Can A New Wave Of FDI Help Egypt To Diversify And Modernize Its Economy?

At a bilateral investment conference in Cairo on July 1, European Commission President Ursula von der Leyen announced that European companies were signing deals for more than $43 billion with Egyptian companies “ranging from hydrogen to water management, from construction to chemicals, from shipping to aviation and to automotive.”

Shortly before, GV Investments, Egypt’s sovereign investment fund, signed four agreements worth $40 billion with European developers to produce green ammonia, a renewable form of fertilizer that joins hydrogen extracted from water and nitrogen obtained from air. The deal potentially makes Egypt a big player in the renewable energy market.

Those announcements followed a partnership agreement that GV Investments signed in May 2024 with Chinese automobile manufacturer FAW to produce FAW’s low-cost electric sedan, the Bestune E05 model, locally for the Egyptian market.

A month earlier, the EU announced that it would provide $1.1 billion in short-term financial aid to support the Egyptian economy, one leg of a $5.4 billion assistance package through 2027 that still needs to be approved by EU members. Egyptian President Abd el-Fattah el-Sisi’s government signed an expanded $8 billion loan deal with the International Monetary Fund.

And that followed close on the heels of the biggest deal of all: a $35 billion mega-investment by ADQ, Abu Dhabi’s sovereign wealth fund, to develop a stretch of Egypt’s Red Sea coast for tourism, real estate development, and other projects. Some of that commitment has already been fulfilled, and is now bolstering the books of the Central Bank of Egypt and some of the Nile nation’s commercial banks.

ADQ’s investment represents a major vote of confidence in the el-Sisi government’s efforts to reform and open up Egypt’s creaky economy, and was likely a catalyst for the deals that followed.

Egypt has long been regarded as a narrow economy concentrated in just three sectors: energy, agriculture, and tourism. The Gulf and EU governments have plenty of reasons to want to help stabilize Egypt, with its 111 million people and strategic location with the war between Israel and Hamas flaring on one side and the Mediterranean, the pivot point of Europe’s migrant crisis, on the other.

Egypt shoulders a debt burden equal to more than 95% of its GDP, more than one in four Egyptians lives in poverty, and economic growth is stubbornly slow. But Lubin notes that Egypt, with its enormous market and strategic location, is a relatively inexpensive investment today compared to Europe.

The long-term assistance package from the EU, meanwhile, tells European companies that their governments are committed to making Egypt’s economic modernization a success.

Conditions for foreign investment could improve, too, if the government follows through on its commitments to the IMF. These have three pillars:

• Switching to a flexible exchange rate and establishing a credible inflation target

• Tightening fiscal policy

• Creating a level playing field, in part by reducing the army’s outsized presence in the economy.

Given the magnitude of the EU companies’ pledges—and those from China and the UAE—they could meet with pushback from “entrenched domestic business interests” anxious not to be muscled out or reduced to accepting crumbs, Mogielnicki cautions. Those would include elements of the army, which is Sisi’s base of power.

India To Become The Second Largest Economy In The World

A more immediate concern will be whether the government can fulfill its end of the IMF deal. The central bank has a long philosophical commitment to maintaining a stable currency, contrary to the IMF’s demand, Lubin points out. Setting and sticking to a credible inflation target will be difficult. And creating a more welcoming market environment for outsiders will be politically tricky if not impossible.

Time will tell which of the EU companies’ deals comes to fruition, and how they will affect Egypt’s economy and the people who make it up. Clearly, however, each element of the larger progress that is pulling together to modernize one of the world’s oldest societies—EU and IMF subsidies and loans, economic policy reform, and FDI—will have to work for all of them to succeed.

Credit: Global Finance Magazine