Egypt, UAE agree on US$35 bn Ras al-Hikma development project

Egypt and the United Arab Emirates signed on Friday an agreement for the UAE to invest US$35 billion in an urban development project on Egypt's northwest coast.

Rumors and speculation have circulated for weeks about a major foreign investment and possible privatization of a huge area of land on the north coast as Egypt’s government responds to an ongoing economic crisis and a chronic scarcity of foreign currency inflows that have caused the Egyptian pound to plummet against the dollar on informal exchange markets.

There are projects underway that will bring “huge foreign currency resources into the country,” Prime Minister Mostafa Madbuly said earlier in February.

Following another teaser about the deal on Thursday, Prime Minister Mostafa Madbuly finally announced the project's details during a Friday afternoon press conference — held two hours behind schedule — from the new administrative capital, attended by Emirati ministers, Egyptian officials, and real estate magnate Hesham Talaat Mostafa.

The new mega project, described by Madbuly as the “largest foreign direct investment deal” in Egypt’s history, is to see the UAE's sovereign fund Abu Dhabi Developmental Holding Company (ADQ) establish Ras al-Hikma city over an area of 170 million square kilometers on the northwest coast.

Madbuly said the project will start with an up-front investment of $35 billion from the UAE over the next two months.

The UAE will pay $24 billion of that in liquid foreign currency, the prime minister said, and the remainder is to come from the Gulf country converting $11 billion of its existing deposits in the Central Bank of Egypt into investments for ADQ to use in establishing the project.

He emphasized that while some may say the $11 billion in deposits were already cash in hand for the government, their conversion into investments will reduce Egypt’s debt repayment burden. Egypt is committed to $42 billion in debt repayments over the course of this fiscal year alone.

The amount will come in two installments, said the prime minister. Within a week, Egypt will receive $15 billion, of which $10 billion will be liquid and $5 billion will come from the deposit, while a second installment of $20 billion will be paid in two months time — $14 billion liquid and $6 billion from the deposit.

ADQ’s statement, however, did not mention a timeline for the investment in its deal. It said ADQ would acquire the development rights for Ras al-Hikma for $24 billion, with the $11 billion of deposits already in the central bank to be utilized “for investment in prime projects across Egypt to support its economic growth and development.”

The UAE's sovereign fund said the project would be led by a private consortium and that the Egyptian government would retain a 35 percent stake in the Ras al-Hikma development project.

Madbuly said that the whole project is expected to bring in a total of $150 billion in foreign investments and stressed the importance of the inflows in supporting Egypt's economy amid the foreign currency crisis, but did not specify the project’s duration.

The city is set to include residential areas, hotels and resorts, and full municipal services and facilities, such as schools and entertainment projects, in addition to a free zone for light and tech industries and logistical services, a financial and business district, and an international marina for yachts and cruise ships.

An international airport will also be established south of the city through an agreement between ADQ and Egypt’s Aviation Ministry, Madbuly added.

The prime minister assured that while the project will entail the privatization of a large area of land, Egypt will benefit from a 35 percent share of the profits in addition to the creation of “millions of job opportunities” throughout the construction and maintenance of the city.

Current residents of the area will be moved to the south of the International Coastal Road, Madbuly said, adding that they will be financially compensated.

The project, Madbuly said, will be part of an urban community development plan for the north coast area until 2052, mentioning Alamein, Ras al-Hikma, Negela, Sidi Barrani, and Gargoub in the governorates of Matrouh and Salloum on the border with Libya, and will not target tourism alone but will also be geared toward residents, he stressed.

Housing Minister Assem al-Gazzar and UAE Investment Minister Mohamed Hassan Alsuwaidi signed the agreement during the presser, which was broadcast live. Talaat Mostafa, a businessman and convicted murderer who has played a leading role in another of the government’s privatization deals in partnership with the Emirates, was also pictured in the front row at the presser.

The project is set to bring in more than $20 billion in foreign currency, which the government has been seeking to stabilize the economy and secure vital foreign currency inflows that will allow it to devalue the currency and enact economic reforms without seeing the pound’s value bottom out and the crisis worsen.

An earlier set of privatization deals in 2022, which brought in inflows from the UAE and Saudi Arabia, as well as a loan program launched at the end of the same year with the International Monetary Fund, failed to remedy a chronic shortage of foreign currency inflows and the mounting external debt burden.

The government has struggled to raise cash from its privatization program and has stalled on implementing the structural adjustments recommended under the loan program, prompting the IMF to postpone the payment of due installments over the course of 2023.

The crisis reached its nadir at the beginning of this year, when the dollar exceeded LE70 on the black market, more than twice the official exchange rate. Negotiations with the IMF are ongoing, with officials from the fund noting that devaluing the Egyptian pound remains a priority.

Madbuly said on Friday that he hoped the incoming influx of cash would do a lot to stabilize the economy.

This piece has been updated since publication after more details on the deal became available from ADQ.