Image description: Rendering of plans for Ras el-Hekma, Egypt.
Image description: Rendering of plans for Ras el-Hekma, Egypt.

Egypt encountered a turbulent beginning to March with the Egyptian pound crashing to approximately

Relieving Egypt’s Currency Crisis: UAE Spearheading Investment into Egypt’s Mediterranean Coast

The UAE is showing its economic statecraft through centralizing investment funds in Egypt. What that means for the increasingly unstable economy is uncertain.

Apr 2, 2024

Egypt encountered a turbulent beginning to March with the Egyptian pound crashing to approximately 49.5 Egyptian pounds per U.S dollar on March 6th. Despite the devaluation of the Egyptian pound, four times since 2022, a highly fluctuating exchange rate coupled with an external debt of $31 billion in 2024 has meant that investor confidence is plummeting. Because of the IMF’s reluctance to provide the long-negotiated loan package of $10 billion, the UAE intervened in late February by funneling $35 billion into Egypt via the deal. The deal is twofold; including a $24 billion purchase of 171 million square meters of Egypt’s north coast amounting to 65% ownership by the UAE, and $11 billion converted into Egyptian pounds from UAE’s deposits in the Egyptian Central Bank. Immediately after, Egypt received a $8 billion IMF loan on the same day the Egyptian pound peaked. By proving Egypt’s ability to attract investor confidence in the Ras El-Hekma deal, Egypt was able to gain the IMF loan deal shortly after a time of immense economic struggle.
However, the UAE’s investment in Egypt did not start with the Ras al-Hekma deal. Between 2008 and 2010, 18 economic and commercial agreements were signed between Egypt and the UAE, and in 2010, following high interest rates sparked by the Arab Spring, Egypt gained a total of $1.4 billion in inward investment from the UAE. Further perpetuating inward investment through bank transfers and foreign direct investment, the initiation of Abdelfatah el-Sisi’s presidency was packaged with a rise in bilateral trade agreements and memorandums of understanding between the signatories. Leading FDI of up to $4.6 billion in Egypt in 2022, the UAE has maintained its position as a top FDI exporting country to Egypt holding the fourth top FDI exporter to Egypt in 2023. Hence, channeling FDI and bank transfers to Egypt in exchange for Egypt’s strategic geographical location and foreign policy solidarity with the UAE creates a sustainable bilateral relationship that stems from foreign aid that is resilient to Egypt’s fluctuating exchange rate. Investment funds as key drivers of foreign aid allow bank transfers to be employed with agility and adaptability vis-à-vis Egypt’s unstable currency.
The IMF is not alone in providing monetary support to Egypt in response to the devaluation of the Egyptian Pound this month. The ability to alleviate devalued currencies in Arab states in the MENA region, in other words, can be considered an embellishment to the role of investment arms as pivotal cornerstones of UAE’s economic statecraft. Investment funds, I believe, should be viewed not purely as financial institutions that invest in stocks, bonds, or assets, but rather as arms for strategically signaling strong bilateral relations with a beneficiary state to international lenders. Hitting two birds with one stone, a diversified investment portfolio for investment funds, and a more stabilized currency in a neighboring Arab state positions UAE’s investment funds as leaders in the architecture of economic diplomacy globally. This piece attempts to highlight that IMF decision-making in expanding a loan package is highly unlikely to be done in isolation from the unmatched investment conducted in the Ras El Hekma deal The expansion of a loan package by the IMF, of course, is not only dictated by the preceding Ras El-Hekma deal, but the deal acts as an indicator of where the IMF can increase its confidence in lending.
While the IMF and Egypt have been negotiating a loan package for numerous years, without FDI and bank transfers proving investor confidence in Egypt, credibility in meeting IMF conditionality is questionable. As Dr. Karen E. Young, a senior research scholar at the Columbia Center of Energy Policy pointed out, Gulf states have helped regional countries who have struggled to attract IMF loan packages to unlock IMF confidence by providing financial aid. Whether the IMF would have still provided the loan package on March 6th without UAE signaling investor confidence earlier in February is unknown. Even so, the Ras El-Hekma deal strikes as an important reflection of understanding the intersections between foreign aid employed by investment funds and loan packages provided by the IMF in Egypt’s economic development. I remain hopeful and interested to witness how the UAE continues to renovate the art of economic statecraft.
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