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Qatari investments at last? Egypt looks to break inflows paralysis with sweetener of port operation contracts, tax breaks

While the Qatari investment is still pending finalization, if completed, it would deliver a huge influx of long-discussed money from Doha in a portfolio of state assets at a time when Egypt desperately needs to create a margin to stall the effects of the economic crisis and allow it more time to secure other needed inflows.

However, to move the investment talks forward, nearly a year after Qatar pledged a sizable investment, a delegation of Egyptian officials that visited Doha in the close of February offered a bevy of incentives, including tax exemptions and two 25-year contracts to operate ports. Along Egypt’s strategic coastlines.

The desperation felt in Cairo comes down to its inability to secure needed foreign currency inflows in recent months. Consequently, the Egyptian pound is widely believed to be overvalued, with five banks polled by Bloomberg anticipating that the central bank will devalue the currency once again in the near future by as much as 13 percent, to bring its value from LE30.92 down to LE35 against the dollar. As for the long term, the price of the pound declined in non-deliverable futures contracts to LE37.9 and LE38 per dollar, according to data reported by Bloomberg.

Adding to this pressure is the fact that the International Monetary Fund, whose US$3 billion loan is viewed in Cairo as a “certificate of trust,” is due to be in town this month to conduct the first review of the reform program, key tenets. of which were the sale of a bundle of state assets to close a nearly $17 billion financing gap and the adoption of a flexible exchange rate. Thus far, Egypt has not adhered to either tenet.

The government announced that it would offer a portion of its stakes to 32 companies on the stock market or to private investors in February. But sources close to the offering program who spoke to Mada Masr painted it as an infeasible program to accomplish in full, adding that it was rolled out at such a scale to pacify demands for reform from the lending organization.

Equally, the central bank is managing the value of the pound, only moving to allow for a devaluation when it has secured an influx of foreign currency, as it did in the January devaluation when it arranged for the entrance of hot money prior to devaluing the pound.

In light of these pressure points, Egypt is in a race against time to advance the belabored talks with Gulf countries to secure investment, which itself is a new ground for the administration in Cairo to find itself as key allies like Saudi Arabia and the United Arab Emirates. are backing away from the patronage relationship they’d previously cultivated. While Saudi Arabia and Qatar earmarked some $10 billion in investment to Egypt last year, only a fraction of that has materialized. Bloomberg reported at the end of February that Gulf countries are driving a hard bargain in talks with Cairo, as they wait for more certainty on Egypt’s currency and prove it’s making deep economic reforms before unleashing billions of dollars of crucial investment.

In late February, Prime Minister Mostafa Madbuly and accompanying ministers made headway in their push to finally secure a slate of investments with Qatari officials, according to several government sources, a source in the Sovereign Fund of Egypt and lawyers close to the talks with Qatar.

A source at the Central Bank of Egypt echoes the sense that a deal is imminent, without specifically noting the state of talks with Qatar. “We are currently finalizing deals,” says the source. And once they are completed, there will be a devaluation.

It’s one of the central bank’s wishes, said the government officials close to the Qatari deal, for the pound to be devalued in order to wrap up the deals with Gulf countries and in preparation for a review of the latest structural adjustments agreed upon with the IMF . Negotiations with Saudi Arabia however, they said, still remain complex.

According to the government officials and the sovereign wealth fund source, Qatar will provide US$1 billion to create a joint investment fund between the Qatari Investment Authority and the Egyptian sovereign fund, money that will be used to make investments in a number of state assets.

Speaking from Doha at the time, Planning Minister Hala al-Saeed said that the fund, which she qualified as a tentative project, would focus on particular economic sectors.

Of the 32 companies Egypt has publicly announced it will be offering stakes in, Doha is in talks to invest in a select few, said the same sources: the Arab African International Bank and Misr Life Insurance from among the program’s financial sector offerings.

Doha also has its eye on some of the Egyptian mineral and mining companies due to privatization, including the Egyptian Drilling Company, the Sinai Manganese Company and El Nasr Mining Company, which added the government sources and the sovereign fund source. Energy plants at Beni Suef and Zafarana, and the Salhiya Company for Development and Land Reclamation and Agricultural Investment are also high on Qatar’s list of preferences.

