The Red Sea continues to draw billions of dollars of investment from sovereign wealth funds, which are keen to capitalize on the resources and strategic position it occupies in global trade.
The region is a global investment hotspot with ambitions for world-class ultra-modern industrial, logistics, renewables and tourism facilities based around seaports – mimicking the model of cities in the Arabian Gulf region. This week, the UAE’s Mubadala, the Qatar Investment Authority (QIA) and Ethiopian Investment Holdings (EIH) have indicated they are set to back new projects in energy, renewables and transportation infrastructure.
Suez: Seeking Opportunity in Crisis
Mubadala announced it intends to back projects in LNG and renewable energy in Egypt with its energy subsidiary Mubadala Energy establishing an HQ in Cairo. The fund already has interests in Egypt’s upstream sector, including involvement in SUMED, which owns and operates pipelines and associated storage facilities connecting the Red Sea and the Mediterranean. Almost 70% of the oil shipped from the Arabian Gulf to Europe passes through the SUMED pipelines. Last year, Mubadala Petroleum – now Mubadala Energy – secured a 27% stake in Block 4 oilfield in the Red Sea.
QIA is also seriously considering a US$1 billion renewables project in the Suez Canal Economic Zone (SCZone), which would include a green ammonia unit that had been agreed between Qatar Energy and The Sovereign Fund of Egypt (TSFE) last month. The Qatari investor is also in advanced talks to buy around US$2.5 billion of state-held stakes in Egypt’s biggest mobile network operator Vodafone Egypt and other companies, following the trend of other sovereign funds in scooping up equity in major industrial, finance and telecoms businesses in Egypt.
The Egyptian government is keen to channel foreign SWF investment via its sovereign wealth fund. The Suez Canal Authority (SCA) is establishing its own sovereign fund, to utilize a portion of the canals’ revenue, including transit fees, to invest in the area’s infrastructure. Currently, the SCA passes its canal revenue, including transit fees, to the Ministry of Finance, but it is setting aside a portion to establish the SWF with the backing of the administration, led by President Abdel Fattah al-Sisi.
In April, the SCZone signed a US$3 billion agreement worth to produce up to 350,000 tonnes per annum (tpa) of green energy for fueling ships in Ain Sokhna with a consortium that includes EDF Renewables and TSFE. Egypt also signed an agreement with the UAE’s AMEA Power to produce up to 390,000tpa of green ammonia a year in Ain Sokhna. Egyptian Prime Minister Mostafa Madbouly indicated his government was pressing ahead with efforts to entice foreign investments into green hydrogen production with the SCZone positioned as a focus for the emerging sector. The plans involve TSFE and the SCZone’s own SWF.
Sudan and Djibouti: Avenues for Development
Meanwhile, Ethiopia’s recently launched SWF, EIH, is extending its reach beyond its borders. It has secured a 30% stake in a planned new port facility in Djibouti, which is seen as an island of relative political stability and security. Djibouti’s position at the choke-point where the Red Sea meets the Gulf of Aden, opposite war-torn Yemen, makes it a highly attractive entrepot for land-locked Ethiopia, which is bounded by troubled Eritrea with which it has had a rocky relationship since independence in 1991, the breakaway Somaliland republic, and the restive failed state of Somalia.
Ethiopia is keen to expand Djibouti’s oil terminal facilities to accommodate its oil import needs, which are bigger than the current facility, Horizon Djibouti Terminal (HDT), can handle. The investment in the Damerjog Liquid Bulk Port (DLBP) is being conducted via EIH portfolio company the Ethiopian Petroleum Supply Enterprise (EPSE). Costing an estimated US$350 million and due to open in June 2023, DLBP is part of the part of the US$4 billion Djibouti Damerjog Industrial Park (DDIP) project, which will be built in phases over the next 10 years and will also include an LNG terminal, a power plant, dry docks and factory facilities
EIH’s announcement came nearly six months after its CEO Mamo Mihretu signed an MoU for a new oil storage facility with Aboubaker Omar Hadi, chairman of Djibouti Ports and Free Zones Authority (DPFZA), which owns Djibouti’s new SWF, Great Horn Investment Holding (GHIH). GHIH is planning to invest US$15 billion in Djibouti’s infrastructure over 2022-27 to bolster the country’s GDP, 70% of which is comprised of port activities and related sectors.
EIH is following the lead of Abu Dhabi, which is looking to develop Red Sea port facilities further north along the Red Sea coast. In June, UAE’s infrastructure-oriented fund ADQ announced it would back a new Red Sea port in Sudan as part of a US$6 billion investment package, including a free trade zone modelled on Dubai’s Jebel Ali, a large agricultural project and a US$300 million deposit in Sudan's central bank. The U$4 billion port is a joint project between DAL group and Abu Dhabi Ports, an ADQ subsidiary, and will compete with the country's main national port, Port Sudan, which faces suffers from infrastructural challenges and has lost business. The International Holding Company (IHC), headed by Sheikh Tahnoon bin Zayed al Nahyan, the UAE’s national security adviser who chairs of ADQ and is the brother of UAE President and Mubadala chair Sheikh Mohamed bin Zayed Al Nahyan.
In the same deal, Abu Dhabi conglomerate IHC and DAL Agriculture agreed a US$1.6 billion expansion and development of an agricultural project in the town of Abu Hamad in northern Sudan. A US$450 million toll road, financed by the Abu Dhabi Fund for Development, will connect the 1,600 square km crop-growing area to the new port.
PIF: Goliath Giga-Projects
The developments on the Africa side of the Red Sea are dwarfed by Saudi Arabia’s giga-projects on the Arabian shore, from NEOM in the northwestern Tabuk Province to developments in Jeddah and tourism developments in the mountainous Asir region. These are designed to diversify the Saudi economy through tourism, real estate and a focus on net zero objectives.
The Public Investment Fund (PIF) is leading the development of the US$500 billion NEOM economic zone, which is envisaged as a green city 100 miles long with no cars and powered by 100% renewable energy. Tourism hotspots are planned at Soudah, Wadi Al Disah and Amaala, together attracting a further US$5 billion of investment.
On top of these developments is The Red Sea Project (TRSP), which is envisaged as a luxury destination developed over 28,000sq km along Saudi Arabia’s west coast including more than 90 islands. The first phase, which includes 16 hotels in total, will be completed next year. PIF has committed to investing US$15-16 billion in TRSP.
Jeddah is one of the central focuses of Saudi Arabia’s Vision 2030 economic diversification program, which is having multiplier effects across the Red Sea region. In March, PIF subsidiary the Jeddah Central Development Company sign an agreement with the Royal Saudi Air Defense Forces Institute to acquire a prime site for the Phase One of its SAR75 billion (US$20.4 billion) Jeddah Central Project. The New Jeddah Downtown development, launched by Crown Prince Muhammad bin Salman in December, covers 5.7 million sq m of land overlooking the Red Sea. Phase One spans 1.5 million sq m and includes a sports stadium, beach and recreation areas, which will be completed by end-2027.