Why Are Saudi Arabia and Germany Seeking Legal Protections for Their Projects in Egypt?

Within just five days, Germany and then Saudi Arabia requested Abdel Fattah al-Sisi’s regime to sign an agreement to protect and guarantee their investments in Egypt, raising questions about the reasons behind this move.

Are they, along with other nations, apprehensive about instability or the possible ousting of Abdel Fattah al-Sisi, which could jeopardize their investments? Or is it simply routine agreements for investment protection, ensuring states' responsibility in case they violate investment agreements, and outlining how to settle disputes, primarily through arbitration?

Would reclaiming these investments in the event of regime change be legally valid because it would constitute the “recovery of public funds” that Sisi had relinquished?

There appears to be a significant threat from Egyptians asserting that these investments, particularly those from Saudi Arabia and the UAE, are illegitimate and unrecognized. They maintain that the assets sold will be reclaimed as soon as the Sisi regime is dismantled, viewing the transactions as a form of negligence. This perspective has sparked concerns among those advocating for laws to protect their investments.

Requesting investment protection is uncommon in agreements between nations, but it is often raised in countries where investors fear instability, according to legal and economic experts.

Germany's Complaint

It all began when German President Frank-Walter Steinmeier visited Egypt on September 11, 2024. During his meeting with the head of the Egyptian regime, Abdel Fattah el-Sisi, he raised his country’s concerns over its investments and requested the signing of an agreement to protect them.

This concern from the German president prompted Sisi to personally reassure them.

“Egypt is committed to protecting investments in general, German investments, and the returns of German companies,” he said.

“We welcome German companies to invest in Egypt, and I assure them that their investments are largely secured and protected [..] Egypt is committed to protecting investments in general, German investments, and the returns of German companies,” he added.

However, the German president's concerns over German investments—valued at $7.1 billion in Egypt—and the outstanding dues of German companies for their projects in Egypt continued to unsettle German media outlets.

Foreign reports have warned of the risks of investing in Egypt amid the regime's policies that have impoverished Egyptians and raised fears of a popular uprising that could halt the sale of projects to Gulf states.

Before the German president visited Egypt, media reports had discussed the withdrawal of Germany’s Siemens from operating the two largest power stations in Egypt due to delayed payments.

The Egyptian Cabinet denied this in July 2024, affirming Egypt’s commitment to paying the company’s dues on schedule.

During Sisi’s meeting with the German president, the head of the Egyptian regime repeated his list of services provided to the West.

He emphasized that he was preventing 9 million refugees in Egypt from traveling to Europe, which opponents saw as an attempt to blackmail and demand funds and investments in return for these services.

Against the Revolution

The most prominent news during Egyptian Prime Minister Mostafa Madbouly’s visit to Saudi Arabia wasn’t about Saudi investments as much as how Egypt would protect them, with the signing of an agreement to safeguard them, likely due to fears of upcoming political changes in Egypt that could affect these investments.

Egypt’s government-run State Information Service quoted Madbouly on September 16, 2024, as saying, “We work on finalizing an agreement on protecting investments with Saudi Arabia,” which will contribute to increasing investments between the two countries.

He revealed “the near completion of the terms of an agreement to protect and stimulate joint investments,” stating that it is now in the final stages, awaiting legislative and legal procedures for its official issuance in Egypt, and is expected to come into effect within less than three months.

Saudi Minister of Investment Khalid al-Falih confirmed the progress made between the Egyptian and Saudi sides on the investment promotion and protection agreement between the two countries, saying it aims to protect Saudi investors who are looking to double their investments in Egypt.

The investment protection and promotion agreement, aimed at safeguarding and promoting Saudi investments, would be finalized and come into effect within the next two months at most.

Before signing the agreement to protect Saudi investments in Egypt, Minister of Investment and Foreign Trade Hassan el-Khatib told Asharq Business on September 9, 2024, the reasons behind signing such an agreement, describing it as a “priority” and Egypt’s “main concern.”

He stated that one of the objectives of the agreement is to “guarantee investments in cases of war, conflict, revolution, or emergencies and disturbances.”

