There is and will continue to be an edge of rivalry in Egypt’s relations with the dominant Gulf Arab powers. This paper will focus primarily on the Egypt–Gulf relationship during the Sisi era.
Investment, arms, trade and remittances
The other main modes of Gulf support for the Egyptian economy are through investment, financing of weapons procurement, trade, remittances and tourism. During the Sisi era, there has been a significant increase in foreign direct investment (FDI) inflows into Egypt from the UAE and Saudi Arabia, according to figures published by the Central Bank of Egypt (see below). FDI inflows from Qatar have dipped slightly, but there have been no major divestments. Egypt’s spending on weapons procurement has increased strongly, although there is no evidence in the public domain that Sisi’s Gulf allies have underwritten arms deals. Saudi Arabia and the UAE are among Egypt’s top trading partners, largely thanks to sales of oil and petroleum products to Egypt but also reflecting increased Egyptian exports, to the UAE in particular. Roughly half of the 9.5 million Egyptians registered as expatriates in the 2017 census (the most recent) live in the Gulf,15 and they account for a large part of the inflows of remittances. These inflows have averaged more than $20 billion per year over the past five years, accounting for roughly one-quarter of total current-account receipts.16 The Gulf makes a further contribution to Egyptian foreign exchange earnings through tourism, as visitors from the Middle East (most of them from Gulf Arab states) account for about one-fifth of total tourist arrivals.17 As mentioned, however, the effects of COVID-19 mean that foreign exchange inflows are likely to take a hit in 2020, and the timing of a return to relative normality remains unclear.
Foreign direct investment
The contribution of Gulf Arab countries to total gross FDI inflows into Egypt has ranged between 10 per cent and 20 per cent over the past decade. Gulf investors have typically focused on real estate, retail, finance, telecommunications and logistics. The energy sector has also attracted interest: entities from Saudi Arabia and the UAE were prominent among the 30 or so international investors in the 1.5-GW Benban solar power park to the north of Aswan, while Qatar Petroleum is one of the lead investors in a major new refinery to the north of Cairo that came on stream in November 2019.
Much of the recent Gulf investment flow into Egypt has reflected progress with projects that have been under way for some time, rather than any major new initiatives. Nevertheless, the rise in FDI from the UAE recorded in the tally provided by the Central Bank of Egypt is striking. One of the largest UAE-based investors is the Majid Al Futtaim group, whose local affiliate, MAF Misr, opened up its first mall developments in Egypt in the early 2000s. At the time of the uprising against the Mubarak regime, Majid Al Futtaim had embarked on one of its most ambitious schemes, the Mall of Egypt, southwest of Cairo. The mall eventually opened in March 2017. MAF also opened a new mall in the Almaza area of eastern Cairo in October 2019. In early 2018, MAF signed an agreement with the National Services Project Organisation, one of the main investment vehicles of the Egyptian armed forces, to develop 100 Carrefour supermarkets across Egypt. A separate UAE-based company, Al Futtaim Group, has developed the Cairo Festival City real estate, mall and entertainment complex. Emaar Properties, one of the largest developers in Dubai, also has a significant presence in Egypt through an affiliate, Emaar Misr, which raised $290 million in an initial public offering of its shares on the Cairo stockmarket in 2015. Emaar is headed by Mohammed Ali Alabbar, a close associate of Dubai’s ruler, Sheikh Mohammed bin Rashid Al Maktoum. The company embarked on its first projects in Egypt in the mid-2000s, and has built up a large real estate portfolio, including Uptown Cairo (in the Mokattam area, above the Old City), Marassi (on the Mediterranean) and Mividia (part of the New Cairo development).
