Massive Investment: The UAE’s ADQ commits $35bn to develop Ras al-Hekma, a vast coastal area in Egypt, aiming to transform it into a tourism and financial hub. This upfront investment, along with prior UAE deposits, unlocks a potential $10bn+ IMF loan crucial for Egypt’s struggling economy.

Why it matters

• IMF Conditionality: The loan hinges on Egypt adopting a flexible exchange rate, a crucial step for stabilizing its currency and attracting foreign investment.

• Reserves Boost: The influx of funds is seen as boosting Egypt’s foreign currency reserves, easing pressure on the black market exchange rate and paving the way for a potential float.

• High Stakes: With the second-highest IMF debt burden globally, Egypt needs this deal to avoid a deeper financial crisis.

Beyond the Numbers:

Shifting Landscape and Ambitious Vision: This investment reflects a shift in Gulf states’ approach to aid, moving from handouts to conditional investments seeking commercial returns and reforms. The Ras al-Hekma project envisions world-class infrastructure, attracting tourists and investors to boost Egypt’s economic growth potential.

Market Uncertainty: The actual implementation of a flexible exchange rate and its impact on businesses and citizens remain uncertain.

Long-Term Sustainability: The project’s success and its long-term impact on Egypt’s finances require careful monitoring and execution.

Things to watch

• Geopolitical Context: Gulf states like the UAE see a stable Egypt as essential for regional stability, hence their willingness to invest.

• Domestic Challenges: Egypt grapples with inflation, unemployment, and a large informal economy. The success of this project hinges on addressing these issues.

• IMF Scrutiny: The IMF will closely monitor Egypt’s adherence to reform commitments and the project’s progress to ensure the loan’s effectiveness.

Looking Ahead: The success of this deal hinges on Egypt’s ability to implement a flexible exchange rate, attract foreign investment, and ensure the project’s smooth execution.

This partnership sets a precedent for future Gulf state investments in the region, with a focus on conditionality and mutual benefit.

While this deal offers a much-needed lifeline, Egypt must address its underlying economic challenges to secure long-term sustainable growth.

More: https://www.ft.com/content/bee16520-abf1-45c5-90c1-00128fe9f426