Reporting by Nadine Ibrahim, in the Middle East newsletter from CNN. To subscribe to the newsletter (Press here)
Abu Dhabi, United Arab Emirates (CNN) – Last February, Egyptian President Abdel Fattah El-Sisi sent a message to his Gulf allies, saying at the World Government Summit in Dubai, where he was a guest of honor, that “the most important point here is the support of our brothers.”
He was referring to the tens of billions of dollars in subsidies that Egypt has received from wealthy Gulf states over the past decade.
Now, however, Gulf creditors are changing the way they provide financial support to their North African ally, moving away from unconditional payments and central bank deposits towards acquiring large stakes in some of Egypt’s signature assets. Many of these assets have long been under the control of the Egyptian military, an economic giant and the backbone of Sisi’s power.
Neighbors view Egypt as essential to regional stability and have often found a helping hand from wealthier Arab states. But this time, the Gulf allies — especially Saudi Arabia and the United Arab Emirates — want to see returns.
The apparent shift in policy was articulated by Mohammed Al-Jadaan, the Saudi finance minister, at the Davos World Economic Forum in Switzerland last January.
He said they used to give grants and direct deposits “without restrictions,” but he did not name the exact beneficiaries. “We’re changing that as we work with multilateral institutions to actually say we want to see reforms,” he added.
The new Gulf approach to aid comes as Egypt implements difficult economic reforms following a $3 billion loan agreement with the International Monetary Fund, which analysts say has been heavily influenced by the Gulf states.
Egypt had turned to the International Monetary Fund 3 times for bailouts in the past six years before the last round. By the first quarter of the current fiscal year, foreign debt had reached $155 billion, according to state media. This equates to about 86% of its annual economic output.
Today, Egypt, which has a population of 106 million, suffers from a currency crisis and severe inflation, which makes millions of citizens unable to afford basic commodities. Inflation has reached a five-year high and the Egyptian pound has lost nearly half its value in a series of devaluations since March 2022.
In the past year alone, Gulf states pledged $22 billion to Egypt as it grappled with an economic crisis stemming in part from the fallout from the Ukraine war, Reuters reported.
“Too important to let down”
Jamal Saif Al Jarwan, Secretary-General of the Emirates Council for International Investors, a gathering of the largest international investors in the UAE, told CNN that Egypt is too important to fall and will always have the UAE’s support. But, he added, repeated requests for help could test her patience.
He continued, “By returning again and again (to obtain loans), you may lose face on the one hand, and on the other hand, you may lose credibility.”
In its recent agreement with the International Monetary Fund, Egypt agreed to a number of unprecedented reforms, including reducing the footprint of the state and the military in the economy and subjecting state-owned enterprises and the military to mandatory financial disclosures.
It also promised to adopt a flexible exchange rate and put stakes in several major government institutions for sale.
However, progress to meet these conditions has been slow, and analysts say pushback by the military – an institution that could emerge as the biggest loser in an IMF agreement – may be behind it.
“Inside Egypt, it’s clear that the regime is in conflict,” Timothy Caldas, deputy director of the Tahrir Institute for Middle East Policy in Washington, told CNN.
He added, “It is clearly the army that has gained the most and therefore has the most to lose from a deal like this. But Sisi also needs ultimately to keep the backbone of his regime united behind him.” He continued by saying, “I imagine that this is what they are negotiating now, who will give up what, and where the burden lies.”
Egypt’s cabinet said last month that it would sell stakes in 32 companies owned by the state and the military, including prominent banks and at least two military-owned companies.
“Egypt needs to carry out reforms … and sometimes those reforms may not be very popular,” Jarwan said, adding that the army’s resistance is normal, but he will embark on privatization to save the economy. He added that the changes would make the country “much stronger, more disciplined and more reformed”.
Al-Jarwan went on to say that the UAE is watching privatization efforts in Egypt “closely” because it wants to increase its investments in the country from the current $20 billion to $35 billion over the next five years, and hopes to eventually surpass this figure.
Analysts say that the Gulf states pushed Egypt to accept the conditions of the International Monetary Fund, especially those related to privatization.
Al-Jarwan said that the UAE does not interfere in Egypt’s negotiations with the International Monetary Fund, but added that the Egyptians “listen to us closely.”
He added that the Egyptian military had “acted like a private sector” for years to prop up the economy and now was the time to make room for privatization as Egypt entered the “next wave of capitalism”.
The only option for Egypt
But not everyone is eager to see increased foreign investment from the Gulf. There was concern among Egyptians unhappy with the sale of state assets to neighbours. “There is already concern in Egypt about the scale at which the state is being sold piece by piece to the Gulf,” Caldas said.
For his part, Abdul Khaleq Abdullah, a professor of political science in the UAE, said that the Egyptians’ fears are unfounded. “Every now and then, those who want to protect Egyptian companies show up,” he told CNN. He added that critics ignore the benefits to come.
He continued, “I think they (the pundits) do not understand that investments bring not only money, but (also) technology and expertise and they open up the country.” Stressing that the UAE is a committed ally of Egypt.
Egyptian officials have repeatedly said that after the 2011 revolution, the private sector could not afford the burdens that followed, forcing the state and military to intervene.
The Foreign Press Center of Egypt’s State Information Service did not respond to CNN’s request for comment.
Analysts say selling state assets is the only way for Egypt to get out of its economic crisis. The most likely buyers are expected to be foreign investors, especially from the Gulf.
“Is there a mechanism to rescue Egypt without Gulf money? Not realistic if there is,” Caldas said. “They (Egypt) are really stuck, and in practice, this regime under Sisi may be responsible for severely weakening Egypt geopolitically because of its financial weakness.” “.
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