Strapped for cash, Egypt sells off state assets to eager Gulf nations

Kuwait, Qatar, Saudi Arabia and the United Arab Emirates are swooping in to buy shares in national companies, while also demanding economic reform and greater transparency

The high-rise commercial building serving as the modern headquarters of Banque Misr (Bank of Egypt), in Cairo on February 9, 2023. (Amir MAKAR / AFP)
The high-rise commercial building serving as the modern headquarters of Banque Misr (Bank of Egypt), in Cairo on February 9, 2023. (Amir MAKAR / AFP)

CAIRO (AFP) — Egypt, sapped dry of dollars despite a $3 billion International Monetary Fund bailout loan, is seeking to boost its coffers by selling state assets to wealthy Gulf nations.

Experts say the deals could be a win-win for all sides, but unlike old Gulf largesse of unconditional aid, the new deals will require reforms.

Cairo hopes the cash injection will plug what the IMF warns is “a financing gap of about $17 billion over the next four years.”

For Kuwait, Qatar, Saudi Arabia and the United Arab Emirates, eager to diversify their oil and gas-based economies, it provides a swift route to snap up assets, land and stakes in state enterprises in the North African nation.

“The investments by Gulf states into Egypt last year helped to alleviate some of the immediate financing concerns that Egypt encountered, prior to securing further funds from the IMF,” said James Swanston, an emerging markets economist at Capital Economics in London. “At the same time, it has allowed the Gulf states to continue to have a sphere of influence in the region.”

For Gulf nations, a steep devaluation of Egypt’s currency and incentives offered by President Abdel Fattah al-Sissi make it an attractive investment.

Egyptian President Abdel-Fattah el-Sissi delivers a speech during the One Ocean Summit, in Brest, Brittany, February 11, 2022. (Ludovic Marin, Pool via AP)

But Sissi’s Gulf allies — on whose support he relied after deposing Islamist president Mohamed Morsi in 2013 — are done writing blank checks, and now demand economic reform and greater transparency.

In under a year, the Egyptian pound has lost half of its value, propelling annual inflation in the import-dependent country to 26.5% in January. Of the $34.2 billion in Cairo’s foreign reserves -– a 20% drop from February 2022 –- some $28 billion are deposits from wealthy Gulf allies.

The country’s foreign debt has more than tripled in a decade to $155 billion.

“A country like Egypt needs a trillion-dollar budget each year. Do we have that money? No. Do we have half of it? No. Do we have a quarter of it? No,” Sissi said at the World Government Summit in Dubai this week, noting the importance of “help from friends, the UAE, Saudi Arabia and Kuwait.”

But the days of unconditional aid are over, Saudi Finance Minister Mohammed al-Jaadan has warned.

“We used to give direct grants and deposits without strings attached, and we are changing that,” Jaadan said at Davos in January, explaining the kingdom will be demanding “to see reforms.”

Saudi Arabia’s Finance Minister Mohammed al-Jadaan attends the G20 Finance Ministers and Central Bank Governors Meeting in Nusa Dua, Bali, Indonesia, July 15, 2022. (Made Nagi/Pool Photo via AP)

As part of the IMF loan agreement, Cairo pledged to privatize key state assets, with a view to increase the private sector’s share of the economy from 30% to 65% by 2025. Gulf nations swooped in.

In 2022, 66 mergers and acquisitions were completed in Egypt, more than double the transactions in 2021, Egyptian business news publication Enterprise calculated in December.

With stakes in 40 deals, Emirati and Saudi companies had the bulk of transactions.

Abu Dhabi’s sovereign wealth fund ADQ, and Saudi Arabia’s Public Investment Fund “spent some $3.1 bn to acquire significant minority stakes” in some of the “strongest companies,” Enterprise wrote in December.

They snapped up key shares of Egypt’s two largest fertilizer producers — 41.5% of Abu Qir Fertilizers Company, and 45% of MOPCO.

ADQ is also the largest private shareholder in Egypt’s Commercial International Bank (CIB), purchasing a 17.5% stake for $911.5 million.

The Saudi fund now owns 25% of state-founded digital payments company eFinance, and is negotiating the purchase of United Bank of Egypt.

To encourage more deals, Cairo is slashing its notorious red tape, with Prime Minister Mostafa Madbouli earlier this month announcing stake sales in 32 public companies.

But the vast asset portfolio of Egypt’s hugely powerful military — which has played a key but secretive role in the economy for decades — remains largely off the table for deals, the Carnegie Middle East Center’s Yezid Sayigh said.

Military-owned companies are “so financially opaque they cannot be put on the market,” Sayigh said.

Only two of the 32 up for sale are military companies. One of them is the army’s Wataniya Petroleum, which Abu Dhabi National Oil Company (ADNOC) had in 2021 considered purchasing.

Sayigh said that deal stumbled “apparently because the internal financial management of the military company would scare off any serious investor from risking his capital.”

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