Year after year, the economic challenges facing Cairo grow, and with them the pressures on foreign and local investment. Amid these complex conditions, Egypt’s economic scene has witnessed the sudden withdrawal of some major alliances and companies from strategic projects that were counted on to drive economic development. Foremost among these developments are the withdrawal of the Saudi-Emirati alliance from the project to redevelop the former headquarters of the National Democratic Party, the withdrawal of a major Egyptian company from the project to renovate the historic Shepheard Hotel, and fears about the impact of the decision to halt imports of cars for people with disabilities on foreign investment in electric vehicles.
This raises many questions about the future of investment in Egypt and its ability to attract capital in the current climate. So what exactly is happening?
A Blow in the Opposite Direction
At a time when the Egyptian capital, Cairo, is seeking to attract more investment, selling successful companies and exploiting some assets to entice Gulf states to pump more hard currency into the coffers of the Central Bank of Egypt, which has long suffered from a dollar shortage, an alliance comprising the Emirati “Al Shafar” group and the “Saudi Egyptian Construction Company” announced its withdrawal from the project to develop the land of the dissolved “National Democratic Party”, which enjoys a strategic location overlooking the Nile in the heart of the capital. This land represented one of the most prominent real estate investment opportunities, as the alliance planned to turn it into a mixed-use project combining housing, commerce and entertainment.
The withdrawal of this alliance is a major blow to Egypt’s real estate sector, especially since the project was considered one of the main projects expected to add great economic value given its prime location. It also reflects wider challenges facing foreign investment in Egypt and raises doubts about the country’s ability to attract new investors under current economic conditions, as the cost of developing the land of the dissolved National Democratic Party reaches USD 5 billion, according to an official at the Sovereign Fund of Egypt at the end of 2023, when he revealed that the Emirati company, which recently withdrew, was close to pumping investments to develop the area directly overlooking the Nile.
It was scheduled to build a 220-metre tower spread over 80 floors on the banks of the Nile in Cairo, overlooking Tahrir Square and the Egyptian Museum downtown from the rear. The plan also included building a multi-storey car park accommodating about six thousand cars. The partnership was planned to be between the Tourism and Antiquities Fund, affiliated with the Sovereign Fund of Egypt, and the Emirati company, before entering an alliance with the Saudi company, with the fund providing the land, covering 16,000 square metres, as an in-kind share, while the Emirati company would be responsible for carrying out the development and construction work.
A Worrying Indicator for Investment
Economic expert Hany Abou El-Fotouh explains that the withdrawal of the “Al Shafar” alliance from the project to develop the National Democratic Party land is a worrying indicator of the investment situation in Egypt. He says: “The project was considered a pivotal investment opportunity, but the withdrawal highlights long-term structural challenges that may slow the pace of economic development in the country.”
Abou El-Fotouh points out, speaking to Zawia3, that the sharp turbulence in the Egyptian pound’s exchange rate was among the main reasons that pushed the alliance to back away from the project. This turbulence led to an unprecedented rise in the costs of raw materials and energy, which weakened the project’s attractiveness and significantly affected the profitability of the investment. He explains that the rising costs were beyond expectations, making it difficult to continue with the project.
He continues: “Unfortunately, the investment environment in Egypt faces many regulatory difficulties, with entrenched bureaucratic procedures that complicate business and raise investment costs. In addition, the absence of clear strategies for investment projects increases uncertainty among investors, which negatively affects the country’s ability to attract more foreign investment.”
Leaving aside the Ras El-Hekma deal, the economic expert believes that the withdrawal of this alliance may indicate declining confidence among foreign investors in the Egyptian market, which could lead to a noticeable drop in foreign direct investment. This decline threatens the Egyptian government’s plans to boost economic growth and create new jobs.
The economic expert stressed the need for urgent steps by the Egyptian government to address these fundamental problems, including achieving financial stability, easing bureaucratic procedures and providing a legal framework that encourages investment, as well as strengthening transparency in economic dealings. Although rebuilding investor confidence requires sustained long-term efforts, it remains necessary to ensure continued economic growth and strengthen Egypt’s position as an investment hub.
