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Cairo beset by regional geopolitical storm

7 February 2024

This package on Egypt also includes:

> More pain for more gain for Egypt
> UK and Egypt sign infrastructure agreement
> Familiar realities threaten Egypt’s energy hub ambitions
> Egypt nears fresh loan agreement with IMF
> ADQ and Adnec invest in Egypt hospitality group
> Egypt’s President El Sisi secures third term
> Egypt 2024 country profile and databank 

 

Egypt is surrounded on all sides by geopolitical crises, from the Gaza conflict to the northeast and the related Houthi attacks on Red Sea shipping to the southeast, to civil strife in Libya and Sudan to the west and south.

Further up the Nile, Egypt is also engaged in a diplomatic tussle with Addis Ababa over the Grand Ethiopian Renaissance Dam (Gerd), which Cairo has unsuccessfully tried to derail for years over fears of the impact it will have on water flows down the Nile.

Domestically, things are more straightforward, at least on the surface. President Abdel Fattah El Sisi won another six-year term in December, with just under 90% of the vote.

But the turmoil beyond the country’s borders could yet cause domestic problems for El Sisi, given the impact on the already fragile Egyptian economy – all of which is creating new political pressures that could eventually force the government’s hand.

The attacks on Red Sea shipping have, according to IMF Portwatch, led to a halving of traffic through the Suez Canal, an important source of hard currency earnings for Egypt. The risk of large numbers of Gazans moving south into the already-troubled Sinai region – whether willingly or not – is another potential source of instability.

Given these risks, it is little wonder that Cairo has, along with Qatar, been the most prominent Arab country trying to resolve the Hamas-Israel war.

Soon after Hamas’ assault on Israel on 7 October, El-Sisi convened the Cairo Peace Summit on 21 October. Diplomatic activity has continued since then, with Egyptian General Intelligence Service head Abbas Kamel holding talks with Hamas leaders Khaled Mashal and Ismail Haniyeh and Israel’s lead negotiator David Barnea.

As yet, this activity has not delivered peace, but one security analyst said Cairo’s involvement was essential to any potential deal, more so than Qatar or other interlocutors. “A peace agreement can only come through Egypt,” they said.

In the meantime, Egypt has also been a vital hub for humanitarian aid, receiving numerous flights to El Arish International airport in northern Sinai, an hour’s drive from the Rafah crossing into Gaza. However, the delivery of aid from there into the Palestinian territory itself has been sporadic and limited.

President El Sisi has also had to fend off accusations against Egyptian state officials of systematic bribery both in the facilitation of moving aid into Gaza and for Palestinians seeking permits to exit the strip.

For all of these reasons, it is in Egypt’s interests to help bring about a swift resolution to the Gaza conflict, which should resolve the Red Sea shipping crisis too, but the republic’s problems to the south may be more intractable, with Cairo’s efforts to dictate events to date having been singularly unsuccessful.

Southern strife

In September, reacting to an Ethiopian statement that the final filling of the Gerd dam had been completed, Egypt’s Ministry of Foreign Affairs said the filling showed “a disregard for the interests and rights of the downstream countries and their water security” and was a “breach of legality”.

In March, Foreign Minister Sameh Shoukry appeared to leave open the possibility of a more muscular response from Cairo, when he said: “All options are open and alternatives remain available.” However, Egypt does not appear to have the appetite to turn such hard words into tough action.

A brutal proxy war between the two powers is currently being fought in Sudan between the Rapid Support Forces (RSF) led by Mohamed Hamdan Dagalo (known as Hemedti), who is close to Ethiopia, and the Sudanese Armed Forces (SAF) of President General Abdel-Fattah Burhan, who is close to Egypt.

A critical factor for Egypt in both the Sudan and Ethiopian situation is the role of the UAE, which has backed the RSF and has supported Ethiopia’s Prime Minister Abiy Ahmed. Abu Dhabi’s regional activism has caused tensions between Cairo and Abu Dhabi, but El Sisi knows he cannot afford to risk his financial relationship with Abu Dhabi being placed in doubt.

“Cairo is furious about this, but they are dependent on the UAE for funding,” said one regional political analyst.

That was evident in comments from Planning and Economic Development Minister Hala Helmy el-Said at the Asian Financial Forum in Hong Kong in late January, when she spoke about the cooperation between Egypt and the UAE in areas such as investment, capacity building and government performance. She pointed in particular to collaborations between the Sovereign Fund of Egypt and the Abu Dhabi government’s ADQ investment fund.

Financial aid

The economic and the political are interwoven in the domestic political arena too, but a fresh package of financial support from the Washington-based IMF may help El Sisi’s government.

An IMF team led by Middle East and Central Asia division chief Ivanna Vladkova Hollar was in Cairo in late January and early February and agreed the main policy elements of a further economic reform programme and finance package that could amount to $10bn or more.

The reforms could also bring further short-term shocks to the economy and its 109 million people – something both sides say they are aware of.

“The IMF team and the Egyptian authorities also agreed on the critical importance of strengthening social spending to protect vulnerable groups. This is important to ensure adequate living conditions for low and middle-income households that have been hit particularly hard by rising prices,” said Hollar in a statement at the end of the IMF visit.

However, any sign of protest is liable to be swiftly answered by Interior Ministry police and National Security agents, who are well-versed in curtailing the space for political debate.

