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Egypt’s USD 35B Ras El Hekma Deal

Summary of What Happened

Egypt and the United Arab Emirates (UAE) made history on February 23, 2024, by signing a groundbreaking agreement to develop the Ras El-Hekma area on the Northern Coast.

A Record-Breaker: The deal, the largest direct investment in Egypt’s history, was signed by Egypt’s Minister of Housing Assem El-Gazzar and UAE’s Minister of Investment Mohamed Al Suwaidi at the New Administrative Capital in the presence of Prime Minister Mostafa Madbouly.

The Key Details

The agreement outlines plans to build a state-of-the-art city in Ras El-Hekma, encompassing residential, business, healthcare, and tourism sectors.
Spanning over 40,600 feddans, the project will be implemented by the New Urban Communities Authority and the Abu Dhabi Development Holding Company (ADQ). This is half the area of all of New Cairo, or around 5 times the area of Madinaty.
Prime Minister Madbouly announced that the project is expected to attract USD 35 billion in foreign direct investment (FDI) within two months, providing a significant boost to Egypt’s economy.

Money Moves

According to ADQ’s press release, the project is expected to attract USD 150 billion in investments
The USD 35 billion of investment will be split between USD 24 billion in fresh inflows into Egypt, with USD 11 billion swapped from UAE’s deposits with the Central Bank of Egypt (CBE).
Egypt is set to receive the USD 35 billion of investment as follows:
- USD 15 billion within a week (USD 10 billion of fresh inflows + USD 5 billion of deposits swapped)

USD 20 billion two months later (USD 14 billion of fresh inflows + USD 6 billion of deposits swapped)

Egypt’s profit share and stake in the project stand at 35%

Impact So Far:

Gold: The 24K yellow metal dropped by 6.1% to EGP 3,703/gram on the day of the news, according to Gold Net Trading’s data
- Given Egyptians’ historical preference for gold as a safe haven during uncertain times, a dip in gold prices often accompanies an upswing in investor sentiment.
NDFs: After the announcement of the deal, 12-month NDF dollar exchange rate dropped by 14% to EGP 57.
- Claps Class: NDFs reflect investor sentiment on the strength of the EGP vs. USD in the future.

Keep Your Eyes Peeled

Given the significant growth potential of the project, it’s logical to anticipate a surge in the Egyptian real estate and building materials sector, supported by the development of the project.

According to Ahmed ElHefnawi, Chief Technical Strategist at Thndr Securities Brokerage, companies involved in real estate, cement, ceramics, cables, and contracting are likely to witness considerable growth, presenting investment opportunities for retail investors.

Goldman Sachs Already Weighed in:

- Liquidity: According to Goldman Sachs Economics Research, the UAE’s USD 35 billion investment in the Ras El-Hekma project is expected to provide ample liquidity to cover Egypt’s financing gap over the next four years.
- FX: The fresh inflows totaling USD 24 billion within the next two months are anticipated to bolster Egypt’s foreign exchange reserves and clear the FX market.

Bottomline: This announcement is seen as bullish for the EGP and presents an opportunity for Egypt to restore liquidity in the FX market.

When Ras El-Hekma was a rumor, the EGX100 fell by around 8%

It did? Yes, the first time the Ras El-Hekma rumor circulated was on Jan. 31, 2024. Back then, the EGX100 index fell by 10%.
Why? The renewed positive outlook may have increased investor confidence in the EGP
- According to Abdelkhalek Mohammed, Equity Strategist at Thndr Securities Brokerage, Investors used the EGX as a hedge against a weakening EGP. Therefore, if the EGP shows strength it can pull funds away from the EGX.
Our friends at Rumble can help: For expert analysis on the investment opportunities arising from the Egypt-UAE deal and its implications for the Egyptian Exchange (EGX), our colleagues at Rumble will release further analysis. To understand our relationship to Rumble, you can click here.