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In West Cairo, Sylvester Stallone gazes down from numerous billboards, inviting investment in Egypt's North Coast as "The Real Mediterranean." Twelve hours after launch, buyers snapped up $1.25 billion in luxury villas.1 Yet the biggest wager on Egypt's new Instagram-worthy hotspot came via a $35 billion United Arab Emirates (UAE) investment to transform 130 million square miles of Ras el-Hekma into a premier resort destination.
Egypt's willingness to part with prime land reflected an urgent need for cash amid a slow boiling economic crisis. The country faced relentless external shocks: COVID-19 crushed its tourism, wheat prices soared with Russian President Vladimir Putin's invasion of Ukraine and Suez Canal revenues collapsed amid Gaza tensions. Yet Egypt's struggles to withstand these blows partly stemmed from self-inflicted wounds: a currency pegged at uncompetitive levels, loose monetary policy and high fiscal deficits.
Making matters worse, the government invested over $40 billion in a new capital city far on the outskirts of Cairo, filled with towering symbols of ambition, including the tallest building in Africa and the world's largest defense complex. But on the ground, government workers I spoke with complained of longer commutes while locals saw it as a military showpiece that does little for average Egyptians, who are struggling with rampant inflation and an 85% currency drop since construction began.
Despite the dour mood of the locals, Egypt's economic trajectory may be changing at the margin.
Under an $8 billion International Monetary Fund (IMF) program, Egypt committed to crucial reforms, including capping wasteful public spending, setting a debt ceiling and ending the monetization of government expenditures. Remarkably, Egypt has maintained a primary fiscal surplus for years, even during COVID-19. Unlike many nations, it now has a clear path to lower its debt via primary surpluses and planned privatization funds. The IMF projects Egypt's public debt to gross domestic product (GDP) ratio will fall from over 100% to just 65% over the next five years.
By all accounts, Egypt's affordability makes it a compelling destination for both tourists and investors alike. For example, my 45-minute Uber ride from the airport cost just $3 while a giant bowl of koshary (a popular street food) and a soda at Abu Tarek set me back a mere 75 cents. Egyptian financial assets are similarly undervalued. The stock market trades at a low 7x price-to-earnings (P/E) ratio. Multinationals and sovereign wealth funds have taken notice, snapping up large stakes in publicly listed Egyptian firms across industries including industrials, fertilizer, education, digital payments and consumer staples.
The next few years will be pivotal, given many risks that lie ahead. Investors initially lauded a more freely floating currency, but recent moves have many questioning the central bank's commitment to the float. While Gulf capital covers immediate funding needs, it risks crowding out the economic reforms tied to other forms of capital. Foreign investors have recently poured $23 billion into local debt markets, but such capital rarely proves sticky and can vanish in days. Finally, the biggest test lies in reducing the military's grip on the economy to create space for private sector growth in the medium term. As one local quipped, "Egypt isn't a country with an army; it's an army with a country."
Bottom Line: Egypt endured a series of setbacks but now capital is flowing back in, excited by a series of economic reforms and intrinsic value, which is attracting foreign investment and a tourism resurgence. If Egypt can leverage this capital to make lasting change, it stands poised to attract further investment and unlock its potential, with over 100 million people ready to fuel a new era of growth rooted in both history and future ambition.
1 Reuters and company statement, as of July 2, 2024.
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