The agreement also “protects investments from any action that affects ownership or strips investors partially or entirely of some of their rights, while preventing nationalization or expropriation, or subjecting them to other entities.”

In a bid to reassure Saudis about the protection of their investments, Madbouly announced that all their investment issues in Egypt would be resolved by the end of 2024. Out of a total of 95 issues, only 14 remain, according to his confirmation to several investors in Riyadh.

Madbouly emphasized that the government is keen on protecting Saudi investments, even if it means bypassing certain laws.

“When making decisions within the cabinet, I don’t want to say we bypassed, but we rose above and overcame the existing legal procedures on the ground” to resolve these issues in an “out-of-the-box” way,” he said.

The concerns over foreign investment in Egypt are not limited to Saudi Arabia. The UAE has also shown similar apprehension, with reports circulating about the signing of similar agreements to protect investments in case of a change in Sisi’s regime, although no official confirmation has been provided.

Egyptian analysts were puzzled by the Gulf states’ interest in investing in Egypt, despite the country not being attractive for investment at the moment due to reasons such as the absence of the rule of law, lack of transparency, and corruption. They interpreted this by saying the corrupt came to Egypt to plunder its wealth.

A report by the Washington Institute described Egypt as too big to fail, but confirmed that it is likely that the deterioration will continue amid rising debt, high inflation rates, and delays in military divestment, referring to the military's control over the economy.

Researcher David Schenker from the center stated that with the reluctance to remove the military from the economy and the absence of the traditional Gulf financial safety net, further deterioration is possible.

The UK rejected Emirati investments, citing them as a national security risk, and blocked the purchase of the Telegraph media group over fears of Abu Dhabi's control of the media scene in the United Kingdom, according to The Guardian on January 30, 2024.

The UK also prevented the UAE on January 24, 2024, from acquiring a 15 percent stake in the British company Vodafone.

The British government stated that the stake the UAE sought to buy posed a threat to national security and ordered steps to be taken to remove the risk by halting the deal.

Why Protect Investments?

Saudi Arabia and Germany's request for special laws to protect their investments from revolutions and potential unrest in Egypt sparked speculation over why these countries don’t trust the Egyptian economy.

Do both governments perceive Sisi's regime as unstable, or do they anticipate further economic crises, seeing the current situation as fragile and temporary? Could this be why they're seeking to protect their investments from any future regime that might replace Sisi?

Economic expert Abdelhafiz Elsawy attributes the insistence of countries like economist Abdelhafiz Elsawy attributes the insistence of countries like Germany, Saudi Arabia, and others on imposing conditions and pressures on Egypt for investments to several factors, chief among them being the “lack of institutional frameworks” governing foreign investments in the country.

He explained to Al-Estiklal that most foreign investments in Egypt are agreed upon either through the Sovereign Fund (which reports directly to Sisi) or with the armed forces (military companies), under special laws.

The involvement of these two institutions in such agreements “raises concerns for foreign investors in the event of any significant or subtle changes in Egypt, as these investment agreements could be canceled or altered,” causing countries to lose their investments in Egypt.

Most of the laws regulating the activities of these two institutions are almost exceptional. The Sovereign Fund was established by a special law, and the laws granting the military the right to partner with foreign entities were enacted during a period where institutionalism was largely absent.

Elsawy also noted that one of the downsides of these agreements requesting protection for investments is that they come with many conditions and pressures on the Egyptian side in exchange for receiving some investments, as was the case with the Ras el-Hekma deal.

The UAE stipulated the selection of a prime location tied to Egypt’s national security for purchase to build a “tourism project” that contributes nothing to the Egyptian economy and does not help Egypt—unlike serious industrial projects—move towards independence from foreign reliance.

Elsawy added that Saudi Arabia and Germany are well aware that Egypt’s economic situation is dire, and that there are structural flaws in the Egyptian economy. The announced improvements in the recent period do not reflect true stability but rather “artificial” improvements.

Evidence of this lies in the return of foreign exchange restrictions and limitations on certain imports in Egypt. This is why both countries have sought guarantees for their investments, protecting them from any economic chaos that might coincide with a popular revolution or unrest.

