Will Ras El Hekma dollars revive the Egyptian pound?

Highlights: Will Ras El Hekma dollars revive the Egyptian pound?. The UAE expects to invest at least $150 billion throughout the duration of the project’s implementation. The project will generate $35 billion within two months, including $24 billion in direct liquidity, and $11 billion in Emirati deposits. There are expectations that the huge city will attract at least 8 million additional tourists to Egypt. A presidential decision was issued in 1975 to evacuate the village of its residents, which has an area of 55 thousand acres. The decision was not implemented until the project reappeared in 2015.

Voices welcomed the announcement of the largest direct investment deal in Egypt, promising to solve the crises of the Egyptian economy with the project, while other voices questioned its feasibility, recalling previous projects, and between this and that, experts explained to Al Jazeera Net the picture.

Egyptian Prime Minister Mostafa Madbouly at the conference announcing the Ras El Hekma project - (Source: Egyptian Cabinet via Facebook)

Cairo -

Egypt hastened the disclosure of the details of the “Ras El Hekma” deal - the largest deal in the country’s history - one day after the Egyptian government approved the largest direct investment deal through an investment partnership with major entities, without specifying the nature of the investment or the project invested in. Nor the investing party.

Egyptian Cabinet spokesman, Mohamed Al-Homsani, stated last Thursday that the details of the deal will be announced before the holy month of Ramadan, and that the statement is an announcement of the Cabinet’s approval of the deal and a message of reassurance to citizens that the state has a vision to overcome the current economic crisis.

Accelerating

But the next day, the Egyptian government surprised the Egyptians by signing what it described as the largest direct investment deal through an investment partnership between the Ministry of Housing and the Abu Dhabi Developmental Holding Company in the UAE to implement the Ras El Hekma City development project on the northwest coast.

For about 4 weeks, the local state media promoted the project, citing informed sources, considering it the “magic lamp” to solve the dollar crisis, in reference to the “Ras El Hekma” city project, which will generate more than 22 billion dollars, but the government’s announcement later came. Greater than this number.

On Friday, Egyptian Prime Minister Mostafa Madbouly announced the details of the project, which he described as the “largest” ever, as follows:

The area of the "New Ras El Hekma" project is 170.8 million square meters (about 40,600 acres).
The project will generate $35 billion within two months, including $24 billion in direct liquidity, and $11 billion in Emirati deposits that will be transferred into Egyptian pounds in the project.
The project is part of Egypt's urban development plan for the year 2052.
There are expectations that the huge city will attract at least 8 million additional tourists to Egypt.
The UAE expects to invest at least $150 billion throughout the duration of the project’s implementation.
Egypt gets 35% of the project’s profits.

The Prime Minister said that the liquidity coming from the project will be “used to solve the existing dollar liquidity crisis,” adding that it will create “millions of job opportunities that will be available during the construction of the city and after its establishment and operation for Egyptian youth and companies operating in the contracting sector.”

He expected that such projects would help "fulfill the dream of 40 or 50 million tourists coming to Egypt."

Built by the king

Ras El Hekma area takes the shape of a triangle in the Mediterranean Sea, and it is a village belonging to the city of Marsa Matrouh in Matrouh Governorate on the northern coast.

Its area is 55 thousand acres (4 thousand square meters), and it is 85 kilometers away from the city of Matrouh. It was established by King Farouk, the last king of Egypt, after he carefully chose its location and built there a royal rest house for the royal family, which was turned into a presidential residence during the reign of the late President Anwar. Sadat, then Hosni Mubarak and his family.

The coastal strip is 50 kilometers long and is located between the city of Dabaa and Marsa Matrouh, according to the Egypt Projects Map (government) website.

Eviction Syndrome and Projects

A presidential decision was issued in 1975 to evacuate the village of its residents, which has an area of 55 thousand acres. The decision was not implemented until the project reappeared (in 2015), and the concerned authorities began trying to force the residents to leave their homes and vacate their lands, which sparked a lot of dissatisfaction. Especially since the governorate did not provide them with suitable alternatives.