However, Emaar has made little progress with its proposed Cairo Gate shopping mall in 6 October City, and a bid by Alabbar to be one of the lead investors in the New Administrative Capital came to nothing, following a failure to reach agreement on commercial terms. When the new capital scheme was unveiled at the March 2015 Sharm el-Sheikh economic conference, Alabbar – ostensibly as a leading investor in a bespoke real estate equity fund – was heavily involved, presenting a model of the proposed development. As yet there has been no significant Gulf Arab investment in the new capital, which has been undertaken by a joint venture between the Egyptian armed forces and the new urban communities agency of the Ministry of Housing. Likewise, a proposal announced in March 2014 for Arabtec, an Abu Dhabi-based company, to invest in the construction of 1 million homes for low- and middle-income families, has stalled, even after its scope was reduced to 100,000 homes. As the new capital project evolves, with ministries scheduled to move into the area from late 2020, Gulf investors such as Emaar may show a revived interest.
Despite the setbacks for some projects involving Emirati investors, FDI from the UAE averaged about $1 billion per year between 2014/15 and 2017/18. A large part of this is likely to have stemmed from investments by Etisalat, which holds one of the four mobile-phone licences in Egypt. Etisalat paid $535 million in October 2016 to acquire a 4G licence, and recently indicated that it is investing $200–250 million per year in upgrading its infrastructure in Egypt. UAE-based Dana Gas is the only company from the Gulf to have invested as an operator (as opposed to a minority equity partner) in Egypt’s upstream oil and gas sector. The company has faced a persistent struggle to recoup arrears owed by the Egyptian government, and it decided in late 2019 to sell its assets in Egypt, even though the arrears have fallen steadily over the past few years. The stock of UAE investment in Egypt may show a significant increase in 2020, following the bid by First Abu Dhabi Bank to acquire the Egyptian affiliate of Lebanon’s Bank Audi. The Lebanese bank is selling this profitable subsidiary as part of efforts to bolster its finances in its home market, in compliance with instructions from the Lebanese central bank to banks to increase their core capital.18 That said, the deal could be held up, or derailed, by the impact of the coronavirus pandemic and the worsening of Lebanon’s financial crisis.
Much of the recent Gulf investment flow into Egypt has reflected progress with projects that have been under way for some time, rather than any major new initiatives. Nevertheless, the rise in FDI from the UAE is striking.
FDI from Saudi Arabia and Kuwait has also risen since Sisi came to power, but to a lesser degree in cumulative terms than has been the case with the UAE. Some of the best-known Saudi investors in Egypt, including Prince Alwaleed bin Talal (whose assets include hotels in Cairo, Alexandria and Sharm el-Sheikh) and Fawaz Alhokair (whose largest investment in Egypt is the Mall of Arabia, in 6 October City), were among the dozens of Saudi business people detained in the Riyadh Ritz Carlton hotel in late 2017 and subsequently forced to hand over assets to the Saudi authorities. The incident prompted Alwaleed to sell some of his regional hotel interests to raise cash. These included his stake in Mövenpick, which operates a number of hotels and resorts in Egypt. Both Alwaleed and Alhokair have recently indicated that they intend to continue to invest in Egypt. The Ritz Carlton affair prompted capital flight from Saudi Arabia, part of which is likely to have been invested in Egyptian assets. The decision by the UK’s Vodafone to divest from the Egyptian mobile-phone sector has opened the way for Saudi Telecom to enter the market. Vodafone announced in January 2020 that it had issued a memorandum of understanding for the sale of its 55 per cent stake in Vodafone Egypt to Saudi Telecom for $2.39 billion.19 The Saudi Telecom investment could climb above $4 billion if the eventual deal includes the sale of the remaining 45 per cent stake, held by Telecom Egypt.
Inflows of FDI from Qatar fell sharply in the year following the overthrow of Morsi, but recovered to an annual average of about $175 million in the following three years. Qatar’s support for the Morsi government was reflected in the rise of Qatari FDI during his one-year presidency, although one of these deals – Qatar Petroleum’s 27.9 per cent stake in the $1.1 billion equity of the Egyptian Refining Company – was announced on 14 June 2012, two weeks before Morsi’s inauguration. Later that year, Qatar National Bank (QNB) acquired National Société Générale Bank, the second-largest privately owned bank in Egypt, for $2 billion. (The scale of this deal is not reflected in the FDI figures for this period, most likely because the bulk of the equity was sold by France’s Société Générale.) Both Qatar Petroleum and QNB have held on to their investments in these assets, despite the tensions in Egyptian–Qatari relations since the overthrow of Morsi and, more recently, with the sanctions imposed on Qatar since mid-2017 by Bahrain, Egypt, Saudi Arabia and the UAE.