Asset Recovery

Saudi Arabia’s signing of this agreement with Egypt to protect its investments in times of “unrest or revolution,” and the provision that “confiscation, nationalization, seizure, or expropriation” of these assets is prohibited, as stipulated in the agreement, seemed unusual.

Egyptian journalist Gamal Sultan considered it “a sign of Saudi concerns over the future of the regime in Egypt.”

Engineer Mamdouh Hamza mocked the situation in a “piece of advice for Saudi brothers” he posted on Twitter, which he later deleted, asserting that Mustafa Madbouly “is not authorized to sell.”

“If you're buying public property—companies or land—you’re throwing your money away,” he said.

“No matter how many contracts and guarantees you secure, the party you're signing with is not authorized, neither for you nor the Emiratis.”

Previously, on July 12, 2024, Engineer Yahya Hussein Abdel Hadi, who is currently detained, also warned, like Hamza, against the Saudis and Emiratis buying lands and assets sold to them by Sisi.

“Everyone who has bought or is considering purchasing any of these assets should be informed and made aware that we disavow this authority and all its sales,” he said.

Abdel Hadi, along with Egyptians on social media, emphasized, “I have not authorized anyone to sell my share of public property. These sales are void under all fair local and international laws because they are made by those who have no right to sell, to those who have no right to buy.”

“I retain my right to reclaim my property as soon as this seller, who suffocates the real owners, is removed. The sale is without authorization, and the authorization is forged.”

Simultaneously with the signing of the agreement to protect Saudi investments in Egypt, Egyptians took to social media to warn both the UAE and Saudi Arabia that the Egyptian people did not sell anything, and that what was sold would be reclaimed “once we have a real president.”

Egypt Technocrats party, through a message written by Dr. Yousry Aziz, addressed Saudi Arabia in response to its request to draft an agreement for protecting its investments in Egypt. 

“I don't understand why you want to protect your investments in Egypt?” he wondered.

“Are there indications that the Egyptian regime intends to seize your investments? Have you lost trust in the current regime? Or are there signs that this regime won't last and that a popular uprising is inevitable?”

Egypt Technocrats reiterated their warning to Gulf states, “who illegally acquired Egyptian public assets,” cautioning that “all your money will be at risk as soon as this regime is gone.”

On September 16, 2024, Bloomberg reported that Saudi investment agreements with Egypt are part of the Gulf countries’ efforts to become a primary source of investment for Egypt, which has emerged from a two-year economic crisis.

This followed the securing of a $57 billion global bailout package, led by the International Monetary Fund and the UAE, which allocated $35 billion in a deal that included development rights for a prime location along the Mediterranean coast (Ras el-Hekma).

Debt as ‘Investments’

The situation is not limited to the Egyptian government's signing of an agreement to protect Saudi investments from “disruptions and revolution.” These agreements raise a question: Is Sisi planning to sell Egyptian assets to Saudi Arabia in the form of investments instead of debt?

Saudi Arabia announced through its investment minister that it aims to convert its deposits at the Central Bank of Egypt into investments via the Public Investment Fund.

Saudi Minister Khalid al-Falih stated that “there is an intention on the Saudi side to convert deposits into investments” through the Saudi Public Investment Fund.

During a meeting between Mustafa Madbouly and the Saudi Crown Prince, an investment of $5 billion from the Saudi Public Investment Fund in Egypt was announced.

However, the statement did not disclose any details regarding the timeline or potential objectives of the new funding.

It remained unclear whether the $5 billion that the sovereign fund intends to inject into the Egyptian market would be in exchange for Saudi deposits in Egypt or to purchase assets.

Saudi Arabia holds deposits at the Central Bank of Egypt amounting to $10.3 billion, divided between $5.3 billion in medium- and long-term deposits and $5 billion in short-term deposits, according to al-Sharq Business on April 21, 2022.

The Kingdom is the second-largest contributor to long-term deposits at the Central Bank of Egypt. Among these long-term deposits totaling $14.9 billion as of December 31, 2023, Saudi Arabia accounts for $5.3 billion.