Friends with funds
Egypt's huge investment conference at Sharm El-Sheikh delivered more than an all-star cast and an important boost to its reputation among investors
In the run-up to its much-hyped Egypt: The Future economic development conference that was held in Sharm El Sheikh last weekend (13-15 March), Karim Awad, the CEO of local investment bank EFG Hermes, said the event would be deemed a success or failure on the basis of a number of outcomes, including the amount of financial support Egypt would receive, the scale of projects announced and how well attended it would be.
The conference was billed as a “launchpad for the economy” of the Arab world’s most populous nation, which has suffered from years of internal strife since the overthrow of former leader Hosni Mubarak in 2011 and the subsequent coup which overthrew his replacement, Mohamed Morsi, in 2013.
Although Morsi’s government had received financial support from Qatar, most of the GCC states have thrown their support behind the government which replaced him led by General (now President) Abdel Fattah el-Sisi.
Indeed, perhaps the greatest outcome of the conference were the announcements which kicked off the three-day event, which were a series of pledges by the governments of Kuwait, Saudi Arabia and the UAE of $4bn worth of support each to Egypt. Oman’s government also chipped in with a $500m package, bringing the total to $12.5bn.
These were made personally by Kuwait’s Emir, Sabah Al Sabah, the UAE’s vice-president and ruler of Dubai, His Highness Sheikh Mohammed bin Rashid Al Maktoum, and Saudi Arabia’s Crown Prince, Muqrin bin Abdulaziz. They were joined by other regional dignitaries including the King of Bahrain, HH Hamad bin Isa Al Khalifa and Jordan’s King Abdullah II.
Alongside the Arab region’s head of states, there were other notable attendees including the US Secretary of State John Kerry and the UK’s former prime minister, Tony Blair, as well as the head of the IMF, Christine Lagarde, and a number of captains of industry from major multinationals.
The motives for support by the GCC’s countries are clear. Stability in a nation with more than 82m people on their borders is absolutely key, but HH Sheikh Mohammed also said that the UAE was “proud of our relations with Egypt and the people of Egypt”.
“History teaches us that when Egypt is strong, it breathes life into the nation and renews its renaissance. Egypt is the heart of Arabism and peace, and with it history will be made.”
Yet the amount these nations were willing to pledge was still notable, and will make a big difference to the country ? particularly with Saudi Arabia and the UAE committing half of their sums by way of bank deposits.
Speaking ahead of the conference, EFG Hermes’ analyst Mohamed Abu Basha, said Egypt’s foreign reserves were “thin” and that it is continuing to battle to eliminate a parallel market for currency trading.
He argued that any figure in the $6bn-8bn range from GCC states would “help assuage market concerns that GCC support could flag on the back of lower oil prices and succession in Saudi Arabia”, as well as allowing Egypt’s Central Bank to eliminate the parallel market, close its budget gap and give authorities some breathing space until foreign direct investment from the private sector began to feed in during 2016.
This support from GCC government entities was matched by a series of huge project announcements and investment pledges both from Gulf-based companies and international conglomerates. The most eye-catching, of course, was the $45bn plan for a new city, Capital Cairo.
It is a huge project that will provide a new administrative centre to the city at Cairo East, linking the (revamped) Suez Canal corridor to Cairo’s traditional core.
The 700km2 site, masterplanned by Skidmore, Owings and Merrill, is a mammoth undertaking. It is one of the world’s biggest proposed infrastructure projects, with a footprint that is almost the same size as Singapore, seven times bigger than Paris and 12 times the size of Manhattan Island.
It will have a 16km2 airport (nearly 30% bigger than the world’s busiest, London’s Heathrow), a proposed 5.6km2 central business district that will be bigger than those in New York and Chicago and an 8km2 park that is more than twice the size of Central Park and eight times bigger than London’s Hyde Park.
In total, 25 new districts will be built as well as the airport, 100 new neighbourhoods, 18 hospitals, 40,000 hotel rooms, 1,250 places of worship, 10,000km of roads, 100km of bridges and tunnels and 250km of public transport networks.
