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China shows faith in Egypt with deeper investment

November 15, 2023, 1:17 AM

Egypt's PM Mostafa Madbouly greets President Xi Jinping at the Great Hall of the People in Beijing

Egypt’s PM met Xi Jinping at Belt and Road forum
Beijing seems undeterred by Cairo’s economic woes
But payment problems have hit some projects

When President Xi Jinping welcomed the prime minister of Egypt, Mostafa Madbouly, to Beijing’s Great Hall of the People in October, it was a signal that China is stepping up bilateral co-operation with Cairo.

Their meeting, on the sidelines of the Belt and Road forum, took place as Egypt grapples with mounting debt and delays to reforms that have put off some international investors.

Madbouly’s attendance “was very telling”, according to Giulia Interesse, an analyst for Asian business consultancy Dezan Shira & Associates.

Egypt’s Vision 2030 for its economy includes developing sectors that “naturally overlap” with the Belt and Road – “which makes it a win-win co-operation”, Interesse told AGBI.

One key area is green hydrogen. Egypt’s Suez Economic and Trade Co-operation Zone signed a $6.75 billion deal with China Energy Engineering Corporation at last month’s forum. It aims to produce 1.2 million tonnes of green ammonia and 210,000 tonnes of green hydrogen each year.

China is already the largest investor in the Suez zone and ships 60 percent of its goods to Europe via the Suez Canal. Thanks to Egypt’s free-trade agreement with the European Union, Chinese companies pay few, if any, tariffs.

A China Ocean Shipping Company (COSCO) craft in the Suez Canal. More than half of China's exports to Europe pass through the canal — A China Ocean Shipping Company (COSCO) craft in the Suez Canal. More than half of China’s exports to Europe pass through the canal

In August last year, the Egyptian government signed a deal with Hong Kong’s Hutchison Ports to build and operate two container terminals at Sokhna and Dekhila – part of a $800 million project to link the Red and Mediterranean seas.

“Both China and Egypt are trying to build up industries which they can then export globally, which is why it makes sense for them to invest hand-in-hand in the Suez Economic Trade Zone and new ports,” said Interesse.

From fibreglass to satellites

One of the Suez zone’s successes has been Jushi Egypt, a subsidiary of the manufacturer China Jushi, which was set up in 2012.

Jushi Egypt is now the largest fibreglass producer in Africa with an annual production capacity of 340,000 tonnes. It has generated over $40 million in tax revenue and brought in more than $1 billion in foreign exchange income.

The two countries are also co-operating on space technology. The China Academy of Space Technology has worked with Cairo’s space agency to build a satellite assembly, integration and test centre, completed in June this year.

Egypt is the first African country with these satellite capabilities, which can aid “resource exploration, environmental monitoring and agricultural planning”, Interesse added.

More than 1,500 Chinese companies are registered in Egypt, according to Dezan Shira research. Over 140 of those businesses have invested in the country. In 2022, most of this funding went to industrial projects (55 percent), followed by construction (20 percent) and services (12 percent).

Payment problems at new capital

Chinese businesses are playing a major role in the development of the New Administrative Capital east of Cairo. The Iconic Tower in the central business district is being built by China State Construction Engineering Corp. The skyscraper, due to be completed in 2024, has an estimated cost of $3 billion.

China has also worked on the light rail line that will connect the new capital to Cairo.

Chinese companies are working on Egypt's Light Rail Transit, which will link the new capital to Cairo — Chinese companies are working on Egypt’s Light Rail Transit, which will link the new capital to Cairo

However, getting paid for work on the city has not been trouble-free, according to a regional expert.

“There have been lots of problems with developing the New Administrative Capital – not all known by the market at large – but some of it seemed to be a lack of payment from Egypt,” said Angus Blair, founder of the Signet Institute think tank in Cairo.

As a result, he added, “quite a few of the Chinese companies have stepped back”.

Despite this, the two countries’ central bank governors, Hassan Abdalla and Pan Gongsheng, held talks in September about making it easier for Chinese companies and banks to set up in Egypt.

During their meeting in Beijing, they agreed to explore increasing the use of the yuan, as well as joint financing.

“If Egypt does decide to start trading more in the yuan, it will find it difficult because the reality is that it’s not as accessible as the dollar,” said Blair.

Cairo is “currently reaching out to whichever partners it can do business with”, he added.

“Joining the Brics is part of that. Egypt wants to try to balance East and West interests but, at the moment, it’s having to make decisions out of necessity as well.”