A new generation of strategic sovereign wealth funds is looking to catalyze capital from third party investors in a bid to boost national development.

The Sovereign Fund of Egypt (TSFE) is seeking to channel capital into a range of economic and social development projects, from education to utilities, through public-private-partnerships (PPPs), emulating state-owned investors established in India (NIIF) and Indonesia (INA). Seeded with under-utilized state assets, TSFE was established in with a mandate to advance the government’s ambitious Vision 2030 economic program via joint investments with international institutional investors. The development of “sub-funds” around development themes is central to the strategy to attract domestic and international capital. So far this year, TSFE has succeeded in signing an array of deals spanning economically strategic sectors.

According to TSFE Director General Ayman Soliman, the fund aims to raise its investment portfolio to EGP30-40 billion (US$2-2.5 billion) by end-2022 and reaching EGP200 billion (US$12 billion) within a decade with an ultimate target of EGP1 trillion (US$64 billion) – similar to the current size of Kazakhstan’s Samruk-Kazyna. Its growth strategy is based on partnering with the private sector to generate income from state assets.

This week, it announced plans to raise US$2.5 billion in finance to build 17 solar-powered desalination plants to supply drinking water by 2025, in order to counter the depletion of fresh water resources due to drought and the damming of the Nile in Ethiopia. TSFE Director General Ayman Soliman said a call for investment partners in the water utility projects will be made in Q1 2022. The projects will increase water desalination capacity from approximately 830,000 cubic metres per day to more than 3.6 million cubic metres.

In a bid to bolster national human capital and meet both SDGs and Vision 2030 goals for human development, in July TSFE formed an alliance with Egyptian organizations and the financial sector – including Banque Misr, the Misr Insurance Holding Company, and the Suez Canal Bank - to establish the Lighthouse Education platform, with target capital of EGP1.75bn. It aims to acquire and expand existing schools and support the digital transformation of the education system and distance learning platforms, while also generating a return.

To support sustainable economic development, one of the fund’s strategies is to attract foreign capital into the localization of industry through joint ventures. In June, TSFE announced that a partnership had been negotiated between South Korea’s Hyundai Rotem and the National Egyptian Railway Industries Company (NERIC) to manufacture of metro cars and electric trains in the Suez Canal Economic Zone (SCZone). In November, TSFE and the SCZone partnered with NERIC in East Port Said with plans for two phases of development totalling nearly EGP6 billion.

At the same time, the fund is drawing direct investment into its assets by anchoring and arranging partnerships to restructure state assets and generate strong returns. In Q4 2021, TSFE is set to offer stakes in the Wataniya Petroleum Company and Siwa-based National Company for Producing & Bottling Natural Water - Safi, which are affiliated to the Egyptian Armed Forces’ National Service Products Organization (NSPO). TSFE aims to acquire a minority stake in a PPP with foreign investors.

According to Daily News Egypt, the Emirates National Oil Company Group (ENOC), the Abu Dhabi National Oil Company (ADNOC), Saudi Arabia’s Petromin Corporation, and Egypt’s Qalaa Holding submitted offers to purchase a majority stake in Wataniya Petroleum, which owns a national network of 255 petrol stations. TSFE aims to offer to investors 10 of NSPO’s portfolio companies, covering diverse sectors such as food production, petrochemicals, and construction. In December, TSFE and NSPO agreed to sell stakes in the armed forces’ portfolio of up to 100%.

The process of forging PPP deals has also extended to the financial sector. In May, TSFE signed an agreement with EFG Hermes for the acquisition of a 76% stake in the Arab Investment Bank, which was structured as an increase in paid-in capital to EGP5 billion. EFG Hermes agreed to subscribe to EGP2.55 billion of newly issued shares to give it a 51% stake while TSFE took EGP1.25 billion for a 25% stake leaving the National Investment Bank with 24%. With the capital injection, AIB is being positioned as a catalyst for financial inclusion and digital transformation, serving the growth of SMEs.

TSFE Chair Hala El Said said, “Completing the AIB partnership transaction underscores TSFE’s pivotal role in unlocking and maximizing the value of state-owned assets. This transaction complements Egypt Vision 2030’s third objective of achieving knowledge-based economic growth and digital transformation; increasing the resilience and competitiveness of the economy; increasing employment rates; improving the business environment; and realizing financial inclusion.”

Related funds TSFE