It is being developed by Capital City Partners – a public-private partnership between Egypt’s Ministry of Housing and a group of global investors, including some prominent figures from the UAE. Capital City Partners is being headed up by Mohamed Alabbar, chairman of Dubai’s Emaar Properties (although the firm itself is not involved in its delivery).
Once complete, Capital City Partners expects that it will generate up to 5% of Cairo’s entire GDP, providing 1.5m jobs and homes for up to 7m people. A lot of its power will be generated by 90km2 of solar panels.
Capital Cairo was one of a series of massive development agreements announced during the conference. The Ministry of Housing also penned an agreement with Abu Dhabi government-owned Aabar Investments for a huge new property project in Sixth of October City worth $20bn.
The October Oasis scheme is being built alongside listed Egyptian developer Palm Hills over a 4,200 hectare site around 32km outside of Cairo and will be a family resort city built to international standards. It is expected to take around 15 years to complete.
Saudi Arabia’s Sisban Holdings also signed a $5.7bn agreement which will see it develop two schemes alongside Egypt’s Mountain Views. One will be a $3bn, 2km2 scheme in New Cairo and the other a $2.7bn, 1.9km2 site in Sixth of October City.
The UAE’s Majid Al Futtaim also said it would double its investment in the country, adding another $590m.
Ayman Sami, the head of JLL’s Egypt office, said that although the scale (and the number) of massive property projects announced appears very ambitious, “with such a fast-growing population and a severely limited supply of quality real estate, it is clear that releasing new land to satisfy the current shortage is essential in stabilising rising sales and rental prices and improving the quality of the urban environment”.
Alongside the real estate projects, there are also massive investments planned in infrastructure. Many of the world’s biggest dredgers were already in, or making their way to, the Suez Canal to assist an expansion programme that got underway last year which will create a new shipping lane, thereby doubling the canal’s capacity.
It is expected to complete later this year, and will be complemented by the newly- announced $50bn Suez Canal Zone, which will see 100km2 of maritime and logistics facilities developed at cities along the canal’s corridor, including Arish, Port Said, Ain Sokhna and Tor. These will be complemented by up to 400km2 of new industrial zones, which could be set up as special economic zones mirroring similar projects in the Gulf.
Patrick McKinney, head of Gulf States at contractor BAM International, which has a specialism in marine work, said the fact that the Suez Canal dredging work has gone so well thus far “has put down a marker” for firms in the industry.
“For contractors, it shows the money is there and it’s real,” he told CW.
The Ministry of Transport also signed $2.2bn worth of deals that will support this, including a new $250m terminal at the Port of Alexandria and a $450m liquid bulk terminal at Ain Sokhna – the latter will be developed by Dubai’s DP World.
A goods railway line worth $490m is also planned to run from Ain Sokhna and Helwan City to the south of Cairo.
And of the $4bn worth of favourable loans agreed with the Islamic Development Bank, there was around $457m of lease financing that will be made available to upgrade Sharm el Sheikh’s airport.
In the energy sector, BP revealed prior to the conference that it is to invest $12bn to develop gas projects in the West Nile Delta, which it has said will create thousands of direct and indirect local construction jobs, and Italian oil & gas giant Eni then signed a deal pledging $5bn for a series of new projects in the country.
Eni has been operating in Egypt since 1954. It already produces around 28% of the country’s oil and 27% of its gas, and newly-proposed schemes are set to boost oil production by 200m barrels and gas by 1tn ft3.
Egypt is also still keen to build renewables, though, and late last year announced standards for feed-in tariffs that will allow private sector operators to build their own solar, wind and other projects.
Osama Bishai, CEO of Orascom Construction, has said this is one area that his firm is keen to exploit. Alongside seeking funding for its $3bn, 3,000MW clean coal-fired power plant near El Hamrawein Port (which it is developing with Abu Dhabi government-owned IPIC), Bishai said that it would also be keen to gain project funding for renewables schemes.
“We are looking at opportunities in renewable energies in Egypt. If we are going to pursue that, we will look at project finance transactions where the project becomes the sole borrower on that, and it’s off-balance sheet,” he said.