Table 2: Share of inflows of foreign direct investment (FDI) into Egypt, $ million, July–June fiscal years
|
2018/19 |
2017/18 |
2016/17 |
2015/16 |
2014/15 |
2013/14 |
2012/13 |
|
|---|---|---|---|---|---|---|---|
|
Net FDI inflows |
8,236 |
7,720 |
7,993 |
6,935 |
6,380 |
4,178 |
3,753 |
|
Gross FDI inflows, including |
16,393 |
13,163 |
13,366 |
12,529 |
12,546 |
10,856 |
10,274 |
|
US |
1,571 |
2,244 |
1,833 |
813 |
2,116 |
2,230 |
2,183 |
|
EU |
9,950 |
7,952 |
8,711 |
7,877 |
6,523 |
6,610 |
5,625 |
|
UAE |
1,104 |
1,075 |
857 |
1,329 |
1,383 |
401 |
481 |
|
Saudi Arabia |
478 |
297 |
344 |
313 |
650 |
284 |
192 |
|
Qatar |
382 |
165 |
167 |
195 |
94 |
109 |
376 |
|
Kuwait |
684 |
112 |
150 |
133 |
237 |
130 |
46 |
|
Bahrain |
192 |
88 |
113 |
165 |
136 |
194 |
263 |
Source: Central Bank of Egypt (2019), ‘Monthly Statistical Bulletin: External Sector Data 274’, https://www.cbe.org.eg/_layouts/15/Wopi Frame.aspx?sourcedoc={E6A4460A-7D09-434C-9AB1-B3C843F581ED}&file=External%20Sector%20Data%20274.xlsx&action=default (accessed 13 Mar. 2020).
Foreign trade
Qatar’s trade with Egypt has tailed off over the past three years, but this has mainly been attributable to the winding down of Egypt’s imports of liquefied natural gas (LNG) as its own natural gas production has increased, rather than to political factors. During the Morsi presidency, Qatar agreed to donate five cargoes of LNG to Egypt to cover contractual obligations to investors in Egypt’s own LNG export plants, which had stopped operating owing to the shortage of domestic gas supply. Qatar was among the main suppliers of LNG once Egypt started up its import facilities in 2015, and this was reflected in an increase in Qatar’s exports to $966 million in 2015/16 and nearly $2 billion in 2016/17. Supplies from Qatar started to decline after the mid-2017 boycott, and by late 2018 Egypt had stopped importing LNG altogether.
Table 3: Egypt’s main trading partners, $ million, July–June fiscal years
|
Exports |
2018/19 |
2017/18 |
2016/17 |
2015/16 |
2014/15 |
|---|---|---|---|---|---|
|
US |
2,856 |
2,081 |
1,810 |
1,275 |
2,186 |
|
Italy |
2,424 |
2,587 |
2,066 |
1,739 |
2,384 |
|
UK |
1,846 |
1,722 |
1,165 |
1,196 |
1,503 |
|
UAE |
1,560 |
2,512 |
2,896 |
2,547 |
1,757 |
|
Germany |
1,168 |
1,021 |
860 |
708 |
747 |
|
India |
1,108 |
1,135 |
699 |
824 |
1,495 |
|
Saudi Arabia |
1,057 |
1,036 |
965 |
1,095 |
1,081 |
|
Turkey |
1,030 |
1,135 |
909 |
709 |
863 |
|
Switzerland |
976 |
915 |
762 |
585 |
406 |
|
Spain |
856 |
796 |
765 |
422 |
322 |
|
World total |
28,495 |
25,827 |
21,728 |
18,705 |
22,245 |
|
Imports |
2018/19 |
2017/18 |
2016/17 |
2015/16 |
2014/15 |
|---|---|---|---|---|---|
|
China |
6,012 |
5,406 |
4,308 |
4,728 |
5,195 |
|
Saudi Arabia |
4,932 |
3,589 |
2,837 |
2,816 |
4,304 |
|
Russia |
4,575 |
3,171 |
2,630 |
2,933 |
1,880 |
|
US |
3,384 |
2,941 |
2,915 |
2,588 |
3,904 |
|
Germany |
3,086 |
2,963 |
2,726 |
3,220 |
3,149 |
|
UAE |
2,608 |
3,311 |
2,906 |
3,418 |
3,998 |
|
Turkey |
2,588 |
1,937 |
1,877 |
2,036 |
2,219 |
|
UK |
2,385 |
2,132 |
1,902 |
1,929 |
1,807 |
|
Switzerland |
2,367 |
1,969 |
1,928 |
1,845 |
1,965 |
|
Kuwait |
2,106 |
1,531 |
n/a |
n/a |
2,325 |
|
Italy |
2,058 |
1,921 |
2,066 |
1,739 |
2,078 |
|
France |
