More pain for more gain for Egypt
7 February 2024
This package on Egypt also includes:
> 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
Egyptian President Abdel Fattah El Sisi might have hoped for a honeymoon period after his resounding election win in December, but has enjoyed not a bit of it.
Egypt started 2024 with an economic crisis gaining in intensity, with events in the Red Sea – sharply reducing traffic through the Suez Canal – compounding other challenges, including a foreign currency (FX) shortage, a depreciating pound on the parallel market and rising inflation.
The president’s words on 24 January were ominous: “Egyptians need to live with economic pain,” he said, indicating that 2024 would be a tough year.
With Egypt’s economic crisis worsening by the week, the siren calls for a support package from the Washington-based IMF have grown ever louder. Expectations are high that a new and larger extended fund facility (EFF) is imminent, with IMF officials visiting Cairo in January to hammer out a deal.
Analysts have suggested the EFF – initially set at $3.9bn – could now be as high as $10bn-$12bn. This increase reflects the desperate situation that Egypt is in.
It is also a sign that Egypt still has a few cards left up its sleeve – not least amid the current crisis in the Middle East that has left it playing a vital role, however ineffectually, as the main conduit for aid deliveries into Gaza.
The Red Sea crisis and the desire to keep a dependable security partner in the region afloat are also factors.
“There is a bit more political willingness to support Egypt than a year ago,” says James Swanston, Middle East and North Africa economist at Capital Economics.
Economic precipice
The immediate backdrop to the renewed EFF negotiations is the sharp deterioration in the value of the pound after a bad 2023 that saw the official rate depreciate by 25% against the dollar.
By the end of January, the pound was trading at £E68-£E70 to the dollar, more than double the official rate of nearly £E30.9 to the dollar. Although the announcement of an imminent deal with the IMF in early February led the pound to rally to £E55 to the dollar on 4 February.
The fiscal headwinds are nevertheless increasingly fierce in 2024. With about 60% of its revenues absorbed by interest payments, according to ratings agency Moody’s, the government has very limited fiscal headroom to respond to such shocks. Cairo’s dilemma is that even if the EFF is raised to the upper limit of $12bn, it will only partially cover its financing needs.
Meanwhile, ratings agencies have been busy downgrading the sovereign. Fitch Ratings cut Egypt’s long-term foreign currency rating to B- from B, with a stable outlook, in November, reflecting its perception of heightened risks to Egypt’s external financing, macroeconomic stability and the trajectory of already-high government debt.
The slow progress on reforms, including the delay in the transition to a more flexible exchange rate regime, has damaged the credibility of exchange rate policy and exacerbated external financing constraints at a time of increasing external government debt repayments, said Fitch.
External financing stresses influenced the downgrading of Egypt, says Paul Gamble, director of the sovereign group at Fitch Ratings.
“There are FX challenges becoming apparent and also concerns over the availability of foreign currency. There are significant black-market transactions and FX shortages, signalling that downward pressures on the currency have increased, and the path to policy adjustment has become more complicated, at a time of high external debt repayments.”
One particular challenge facing Egypt is that Egyptian expatriate remission inflows from the Gulf states have declined, with many getting a better deal on the parallel market than through official channels.
Then there are the Suez Canal revenues, which government officials say fell by 44% in January compared to the same month in 2023.
“The revenue collections from the Suez Canal are a very stable source of income for Egypt, so the fact that they have been hit is a bit of a concern,” says Gamble.
“The impact on investor sentiment and the parallel market rates could further complicate the transition to a more flexible exchange rate. On the other hand, the IMF is talking about upsizing its assistance programme, and Egypt is getting more bilateral attention.”
Next steps forward
Assuming the EFF is finalised, attention will then switch to what comes next.
The strings attached to that package will be substantial, incurring both political and economic costs.
Fiscal policy will see more stringency, with sharp cutbacks on spending. Major projects may lose some support. Yet, while these projects are important for job prospects in Egypt, the IMF’s message is to keep fiscal policy tight for now.
