UAE to inject $35 Billion in direct investments into Egypt

Egypt, burdened with heavy debt, received a significant economic lifeline on Friday as the Prime Minister, Moustafa Madbouli, announced that the United Arab Emirates (UAE) would be injecting $35 billion in direct investments into the country.

The sovereign wealth fund of Abu Dhabi, ADQ, confirmed the investment of $35 billion, with the majority earmarked for the development of Ras el-Hikma, a city on the Mediterranean coast.

These investments are part of Egypt's national urban development plan, "Egypt 2052," aimed at developing the northern coast and transforming Ras el-Hikma into a global tourist destination.

The Egyptian government hopes that these foreign investments will help alleviate the foreign currency crisis in Egypt, as the country struggles to repay its external debt, which stands at nearly $165 billion.

According to Madbouli, these investments will also address the issue of the dual pricing of the dollar, referring to the official exchange rate practiced by banks, which often refuse to provide dollars to customers, and the much higher rate prevalent in the black market.

Under the agreement signed on Friday, $15 billion will be disbursed within a week, followed by a second installment of $20 billion two months later.

ADQ will acquire development rights for Ras El-Hikma for $24 billion to transform it into one of the largest new cities developed by a private consortium.

Additionally, $11 billion will be allocated to investments in "leading projects" across Egypt.

Founded in 2018, ADQ is led by the brother of the President of the UAE, Sheikh Tahnoun bin Zayed.

Ras el-Hikma, located approximately 350 kilometers northwest of Cairo, is poised to become a vacation destination, financial center, and free zone with world-class infrastructure to bolster Egypt's economic and tourist growth potential.

Egyptian President Abdel Fattah al-Sissi has prioritized "development," but economists criticize mega-projects, including new cities like the new capital, high-speed trains, bridges, and roads, for draining state coffers and tripling debt.

Egypt is now the second most at-risk country of defaulting on its debt, just behind war-torn Ukraine.

Worryingly, tourism revenues have been declining for years, and attacks by Houthi rebels in the Red Sea and the Gulf of Aden are now reducing dollar revenues from the Suez Canal, a crucial passage for global trade.

Moreover, remittances from Egyptian workers abroad, the largest source of foreign currency, have dropped by about 30% in the first quarter of 2023/2024.

The International Monetary Fund (IMF) granted Egypt a $3 billion loan in late 2022, but loan tranches and program reviews have been repeatedly postponed until Cairo advances economic reforms, including a "fully flexible exchange rate," as stipulated by the IMF.

With two-thirds of Egyptians living below or just above the poverty line and inflation at 35%, the challenges facing Egypt's economy remain daunting.