The Mogamma building has towered over Cairo’s Tahrir Square since its completion in 1949. A squared monolith of steel and cement, it was meant to lend its modernist traits to the public administration office it would host: minimal, functional and somewhat innovative. It came to represent the opposite: the country’s dysfunctional, often corrupt bureaucratic machine. 

Every day, around 100,000 citizens would walk through its doors, hoping to sort out their paperwork with one of its 30,000 civil servants. A huge maze often leading to nowhere. “It is the object of almost universal contempt and frustration,” to quote the Belgian–Egyptian journalist Khaled Diab. 

This chapter of Egyptian political history has come to an end as the country’s bureaucracy moves to the $16bn New Administrative Capital (NAC). Despite its sober features, the Mogamma is meant to become a luxury hotel and the centrepiece of a wider regeneration of downtown Cairo. After all, the budget-busting construction of the NAC outside Cairo has left a slew of surplus buildings that can now be regenerated, breathing new life into downtown Cairo and generating much-needed liquidity for the government.

Egypt, the second-largest borrower of IMF loans (after Argentina), is going through dozens of smaller part-privatisations of state assets as it seeks to strengthen its foreign currency reserves, lower debt and reform an economy dominated by the military. 

In effect, Egyptian president Abdel Fattah al-Sisi, historically a strong supporter of military and state-run businesses, has been forced into fire sales. These have been motivated by mounting trade crises in the Red Sea and Suez Canal, alongside constraints on Ukrainian grain imports and the IMF’s demands for a reform package to bring debt down, constrain budgets, liberalise the exchange rate and shrink the state.  

Beyond the glass walls of Egypt’s megaprojects, the government is seeking foreign capital to regenerate numerous early 20th century buildings in downtown Cairo. It entrusted these properties to the Egyptian Sovereign Wealth Fund (TSFE), which was set up in 2018 to attract “private investments to Egypt’s resources and promote and co-investe in state-owned assets to maximise their value and efficiency for the Egyptian economy”, its website reads. 

In 2021, TSFE signed a contract with US-based Oxford Capital Group and Global Ventures Group, as well as UAE-based Al Otaiba Investments to develop and repurpose the Mogamma into a 450-room luxury hotel, in a project worth $200m. A couple of months later, it closed a deal with local developer A Developments for the regeneration of the former interior ministry and its surrounding areas, which are located in the Lazoghly area of Cairo, into a new innovation district featuring among its new tenants a branch campus for IPAG Business School of Paris. 

The entirety of the downtown redevelopment is slated at E£317bn ($6.6bn). Beyond its value, historic Cairo holds sentimental resonance and political visibility for the Egyptian population. Notably, Egypt’s government was rocked by accusations and protests against the ‘selling off’ of national assets in 2016 when sovereignty of the Tiran and Sanafir islands was given to neighbouring Saudi Arabia.    

Half measures? 

It is unclear how comprehensive the Egyptian government’s privatisation plans are regarding Cairo’s downtown portfolio. Sisi’s government is aware that the IMF is looking for a reduction in military involvement in key sectors of the economy while Gulf investors are seeking return on investment. 

Yet, the government may choose caution in the short term, retaining minority stakes and leasing key buildings. Current economic conditions are in crisis: consumer inflation is 35.7%; the debt to gross domestic product ratio was 94% in 2023; the national poverty rate stands at 29.7%; there is a large trade deficit and the country is dealing with declining foreign currency reserves. However, the Sisi administration will have taken notice of the S&P’s March 18 sovereign rating outlook upgrade to positive from stable, after it liberalised its exchange rate and reduced the fiscal budget. 

As Ramona Moubarak, head of Middle East and North Africa (MENA) risk at Fitch Solutions, notes: “The [Egyptian] Cabinet decided on March 20 to allow private-public-partnerships (PPPs) in the rehabilitation of historic Cairo. We are monitoring [this, but] a PPP framework means that the TSFE will likely retain some shares.” 

Timothy Kaldas, deputy director of The Tahrir Institute for Middle East Policy, concedes that Gulf players are in an incredibly strong position when it comes to leveraging financial support to buy Egyptian assets with regulatory carve-outs such as freezones. 

However, Mr Kaldas argues that Sisi’s plan to liquidate state assets will not lead to reform or a transparent market for foreign direct investment (FDI): “Egypt’s privatisation is not privatisation. Selling public assets to publicly owned sovereign wealth funds of foreign countries just further convolutes the web of politically connected firms that make Egypt’s market so impenetrable for actual independent private sector activity.”  

In contrast, for Ahmed Helal, MENA Director at Global Counsel, Egypt’s macroeconomic situation will end old habits and force Sisi into a divestment of downtown Cairo property. “If the ongoing state asset sale programme is any predictor … the TSFE will completely liquidate [the downtown portfolio],” he says. “A $1.9bn asset sale in July 2023 involved a selling down of the state’s [full] minority stakes in oil, petrochemical and steel firms [to the Abu Dhabi Developmental Holding Company, ADQ].

“If Egypt again finds itself in a foreign currency squeeze at the time of completion, there will be greater pressure for a full divestiture to raise cash and shore up reserves.”

Macro shocks, political risks, hard assets

Alongside the IMF, the Gulf Cooperation Council (GCC) has played a key part in propping up Egypt during macroeconomic and supply chain shocks, because Cairo represents the largest Arab state by population. A disruption of Egyptian living standards has the potential to generate high levels of political risk across the Mena region. 

This has led to a fairly liberal relationship between Gulf FDI and Egyptian fiscal management that is no longer seen as sustainable. Consequently, revenue-generating assets like the Mogamma building and prime Nile real estate have come into play. 

According to a Central Bank of Egypt (CBE) report for the 2023/24 fiscal year, Egypt has a large stock of debt owed to Arab creditors, amounting to $48.4bn as of September 2023, including $22.2bn to the UAE, $12.5bn to Saudi Arabia, $7.1bn to Kuwait and $4.0bn to Qatar. 

GCC countries “will likely receive preferential treatment”, says Ms Moubarak, adding “this will allow [the GCC] to convert their CBE deposits to equity or investment that generates income”. While greenfield sites like Ras al-Hekma promise higher returns for the Gulf, brownfield projects like downtown Cairo have significantly shorter timelines and risks.  

However, because of an escalation of conflict in the Red Sea and Gaza, and supply chain shocks stemming from reduced Ukraine grain exports, the GCC has become more cautious. While there is still a supply of Gulf FDI in the Egyptian economy, it is now focused on “safer” fixed assets. 

As Justin Alexander, chief economist at MENA Advisors, points out: “Abu Dhabi has plenty of favours it could call in after bailing out Egypt through the transformative Ras al-Hekma deal.” In addition, “Egypt is keen to see Saudi money flowing again.” 

For now, it seems that Cairo’s downtown divestment plan, and the response of potential Gulf creditors and investors, are all at the mercy of broader geopolitical and macroeconomic trends. Meanwhile, Sisi’s capacity to reform fiscal and monetary strategy hinges on how the Gulf responds to said change.

Samuel McIlhagga is a freelance journalist based in London

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This article first appeared in the April/May 2024 print edition of fDi Intelligence.