Saudi market whets the appetite of Egyptian developers

Taking office in 2014, el-Sisi has built several cities from scratch, most notably the New Administrative Capital east of Cairo, New Alamein on the Mediterranean, and New Galala City near the Red Sea—other infrastructure projects, including road networks and public transport, as a showcase of prosperity.

The shovels-in-the-ground programmes made a difference in national growth rates and kept unemployment relatively low when stagnation fears from global crises were palpable. Construction contributed 8% to Egypt's gross domestic product (GDP) in 2022-23, up from 4.8% in 2015. 

Debt and the pound

For an import-dependent economy that does not have a great wealth of resources, however, a flurry of mostly unprofitable mega projects meant that fiscal health took a hit. Egypt's ballooning public debt is a testament to the financial distress. External debt, around $153bn as of June 2024, is nearly 40% of GDP (it was 15% ten years ago). 

Servicing debt in 2025 alone will cost nearly $22.5bn, which is close to half of the country's foreign reserves. Borrowing is now more expensive, too, and the instability of the Egyptian pound—repeatedly devalued after IMF deals since 2016—has increased the cost of construction materials. 

Sawiris cited exchange rate volatility as the main reason he was suspending his investments in Egypt, but external factors have also taken their toll, not least with the dwindling national revenue from reduced merchant shipping transit fees from the Suez Canal (owing to attacks on vessels by Yemeni Houthis). 

Egypt has also needed to pay for liquified natural gas (LNG) imports to compensate for reduced domestic gas output. Many fear that the Egyptian pound (E£) will slide further. It already dropped to a record low of more than E$50 against the US dollar in December 2024. 

Attracting the Gulf

The government's vast expansion plans, particularly on its coastlines, are still expected to go ahead, given that Cairo wants to double the number of tourists it attracts per year (to 30 million), but its new approach is to offload development costs onto wealthy Gulf states, in particular the United Arab Emirates (UAE) and Saudi Arabia. 

In February 2024, the Egyptian government announced a mammoth $35bn deal with the UAE, through which Abu Dhabi wealth fund ADQ bought development rights in a premium Mediterranean area known as Ras El-Hekma and committed to investing $11bn over 170 million square metres, almost five times the size of Dubai.

Read more: Egypt's new Ras El-Hikma resort attracts $35bn from UAE

The deal was the biggest of its kind in Egyptian history. It kept the country solvent and helped the government wipe out a black market that had thrived since Russia invaded Ukraine. Saudi Arabia and Qatar are thought to be looking at similar investments. Yet, time is of the essence.

The Egyptian government has had to slash public spending and encourage private sector investment as part of the reforms stipulated by the International Monetary Fund (IMF) following its multi-billion dollar rescue package early last year. Yet by increasing the role of the free market, Egypt has made itself more susceptible to economic headwinds.

For now, Gulf interest in future luxury Egyptian coastal resorts will continue, but so too will the economic suffering of many Egyptians, around a third of whom live in poverty. For them, the lifting of energy and food subsidies (as per IMF directives) and a depreciating pound offer no solace. 

A tale of two countries

The real estate sector in Egypt has, in recent years, been driven by high population growth rates, which creates demand. Today, the population stands at more than 110 million, yet it is slowing. In 2023, it grew by 1.4%, the slowest in half a century. 

With Egypt's inflation rates falling, interest rates are also forecast to come down in 2025. This should tame soaring real estate prices. With that in mind, many homeowners will be looking to sell sooner rather than later.

In Saudi Arabia, by contrast, many are looking to buy. The Kingdom's construction sector will be worth around $181bn by the end of 2028, making it the biggest construction market in the world, according to London-based real estate consultancy Knight Frank. 

With a growing population and higher tourist numbers expected, the Kingdom has initiated several big projects in line with its development plan, Vision 2030. To Egyptian developers like Sawaris, the Saudi sky is the limit.