The Egyptian Exchange (EGX) announced on April 12 that Abu Dhabi Developmental Holding Company (ADQ), one of Abu Dhabi’s sovereign wealth funds, has invested approximately 28.5 billion Egyptian pounds ($1.8 billion) in to acquire shares in five major listed Egyptian companies.
The five companies that were previously state-owned are e-payment platform Fawry, state-owned Alexandria Container and Cargo Handling Company, Abu Qir Fertilizers, Commercial International Bank and Misr Fertilizers Production Company.
Economist Sayed Khodr told Al-Monitor over the phone that the takeover deal would revitalize the Egyptian economy, particularly the Egyptian stock exchange.
He said the acquisition represents a huge financing deal welcomed by Egypt, whose economy – which has been hit by several global crises, particularly the impact of the coronavirus pandemic and the economic fallout from the Russo-Ukrainian war – is under severe pressure.
Noting that any investment in Egypt is a confirmation of the attractiveness of the local market, Khodr stated that the transaction has a significant positive impact. “This deal pumped around $2 billion into the treasury and revived EGX,” he said. “Fawry stock rose 11% while Commercial International Bank stock rose 6.3%. This has had a positive impact on EGX.”
He added: “The United Arab Emirates (UAE) are known to be one of Egypt’s biggest supporters. The two states launched a joint $20 billion strategic platform in November 2019 to invest in a range of sectors and assets.”
Khodr noted the rise in global inflation due to the Russo-Ukrainian war, which prompted most central banks to hike interest rates on deposits in an attempt to curb large waves of inflation. “Egypt is seeing its foreign exchange reserves falling, leading the government to consider increasing investment to revitalize the economy and close the deficit,” he said.
He continued: “Global economic crises have left their mark on the Egyptian economy, but the recent agreement with the United Arab Emirates has replenished the treasury. This comes on top of another $5 billion inflow from Saudi Arabia and a pledge by Qatar to pump $5 billion of investment into Egypt.”
The Central Bank of Egypt announced it would raise interest rates for the first time since 2017 during an unscheduled meeting on March 21 in a bid to control inflation. The Egyptian pound subsequently fell 16%, hitting a low of 18.25 Egyptian pounds against the US dollar before falling again 8 piastres on April 21 and 18.52 Egyptian pounds against the US on the day of this writing -dollars reached.
On March 29, Egypt and Qatar signed investment deals worth $5 billion, according to an official statement by the Egyptian cabinet. On March 30, Saudi Arabia announced it would deposit $5 billion with Egypt’s central bank after Egypt’s cash reserve dropped to $37 billion.
Economist Mohamed Nagm explained that Egypt’s reserves fell by $4 billion in March amid the impact of the Ukraine crisis. “The state used this amount to meet market dollar needs, debt costs, the withdrawal of some foreign investments, and the cost of purchasing wheat and other commodities,” he told Al-Monitor.
Negm added: “Egypt is facing a major wheat crisis as it imports large amounts annually from Russia and Ukraine. The war catapulted wheat prices by another 44%, weakening the current government budget and increasing the value of its deficit.”
“Given the current global economic system, the economic problems are closely intertwined. That [world] Central bank rate hike decisions are closely linked to the energy crisis between Russia and Europe. Also, the wheat import crisis in Egypt is linked to the devaluation of the Egyptian pound, which increases import costs in general,” he said.
He explained that the increase in Egypt’s budget deficit and the decline in some investments in the stock market prompted the Egyptian government to consider measures to revitalize the capital market in Egypt. In this context comes the recent acquisition of shares in the five big Egyptian companies.
Abdel Khalek Farouk, an economist and director of the Nile Center for Economic and Strategic Studies, told Al-Monitor that the UAE is making these investments based on economic feasibility studies. “This deal not only aims to support Egypt or pump $2 billion to fund its foreign exchange deficit, but is also in line with the UAE’s goals of making a profit.”
He argued: “The UAE are aware that the recent deal is profitable and works in their favour. Investments have been made in successful companies that are making good profits and Egyptian stocks are one of the cheapest in the world. In addition, the five Egyptian companies represent promising sectors in Egypt with high profitability rates.”
He noted that First Abu Dhabi Bank had withdrawn its bid for a majority stake in Egyptian investment bank EFG Hermes, citing ongoing global market uncertainty. This happened on April 14, just two days after acquiring stakes in the five companies, he added.
“The exit came after ‘careful consideration,'” the bank said in a statement. The move dragged EFG Hermes’ share price down more than 20%. This shows that business in the UAE is mainly focused on profitability and not just on supporting Egypt,” Farouk said.
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