Lack of Transparency
Egyptian economic researcher Hassan Barbary says the deals managed by the Sovereign Fund of Egypt since its establishment are surrounded by complete secrecy, to the point of a lack of transparency about information on tenders, auctions and sales to strategic investors, pointing out that in August 2023, the sovereign fund announced that an Emirati alliance had won the auction to develop this land from among three or four bidders. But at the time there was no clear information about the identities of the bidders or the details of the winning alliance.
The leading member of the Socialist Popular Alliance Party explains to us that over time some facts emerged, as it turned out the investment alliance included an Emirati-British partnership. Shortly afterwards, it became clear that the Emirati side controlled the project. But by October 2023, reports emerged that the project was based on an Emirati-Egyptian partnership, with the sovereign fund contributing the value of the land.
Barbary points out that this development changed the nature of the deal, turning it from a full acquisition into a partnership between the Egyptian side and the Emirati alliance. However, last January, news began to speak of an (Emirati/Saudi/Egyptian) alliance to develop the land, but this alliance later withdrew from the deal. He stresses that most of the Sovereign Fund of Egypt’s deals follow the logic of supply and demand in the market, as the Egyptian government and the fund seek to get the maximum benefit from these deals. He likens the withdrawal of the Emirati-Saudi alliance from the National Democratic Party land deal to previous cases, such as the story of the sale of “The United Bank”, when the Qataris withdrew after long negotiations, the Saudis then stepped in, but they too eventually withdrew.
The economic researcher explains that these deals are marked by heavy pressure on the Egyptian government, especially given the current economic situation, which is seeing declining revenues from tourism, the Suez Canal and exports, as well as a shortage of foreign currency and debts falling due, pointing out that the withdrawing alliance is expected to return to negotiations later, as each party seeks the greatest possible gains.
Barbary also points to the faltering of another deal in the “Ras Gamila” area on the Red Sea, in which Saudi Arabia had been heavily involved, before things stalled.
He concludes that current deals follow the logic of businessmen, with the Egyptian government trying to play the same role in the free market. He believes the deal with the Emiratis and Saudis may return to the fore, especially as there is clear Gulf interest in acquiring vital areas in central Cairo, such as the Mogamma building in Tahrir and the Interior Ministry buildings.
The Shepheard Hotel
That was not the only blow regarding the withdrawal of some companies from projects already under way or before implementation began. In March 2022, Al Sharif Holding Group signed a contract with the Mandarin Oriental hotel group to manage and operate the historic Shepheard Hotel in Cairo, and the group in turn signed another contract with the Egyptian company SIAC, a leading contractor across the Middle East, to take part in the hotel’s renovation.
SIAC decided to withdraw from the project, as a reaction by the Egyptian company after the Saudi group refused to increase the contract value when the cost of the renovation works rose steadily to nearly EGP 2.5 billion, after it was originally going to cost only EGP 1.4 billion, which pushed it to withdraw from the deal, while another local company took its place, but at a cost revised from what had previously been calculated.
Despite the positive effect the Egyptian government hoped for after it decided to unify the exchange rate, when the Central Bank decided on 6 March 2024 to raise interest rates by 600 basis points to 27.25% on overnight deposits and to allow the exchange rate to move, which pushed the dollar in commercial banks above EGP 50, the government overlooked projects already under way and the existing pricing, which had been valued on the basis of an exchange rate of EGP 30 to the dollar or slightly more, so many joint projects are liable to end up like those projects.
Given the path of the giant real estate projects the country has recently seen, starting with the New Administrative Capital and New Alamein, in addition to the projects Egypt is launching in central Cairo to develop and stir stagnant waters in historic projects through development or change and exploitation, this is a huge and unprecedented opportunity offered to foreign and Gulf investors on a silver platter. However, the exceptional retreat some projects are witnessing on the part of Gulf investors fearing for their interests may be an alarm bell that must be heeded and its main causes understood.