More stringency on the privatisation drive is also on the menu. Under the country’s divestment programme for state-owned enterprises (SOEs), speculators suggest that up to 150 SOEs may be sold off. However, political sensitivities over the military’s footprint in many of these assets mean delays are possible.
The most important thing in the near term is dealing with the pound, which was in virtual free fall at the end of January, forcing banks to install limits on FX transactions.
According to Capital Economics, if a staff-level agreement is announced, the central bank would move swiftly to devalue the pound by an initial 23%, to £E40 to the dollar, before allowing it to freely float.
“We feel [a rate of £E40-£E43 to the dollar] is a natural level, and it should not result in a fresh inflationary spike, but rather, inflation will fall at a slower rate,” says Swanston.
It was suggested that this could coincide with a sharp hike in interest rates of at least 300 basis points (bps), to 22.25%, and indeed, on 1 February, the central bank went ahead with this, raising the deposit rate to 21.25% and the lending rate to 22.25%.
That said, higher-for-longer prices and a 300bps interest hike will be painful for businesses to absorb, while a weaker pound will also make imports more expensive.
Yet, for all the doom and gloom, there are some green shoots. Egypt’s GDP growth is stable, with Capital Economics forecasting GDP growth of 3.5% in 2024-25.
Tourism – a valuable source of hard currency – is another recent bright spot, with arrivals to Egypt rising 9% in year-on-year terms during the first 19 days of 2024.
Egypt’s tourism numbers, spiking at approximately eight times higher than the global tourism rate of 4.5%, have been pivotal in stimulating overall growth, says property consultancy JLL. Between January and October 2023, Egypt registered about 13.9 million tourist arrivals, almost 36% higher compared to the same period last year.
“This is the medicine [the country] needs to take to lay the foundations for unlocking the economy’s potential in coming years,” says Swanston.
“They have a couple of years of slow economic growth, but if you have got an orthodox policymaking framework with a flexible exchange rate, and you bring the debt ratio down, you can start going about actually taking advantage of very good demographics of a young population.”
There will be much pain in the interim. But the consensus is that staying the course will lead to better days.
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The previous year’s net income is only 1.5% higher compared to the prior year, excluding one-off items worth AED10.8bn related to the acquisition of a 5% stake in Adnoc Gas and AED1.1bn deferred tax charge due to the introduction of the UAE corporate tax.
The company’s ebitda rose 5.9%, to AED21.4bn, in 2024. However, this declined by 31% compared to the prior year if the AED10.8bn acquisition of a 5% stake in Adnoc Gas is considered.
The firm’s capital expenditure rose by 63.8% due to the construction of the Mirfa 2 and Shuweihat 4 seawater reverse osmosis (SWRO) plants, as well as the “timing and phasing of project execution” within its transmission and distribution (T&D) division and the inclusion of Taqa Water Solutions, formerly known as SWS Holding before its acquisition by Taqa last year.
Taqa’s free cash flow generation dipped from AED13.9bn in 2023 to AED2.6bn last year, reflecting “increased investments in Masdar, capital investment across generation, T&D and water solutions, and the acceleration of decommissioning activities within oil and gas”.
Gross debt rose from AED61.7bn at the end of 2023 to AED64.1bn due to the issuance of an aggregate AED6.4bn in seven-year and 12-year dual-tranche corporate bonds, consolidation of AED1.5bn in project debt from the acquisition of SWS Holding and AED1.4bn for the construction of the Mirffa 2 and Shuweihat 4 desalination projects.
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Some of the firm’s highlights in 2024 included merging Abu Dhabi Distribution Company (ADDC) and Al-Ain Distribution Company (AADC) into one brand, known as Taqa Distribution.
Taqa also continued to focus on Saudi Arabia, having reached financial close with its partners last year for the Juranah independent strategic water reservoir project and the Najim cogeneration plant project.
Along with partners Japan’s Jera and the Saudi firm Albawani, Taqa signed two 25-year power-purchase agreements with the Saudi principal buyer last year for the Rumah 2 and Nairiyah 2 combined-cycle gas turbine power plants, which have a combined generation capacity of 3.6GW.
