Egypt’s economy is still under duress. Financial figures are all over the place, showing a still fledgling economic development, which is partly kept afloat by investments from Arab countries and China. The underlying figures presented by Cairo are not positive, especially if accounted for the immense infrastructure projects being subsidized by external parties (China, GCC), which are not able to support a hard-needed diversification and restructuring of the Egyptian economy. The impact of gas exports the coming years will be important, but not the cork on which a sustainable future will be able to be build.

Egyptian Prime Minister Mostafa Madbouly stated the last days that Egypt’s foreign debt has increased by $4.44 billion, reaching a level of $92.64 billion in June. Based on the official figures, foreign debt makes up 37.2 percent of the country’s GDP at the end of the 2017-2018 fiscal year, in comparison to 36.8 percent at the end of FY2017-2018 Q3. At the same time, Egypt’s foreign reserves increased only by $0.2 billion to $44.4 billion at the end of August, in comparison to $44.2 billion at the end of June. Egyptian analysts are still reasonably optimistic, largely based on the fact that Egypt has been still able to enter with success the international financial markets. In April, Egypt issued 2 billion Eurobonds in two tranches for eight and twelve years with a yield of 4.75 percent and 5.625 percent respectively, amid strong coverage.  Still, the overall external debt to GDP ratio is high, as it increased to 37.2 percent at the end of fiscal year 2017-2018. The latter situation could be a possible threat to the attractiveness of Egypt as an investment destination in future. The ratio should decrease, not to become a a burden on Egypt's cash reserves and external resources.  Madbouly stated that the external debt increase is largely caused by the expansion in foreign borrowing by Egypt. The country’s external debt is mainly held by international and regional financial institutions ($28.42 billion), Saudi Arabia, United Arab Emirates and Kuwait together $17.4 billion while $14.28 billion in bonds. Egypt also has $10.37 billion in bilateral loans, $9.89 billion in medium and long-term loans and facilities and $12.28 billion in short-term debt.

The government debt volumes are not the only to look at the coming time. The FDI influx by others, especially China, could also become a main strain on development. The focus on large real estate projects is still seen by most analysts as a promising one, as it is providing jobs and supports economic development. As Amr Gaddallah, the vice-chairman of the Egyptian Arab Land Bank, reiterated, “long-term investment in Egypt is better than quick investments in government debt instruments, especially, after the implementation of the economic reform program, as well as strong infrastructure and long-term investment’s return better than anywhere else”. He also indicated that Egyptian banks are focusing their investments on real estate, as these are seen as commercially viable and profitable. The latter is also promoted by the Central Bank of Egypt (CBE), which has been largely successful in lowering overall inflation rates and has managed the floatation of the Egyptian Pound. Looking at the situation on the ground, there is a significant growth in the financing of small and medium-sized enterprises by banks after the CBE launched an initiative to finance these projects. Growth in funding such projects has hiked to 40%.  Still, major focus is on real estate, as these are quick in implementation and completion, while diversification of the economy and increased industrialization will take longer. Even that there is no real fear for a real estate bubble in Egypt, as most units are bought by cash or low debt provisions, some issues should be taken into account.

Assessments have failed to address the overall impact of real estate projects on the situation of the average Egyptian. At present, based on salary levels and ongoing inflation repercussions, the overwhelming majority of Egyptians will not be able to acquire an apartment or house in the current projects. Most of these real estate units are being acquired by upper-middle class or higher echolons of the Egyptian society, or by expatriats, mainly coming from the Arab world. The positive effect of an influx of foreign currency into the Egyptian economy is still not enough to increase the overall economic situation of the average Egyptian. The continuing influx of Egyptians from the rural areas into the densely populated regions such as Cairo, Giza, Alexandria, Suez and others, is not being stopped.

Former attempts to entice Cairo’s struggling population to relocate into the new desert cities have been not successful at all. At the same time, without building up new economic centres close to the new real estate projects or cities, people will not be moving, as traffic and other logistical issues are constraining it.