According to the Governor of Matrouh, the people will be compensated by building an integrated residential city, and each affected person will be given an alternative home, or compensated with an appropriate amount of money according to his desire, despite their lack of eligibility and the lack of papers proving their ownership of the land, according to the government website.

Opinions and expectations about the project varied between those who considered it the “deal of a lifetime” capable of solving the problems of the Egyptian economy, and those who saw it as a project like the “exaggerated” projects that the government had previously described as changing the face of the Egyptian economy, in reference to the New Administrative Capital and the New City of El Alamein. And the new Suez Canal.

Biggest winners

The former Dean of the Faculty of Economics and Political Science at Cairo University, Dr. Alia Al Mahdi, described the deal as “a deal of interests for both parties, under which the UAE obtained the best location on the shores of Egypt, and they are adept at that, and (Egypt) will receive a huge sum in hard currency that will help it overcome its ordeal.” And to get out of the bottleneck temporarily unless accompanied by economic reforms.”

She explained, in a comment to Al Jazeera Net, “The positive and quick return will be to reduce the pressure on the Egyptian pound and its rise against the dollar for a period of time ranging from a few months to a year, but the deal will not solve all of the Egyptian economic problems” because the problems are related to production in all its forms, even if we are not able to Addressed properly, neither this deal nor any other deals will be able to solve the economic problems.”

Al-Mahdi conditioned the success of the deal on several things, including:

The project should not be harmful to the environment, especially since it is the most beautiful marine area in Egypt.
The ability to attract international tourism and not Arab tourism, as in the “Marassi” project.
Structural reforms of the economy, release of goods and reduction of prices.

The region, not Egypt

Professor and head of the Department of Finance and Investment at Cairo University, Hassan Al-Sadi, considered that “the Ras Al-Hekma deal is a rescue for the entire region and not just Egypt, because if the Egyptian economy collapses, it will lead to major problems in the Middle East region. Therefore, it is an economic deal with political dimensions and is not in anyone’s interest.” For Egypt to turn against its internal conflicts.”

Al-Sadi told Al-Jazeera Net that the key to the deal is to exploit cash flows amounting to $35 billion to rebalance the exchange market and eliminate the phenomenon of speculation on the dollar by paying part of the principal of the country's external debt.

He added that the remaining part, which is $24 billion, will be used to meet the large needs amounting to about $17 billion during the next few months, as the financing gap exceeds $30 billion during the current year.

He continued: "As for the rest of the amount, if the Egyptian government does not improve its use in an optimal manner and work to direct strong blows to the currency trade, we will have missed the greatest opportunity in front of us."

He demanded that the government release all goods accumulated in customs, especially production requirements for factories and the Egyptian citizen’s needs for basic goods, so that the impact of these cash flows becomes apparent, and thus Egypt will not be forced to reduce the value of the pound to the black market level, which some of them, including the International Monetary Fund, were demanding. At 65 pounds.

It is not the first and it is not the solution

For his part, Mustafa Youssef, a researcher in political economy, feasibility studies and development studies, believes that “such huge deals have been repeated over the past decade. The beginning was with the announcement of the outcome of the Sharm El-Sheikh Economic Conference in March 2015, amounting to more than $175 billion through... Signing dozens of agreements, then the new Suez Canal project and talking about revenues of more than 100 billion dollars annually and other projects and deals.”

He pointed out, in his speech to Al Jazeera Net, that “the giant deals and projects announced by Egypt are very many, but they were just numbers in the air that were not translated into reality and instead turned into debts of more than 165 billion dollars, and the pound fell to historic levels and prices rose.” More than 5 times, and the poor and middle classes were crushed.”

Youssef expected that the impact of the cash flows and the deal - in general - would be temporary and not permanent. He said: “The problems of the Egyptian economy are not addressed with gifts from heaven or a magic lamp, but rather with structural reforms that enhance production and make room for the private sector.”

Source: Al Jazeera