Global expansion
Last year, Taqa acquired a 50% stake in US-based Terra-Gen Power Holdings II, while in Europe and through Abu Dhabi Future Energy Company (Masdar), it completed the acquisition of Saeta Yield from Brookfield Renewable.
Masdar and Spain’s Endesa finalised a partnership agreement last year, with Masdar acquiring a 49.99% stake in EGPE Solar, an Endesa subsidiary. Masdar also acquired Greece’s Terna Energy, which had an operating capacity of 1.2GW at the time of acquisition and is targeting 6GW of operational renewable capacity by 2029.
Oil and gas
In terms of the firm’s oil and gas business, it concluded the sale of its stake in the Atrush oil field in the Kurdish Region of Iraq in 2024.
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Jafurah cogeneration plant expansion talks start
13 February 2025
Saudi Aramco and Korea Electric Power Corporation (Kepco) are understood to be undertaking talks to expand the capacity of the $500m Jafurah cogeneration independent steam and power plant (ISPP) in Saudi Arabia.
The construction of the facility is nearing completion and negotiations have started for phase 2 of the project, a source close to the project tells MEED.
At the time of its procurement, the plant's first phase was to have a power capacity of 270-320MW, and a low-pressure (LP) steam demand of 77-166 thousand pounds an hour (klb/hr) and high-pressure (HP) steam demand of 29-126 klb/hour by 2023.
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The oil giant issued the letter of award to Kepco for the contract to develop the Jafurah ISPP scheme in July 2022.
The South Korean utility developer and investor saw off competition from two Saudi-headquartered firms, Acwa Power and Al-Jomaih, to win the contract.
Kepco subsequently awarded South Korea’s Doosan Heavy Industries & Construction the project’s engineering, procurement and construction (EPC) contract.
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Sumitomo Mitsui Banking Corporation (SMBC) served as the client's financial adviser for the project. Germany’s Fichtner Consulting Engineers is technical consultant, while the UK’s Wood Group is project management consultant.
Unconventional programme
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Ewec invites Al-Sila wind bids
13 February 2025
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Abu Dhabi state offtaker Emirates Water & Electricity Company (Ewec) has invited prequalified developers to submit their proposals for a contract to develop a 140MW wind power project in Abu Dhabi.
The Al-Sila wind independent power project is a greenfield renewable energy project with a generation capacity of up to 140MW. When fully operational, it will more than double the existing wind generation capacity in the UAE.
Ewec said it expects to receive bids by Q2 2025.
Companies understood to have expressed interest in bidding for the contract include Japan’s Marubeni Corporation and Jera, France’s Engie and EDF Renewables, Saudi Arabia’s Acwa Power and Alfanar, and Beijing-based PowerChina, among others.
Ewec has not disclosed the list of prequalified bidders, but industry sources say most of the companies that expressed interest also passed the prequalification phase.
The Al-Sila wind project will involve the development, financing, construction, operation, maintenance and ownership of the wind farm and associated infrastructure.
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Ewec expects the project to generate enough clean electricity to power 36,000 homes, displacing 190,000 tonnes of carbon dioxide annually.
It will also directly contribute to Abu Dhabi’s Clean Energy Strategic Target 2035, which calls for 60% of electricity production to be generated by renewable and clean sources.
Together with the existing UAE wind assets, the new project will increase the UAE’s wind generation capacity to approximately 240MW, laying the foundation for further wind energy expansion, according to Ewec’s Statement of Future Capacity Requirements report.
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- Delma Island (Abu Dhabi): 27MW
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Masdar developed the 103.5MW wind power projects, which use “the latest technology and innovation to capture low wind speeds at utility scale, adopting advances in material science and aerodynamics to make wind power possible in the country”.
The Al-Sila wind farm takes the total number of IPPs under various procurement stages in Abu Dhabi to six. The other schemes are:
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Contractors have submitted proposals to build a manufacturing facility in Riyadh for Chinese computer maker Lenovo.
MEED understands that the proposals for the project, known as the Oasis Project, were submitted on 10 February.
