Why the UAE Is Pumping $35 Billion Into Egypt

Tracy Alloway (0:03)

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Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:24)

And I'm Joe Weisenthal.

Tracy Alloway (0:26)

Joe, did you see the big headline coming out of Egypt recently?

Joe Weisenthal (0:30)

Yeah, I was kind of blown away by it. So I think there's two things that I've seen recently out of Egypt.

One is they're letting the Egyptian pound float. They already have, and so the Egyptian pound has fallen to record lows.

And then they have this huge deal with the UAE to develop a piece of property. And it almost sounds like, and I don't think it's exactly the case, but it almost sounds like when you read about it, like the UAE basically just bought a big part of Egypt.

Tracy Alloway (1:01)

Oh, that's punchy. But you're right.

Joe Weisenthal (1:03)

Is that wrong?

Tracy Alloway (1:05)

I should have specified at the beginning because there have been a number of headlines. And it's kind of interesting because they're all feeding into each other. So I think last month, the UAE unveiled this announcement that it was investing $35 billion in a place in Egypt on the Mediterranean coast called Ras al-Hekmah.

And the idea was to develop new tourism and real estate. But of course, that investment comes at a really sensitive time for Egypt. The economy hasn't been doing too well. Inflation has been high. And so what we've seen since that announcement is that the Egyptian Central Bank was able to hike rates finally. And then, to your point, they were able to free float the Egyptian pound.

And then the IMF felt much better about the direction of the Egyptian economy. And so they ended up increasing their own financing for Egypt. I think it went from like $3 billion to $8 billion. And so when you combine all of these things, which have basically happened in less than a month, you've seen kind of a turnaround in how people are feeling about the Egyptian economy. I'm looking at spreads on Egyptian bonds right now, and they have come in quite a lot.

Joe Weisenthal (2:21)

Right. Well, they've gotten a huge injection of cash. And I feel as though this story is at the intersection of a few different things. As you mentioned, the Gulf states seem really into real estate mega projects these days, whether it's Saudi or the UAE, etc. And so this is apparently another opportunity to build some gigantic modern city of the future.

Egypt itself has, of course, come under strain, particularly since, I don't know, maybe it's like the triple shock of COVID, the war in Ukraine and the surge in wheat prices. We know Egypt is a really big wheat importer and then also obviously strains from the war in Gaza.

And like many EMs, it's just generally been under strain. And needed help from the IMF. And so this sort of feels like a story that sort of multiple things happening once multiple things coming together at the same time.

Tracy Alloway (3:16)

Well, it's also happening against a very intense political background. And the complicated web of, I guess, influence in this particular region is something that we could probably spend hours and hours and hours on. You want to hear my framework for understanding this? I always think about it in terms of mean girls, like everyone's frenemies.

But I guess Abu Dhabi, MBZ is basically Regina George and Saudi Arabia, MBS is sort of Karen Smith. And that makes Qatar Gretchen Wiener because her hair is big and full of secrets. And then I guess Egypt is now Lindsay Lohan because people are trying to get her on board.

Joe Weisenthal (4:02)

Amazing. I love it.

Tracy Alloway (4:03)

I think about this a lot weirdly. OK, so maybe we should just bring on our guests. So we do, in fact, have the perfect guest, someone we've been meaning to get on the podcast for a long time. I worked with him when I was based in Abu Dhabi and I used to go to Dubai quite a lot. We are going to be speaking with Bloomberg Economics chief emerging markets economist Ziad Daoud.

Ziad is one of the smartest people I know when it comes to Middle Eastern economics.

And he has a piece out on Bloomberg, our new big take, all about this particular topic. What does this $35 billion injection actually mean for Egypt and for the wider Middle East? So Ziad, thank you so much for coming on Odd Lots.

Ziad Daoud (4:50)

Thank you, Tracy. Thank you, Joe. It's a pleasure to be with you.

Tracy Alloway (4:53)