2,032 |
1,993 |
1,815 |
2,151 |
1,832 |
|
India |
1,888 |
1,494 |
1,514 |
1,338 |
1,704 |
|
Qatar |
n/a |
n/a |
1,825 |
966 |
n/a |
|
World total |
66,529 |
63,103 |
59,003 |
57,388 |
61,305 |
Note: n/a = not available, as outside the top 15 trading partners for the relevant fiscal year.
Source: Central Bank of Egypt (2020), Monthly Statistical Bulletins, https://www.cbe.org.eg/en/EconomicResearch/Publications/Pages/MonthlyStatisticaclBulletin.aspx (accessed 13 Mar. 2020).
The UAE and Saudi Arabia have, meanwhile, continued to rank among the top six exporters to Egypt, mainly thanks to the supply of petroleum products. This has been consistent over the past six years, apart from a hiatus between October 2016 and March 2017 when Saudi supplies were suspended in an apparent gesture of displeasure with Egyptian court rulings in respect of the transfer of sovereignty over the Tiran and Sanafir islands to Saudi Arabia. (Previously, these two islands in the Gulf of Aqaba had been in Egyptian hands since 1950, ostensibly for security reasons related to a perceived military threat from Israel.)20 The sovereignty transfer had been announced during a visit to Egypt in April 2016 by King Salman bin Abdelaziz Al Saud, during which a five-year, credit-backed fuel supply deal was struck.
Recent trade data issued by the Central Bank of Egypt show a steady rise of Russia up the rankings. During the 2018/19 fiscal year, Russia moved into third place, behind China and Saudi Arabia, among exporters to Egypt (see Table 3). Russia is a major source of wheat imports for Egypt, but it is likely that its total sales of $7.7 billion during 2017/18 and 2018/19 also included military equipment (see below), following a string of major arms deals announced over the past few years.
Arms trade
Between 2014 and 2018, Egypt rose to third place among the world’s arms importers, according to the Stockholm International Peace Research Institute (SIPRI).21 Egypt’s share of 5.1 per cent of such imports would be equivalent to about $25 billon, based on separate estimates by SIPRI that the global arms trade totalled $100 billion per year during this period. Part of this would be covered by the $1.3 billion annual military sales grant from the US to cover its arms exports to Egypt, but under Sisi Egypt has diversified its procurement, with major purchases of aircraft and naval vessels from France, Russia and Germany. According to SIPRI, during 2014–18 France was Egypt’s largest supplier (accounting for 37 per cent of shipments), followed by Russia (30 per cent), with the US in third place with a 19 per cent share. Aside from the US deals, much of the financing for the arms procurement remains opaque. This has fed speculation that Egypt’s Gulf allies may have underwritten some of them, in particular the sales by Russia.
Table 4: Top 10 arms importers, 2014–18
|
% share of world total |
||
|---|---|---|
|
2014–18 |
2009–13 |
|
|
Saudi Arabia |
12.0 |
4.3 |
|
India |
9.5 |
13.0 |
|
Egypt |
5.1 |
1.8 |
|
Australia |
4.6 |
3.6 |
|
Algeria |
4.4 |
3.1 |
|
China |
4.2 |
4.8 |
|
UAE |
3.7 |
4.2 |
|
Iraq |
3.7 |
1.6 |
|
South Korea |
3.1 |
3.8 |
|
Vietnam |
2.9 |
1.8 |
Source: Wezeman et al. (2019), Trends in International Arms Transfers, 2018.