The tender notice was issued on 3 January.
The manufacturing facility will be constructed on a 200,000 square-metre site at the Special Integrated Logistics Zone at King Khalid International airport in Riyadh.
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The second phase covers the construction of the second plant building and other associated buildings. The second phase is expected to be completed by August 2026.
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Lenovo secured a $2bn investment deal with Alat to manufacture computer devices in the kingdom in January.
In May 2024, Lenovo signed a collaboration agreement with Alat to set up a manufacturing facility in Saudi Arabia.
The funding will also support Lenovo in establishing a regional headquarters for the Middle East and Africa market in Riyadh. The headquarters will include customer centres, research and development centres, and manufacturing facilities for personal computers and servers.
In February last year, the PIF unveiled its $100bn capital-backed company Alat, which aims to transform Saudi Arabia into a global hub for electronics and advanced industries.
The company aims to create 39,000 direct jobs and achieve a direct non-oil GDP contribution of $9.3bn in Saudi Arabia by 2030.
It was reported that Alat would have seven business units focusing on areas such as semiconductors, artificial intelligence, next-generation infrastructure, and smart appliances and smart buildings.
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Ninety express interest for Taif airport PPP
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Some 90 firms have expressed interest in bidding for a contract to develop and operate a new international airport in Taif in the kingdom’s Mecca province.
Saudi Arabia’s Matarat Holding, through the National Centre for Privatisation & PPP (NCP), invited firms to express interest in bidding for the contract in early December.
The international and local firms that expressed their interest are:
- Abdul Ali Al-Ajmi Company (local)
- Abrdn Investcorp Infrastructure Investments (UK)
- Aeroporti Di Roma (Italy)
- Algihaz Holding (local)
- Al-Jaber Contracting (local)
- Al-Modon Al-Arabia Company (local)
- Al-Rashid Trading & Contracting Company (local)
- Al-Sharif Contracting & Commercial Development (local)
- Al-Yamama Company for Trading & Contracting (local)
- Al-Ayuni Investment & Contracting Company (local)
- Alghanim International General Trading & Contracting (Kuwait)
- Almabani General Contractors (local)
- Almansouryah Company General Contracting (local)
- AlMozaini Real Estate (local)
- Almutlaq Real Estate Investment Company (local)
- Alternative Resources Investment
- Annasban Group (local)
- Asyad Holding Company (local)
- AVIC-KDN Airport Engineering (China)
- Bangalore International Airport (India)
- Binladin International (local)
- Bouygues Batiment (France)
- CACC International Engineering
- China Harbour Engineering Company (China)
- Surbana Consultants (Singapore)
- Buna Al-Khaleej Contracting (local)
- China National Aero-Technology International Engineering Corporation (China)
- China Railway Construction Corporation (China)
- Clavrix (US)
- Consolidated Contractors Company (Greece)
- Contrax International (UAE)
- Corporacion America Airports (Luxembourg)
- Currie & Brown (UK)
- DAA International (Dublin Airport Authority, Ireland)
- Dar Al-Handasah Consultants (Shair & Partners, Lebanon)
- DG Jones & Partners (UAE)
- EB Cornerstone (UK)
- Edgenta Arabia (Malaysia)
- Egis Project (France)
- Enzar Company for Operation & Maintenance (local)
- Erada Advanced Projects (local)
- EXP Arabia (Canada)
- FAS Energy (local)
- Ghesa Ingeniera Technologia (Spain)
- GMR Airports (India)
- Gulf Investment Corporation (Kuwait)
- Haji Abdullah AliReza & Company (local)
- IC Ictas (Turkiye)
- Indiza Airport Management (South Africa)
- Innovative Contractors for Advanced Dimensions (ICAD, local)
- International Energy (local)
- Kalyon Insaat (Turkiye)
- Kolin Insaat (Turkiye)
- Korea Airports Corporation (South Korea)
- Koushan Real Estate Development Company (local)
- Lamar Holding (local)
- Limak Insaat (Turkiye)
- Lynx Contracting Company (local)
- Mada International Holding Company (local)
- Makyol Insaat (local)
- Manchester Airport Group (UK)
- Middle East Tasks (local)
