Egypt faces more delays in funds to build new capital

The consortium of Chinese banks funding the lion’s share of Egypt's new administrative capital has delayed delivery of the loan until Egypt provides more proof of its ability to repay the funds.

al-monitor Chinese construction laborers work at the site of the Iconic Tower skyscraper, being built by China State Construction Engineering Corp (CSCEC), in what will become the business district of the New Administrative Capital (NAC), east of Cairo, Egypt, May 2, 2019. Photo by REUTERS/Amr Abdallah Dalsh.

Topics covered

loans, debt, egyptian government, imf, banks, china, cairo

Jan 31, 2020

Money issues continue to plague Egypt's plans for a new administrative capital.

Egypt has yet to meet multiple conditions attached to China’s $3 billion loan facility to design and construct the proposed new capital's central business district, an Egyptian government source told Al-Monitor.

The source, who declined to be named because of the sensitivity of his position, said the Chinese banks’ insistence on overcomplicated payment guarantees is obstructing disbursement of the $834 million first tranche of the loan. Egypt was expected to obtain that tranche in January. The Egyptian government is working to resolve this dispute and hold talks to rush the disbursement, the source explained.

“The Chinese side has concerns about whether [Egypt] is capable of reimbursing the loan and through what means, in addition to the debt scheduling. Nevertheless, negotiations are underway with the Chinese side to address these unjustified concerns and ease the loan disbursement measures, which the consortium of Chinese banks funding the project has imposed," the source said.

He said the first tranche will cover the cost of building seven big towers, including two administrative towers and five residential ones. The second, $1.2 billion tranche will fund construction of the administrative capital's central business district. The latter consists of 20 towers, including the 385-meter-high iconic tower, set to be the tallest in Africa, he added. By comparison, the height of the Empire State Building in New York City is 381 meters (1,250 feet).

Speaking to Al-Monitor, Abdel Khalek Farouk, an economist and director of the Nile Center for Economic and Strategic Studies, attributed the delay to the Egyptian government failing to provide the Chinese banks with full reimbursement guarantees.

He indicated that Housing Minister Assem el-Gazzar did not reveal to the Chinese banks Egypt's sources of reimbursement for the loan. This has raised controversy, particularly since Egypt is already heavily indebted.

Farouk pointed to talks that halted in December 2018 over developing a Chinese commercial area and residential city on 14,000 feddans (14,530 acres) in the new administrative capital — a project proposed by China; Egypt’s Ministry of Housing, Utilities and Urban Communities; and the Administrative Capital for Urban Development (ACUD), the owner and developer of the overall capital project. He indicated that ACUD chairman Ahmed Zaki Abdeen said back then that the talks stopped due to differences over China's desired share of project revenues and its request for privileges. 

Farouk criticized Egypt's effort to obtain new loans, which will be added to the existing debt it has accumulated lately. He said that the latest World Bank data, released in September 2019, showed that Egypt’s foreign debt in late 2019 exceeded $109 billion, and he noted that internal debt rose to a record level of more than 4 trillion Egyptian pounds ($253 billion).

He said, “How can such an indebted country as Egypt seek to obtain new debt in light of the unprecedented massive internal and external debt it already has?” He noted the high interest rates attached to the existing debt, adding that future generations will inherit the bill.

Mohamed Shady, an economic researcher at the Egypt Center for Strategic Studies, speaking to Al-Monitor by phone said implementing any giant, high-cost project occurs over several phases, and a number of difficulties are to be expected. Shady emphasized that China is a strong economic partner of Egypt and will not disengage from the deal just because there are minor differences over conditions and guarantees that are to be addressed soon.

He stressed that trade between Egypt and China reached $13.8 billion in 2018, with China's exports to Egypt reaching nearly $12 billion and Egypt’s exports to China standing at $1.8 billion. These figures reflect the firm and strong economic ties between the two countries, he stated.

In October 2016, China lent nearly $3 billion to Egypt so the latter could obtain an International Monetary Fund (IMF) loan. Egypt was required to have $6 billion to get the $2 billion first tranche of the $12 billion IMF loan over three years, Shady noted. Egypt obtained $1 billion from the World Bank, $2 billion from Saudi Arabia and $3 billion from China.

Cairo will remain the capital of Egypt, but to help alleviate staggering congestion there, administrative offices will move to the development being built some 30 miles to the east in the desert. Reuters reported in December that half the land for the project's first phase has been sold. The new city, which currently has no name, is expected to be 270 square miles in area — larger than Chicago.

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