Arabtec’s $40bn project in Egypt to open wave of UAE investments

Construction company will build 1 million homes over five-year span, with further investments from the UAE likely to follow.

Arabtec’s deal is viewed as a cornerstone of the Egyptian government’s bid to provide affordable housing to its citizens. Silvia Razgova / The National

Arabtec Holding's securing of a US$40 billion project to build houses in Egypt could open the floodgates for a wave of investments from the UAE, says the chief executive of the country's biggest investment bank.

Karim Awad, co-chief executive of EFG-Hermes Holding, was speaking after the UAE's largest listed construction company's revealed plans to develop 1 million homes over five years, spearheading a massive public housing programme in the country. The Dubai-listed builder's stock gained 1.67 per cent yesterday following the disclosure late on Sunday.

“It visibly demonstrates how the UAE is supporting the government of Egypt,” said Mr Awad on the sidelines of a conference hosted by the bank in Dubai. “If one investor comes in it gives confidence for other investors to start working. Regardless of what has been happening in the recent period, the Egyptian market still has 90 million people, still has a lot of human capital and a lot of industries offering huge potential to GCC companies.”

Ties between the UAE and Egypt have deepened in recent months after the UAE extended $6bn in support of the Arab world’s most populous country following a revolution and the removal of the former president Mohammed Morsi in July.

Saudi Arabia and Kuwait have also extended assistance as Egypt struggles with lacklustre growth and a dearth of investment.

Arabtec’s deal, believed to be the largest housing project in the Arab world, is viewed as a cornerstone of the government’s bid to provide affordable housing to Egyptians. As many as 16 million are estimated to have inadequate housing.

Sherif Samy, the executive chairman of the Egyptian Financial Supervisory Authority, said the deal went hand in hand with a “big push” the Central Bank was making by investing $1.5bn to improve access to mortgages.

The value of outstanding mortgages is equivalent to less than 1 per cent of GDP, compared to between 30 and 90 per cent in most OECD countries.

“The mortgages law is being reformed and I can see plenty of opportunities for local and regional players to come into the market to help with that,” he said.

Several other UAE companies have already stepped up activities in Egypt.

Emaar Properties’ Egyptian unit, Emaar Misr, announced last month it would spend up to 6 billion Egyptian pounds (Dh3.13bn) on a residential and commercial scheme in Cairo. The Dubai-based retail group Majid Al Futtaim plans to establish several commercial malls in the country over the next years.

“The announcement again highlights that GCC (ex-Qatar) support will continue to flow into Egypt for an extended period,” said EFG-Hermes in a note.

“We highlighted a number of times before that the strategic nature of Egypt’s regime change since 30 June will lead to the continued inflow of support of these countries to shore up Egypt’s ailing economy with more of the support channelled through investments.”

The housing deal was announced on Sunday by Field Marshal Abdel Fattah El Sisi as a plan to help solve Egypt’s housing problems.

“The news certainly came as a surprise and the market had no expectations of it,” said Mohammad Kamal, the research director at the Dubai-based bank Arqaam Capital.

“Instead of a knee-jerk reaction, the market will likely take time to digest the news in terms of its impact on growth and shareholder returns. It will also scrutinise execution risks involved in handling a project of this magnitude. Investors and analysts are looking forward to further disclosure, which may be released along with the company’s first quarter financials,” he added.

Arqaam Capital said in a note that it remains cautious on the project margins, working capital and execution risk.

with additional reporting by Shereen El Gazzar

Follow us on Twitter @Ind_Insights