- Modern Airports (local)
- Mota-Engil (Portugal)
- Mowah Company (local)
- Munich Airport International (Germany)
- Namaya Investment Company (local)
- Nasser Abdullah Abu Sarhad (local)
- National Transportation Solution Company (local)
- Nesma & Partners (local)
- Nesma Company (local)
- Pini Group (Switzerland)
- Ports Projects Management & Development Company (local)
- Salso & Associates (Greece)
- Samsung C&T Corporation (South Korea)
- Sarh Developments (local)
- Saudi Arabian Trading & Construction Company (local)
- Saudi Binladin Group (local)
- Saudi Building Technic Maintenance Company (local)
- Skilled Engineers Contracting (local)
- Sumou Real Estate Company (local)
- Tamasuk Holding Company (local)
- Tatweer Buildings Company (local)
- Tav Airports Holding (Turkiye)
- Technical Development Company for Contracting (local)
- Terminal Yapi Ve Ticaret (Turkiye)
- Vantage Group (Australia)
- Vision International Investment Company (local)
- WCT International (Malaysia)
- Zamil Group (local)
The new Taif International airport will be located 21 kilometres southeast of the existing Taif airport, with a capacity to accommodate 2.5 million passengers by 2030.
The clients opted for a 30-year build-transfer-operate (BTO) contract model, including the construction period.
In addition to a new airport terminal, the proposed design features a runway with a full-length parallel taxiway connecting to a single commercial apron.
The scope includes facility buildings, utility networks, car parks and access roads, as well as provisions for additional expansions to meet future subsystem requirements.
The new Taif International airport is expected to meet the projected increase in demand by 2055 and contribute to the economic development of Taif city and its surrounding areas, in line with the kingdom’s National Aviation Strategy.
It is also expected to meet the needs of Umrah pilgrims as a viable alternative within the region’s multi-airport system, which includes King Abdulaziz Airport in Jeddah, Prince Mohammed Bin Abdulaziz Airport in Medina and Prince Abdulmohsen Bin Abdulaziz Airport in Yanbu.
Other airport PPPs
In addition to the Taif International project, three other airports comprise the first stage of Saudi Arabia’s latest plan to modernise and privatise its international and domestic airports.
The other planned airport public-private partnership (PPP) schemes are in Abha, Hail and Qassim.
Matarat and NCP recently tendered the contract to develop and operate a new passenger terminal building and related facilities at Abha International airport. They expect to receive bids by April.
Located in Asir province, the first phase of the Abha International airport PPP project is set for completion in 2028. It will increase the airport terminal area from 10,500 square metres (sq m) to 65,000 sq m.
The contract scope includes a new rapid-exit taxiway on the current runway, a new apron to serve the new terminal, access roads to the new terminal building and a new car park area. The scope also includes support facilities such as an electrical substation expansion and a new sewage treatment plant.
The transaction advisory team for the client on the Abha airport PPP scheme comprises UK-headquartered Deloitte and Ashurst as financial and legal advisers, respectively, and ALG as technical adviser.
Previous tenders
The Taif, Hail and Qassim airport schemes were previously tendered and awarded as PPP projects using a BTO model.
Saudi Arabia’s General Authority of Civil Aviation (Gaca) awarded the contracts to develop four airport PPP projects to two separate consortiums in 2017.
A team of Tukey’s TAV Airports and the local Al-Rajhi Holding Group won the 30-year concession agreement to build, transfer and operate airport passenger terminals in Yanbu, Qassim and Hail.
A second team, comprising Lebanon’s Consolidated Contractors Company, Germany’s Munich Airport International and local firm Asyad Group, won the BTO contract to develop Taif International airport.
However, these projects stalled following the restructuring of the kingdom’s aviation sector.
Saudi Arabia has already privatised airports, including the $1.2bn Prince Mohammed Bin Abdulaziz International airport in Medina, which was developed as a PPP and opened in 2015.
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