Egypt struggles to lure Gulf buyers in state asset sell-off

Egypt is struggling to sell off state assets in its effort to ease a foreign currency and funding crisis, as Cairo’s traditional Gulf allies toughen their approach to supporting the country.

As part of a $3bn loan package agreed with the IMF in October — its fourth since 2016 — Cairo agreed to reduce the footprint of the state, including the military, in the economy. Funds from asset sales are also seen as crucial to ease a severe foreign currency shortage and fill a financing gap the IMF estimates will be $17bn over the next four years.

Oil-rich Gulf states have traditionally bailed out their neighbour in the decade since President Abdel Fattah al-Sisi seized power and were expected to be key buyers of Egyptian assets. Cairo has identified 32 public-sector companies it plans to open to private-sector participation, but since signing the IMF deal it has not announced any significant sales.

The lack of progress underlines the tougher stance being taken by regional donors, including Saudi Arabia, the United Arab Emirates and Qatar. Gulf capitals have become less willing to provide traditional financial support, instead seeking commercial investments and expecting governments to implement reforms.

Observers have warned of a mismatch between Cairo’s expectations and those of Gulf sovereign wealth funds.

“Egypt’s position is to sell things at a massive premium to market prices because the Egyptians argue the current markets are depressed and don’t represent the long-term value,” said one international banker briefed on the discussions. There was “a huge amount of daylight” between the two sides, the person added.

Observers have also questioned the willingness of Sisi’s military-led regime to start reforms, including curbing the army’s business interests, which have markedly expanded under Sisi and stretch from agriculture and fish farms to construction and food factories.

“In Saudi Arabia it’s total annoyance and frustration and [they] say ‘do the [Egyptians] think we’re so easy to fool’,” a second banker said. “They need to see meaningful reforms and a structural reform plan in place.”

Speaking at the World Economic Forum in Davos in January, Saudi Arabia’s finance minister Mohammed al-Jadaan set out Riyadh’s approach to assistance, saying: “We used to give direct grants and deposits without strings attached, and we are changing that. We need to see reforms. We are taxing our people. We are expecting others to do the same.”

Saudi Arabia’s Public Investment Fund, which committed to invest $10bn in Egypt, recently pulled out of talks to buy state-owned United Bank after a fall in the Egyptian pound wiped hundreds of millions off its dollar value, according to an international banker and another person familiar with the discussions. The PIF declined to comment.

The currency has lost nearly 35 per cent of its value against the dollar since Cairo agreed in October to move towards a more flexible exchange rate regime as part of the IMF package.

The Qatar Investment Authority, meanwhile, has rejected the offer of a stake in a military-owned biscuit manufacturer.

“The Qataris are willing to put in the money, but it needs to be a smart investment, it needs to be making money, or in a few rare cases at least breaking even,” said a person briefed on the discussions. “They won’t just throw money away . . . they are trying to find the right opportunity.”

Yezid Sayigh, a senior fellow at the Malcolm H Kerr Carnegie Middle East Center, said the military would resist selling profitmaking assets.

“However, the real issue [for buyers] is that military companies depend entirely on state funding in the form of an assured flow of government procurement contracts . . . subsidies and the ability to transfer losses to the treasury,” he said. “There is little attraction for outside investors unless they are assured of the continuation of these privileges.”

Abu Dhabi’s sovereign fund ADQ, the prime UAE vehicle investing in Egypt, has paused its projects in the country, said a Dubai-based banker familiar with the discussions. “There is no appetite for anything substantive right now,” the person said, adding that this could change following the visit by UAE president Sheikh Mohammed bin Zayed al-Nahyan to Cairo this month. ADQ declined to comment.

The UAE remained committed to helping Cairo, but Abu Dhabi was more likely to channel support via the IMF programme, people aware of the matter said.

Egypt was plunged into crisis last year after foreign bond investors pulled about $20bn out of Egyptian debt around the time of Russia’s February invasion of Ukraine, amid jitters over the impact of the war on emerging markets. The authorities had been relying on the foreign portfolio’s inflows to fund its current account deficit.

Cairo was forced to turn to the IMF and its Gulf allies, with Saudi Arabia, the UAE and Qatar depositing a total of $13bn in the central bank.

In a sign of Gulf nations’ shifting approach to assistance, Jihad Azour, IMF Middle East director, told the Financial Times in February that the fund had increased co-operation with Gulf states, including in the design of programmes.

“We interact with them more frequently to make sure the additional financing [they provide] is also helping implement the reforms the programmes aim to achieve,” he said.

In October, the fund said Gulf states had pledged $41bn to Egypt, Jordan, Pakistan and Yemen in official support and investments and had disbursed or rolled over more than $22bn to date.

Last year, Saudi Arabia’s PIF and Abu Dhabi’s ADQ spent about $4bn acquiring minority government stakes in Egyptian companies, including a bank as well as chemical, fertiliser, logistics and technology businesses.

Under the IMF agreement, Egypt is expecting additional financing of $14bn from its “international and regional partners”, including “through the ongoing divestment of state-owned assets”, the fund said.

With foreign investors wary and the private sector hampered by economic malaise and the dominance of the military, Cairo has few other ways of raising capital beyond asset sales to Gulf allies, analysts said.

“If you don’t want to keep depreciating your currency and slowing growth to reduce demand for dollars, the only choice is to bring up supply,” said Farouk Soussa, Middle East economist at Goldman Sachs. “And the only avenue available to Egypt in the near term is by bringing in [foreign direct investment] through asset sales.”