too, given the entire country saw 14.9 million arrivals last year. Some cite the example of El Gouna, a new city built on Egypt’s eastern Red Sea coast over three decades ago that hosts film and music festivals and has many permanent residents.

  Ras El-Hekma “can be a full-year destination,” said Samih Sawiris, a member of one of Egypt’s richest families who created El Gouna. He also developed resorts in Switzerland, Montenegro and the UAE. “Weather can be offset with golf, culture, shopping and dining,” he said, adding that “Because of its size they can afford all the investments in entertainment.”

  The deal shows the UAE’s wish to “be involved in the economic rescue package put together by the international community for geopolitical reasons, and to maintain the stability of Egypt and the region,” former Egyptian deputy prime minister and former head of its investment authority Ziad Bahaa-Eldin said. It also displays “a new attitude that looks at the return from such economic interventions and tries to reach a win-win formula,” he added.

  After the Ras El-Hekma agreement, Saudi Arabia revived talks to develop its own slice of beachfront called Ras Gamila, near the Red Sea resort of Sharm El-Sheikh, in a deal that might be worth several billion dollars.

  It is another sign of a budding inter-Gulf competition. Under Crown Prince Mohammad bin Salman, long-closed Saudi Arabia is forging ahead with its own record-breaking megaprojects and seeking to become a foreign investment alternative to the UAE. They have also had public disputes over levels of oil production.

  Then there is Qatar, riding high on European demand for liquefied natural gas and a specialist in wielding soft power with its al-Jazeera TV channel, soccer World Cup and willingness to mediate talks between the West and regional countries with militant groups such as Hamas and the Taliban. After the end of its near-decade-long feud with Egypt originating in its backing of the Muslim Brotherhood, Doha has also been scoping out investment opportunities.

  The Gulf powers are often at odds on foreign policy. The UAE has been the most muscular in recent years, taking the historic step of recognizing Israel and allegedly backing renegade military strongmen in Libya and Sudan, as well as a secessionist movement in southern Yemen. It has also invested heavily in state projects and infrastructure in the Horn of Africa as it looks to consolidate its influence around the Red Sea, a vital trade conduit now imperiled by Houthi rebel attacks.

  Abu Dhabi is leading the way in Egypt, while Saudi Arabia and others have been more restrained. Despite pledging billions of investments in 2022, Riyadh has so far only enacted a deal for Egyptian company stakes via its wealth fund. It backed out of talks for a major bank after a dispute over its valuation.

  While Ras El-Hekma is a good deal for the UAE that ensures hard assets to back their money, “it is also a way to increase influence on Egypt,” International Crisis Group’s North Africa project director Riccardo Fabiani said, adding that it was unlikely to change Cairo’s positions on crises in neighboring Sudan and Libya, where it differs with the UAE.

  Gulf bailouts are nothing new. The region has been a regular donor to Egypt during previous crises, including in 2013 when then-Egyptian army chief al-Sisi ousted then-Egyptian president Mohamed Morsi following nationwide protests against the Muslim Brotherhood to which he belonged. The UAE strongly opposes political Islamist movements like the Brotherhood.

  Yet the price of maintaining its idea of stability is rising. Between 2013 and 2022, the UAE, Saudi Arabia and Kuwait provided a combined US$34 billion to Egypt in the form of cash grants, oil shipments and central bank deposits, data from the International Institute for Strategic Studies showed.

  This year, the UAE is due to send more than that amount in just two months. In return, Abu Dhabi might be angling for a role in whatever happens next in Gaza, the Palestinian enclave that has been decimated in the conflict between Israel and Hamas. The “day-after” scenario — who governs and keeps the peace there when Israel’s invasion is over — is much debated. Assent from Egypt, which has the only non-Israeli-controlled border to Gaza and has been the conduit for desperately needed humanitarian relief, will be essential.

  Also at issue is the fate of about 1.2 million Palestinians who are trapped in the city of Rafah on the Egyptian border. Egypt has repeatedly rejected any suggestion that Israeli forces move large numbers of Palestinians into its Sinai peninsula.

  Although massive financial backing for Egypt clearly serves the UAE’s goal of containing its chief regional fears — popular unrest and political Islam — analysts are doubtful that Cairo’s decision-making will be swayed much as a result.

  “For Egypt, which maintains an independent diplomatic line, financial aid or investment does not automatically translate into political or diplomatic influence or malleability,” Washington-based Middle East Institute senior fellow Mirette Mabrouk said.

  With assistance from Ben Bartenstein, Henry Meyer and Fiona MacDonald
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