We followed with great interest the visit of the Saudi Crown Prince Mohammed bin Salman to Egypt, a visit that extended for three active days. President Abdel Fattah El- Sisi accompanied Prince Salman in inspecting several Egyptian national projects, we will analyze here the nature of the Egyptian/Saudi relationship, past and future prospects and how it emerged since 2013 into a new economic, political and military alliance in the Middle East. We will try to understand the nature of it, its objectives, strengths and weaknesses and predict future moves and obstacles facing this alliance.
When President Abdel Fattah El-Sisi took over the country’s responsibility by mid-2014, one of the main challenges he faced was the challenge of a crumbling economy, a challenge he faced by forming the first package of reforms in 40 years and announcing a tough and promising macroeconomic program, to restore the Egyptian economy towards its proper course among the growing world's economies.
At the same time on the eastern bank of the Red Sea, the journey of the falling oil prices started, a resource on which the Gulf States relied entirely upon. Research and think tanks within the Gulf countries started to tackle solutions to face the collapse of the country's main resource and source of income.
In the midst of calculating risks of revenue collapsing, King Abdullah bin Abdulaziz passed away and was succeeded by King Salman bin Abdulaziz, with his son Prince Mohammed bin Salman ascension journey began, with oil’s continued down-fall to $30 per barrel, when Prince Mohammed became the Kingdom’s Crown Prince in 2015.
In the dialogue between Prince Mohammed with his economic team and 5 journalists from Bloomberg in April 2016, Journalist asked “How much was lost?” Mohammed Al-Sheikh, a senior adviser to Prince Mohammed (a Harvard graduate and former World Bank employee) poked his eyes on the table before saying, "Can I stop this?" Prince Mohammed intervened saying "No, you cannot say that publicly." Al-Sheikh said in answering the question "The most likely guess is that there was an inefficient spending estimated between $80 billion and $100 billion" a year, equivalent to a quarter of the entire Saudi budget. Prince Mohammed intervened and lead the interview by asking: "How close is Saudi Arabia to a financial crisis?" Al-Sheikh responded “Today's situation is much better, but if you asked me the same question exactly one year ago, I might have been close to a nervous breakdown”.
He then narrated a story that was never heard before from outside the Kingdom's inner sanctuary. He said: Last spring, when the International Monetary Fund (IMF) and others predicted that Saudi reserves would help save the country for at least five years from falling oil prices. The Prince's team discovered that the kingdom would quickly become insolvent if the spending situation remained at the levels of April of past year (2015) the Kingdom was exposed to "total bankruptcy" in just two years (2017).
Al-Sheikh said that in order to avoid a disaster, the prince reduced the budget by 25%, and re-applied strict spending controls and resorted to debt markets, also he developed the VAT and other fees, that all lead to reducing the rate of depletion of Saudi Arabia's monetary reserves, which reached 30 billion dollars a month during the first half of 2015.
Vision 2030
The Kingdom has further planned to diversify its economy almost completely and radically change its composition and stop relying on oil as its main source of revenue, all of which can be summarized under the prince’s Vision 2030.
A vision that relies on parallel reforms and procedures to be carried out constituting of 3 main axes. A Public Investments Fund Program, A Financial Balancing Program and a National transformation Program. A vision that centralises a vibrant society (which explains the current liberation of women's rights within the kingdom while preserving the country’s traditions and values). A diversified thriving economy (which explains the current wave of diversification and the shift from oil to new investments and raising competitiveness) and developing an ambitious effective government and responsible citizens.
Egypt has already seen several reforms previously, yet the government will lacked the ability to commit neither in enforcing its application nor going the distance in achieving its target. Recently and from our modern history there was a golden opportunity for Egypt’s economic reform after the Gulf War, when most of Egypt’s debt was dropped in the early nineties, yet the government regressed a thousand steps after completing ten important steps ahead in reducing subsidies, and managing the budget.
In 2016, the OPEC negotiations to reduce oil production succeeded, leading to reducing quantities produced to retrieve its original rates, after the OPEC deal Oil price per barrel went up to $70.00 from $35.00, and despite the success of this agreement, the Saudi government did not back down from its harsh reforms set
This position grabbed the attention of many institutions and investors that the government is serious and strict in implementing the reform plan and that oil prices will not change the set vision and plans of reform.
NEOM is the century project for the Kingdom of Saudi Arabia
NEOM, is the largest project in its history in terms of value, content, transformation and impact it will have on the economy, society and politics and is the crown of the 2030 vision and most obvious example of the radical transformation that the Kingdom aims to achieve by transforming itself from an oil economy to a diversified industrial and touristic economy.
The project is located in the far northwestern part of Saudi Arabia and overlooks the Red Sea, where the geographical and economic ties with Egypt represent a foundation for this partnership.
The geographical link is targeted to be developed by the construction of a bridge that includes tracks of cars and rail between the two countries above the sea, that starts from South Sinai to Neom.