Even if there is no conclusive evidence of direct Gulf financing for the surge in military procurement under Sisi, the other, overt forms of financial support have played an important part in enabling this allocation of resources. The strategic objective, from Sisi’s perspective, would appear to be to bolster Egypt’s capability to deal with a range of potential threats emanating from the region. These would include: Persian Gulf and Red Sea security, in the context of the risk of a widening conflict between Egypt’s Gulf Arab allies and Iran; the threat from Turkey to Egypt’s eastern Mediterranean natural gas interests; the threat posed by the Grand Ethiopian Renaissance Dam to Egypt’s vital interests in the flow of water down the Nile; the ongoing threat from Islamist terrorism in northern Sinai and the Western Desert; and the risk of a renewal of tensions with Israel, despite the current close security ties between the two neighbours. In most of these areas, Egypt’s interests are complementary to those of its principal Gulf Arab allies, Saudi Arabia and the UAE, but that will not necessarily always be the case.
15 Of whom 2.9 million live in Saudi Arabia, 765,000 in the UAE, 500,000 in Kuwait and 230,000 in Qatar. See Al-Youm, A. (2017), ‘9.5 million Egyptians live abroad, mostly in Saudi Arabia and Jordan’, Egypt Independent, 1 October 2017, https://egyptindependent.com/9-5-million-
egyptians-live-abroad-mostly-saudi-arabia-jordan/ (accessed 16 Mar. 2020).
16 Central Bank of Egypt (2019), ‘Monthly Statistical Bulletin: External Sector Data 270’, https://www.cbe.org.eg/_layouts/15/WopiFrame.aspx?
sourcedoc={FFE741C8-5353-417D-8222-D813E5D88F83}&file=External%20Sector%20Data%20270.xlsx&action=default (accessed 13 Mar. 2020).
17 Central Bank of Egypt (2019), ‘Monthly Statistical Bulletin: Real Sector 270’, https://www.cbe.org.eg/_layouts/15/WopiFrame.aspx?
sourcedoc={BDBE5A7E-4396-42B7-8AB2-CE57936B630D}&file=RealSector%20270.xlsx&action=default (accessed 13 Mar. 2020).
18 Reuters (2020), ‘Lebanon’s Bank Audi chooses Egypt’s EFG Hermes as financial advisor in deal to sell its Egypt unit’, 26 January 2020, https://www.reuters.com/article/bank-audi-egypt-ma-efg-hermes/lebanons-bank-audi-chooses-egypts-efg-hermes-as-financial-advisor-
in-deal-to-sell-its-egypt-unit-idUSL8N29V067 (accessed 25 Mar. 2020).
19 Vodafone (2020), ‘Vodafone group and STC sign a memorandum of understanding in relation to Vodafone’s 55% shareholding in Vodafone Egypt and a new partner market agreement’, news release, 29 January 2020, https://investors.vodafone.com/news-releases/news-release-details/vodafone-stc-sign-mou-re-55-vodafone-egypt (accessed 16 Mar. 2020).
20 For background on the Tiran and Sanafir issue, see Tahrir Institute for Middle East Policy (2017), Tiran and Sanafir: Developments, Dynamics, and Implications, Washington DC: Tahrir Institute for Middle East Policy, https://timep.org/wp-content/uploads/2017/08/Tiran-and-
Sanafir-Developments-Dynamics-and-Implications-web.pdf (accessed 17 Mar. 2020).
21 Wezeman, P. D., Fleurant, A., Kuimova, A., Tian, N. and Wezeman, S. T. (2019), Trends in International Arms Transfers, 2018, Stockholm: Stockholm International Peace Research Institute, https://www.sipri.org/publications/2019/sipri-fact-sheets/trends-international-arms-
transfers-2018 (accessed 17 Mar. 2020).