Egypt, grappling with a dollar shortage despite a $3 billion International Monetary Fund bailout loan, is seeking to boost its coffers by selling state assets to wealthy Gulf countries.
Experts say the deals could be beneficial to all parties, but unlike the Gulf’s past generosity of unconditional aid, the new deals would require reform.
Cairo expects the cash injection that the IMF has warned will create a “financing gap of about $17 billion over the next four years”.
For Kuwait, Qatar, Saudi Arabia and the United Arab Emirates, which are eager to diversify their oil and gas-based economies, it could provide a quicker route to acquire property, land and stakes in government enterprises in the North African nation. does.
“Investments by Gulf countries in Egypt last year helped address some of Egypt’s immediate financial concerns ahead of securing further funding from the IMF,” said James Swanston, an emerging markets economist at Capital Economics in London.
“At the same time, it has allowed Gulf countries to continue to exert spheres of influence in the region.”
For Gulf countries, the steep devaluation of Egypt’s currency and the stimulus offered by President Abdel Fattah el-Sisi make it an attractive investment.
But Sisi’s Gulf allies – whose support he relied on after he ousted Islamist President Mohamed Morsi in 2013 – are writing blank cheques, and are now demanding economic reform and greater transparency.
gulf spending spree
Within a year, the Egyptian pound has lost half its value, pushing annual inflation in the import-dependent country to 26.5% in January.
Of the $34.2 billion in Cairo’s foreign reserves – a 20% decline from February 2022 – some $28 billion are held by wealthy Gulf allies.
The country’s external debt has more than tripled in a decade to $155 billion.
“A country like Egypt needs a budget of one trillion dollars every year. Do we have that money? No. Do we have half of it? No. Do we have a quarter of it? No,” Sisi told World Government said at the summit. Dubai this week, noting the importance of “help from friends, UAE, Saudi Arabia and Kuwait”.
But the days of unconditional aid are over, Saudi Finance Minister Mohammed al-Jadaan has warned.
“We used to give grants and deposits directly, with no strings attached, and we’re changing that,” Jadan said in Davos in January, explaining that the state would demand “to see reforms.”
As part of the IMF loan agreement, Cairo pledged to privatize key state assets with the aim of increasing the private sector’s share in the economy from 30% to 65% by 2025.
Gulf countries encircled.
In 2022, 66 mergers and acquisitions are set to be completed in Egypt, more than double the number of transactions in 2021, Egyptian business news publication Enterprise calculated in December.
powerful economic role of the military
Emirati and Saudi companies had a high volume of transactions, with 40 deals at stake.
Abu Dhabi’s sovereign wealth fund ADQ and Saudi Arabia’s Public Investment Fund “spent some $3.1 billion to acquire significant minority stakes” in some of the “strongest companies”, Enterprise wrote in December.
He grabbed the major shares of Egypt’s two largest fertilizer producers – 41.5% of Abu Qir Fertilizers Company and 45% of MOPCO.
ADQ is also the largest private shareholder in Commercial International Bank of Egypt (CIB), having bought a 17.5% stake for $911.5 million.
The Saudi fund now owns 25% of eFinance, a digital payments company founded by the state, and is in talks to buy United Bank of Egypt.
To encourage more deals, Cairo is slashing its notorious red tape, with Prime Minister Mustafa Madbouli earlier this month announcing stake sales in 32 public companies.
But the vast asset portfolio of Egypt’s hugely powerful military — which has played an important but secretive role in the economy for decades — has largely closed deals, said Yazeed Sayegh of the Carnegie Middle East Center.
The military-owned companies are “so financially opaque that they cannot be put on the market,” Sayegh said.
Of the 32 up for sale, only two are military companies. One of them is the army’s Wataniya Petroleum, which the Abu Dhabi National Oil Company (ADNOC) considered buying in 2021.
Sayegh said the deal “apparently faltered because the internal financial management of the military company would scare any serious investor from risking their capital”.