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This is what the Gulf states are waiting for before pumping billions into Egypt

 Gulf countries are waiting for greater clarity on the pound and proof that Egypt is undertaking deep economic reforms before injecting billions of dollars in investments.

Energy-rich allies including Saudi Arabia and Qatar have pledged to inject more than $10 billion into Egypt's foreign exchange-starved economy and have put up for sale stakes in several state-owned companies. However, it has received only a fraction of the funding so far, with Gulf officials closely watching the Egyptian pound's movements following three devaluations over the past year, people familiar with the matter said.

The people, who asked not to be identified for confidentiality, said the Gulf states also want to see that the North African country has taken serious steps on reforms promised by the International Monetary Fund to secure a $3 billion rescue package.

Key changes include reducing state and military involvement in the economy and ensuring more transparency about the financial positions of state-owned and unlisted companies.

The governments of Saudi Arabia, Qatar and the UAE did not immediately respond when reached for comment.

The International Monetary Fund said last month that securing access to Gulf financing is "essential" for Egypt to bridge the financing gap of about $17 billion in the next few years.

The $400 billion Egyptian economy is under increasing pressure due to the shocks resulting from the Russian invasion of Ukraine, which has led to a rise in food and fuel prices, especially since Egypt is one of the largest importers of wheat in the world.

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A prolonged delay in obtaining financing is likely to deepen the economic crisis and increase pressure on the Egyptian pound.

Egypt is the pillar of the regional system

The Gulf states have pledged to provide investments as they view Egypt - the most populous country in the Middle East - as an essential pillar of support for the regional order, as well as its vital importance to energy and trade routes.

Last Wednesday, Bloomberg reported that talks between Saudi Arabia and Egypt had stalled regarding the purchase of The United Bank in Cairo due to a disagreement over how to evaluate the deal. People explained that the high fluctuations in the exchange rate of the Egyptian pound make it difficult to value assets, which means that some deals may take longer than previously expected to be concluded.

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The Egyptian authorities undertook to implement a flexible exchange rate for the local currency. Sharp declines in the pound were followed by long periods of stability.

When Egypt requested urgent help last year, Saudi Arabia, Qatar and the UAE deposited $13 billion in the Central Bank of Egypt. But people made it clear that Egypt needs foreign direct investment rather than aid. So, Egypt proposed selling stakes in 32 state companies, including three banks, within a year.

Saudi Finance Minister Mohammed Al-Jadaan said recently that his country will continue to search for investment opportunities in Egypt.

It should be noted that Al-Jadaan hinted at a shift in the methodology for the Kingdom's provision of financial aid to countries, as it now requires the country's pledge to reform its economies in return for providing aid. This shift may have repercussions for countries in the region, from Lebanon to Turkey.

Serious talks

Qatar began serious talks last year to invest about $2.5 billion to buy state-owned stakes in companies including Vodafone Egypt, the country's largest mobile operator. People confirmed that discussions with the Qatar Investment Authority are continuing, and that Doha is exploring multiple opportunities.

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On the other hand, two people explained that the size of the deal will be different, after the change in the valuation of the assets after the most recent decline in the value of the Egyptian pound in January.

Last year, the Saudi Public Investment Fund bought state-owned stakes in four Egyptian companies listed on the stock exchange for $1.3 billion, while the Abu Dhabi-based sovereign fund, ADQ, agreed to a $2 billion deal that included buying about 18% of the bank. Commercial International, the largest listed bank in Egypt. The Gulf countries, which provided deposits and oil during previous crises, seem determined to achieve tangible returns on investment.

This could lead to a deepening of its involvement in the Egyptian private sector, which is seen as facing unfair competition from state-owned companies, particularly those affiliated with the military, which poses a challenge to large-scale foreign investment.

Signs of a shift began to appear in late 2019, when President Abdel Fattah al-Sisi announced the listing of some companies owned by the armed forces, whose businesses range from building materials to foodstuffs, mining and petrochemicals.

The International Monetary Fund confirmed that it welcomed this initiative, and set guidelines such as submitting the financial accounts of state-owned companies to the Ministry of Finance. However, the fund warned that the changes "may encounter resistance from vested interests".

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Officials of the Egyptian Sovereign Fund conducted a promotional tour of the Arab Gulf states in February and discussed potential investment opportunities with some countries including Kuwait and Oman.

But Egypt must also explain to its people the benefits of foreign investment in improving profitability and opening up new export markets, according to two of the people. That would help assuage any domestic concern about selling off state assets.