Egypt’s new Ras El-Hikma resort attracts $35bn from UAE

Cairo and Abu Dhabi shook hands on a huge development project on Egypt’s north coast, giving it a much-needed cash injection. But is Egypt selling the family silver in desperation?

Courtesy of Egypt's government

The Ras El-Hikma development project could bring in up to $150bn of investment over its lifetime, according to Egypt's prime minister.

Egypt’s new Ras El-Hikma resort attracts $35bn from UAE

Marcelle Nasr

last update on 27 Feb 2024

For weeks, there were rumours, but last week, there was confirmation: The United Arab Emirates (UAE) was buying into an area of pristine coastline west of Alexandria for billions of dollars to develop a huge new resort.

The Abu Dhabi Developmental Holding Company PJSC (ADQ), a sovereign wealth fund, is to pour $35bn into Ras El-Hikma, paying $20bn now and $15bn in a few months, according to Egyptian Prime Minister Mostafa Madbouly.

Across a stretch of turquoise Mediterranean, the Emiratis have bought a slice of paradise with royal pedigree: it once housed the palace of King Farouk I and was later transformed into a presidential retreat.

The Egyptians, now rolling in Emirati cash, have bought time since they can now make some very large and imminent debt repayments.

So, is this a win-win?

A timely investment

The Ras El-Hikma project, in Egypt’s northwest near Alamein, is the country’s largest tourist investment project by quite some distance.

It is also the largest direct investment deal of any kind in the country’s history. Egypt says investments in Ras El-Hikma could rise to $150bn over the next few years.

Its timing is key, as it helps Egypt overcome two pending crises: imminent public debt repayments and a scarcity of dollars, alongside an unprecedented rise in parallel market exchange rates.

Both issues have led to inflation and market disturbances.

The Abu Dhabi Developmental Holding Company PJSC, a sovereign wealth fund, is to pour $35bn into Ras El-Hikma, paying $20bn now.

This is not the first time that Egypt has courted Arab and foreign investments in state assets.

It has also repeatedly courted an increasingly exasperated International Monetary Fund (IMF), which has now bailed Egypt out four times in recent years.

The closed-door discussions between the Egyptian government and the Emirati investors drew criticism. Some feared a fire-sale for less than the area's worth. Others feared it would have a detrimental impact on tourism, a key industry.

Yet most welcomed the boost in dollar liquidity, and although the sale of such a national asset is irksome, Egypt will get 35% of the project's profits throughout its lifespan.

Critics deride the sale of prime Egyptian real estate to a foreign state's sovereign wealth fund, but most tourist and residential real estate on the Red Sea is owned by the private sector, much of which is backed by foreign investors.

Courtesy of Egypt's government — The signing ceremony of the largest investment deal between Egypt and the UAE.

Whether in Sinai or cities like Sharm El-Sheikh, Dahab, Hurghada, El-Gouna, the north coast or the heart of Cairo, foreigners already own some of the best Egyptian real estate money can buy.

Structure of the deal

Economists believe that the Ras El-Hikma project is crucial for reviving economic activity in Egypt, which has borrowed heavily to fund infrastructure projects, and whose debt levels are now among the highest in the world.

Champions of the deal say it will help attract investment into Egypt and improve the country's economic situation. The Egyptian public, however, awaits the final details before making judgements.

Interestingly, the development agreement for the city of Ras El-Hikma includes the UAE waiving a deposit of $11bn in the Egyptian Central Bank.

This will be converted into Egyptian pounds and used to finance the project, effectively dropping out of Egypt's external debt obligations.

The development agreement for the city of Ras El-Hikma includes the UAE waiving a deposit of $11bn in the Egyptian Central Bank.

The Abu Dhabi Development Holding Company (ADQ) will inject $24bn in foreign liquidity into the country within two months and hold the development rights for Ras El-Hikma.

Madbouly said the UAE would "directly inject $15bn", with $5bn of that being part of the UAE deposit at the Egyptian Central Bank.

The second instalment of investment, worth $20bn, will arrive after two months. This will include the remaining $6bn from the UAE deposit at the central bank.

From the sand, a city

Ras El-Hikma will be a third-generation city focused on tourist facilities, a free zone, an investment zone, plus residential, commercial, and entertainment spaces. Its development will include connection routes.

The Gulf of Ras El-Hikma is considered to include some of the most beautiful beaches in the world along a 50km stretch between Al-Dabaa and Marsa Matruh. Being a bay, it forms a natural barrier, meaning the beaches are calm and safe.

If it lives up to the hype, it is the future of tourism investment in Egypt, where planners worked with international developers to scope its potential. The United Nations' Human Settlements Programme (UN Habitat) also advised.

Ras El-Hikma is now part of the Urban Development Plan for Egypt 2052. If all goes to plan, it will be one of the world's top tourist destinations in years to come.

Egypt hopes that it will create both jobs and a template for future hubs combining tourism, entertainment, technology, industry, education, and healthcare.

Latest big project

Although Cairo is cash-strapped, it is no stranger big infrastructure projects, partnering Kuwait's Al-Kharafi Group 20 years ago to develop Port Ghalib, east of Luxor.

Al-Kharafi provided billions of dollars in return for government help, such as with water and energy connections. A new airport was also built. It is now the largest tourist complex on the Red Sea, with interconnected villages and a hotel resort.

Likewise in 2015, seeking to alleviate congestion and pollution in Cairo, the Egyptian government presented the New Administrative Capital.

The Gulf of Ras El-Hikma is considered to include some of the most beautiful beaches in the world along a 50km stretch.

Based 28 miles outside Cairo, it was intended to be a "smart city", housing the Egyptian government, along with a diplomatic quarter and a financial quarter.

Various foreign investors (including Emirati and Chinese) were engaged, but disagreements meant that the Egyptian government shouldered most of the cost and building management responsibility.

Egypt's infrastructure projects were designed to help its economy but, in some cases, have been responsible for much of the debt that is now applying so much pressure.

A pyramid of problems

Public debt is 89% of GDP, external debt is 37%, revenue from tourism and Suez Canal transit fees are down, and the currency badly needs to be devalued, except it can't be because this would send Egypt's already-high levels of dollar debt through the roof and hit the poor by raising food prices.

Major investment projects can help. They bring jobs, drive development targets, support Egyptian companies, and revitalise its industrial sector.

The agreement on the Ras El-Hikma project has already had a positive impact on the financial situation in Egypt and contributed to reducing the exchange rate of the dollar in parallel markets.

Economic expert Amr Hassanein of MERIS Ratings told Al Majalla that Ras El-Hikma is part of "a rescue plan" for the Egyptian economy.

He said it was a starting point for comprehensive real development and "a very positive step and a successful deal that will benefit both the country's economy and its people".

The UAE investment is the short-term funding it needs to roll over its debt and avoid the shock of a huge devaluation (officially, 30 Egyptian pounds buy a dollar, but on the black market, they go for 70).

The Egyptian government is currently working on launching multiple projects to rescue its economy and absorb shocks, making diligent efforts to put external and internal debt rates on a declining trend.

Major investment projects can help. They bring jobs, drive development targets, support Egyptian companies, and revitalise its industrial sector.

The agreement on the Ras El-Hikma project has already had a positive impact on the financial situation in Egypt and contributed to reducing the exchange rate of the dollar in parallel markets.

Economic expert Amr Hassanein of MERIS Ratings told Al Majalla that Ras El-Hikma is part of "a rescue plan" for the Egyptian economy.

He said it was a starting point for comprehensive real development and "a very positive step and a successful deal that will benefit both the country's economy and its people".

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