© The Financial Times Ltd 2015 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
February 26, 2014 5:14 pm
Gulf governments have been generous in their support of Egypt’s military-backed interim government, spending billions to signal their approval of the overthrow of the Islamist president, Mohamed Morsi, last summer.
Now, having underwritten almost $7bn in aid – and helped prevent the collapse of Egypt’s beleaguered economy – the United Arab Emirates is trying to ensure that its latest tranche of $2.9bn is judiciously deployed, advocating reforms and helping to craft measures for stimulus measures that will help put the economy on track.
“There is a genuine attempt [on UAE’s part] to help Egypt reform but not the kind of conditionality you get when you deal with the IMF,” said an Egyptian source familiar with the discussions with the UAE.
“It is more a reform attitude rather than [advocacy of] a programme: more like, how can we help you reform or study certain things like, for instance, the investment environment? Or how can we reduce the oil companies’ debt?” he added.
Sultan al-Jaber, chairman of Masdar, the Abu Dhabi renewable energy project, has been appointed by the UAE to liaise with the interim government in Cairo.
Behind the generosity lies the UAE’s aim of marginalising political Islam in the region. Abu Dhabi has cracked down on domestic Islamists, jailing dozens, and quickly translated its welcome for Mr Morsi’s departure into financial support.
Other governments have also been keen to signal their approval of the Islamists’ removal from power. Saudi Arabia has pledged $5bn and Kuwait has donated $4bn.
The first round of Abu Dhabi’s aid was used to protect the currency and stop the struggling economy from collapsing, according to Ihab Hamouda, Egypt’s ambassador to the UAE.
Now, the Cairo government is trying to boost the underlying economy, launching its second stimulus package in less than six months, worth $4.87bn and mainly financed by the UAE.
“The concept is to finance projects that have specific development or non-profit goals and are directed to poor people with a quick reflection on the Egyptian street,” says Mohammed Kandil, political secretary at the Egyptian embassy in Abu Dhabi. These include helping to build wheat storage facilities and renovate medical centres, he said. Masdar will also help set up off-grid power projects in remote rural areas and is seeking to produce components for its renewable energy technology.
Observers say a large part of the investment is being channelled via military-linked companies to facilitate rapid deployment of capital. The military often subcontracts its big projects to the private sector and in the current unsettled environment, some say military contracts are less likely to be questioned than large private sector contracts.
Since the 2011 uprising that overthrew Hosni Mubarak as president, businessmen have complained that senior officials are reluctant to sign off deals because they fear it might rebound on them in the form of corruption allegations under a future government.
The authorities in Cairo have also drafted amendments to the investment law to strengthen investor guarantees by preventing third parties from mounting legal challenges to contracts with the government. These come after activists won court cases to renationalise companies that had been privatised during Mr Mubarak’s rule.
Cairo has also boosted protection for inward investment, including strengthening guarantees on repatriation of capital and new measures dealing with disputes.
UAE observers say the Gulf state is promoting the export of a modified version of its economic model to Egypt, helping the expansion of service industries. Talks are already under way with UAE institutions to advise on the founding of new free trade zones in Egypt, Mr Kandil confirmed.
Large UAE companies are also being encouraged to invest in Egypt. Emaar, the Dubai real estate company, is investing up to $862m on a residential and commercial development as part of its Uptown Cairo project, one of three communities it is building in Egypt.
“We will continue to explore opportunities for further investment in the country and serve as a committed partner in supporting the social and economic growth of Egypt,” said Mohamed El Dahan, chief executive of Emaar Misr.
Family-owned Al-Futtaim Group, which has already invested $1.4bn in Cairo Festival City, a development close to the capital, is close to committing its backing to a new mall project in western Cairo. Initial investment of about $500m could be expanded if the development is broadened into a mixed-used real estate project, says Marwan Shehadeh, group director for corporate development.
Al-Futtaim, one of the largest foreign investors in Egypt across sectors including insurance and retail, was one of several overseas company targeted by corruption investigations after the downfall of Mr Mubarak’s regime.
The group has since been cleared of wrongdoing but is waiting for a final settlement with the government before pledging further investment.
Please don't cut articles from FT.com and redistribute by email or post to the web.