Swapping Debts for Assets
Professor of finance economics at Cairo University Hassan El-Sady says the matter began when Gulf states swapped their debts owed by Cairo for Egyptian assets, through what he called writing off those debts in exchange for acquiring profitable assets. The matter cannot be described as direct investment, as it will not result in an increase in the state’s foreign cash assets, which the Central Bank’s coffers really need; rather, it is nothing more than replacing debts with assets, from which Cairo has indeed benefited.
El-Sady believes, speaking to Zawia3, that Gulf deposits have long been a cornerstone of Egypt’s monetary reserves over past years, when the country was going through difficult stages, and they are low-interest deposits compared with available debt instruments. Here lies the reason why some projects that Gulf entities intended to complete have stalled: this means investment, not deposits, and these entities are looking for gains, which is natural for all investors. He stresses that these assets and areas available for development in the Egyptian capital will certainly generate profit, and the investor will necessarily need to transfer profits to his country in foreign currency, which may appear to be the obstacle in some of the projects that have stalled.
He explains: when the authorities sell high-profit assets, or offer some projects for development or direct investment to Gulf investors, they give them a genuinely profitable project, but the investor needs to transfer the profits of those assets and projects abroad, which puts pressure on the dollar again. He points to the need to look for alternatives to offering assets, because they constitute a future source of pressure on hard currency, which will take us back to the previous crisis, which the state dealt with through the Ras El-Hekma deal and by moving the exchange rate to unify it in the country.
Deposits, which are a form of debt, have recently declined according to Central Bank data, as Gulf states’ short-term deposits with Egypt fell to USD 11.1 billion in March 2024, compared with USD 16.5 billion held by the Central Bank in December 2023, while the medium- and long-term deposits of Arab states did not change, standing at USD 14.95 billion over the same period this year. In detail, the UAE has USD 5.7 billion deposited with Egypt’s treasury, followed by Saudi Arabia with about USD 5.3 billion, and finally Kuwait with USD 4 billion.
Saudi investments in Egypt amount to about USD 35 billion in private sector investments in Cairo, according to Bandar Al-Amri, head of the Saudi-Egyptian Business Council, while the UAE’s share of private sector investments jumped to USD 65 billion after the completion of the Ras El-Hekma deal, according to statements by Jamal bin Saif Al Jarwan, secretary-general of the UAE International Investors Council.
Halting Car Imports
In a related context, it appears that Prime Minister Mostafa Madbouly’s recent decision to halt imports of cars for people with disabilities for six months, issued on 24 July, will affect foreign companies working in the car sector and in developing infrastructure to accommodate the shift the authorities plan towards electric cars as an alternative to petrol cars, to ease the burden of the state’s fuel subsidies. While the state seeks to set new controls to ensure that cars for people with disabilities reach those entitled to them and to combat what it described as “the manipulation the system is witnessing”, it overlooks the constraints it is placing on these foreign investors operating in the country, which has led some to demand that electric cars be exempted from the decision to protect these investors.
These demands are confirmed by an importer of electric cars in Egypt, who refused to give his name, explaining that the government’s decision ignored the rights of investors who earn their living from importing electric cars, and pointing out that many foreign companies operate in this field in Cairo and are already pumping millions of dollars into preparing charging points to support their business here.
The electric car importer believes that this decision, without exempting this category of cars, seems to contradict the state’s call to expand reliance on electric cars and its repeated calls for investors to pump more money into this field, in line with talk of expanding the use of clean energy to many times its current share and replacing traditional energy sources.
Returning to the strategic targets Cairo is pursuing, an alarm bell must be rung to monitor the map of withdrawals by some foreign companies and alliances working on assets or projects offered to investors. If some have already decided to withdraw for their own reasons of profit and loss, some decisions that could multiply the number of those withdrawing from the Egyptian market, which constantly seeks hard currency, must be reconsidered.