An economic cooperation on the project targets joint Saudi-Egyptian institutions, shared by the two governments, who report to the highest level of the governments to ensure the success of this dream and turn it into reality.
On the other hand, the Egyptian Century project is the economic zone of the Suez Canal, although the name of the project includes the word "Suez" but this does not mean that it is geographically located in the province of Suez only! But extends from El Arish in the north of Sinai to the “South Sinai”.
South Sinai is targeted for development based on global standards to be one of the three main platforms of the Neom project
The three platforms are located between Saudi Arabia, Egypt and Jordan
South Sinai has large tourist resorts with an established fame overlooking the Red Sea, the two countries want to develop and expand this to include joint new projects between Egypt and Saudi Arabia to transform the Red Sea region into a world-class tourist destination with huge potential to attract tourists. Targeting tourists from Europe, and those who travel to Southeast Asia, taking advantage of the proximity of the Red Sea for them.
Now, you know why the President took the Crown Prince to the center of the canal to see for himself the current developments and work in progress there as they share the vision for a great future partnership between the two countries.
On the other hand, establishing industrial investments within the zone targeting exports to Europe or Africa and Asia.
Basically if you own a plant in Sinai and aim to export to Asia you will not find better than the Suez Canal for transit and export.
Also if Africa is you’re targeted market, Egypt is bound by free trade agreements with the African continent, which gives a great competitive advantage to any foreign investor who operates in this region.
President El-Sisi and Prince Mohammed signed an agreement on Monday, last week, to set up a $10 billion investment fund between the two countries. Mission of the Fund is to develop a thousand square kilometers in South Sinai to boot and prepare this area to be one of the platforms of the Neom project and link it to the Suez Canal project. Egypt will contribute with the land, the value of land leased for a long-term benefit may reach 30 years or more, while the Kingdom of Saudi Arabia will finance the project.
On the other hand, China’s century project, targets revitalizing the Silk Road, via developing land and maritime routes linking Asia, Africa and Europe.
About $1 trillion has been earmarked for this project and may reach $4 trillion when the rest of the countries' investments in the routes are included in the future. The new route includes two routes: sea and land, linking China with its neighbors in Central Asia, the Middle East, Africa and the European continent. As well as, raise the level of China's foreign trade to reach $2.5 trillion over the next decade.
China needs to reach Africa with its foreign trade, as well as, faster and easier access to the world, a target that can be achieved by transferring its manufacturing platforms to the Suez Canal axis.
In one of the studies of the Egyptian businessmen Association, it stated, that:
• Egypt is one of the top five destinations for Chinese investments within the belt and road initiative with Kazakhstan, Russia, Israel and Singapore.
• The Belt and Road Initiative was organized geographically along 6 corridors, in addition to the Silk Road from the Chinese coast, Singapore crosses into the Mediterranean and Africa, with 60 countries along the way, covering 4.4 billion people, accounting for more than half of the world's population, 40 percent of the world's gross domestic product and 80 percent of global growth potential.
• There are more than 50 Chinese factories operating in the Suez Economic Zone, including Josh company, the world's largest glass fiber manufacturer, the region is a major part of the new Suez Canal project, which was established in 2015 and since the establishment of the economic zone, China's investments have increased from half a billion dollars to about $5 billion.
• The Chinese president promised that investments would exceed $15 billion over the next three years, with Egypt allocating 75 million square meters.
• Egypt can provide logistics services to the Middle East and Africa through its geographic location through which China can reach 2 billion people via Egypt.
In November 2017 and on the sidelines of the activities held at the World Youth Forum in one of the economic seminars, an agreement was signed between the Suez Canal Economic Zone Authority and the Chinese Cusco Company for the establishment of a Chinese logistics area over an area of 130 thousand square meters at the Canal's axis in Ain Sokhna overlooking the sea the Red.
The news quoted the official Xinhua news agency
In a statement Cusco company said clearly and decisively the following:
"This project aims to serve and support the road and silk initiative, this will help us to reach North Africa and Europe and thus we will benefit from free trade agreements and customs duties between Egypt and its partner countries.
In conclusion, there are several clear facts:
• The Suez Canal axis is associated with Neom project, and the Silk Road initiative.
• The Egyptian-Saudi alliance is rising strongly and growing rapidly.
• The Egyptian-Saudi alliance is based on the philosophy of mutual benefit.
Accordingly, the visit of Prince Mohammed is very important and specially that Cairo was his first stop, which reflects the importance of relations and common interests between Cairo and Riyadh.
We expect the coming period a large volume of work, completion and development in the Suez Canal area east and west of the canal from Arish to Ain Sukhna and from North Sinai to the south Sinai. Of course these things are directly related to the Sinai Campaign 2018 and the fight against terrorism and the importance of eliminating any potential of instability in the region.
In the end, it is a huge joint Saudi-Egyptian project that carries a lot of benefits for both people. It will take time to complete it to harvest its fruits, but its beginning is very promising and reassuring.