The Red Sea is one of the world’s most strategically important trade routes and sovereign investors are bolstering infrastructure to capitalize on opportunities provided by the constant stream of cargo flowing between continents.
This week has seen two major announcements by Arab sovereign wealth funds, pledging billions into port and logistics infrastructure in Sudan and Saudi Arabia’s Jeddah, on either side of the Red Sea.
Abu Dhabi Ports, a wholly owned subsidiary of Abu Dhabi’s ADQ sovereign wealth fund, is backing a new US$4 billion port in Sudan as part of a US$6 billion investment package. A joint venture with Sudanese industrial conglomerate DAL Group, the new port will compete with Sudan’s biggest national port, Port Sudan, and will be linked to a large agricultural project.
The port will be located in a free-trade zone modelled on Jebel Ali, located 200km north of Port Sudan. The agricultural project is being advanced by Abu Dhabi conglomerate International Holding Company (IHC), which is chaired by ADQ’s chief Sheikh Tahnoun, and DAL Agriculture in the town of Abu Hamad in northern Sudan. It will be connected to the port via a 500km road, financed by the Abu Dhabi Fund for Development.
The investment is the best bit of news Sudan has received since the October 2021 military coup, which threw the country into economic turmoil and led to the suspension of billions of dollars in finance from Western governments. The agreement was previously agreed by the pre-coup civilian transitional government, but was revived following a visit by Sudanese leader General Abdelfattah al-Burhan to Abu Dhabi where he met UAE President Sheikh Mohamed bin Zayed.
The exact location of the new port has not been announced, but it is likely to be situated around the Dungonab Bay, directly opposite Jeddah in Saudi Arabia, which is also witnessing massive inflows of capital by Saudi Arabia’s Public Investment Fund (PIF) and other regional SWFs. This week saw Dubai’s DP World, owned by sovereign holding company Dubai World, and the Saudi Ports Authority (Mawani) announce the signing of a 30-tear agreement to build a US$133 million logistics park at the Jeddah Islamic Port, with an in-land container depot capacity of around 250,000 twenty-foot containers, providing integrated services linking port operations with last mile logistics.
DP World already has a concession agreement with Mawani to operate and manage the South Container Terminal at the Jeddah Islamic Port until 2050, with a commitment to invest US$800 million in doubling container handling capacity among other initiatives. DP World’s move comes just a few weeks after Canada’s Caisse de Depot et Placement du Quebec (CDPQ) agreed to invest U$5 billion in DP World’s Dubai assets, enabling it to pay off debt and expand its regional footprint.
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.
Further north, PIF is developing 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. PIF is leading the Aseer Development Project, which was launched in September with plans for US$13 billion of investment to create a tourism hotspot that will attract more than 10 million visitors by 2030. PIF is investing US$3 billion to build 2,700 hotel rooms, 1,300 residential units, and 30 commercial and entertainment attractions in Aseer by 2030.
On top of these developments is The Red Sea Project, 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 by 2023.
Egypt is also seeking to develop its Red Sea potential via sovereign investment vehicles. 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 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 The Sovereign Fund of Egypt (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 The Sovereign Fund of Egypt (TSFE) and the SCZone’s own SWF.
Even land-locked Ethiopia is seeking to use sovereign capital to gain exposure to the Red Sea’s developments. Last month, it deployed its nascent sovereign wealth fund Ethiopia Investment Holdings (EIH) to broker a deal with neighboring Djibouti to ensure the East African country’s energy security. EIH, DPFZA and Great Horn Investment Holding signed a Memorandum of Understanding (MoU) to explore joint opportunities for the development of an oil storage facility in Djibouti’s Damerjog Industrial Park. The agreement covers the future joint development of oil storage terminals in Djibouti to supply Ethiopia. Ethiopia lacks access to the sea and forging closer relations with Djibouti is regarded as crucial the East African country’s economic development, particularly energy security. With no domestic refining capacity, Ethiopia imports nearly 100% of its refined products needs. Most fuels are imported from Sudan via Djibouti port.