On a short to mid-term, real estate projects are functional. Increased investments and FDI flowing into these high—profile projects will not only give the economy a push but also increase the attraction of the whole country. Long-term, real estate will not be the driver for prosperity or a sustainable economy. New industrial sectors need to be supported, such as IT, AI, high-tech manufacturing or financial services. Without these opportunities, Egypt will continue to fight an uphill battle. Providing housing for the middle and upper class segments will not satisfy the lower economic social strata, but increase only dissatisfaction and possible unrest. The economy has been battered by years of turmoil that began after mass protests in 2011 forced President Hosni Mubarak to step down. The recovery is impressive, but has not reached the average Egyptian at all.


A possible other boon of contention could come from an unexpected side. Egypt’s ongoing efforts to increase its strong links with Asian and Russian partners could become a major stumble block in the future. Last week a multitude of trade agreements between Cairo and Beijing were reported during the visit Egypt’s President Abdel-Fattah Al-Sisi to China. Egyptian media sources have been reporting on a new EGP 179 billion agreement on projects in new administrative capital next to Cairo. Egyptian companies also have signed agreements to increase Chinese investment in Egypt by some $18.3 billion, including the construction of an electric train system, initiating phase two of the Central Business District in the New Administrative Capital, and the setting up of a pumping and storage project at Ataqa. China also will build a 6GW clean coal power station at Hamrawein, while the Egyptian Holding Company for Electricity will sign a $4.4 billion deal with the winning bidder that includes Hassan Allam for Construction and China’s Shanghai Electric Company and Dong Fang. Sisi also has indicated that Chinese involvement is being targeted for the development of the Suez Canal Zone. As indicated by sources, direct Chinese investment in Egypt increased by 75 percent during the first half of 2017, recording a $106 million increase on the same period in 2016. China-Egypt trade in 2017 was $11 billion, while recording a 25.86 percent increase ($2.83 billion) during the first quarter of 2018 over the same period last year.

Beijing’s exports to Cairo recorded a $6.5 billion increase in the past seven months, an increase of 22.6 percent, while Egyptian exports to China for the same period were $1 billion, an 34.1 percent increase. For China, Egypt is of strategic importance. Chinese exports can easily enter the Egyptian market, but also use Cairo’s extensive network in Africa as a hub to other states. Increased Chinese investments in Egypt also have shown the potential to open up military and technological cooperation between the two. The latter until now has not yet resulted in US or European reactions, but a growing Chinese geo-economic power position in the strongest Arab country, and strategic transport route between the West and Asia, could have a major fall-out.

Indirectly, increased Chinese exports and investments in Egypt also have a negative impact on Egypt’s local industry potential. The influx of low cost Chinese products has been clear since years, as Egyptian products have lost this battle already. Traditional Egyptian economic sectors, such as clothing (Egyptian cotton), steel and manufacturing, are loosing ground due to Chinese competition. Beijing’s industrial investments in Egypt are also not a win-win situation. The set-up of Chinese companies in Cairo, Suez Canal or other places, have shown not to be bringing a high level of new jobs or even commercially attractive supply routes. Chinese real estate investments are mostly linked to the involvement of Chinese contractors, builders and workforce, as has been the case in most other Arab countries too. For Egypt, this is an unwanted situation, as in stark contrast to GCC countries, Egyptians are making up the overwhelming majority of all job participants. Involvement of foreign non-Egyptian workers is at present not a situation to be supported. FDI and economic development should be linked only to increased participation of (currently unemployed) Egyptians. Even within high-tech, fin-tech or engineering, Egyptian graduates can and should compete with any non-Egyptian entity.

If these developments are not taken into account, Egypt (ians) will not be reaping the real rewards of a possible economic resurgence. FDI should be linked to Egyptian futures, not to others. Increasing government debt levels are not a real issue at present if this is linked to higher employment levels and a real restructuring of the local economy. If this is not the case, new real estate Giga Projects in the desert could easily become a new tourist attraction at the level of Petra in Jordan, nice and beautiful, but without inhabitants. Bilateral and multilateral investment and economic agreements for Egypt should be only signed and promoted if it supports the sustainable future of the country’s population. Otherwise selling out only to build grand-scale projects could be the first step on a road to the end of an Empire.

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