The lack of room for critical voices was clear in the December presidential election. Leading opposition figure Ahmed Tantawy pulled out of the poll in December, claiming intimidation by the regime. Elections in Egypt are “neither free nor fair”, according to Washington-based Freedom House.

Nonetheless, a successor to El Sisi will have to emerge at some point. His recent electoral win means he will be in power until 2030. At that point, though, he will have to make way for someone else unless he engineers another change to the constitution that allows him to run again.

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Dominic Dudley

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    Given the global AI race and mounting competition, investment decisions regarding data centres are moving from a simple, commercial focus to account for complex geopolitical considerations, according to Jessica Obeid, a partner at Dubai-headquartered New Energy Consult.

    “As the US weaponises its technological advancements, decisions to invest in US-based data centres hedge against the risks of US export controls, positioning developers in proximity to suppliers, ensuring reliable access to components.

    “Yet, this access could become costlier, driven by trade tariff wars, heightened regulations and limited access to grid infrastructure,” Obeid says.

    She adds that the GCC is quickly positioning itself as a global digital hub, driven by cost-competitive energy, advanced infrastructure and strong government backing.

    “Proximity to reliable power supply at an affordable cost, and speed in licensing processes and grid connections, are increasingly becoming strategic factors in data centre deployment – and the GCC offers that.”

    Powering AI strategies

    Almost all of the GCC states have formulated AI strategies that aim to improve operational efficiencies, create jobs and support their energy transition and net-zero initiatives.

    As a result, analysts expect the region to register double-digit annual growth in data centre construction activities in the next few years.

    In a recent update, global consultancy PwC projected that the Middle East data centre capacity could triple from 1GW in 2025 to 3.3GW in five years’ time.

    According to data from regional projects tracker MEED Projects, as of April, an estimated $12bn-worth of data centre construction projects are in the planning stage, in addition to over $820m under bid and $7bn under construction.

    Li-Chen Sim, assistant professor of civil security at Abu Dhabi’s Khalifa University, says that AI investments are, on the one hand, “all part of a carefully conceived strategy to … diversify out of a hydrocarbons-driven economy, to create new revenue streams from overseas data centres, build new growth sectors, support business requirements and offer more knowledge-based jobs as opposed to traditional manufacturing from domestic investments”.

    On the other hand, AI investments also aim to future-proof the hydrocarbons sector, which Sim expects will continue to be a significant driver of growth, revenue and exports, even as the use of renewable power grows.

    However, the ability of Gulf states to execute their plans for leveraging AI to diversify economies and create jobs –and specifically to address youth unemployment – depends on two factors, according to Obeid.

    The first factor is the ability of countries to advance their AI goals from infrastructure to capital and partnerships. The second involves the speed with which they can build up adequate human capital and a skilled workforce.

    “We will have to see how governments align their educational curricula with the AI policies and electricity infrastructure development,” she says.

    Ecosystem investment

    AI and data centre investments go beyond the facilities that house thousands of advanced graphics processing units, miles of cables and many cooling systems. To run and execute applications – particularly AI inferencing tasks – data centre facilities require a substantial amount of energy. 

    Moreover, data centres in the Middle East and North Africa region face elevated environmental risks due to the high ambient temperatures, which increase energy demand for cooling, as well as water requirements.

    This presents both a challenge and an opportunity, according to Obeid. "The GCC has an opportunity to advance innovation in energy and cooling technologies. Liquid cooling is necessary for AI workloads, and small modular reactors will become central in these data centres.” 

    In January, Abu Dhabi’s Emirates Water & Electricity Company (Ewec) appeared to show the way with a plan to build a round-the-clock solar photovoltaic (PV) plant combined with a battery energy storage system (bess) facility.

    The 5.2GW solar PV and 19 gigawatt-hour bess plant is expected to deliver renewable power as baseload, and UAE President Sheikh Mohamed Bin Zayed Bin Sultan Al-Nahyan has said that the project will help power advancements in AI and emerging technologies, and support the delivery of the UAE National AI Strategy 2031 and 2050 Net Zero initiative.

    Sim agrees that renewables combined with battery storage is part of the answer when it comes to building sustainable data centres. “Globally, data centres consume about 1% of electricity, and this figure – together with carbon emissions by data centres – is expected to grow significantly.”

    He notes that Goldman Sachs Research forecasts that global power demand from data centres will increase 50% by 2027, and 165% by the end of the decade, compared to 2023.

    “The other part of the puzzle with regard to sustainability is water consumption by data centres, particularly those in the Gulf, where high temperatures necessitate even more cooling measures.

    “Singapore, for instance, has pioneered integrated water systems that recycle treated wastewater for reuse – and this circular water model could be an option for data centres in the Gulf, instead of using expensive desalinated water,” says Sim.

    As things stand, the GCC can play a key role in the advancement of these and other technologies, along with efficiency measures and the optimisation of server utilisation through AI applications such as digital twins, says Obeid.

    This is just as well, since the region appears to be on the cusp of a boom in inbound and outbound investments that will build data centre capacity abroad and closer to home.

    “We are at a pivotal moment for innovation, where the intersection of digital advancements and energy innovation could position the GCC as a global leader, shaping the future of sustainable digital infrastructure,” concludes Obeid.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/13732105/main5907.jpg
    Jennifer Aguinaldo