Egypt has accelerated inward investment into its economy through the deployment of its young and growing sovereign wealth fund as a go-to partner for foreign investors seeking to penetrate North Africa’s biggest economy.
In line with Egypt’s Vision 2030 economic development program, a new microfinance initiative - Erada Microfinance - was launched by The Sovereign Fund of Egypt (TSFE) and the UAE-owned Etisalat Egypt by e& this week to boost access to a wide range of financial services for micro and small enterprises. According to TSFE, the number of microfinance loans rose 46% y-o-y in the year to end-September 2022, totalling EGP35 billion (US$1.2 billion) and 3.8 million borrowers, of which 60% were women.
Recent days have also seen AD Ports Group, a subsidiary of Abu Dhabi sovereign investor ADQ, engaged in talks with TSFE over the development and operation of the Suez Port, known as Port Tawfiq. The contract would be the third signed by AD Ports’ to operate ports in Egypt.
Ports and maritime transportation are major targets for sovereign investment. The Suez Canal Authority (SCA) is establishing its own sovereign fund, to utilize a portion of the canals’ revenue, including transit fees, for investment 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 Suez Canal Zone (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 SCA’s own SWF.
The emerging deals secure TSFE’s role as a lightning rod for investment in the Egyptian economy. Sovereign wealth will be a major long-term stabilizer for the Egyptian economy, which has faced increased pressure on its external position due to high imports and massive capital outflows. The slump in the value of the Egyptian pound has merely exacerbated the impact of rising energy prices following the Russian invasion of Ukraine. Financial support from Gulf Cooperation Council SWFs is therefore critical for a country with very slim external buffers.
In 2022, TSFE reportedly attracted more than US$3 billion in investments from Arab sovereign funds, across 14 projects including green hydrogen production, water desalination and education. Last month, Saudi Arabia’s Public Investment Fund (PIF) was in advanced talks to acquire Egypt’s state-owned United Bank for US$600 million via its Saudi Egyptian Investment Company unit, which it set up earlier in 2022. It has already scooped up state-owned stakes in four Egyptian publicly-listed companies for US$1.3 billion and deposited US$5 billion in the central bank to help support the troubled economy.
Support from PIF along with its counterparts in Qatar and the UAE is pledged at US$25 billion and, if these pledges are met, will help offset slowing public investment at a time when rapidly rising external debt is weighing on spending. Fiscal constraints imposed by the IMF as conditions for a US$3 billion loan as well as a heavy debt load will allow the government to add only limited relief to the economy, requiring increased involvement of foreign capital to generate growth.
The multi-billion dollar investment drive by Arab Gulf funds demonstrates the added value TSFE has in working with peers in channelling investment into strategic sectors. In September, TSFE CEO Ayman Soliman said investments in the fund’s infrastructure sub-fund will focus on energy transformation projects, including projects of solar and wind power, as well as green hydrogen and waste-to-energy projects.
Talks are also underway between TSFE, PIF, the Abu Dhabi Investment Authority (ADIA), and the Qatar Investment Authority (QIA) for investment in water renewables-powered desalination projects worth US$3 billion, with the Egyptian fund holding stakes of 10-25%. The agreements are expected to be signed during H1 2023. Meanwhile, UAE’s renewables platform Masdar, which was launched and is part-owned by Abu Dhabi’s Mubadala sovereign fund, is joining with Egypt’s Infinity company to start construction of a massive 10GW wind farm worth US$11 billion in 2024.
