Impacts of Ras El-Hekma Mega Deal on the Egyptian Economy

Updated 2/28/2024 1:10:00 PM

Egypt and the UAE signed a historic investment agreement on February 23rd aimed at transforming Ras El Hekma city into a new hub for business and tourism. The project will be implemented by the New Urban Communities Authority (NUCA) and the Abu Dhabi Development Holding Company (ADQ).

The mega deal is poised to have a remarkable impact on different aspects of the Egyptian economy. In this Factsheet, we will explain the details of the deal and its effects on the exchange rate, gold prices, and the stock market.

Ras El Hekma is a coastal city located on the North Coast west of Alexandria, spanning over 170 million square meters. The project aims to establish a new generation city with tourism facilities, a free zone, and an investment zone, in addition to entertainment, commercial, and residential spaces.
Expected to commence in 2025, the project aims to attract a total of $150 billion in foreign direct investment (FDI) throughout its development duration. Egypt will retain 35% of the project’s profits.
ADQ will acquire Ras El Hekma’s development rights for $35 billion, with Egypt receiving the payment in two installments; the first is worth $15 billion and will be received within a week, and the remaining $20 billion will be obtained within two months of signing the agreement.
The $35 billion investments will be split into $24 billion of fresh inflows and $11 billion are met by running down the UAE’s deposits at the Central Bank of Egypt (CBE).
Running down the Emirati deposit will reduce Egypt’s external debt, as the UAE is Egypt’s top Arab creditor with $22.2 billion or 13.5% of Egypt’s total external debt.
In a note, Goldman Sachs predicts that the foreign currency provided by this deal will bridge Egypt’s financial gap for the next four years. Morgan Stanley, on the other hand, estimates the deal will cover three years of the financial gap and 9% of the country’s gross domestic product (GDP).
Shortly after the deal was signed, the EGP’s 12-month non-deliverable forwards (NDFs) exchange rate dropped by 14% to EGP 57.
The USD exchange rate in the parallel market moved down, reaching a level of EGP 50 from a record high of EGP 70 last month.
After surpassing the level of EGP 3,500 per gram of 21-karat, gold prices dropped to levels below EGP 3,000 per gram.
The Egyptian Exchange (EGX) was negatively affected, as the EGX30 benchmark recorded a 5% loss at the week’s outset post-deal.
The Egyptian government announced that the state is open for future projects like Ras El-Hekma, to support the economy in different aspects.