Key among the Qatari investments, however, are 25-year management and operations contracts for the Red Sea port of Safaga and for a second, unnamed port, still under development and expansion, on the Mediterranean coastline near to the border with Libya, according to the sovereign wealth fund source and the government officials.

Qatari interest in the ports is being paired with talks around a stake in Egypt’s digital trade infrastructure, according to the sources, in the form of shares in Misr Technology Trading Services, the government company which hosts shipping information and customs fees exchange for all foreign trade across Egypt’s borders and which is also part of the privatization program.

Egypt’s land, sea and river transport and logistics infrastructure are among the most fiercely sought-after assets for which it has sought to exchange investment capital since the onset of the liquidity crisis. A proposal to create an extrabudgetary fund to manage private contracting and rent-making on assets owned by the Suez Canal prompted public outrage when it was floated in Parliament over December.

The government has also registered two coastal logistics companies, Damietta Container and Cargo Handling Company and Port Said Container and Cargo Handling Company, for listing on the EGX at the close of 2022, though the listings are still undergoing share price valuation, according to a high-level source in financial services firm NI-Capital who spoke previously to Mada Masr on condition of anonymity. Press reports in recent months have suggested that Qatar has shown an interest in both of these companies.

In the meantime, a number of deals over coastal access have sped through more quickly. Abu Dhabi Ports recently took over the management of Egypt’s Ain Sokhna Port, and while Sisi was in Doha last September, the Emirati company began a deal to acquire 70 percent of the Egyptian IACC Holdings, including majority stakes in two shipping companies operating in the Red Sea: Transmar and Transcargo International.

With Emirati investors expanding their grasp on such strategically important assets, sources have told Mada Masr that security concerns regarding the sales have been laid before the president.

Egypt has turned to Qatar to balance out the growing Emirati influence. “At least with the Qataris, things are clear,” a government official previously told Mada Masr, pointing to the transactional nature of bilateral ties with Qatar. “With the Emiratis, we thought we were allies, and then suddenly it was clear that we were not.”

Beyond the state sector, Qatari businesses are also to channel investment into Egypt’s private economy, with Madbuly, along with Egypt’s ministers of finance and trade and industry, the head of the General Authority for Investment and Free Zones, and chair of the General Authority For the Suez Canal Economic Zone setting aside time in Doha to sit down with the Qatari Businessmen Association .

The two sides drew up a joint arrangement to prevent the levying of double taxation on companies or individuals operating in both countries in a deal covering income, immovable funds, business profits, international transportation, dividends, interest and capital gains, joint ventures, and services fees. The double taxation agreement, according to Qatari Prime Minister Khalid Bin Khalifa bin Abdulaziz Al Thani, is to help create a “tangible” impact on Qatari investments in Egypt. Even more pull could be exerted by other incentives still on the table, including an up to 10-year arrangement for certain tax exemptions for Qatari companies, said the government sources and separate legal sources with knowledge of the bilateral negotiations.

One of those companies is Qatar’s Baladna Food Industries, which already holds around 12.6 percent of Juhayna, one of Egypt’s largest food product manufacturers. Juhayna was the site of a struggle between the government and business owners, the Thabet family, which saw two of the family members imprisoned until the beginning of this year after they refused to cooperate with the government in state-led projects. Baladna plans to increase its stake in the dairy and juices company, said legal sources and government sources.

The government sources added that big investments could also be incoming in the medical and pharmaceuticals industry, with potential for a new pharmaceutical company to be established.

During the Doha visit, Health Minister Khaled Abdel Ghaffar pointed out to Egypt’s stated intention via the state ownership policy document to increase cooperation with the private sector in healthcare, medical and pharmaceutical services, signing off on a set of preliminary agreements with Qatari companies the Investment Holding Group, Al Qamra Holding Group and Aamal Company for investment in Egypt’s healthcare system through the establishment of medical facilities.

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