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Abu Dhabi has agreed to invest $35bn in a large development site on Egypt’s northwestern Mediterranean coast in a move that could ease a financial crisis in the country of around 110mn people.
The investment by state investment vehicle ADQ, which aims to build a tourism and financial centre in the Ras al-Hekma area, is central to unlocking a long-stalled agreement with the IMF for a loan package expected to top $10bn, analysts said.
Egypt has been struggling with a severe foreign currency shortage for almost two years and the IMF has made its loan conditional on Cairo allowing the currency to move to a flexible exchange rate.
However, authorities have been reluctant to allow market forces to set the value of the Egyptian pound because the central bank did not possess enough foreign exchange buffers to prevent a sharp fall against the dollar.
The official rate has been held at around E£31 to the dollar since March 2023, but it has been trading on the black market at more than twice that value.
“This deal is the missing piece of the puzzle to bring the IMF agreement over the line,” said Mohamed Abu Basha, head of macroeconomic analysis at EFG-Hermes, a Cairo-based regional investment bank. “This will help resolve the immediate foreign exchange problem, and provide enough foreign currency liquidity to move towards a float.”
Egypt has been forced to go to the IMF for multiple loans since 2016 and is its second biggest debtor after Argentina.
The country has spent billions on infrastructure projects overseen by the military over the past decade. Critics say that, while some
of the projects address real needs, others — such as a new administrative capital — could have been deferred.
Mostafa Madbouly, the prime minister, announced the deal with ADQ to develop the 170 sq km coastal area on Friday.
The first tranche of investment, due in a week, will be a $15bn payment, including $5bn from a prior deposit by the United Arab Emirates in the Central Bank of Egypt.
The remaining funds will be invested within two months and will include $14bn of fresh money and $6bn from Emirati deposits in the central bank. These will be converted to Egyptian pounds and invested in the project.
Goldman Sachs said in a note on Friday that the “magnitude of the investment is far greater than what we had been expecting and the timing far sooner”.
It added that, if the financing came through as planned, “we believe this (along with an upsized IMF programme) should provide ample liquidity to cover Egypt’s financing gap over the next four years”.
Gulf states have provided vital financial support to Egypt in recent years because they fear the economic collapse of such a large country would further destabilise the region.
When Russia invaded Ukraine in 2022 the UAE, Saudi Arabia and Qatar deposited $13bn in Egypt’s central bank after an exodus of foreign bond investors in a flight to safety.
However, they have also become less willing to provide no-strings-attached handouts, instead seeking commercial investments and expecting reforms by governments they support. In Cairo’s case oil-rich states are considered crucial to its attempts to ease the currency crisis and meet commitments to the IMF to sell off state assets.
ADQ, chaired by the UAE’s national security adviser Sheikh Tahnoon bin Zayed al-Nahyan, has been the main vehicle used by the Gulf state to acquire Egyptian assets.
ADQ said the project would establish Ras al-Hekma “as a leading first-of-its-kind Mediterranean holiday destination, financial centre and free zone equipped with world-class infrastructure to strengthen Egypt’s economic and tourism growth potential”.