Abu Dhabi’s Masdar also signed an accord with Saudi Arabia’s Acwa Power and the Egyptian Electric Holding Co to explore the development of up to 4 Gigawatts (GW) of renewable and gas-powered projects.
The partners will evaluate up to 2GW of renewable projects, comprising 1.5GW of solar and 500MW of wind schemes. An initial project has been identified that could produce up to 200MW of solar power. Masdar’s chairman, HE Sultan Al Jaber, said: “Egypt has one of the fastest growing populations in the Middle East, so it is vitally important to support sustainable economic development by increasing access to energy.”
Canada’s Skypower also signed a deal to develop 3,000MW of solar energy.
The Canadian company said that around $5bn of investment would be made in Egypt, and that it has committed $173m to develop training and R&D facilities in the country.
Skypower, which is majority-owned by US-based fund manager CIM, signed its deal as part of a joint venture with International Gulf Development (IGD) – a partnership between Al Hamed Enterprises and Gulf Data International.
It said that projects will be developed in phases over the next four years working alongside the Ministry of Electricity, but that it anticipates the first phase to begin in late 2015. As part of the deal, it will also build fabrication and assembly facilities in Egypt.
German engineering giant Siemens also announced that it had signed a series of deals worth at least $4.4bn which will see it build a 4.4GW combined cycle power plant and install wind power capacity of up to 2GW.
This will involve it building a new factory in the country to make blades for wind turbines, which will create up to 1,000 jobs. The firm said this will near-treble its footprint in the country.
The plant will be at Beni Suef in Upper Egypt. Siemens will be responsible for its engineering, procurement and construction (EPC), but has pledged to work with local partners for its development.
Similarly, GE has said it will invest $200m in a new manufacturing, engineering, services and training centre in Egypt that will create up to 500 skilled jobs in Suez. The firm also said it was on schedule with a $1.9bn project to provide Egypt’s power grid with 2.6GW of extra capacity by the end of summer.
With so much work in store, it is hardly surprising that the reaction from the Gulf’s construction community has been so positive.
Bob Hope, CEO of Kuwait-based building consultancy SSH Design, said that Egypt’s president, Abdel Fattah el-Sisi “seems to be someone who has got some strength and has recognised that the best way to develop is to bring in financial partnerships”.
He believes there are ample opportunities for firms within the Gulf’s construction sector to get involved in the market, particularly within the new Capital Cairo project.
“We’d be very interested in that,” he said.
“We’re keeping our ear to the ground and we know there is a lot of support from the UAE as well.”
BAM’s Patrick McKinney said that although there was a lot of hype around the conference prior to it taking place, “it was bigger, if anything, than I thought it would be”.
“They seemed to have managed to get all of those major players involved. I think it’s a compliment to the fact that they want to see Mr Sisi succeed. Egypt is strategically important. It has a population of nearly 90m and a strategically important canal – I think it’s in everyone’s interest that Egypt succeeds. It’s got huge potential,” he said.
David Welch, managing director of Bechtel, said that his firm had remained in Egypt throughout the recent political turmoil, which had caused some projects to stop, but they have since restarted.
“I would say it’s an area of emerging interest and we particularly detect a lot of investor interest from Egypt in the kind of projects that we do,” he said.
However, a Capital Economics report warned that the government will need to set out – and execute – a clear set of economic reforms if it is to ensure that the buzz it has created will be long-lasting.
The country needs to take further steps to cut fuel subsidies and move towards a more flexible exchange rate, he argued, as well as cutting red tape to improve the country’s “dire” business environment.
Egypt ranks fairly low on the World Bank’s Ease of Doing Business Index, at 112th out of 189 countries – below Kyrgyzstan, Swaziland and Zambia.
Capital Economics also said that raising investment in oil & gas will not create the jobs and productivity gains that Egypt needs.
“The most successful emerging markets have developed on the back of strong manufacturing sectors and, as we’ve argued for some time, Egypt has all the ingredients to become a manufacturing hub. Policies to boost investment in manufacturing would also be welcome.”
It said that if Egypt is to reach its full potential, investment will need to reach up to 25% of GDP (which was around $272bn in 2013). “Such investment rates have not been seen in Egypt in almost a quarter of a century.”
That may be about to change.