Indian Council of World Affairs

On 29 June 2024, President Ursula von der Leyen of the European Commission visited Egypt for the European Union-Egypt Investment Conference. This conference was a significant part of the Egypt-European Union (EU) Strategic and Comprehensive Partnership agreement signed earlier on 17 March 2024 by President Leyen and President Abdel Fattah al-Sisi. As part of this agreement, the EU pledged an aid package to Egypt worth 7.4 billion euros. The EU package includes grants and loans for Egypt for the next three years, and the funds will be paid directly to Egypt’s Central Bank. Notably, the EU provides financial assistance for Egypt because it is an important regional actor located at a critical geographical route migrants use to enter Europe. Therefore, the EU considers Egypt an active partner in its efforts to contain irregular immigration, particularly driven by the ongoing violence in Sudan and Gaza. The EU’s support is also crucial for Egypt at the domestic level, as it aims to strengthen Egypt’s fragile economy, particularly by addressing high inflation and the foreign currency crisis. Broadly, the EU-Egypt Investment Conference followed a two-pronged strategy: the first was to provide financial assistance to the ailing Egyptian economy, and the second was to prepare Egypt to play a proactive role in containing irregular immigration to Europe. 

It is important to note that this conference took place in Egypt during a time when the country is experiencing a severe economic crisis. Egypt has been struggling to recover from the financial crisis that occurred in 2011 during the Arab Spring. The domestic political unrest had paralyzed the economy and reduced the prospects of external investments. Additionally, the COVID-19 pandemic and the Ukraine Conflict disrupted supply chains and led to increased prices of basic goods in Egypt. These events forced investors to withdraw $20 billion from Egypt, exacerbating the financial crisis.[i]  Furthermore, the Gaza War and the resulting regional conflict, particularly in the Red Sea, led to reduced traffic in the Suez Canal, decreasing the income that Egypt receives from the canal. These factors have had a compounding effect on the Egyptian economy. As a result, the Egyptian Pound faced devaluation due to a shortage of foreign currency, leading to drastically higher foreign exchange rates and rampant inflation. In the past year, the prices of unsubsidized bread rose by nearly 100 percent. The Egyptian Pound (EGP) lost value from 15.7 to the dollar to 49.4 to the dollar, interest rates soared from 8.25 percent to 27.25 percent, and inflation rose sharply from 7 percent to 36 percent, leading to increased prices of basic goods, automobiles, and houses.[ii]

In this context, during President Leyen’s visit, the agreements were concluded in various areas including micro-finance assistance, food and water security, green energy and migration which hold significance for Egypt’s economy. These agreements were key components of the Strategic Partnership Agreement. President Leyen also announced the potential for over 20 new deals, valued at more than 40 billion euros ($42.85 billion), between European companies and Egyptian partners. 

Backgrounder 

The EU's relationship with Egypt is based on the Association Agreement, which took effect in June 2004. The Agreement focused on three main areas: promoting a sustainable modern economy and social development, collaboration in foreign policy, and enhancing stability.[iii] Over the years, both parties have worked together on these goals. In 2021, a new Partnership Priorities Agreement was signed. It aimed to support Egypt in green and sustainable development, human development, economic resilience, and prosperity through green and digital transition, social cohesion, and the development of a modern and democratic state. Building on the Association Agreement and the Partnership Priorities Agreement, the EU and Egypt signed a new Strategic and Comprehensive Partnership on March 17, 2024. It encompasses six joint priorities: political relations, economic stability, trade and sustainable investments, migration and mobility, security, people, and skills. Under this new partnership, the EU proposed a 7.4 billion euro aid package for the period of 2024-2027.[iv] The latest Investment Conference was the outcome of the Strategic Partnership Agreement between the EU and Egypt, which saw conclusion of several deals which were part of the ‘aid package.’ 

Key Elements of the EU-Egypt Deals 

The deals that were finalized by President Leyen and President al-Sisi at the Investment Conference were the following: 

A Memorandum of Understanding (MoU) was signed to provide short-term micro-financial assistance of 1 billion euros to support Egypt’s economic reform program. The 1 billion euros is aimed at incentivising the reforms needed by businesses and enterprises in the private sector.[v]

The aid package also contained the Food and Resilience Facility programme to tackle the food crisis in Egypt. Under this programme, President Leyen extended a 60 million Euro support package to improve grain storage in Egypt. 

President Leyen and President al-Sisi also signed the Green Sustainable Industry Programme. This initiative aims to support Egypt in becoming a clean energy hub, positioning it at the heart of the Mediterranean crossroads. This will involve the creation of new corridors for the transportation of clean energy and hydrogen, as well as the development of clean-tech value chains that extend from the Gulf to Europe. As part of this agreement, the EU has pledged 30 million euros to provide clean tech and digital training to Egyptian youth, as well as to invest in pollution reduction, de-carbonisation and energy and resource efficiency.[vi]

In order to address the issue of migration, the European Union (EU) considers Egypt to be an important partner. This is especially crucial for dealing with the problem of irregular migration from the African region. The conflicts in countries like Sudan, Gaza, and other parts of Africa are seen as potential challenges, contributing to a migration crisis in Europe. To address this, the EU has entered into agreements with Tunisia, Algeria, Morocco and Libya to manage irregular migration. Additionally, as part of the Strategic Partnership, the EU has committed 1 billion euros to support Egypt in developing infrastructure and logistics to help prevent migration to Europe.[vii]

In addition, during President Leyen’s visit, European companies signed more than 20 new deals worth over 40 billion euros with Egyptian partners, covering sectors ranging from water management to hydrogen, chemicals to construction, and aviation. Besides, they also focused on advancing employment and skills, the circular economy, manufacturing (pharmaceutical, medical and automotive sectors), agriculture/food and water security and sustainable development.[viii]

Conclusion 

Egypt hosted the investment conference when its economy is facing challenges recovering from a decline. The country has received billions of dollars in foreign financing and commitments from the UAE, the IMF, and the World Bank to tackle its economic crisis. External stakeholders such as the EU, USA, and the UAE recognize Egypt's significant geopolitical position in the region. Both economically and politically stable Egypt is crucial for maintaining regional stability. The EU has a longstanding economic partnership and investment history in Egypt. However, as part of the Strategic Partnership, the EU is seeking Egypt's collaboration in managing irregular migration especially from Africa due to ethnic conflicts, climate change, and poverty. Therefore, the EU supports a strong and stable North African region, including Egypt. The EU-Egypt Strategic Partnership aims to enhance Egypt's basic infrastructure and transportation, improve employment opportunities for young people, address the climate change crisis through green energy, and developing a secure food and water infrastructure. The partnership seeks to support Egypt economically and politically in return for Egypt’s cooperation on Europe’s migration agenda and keeping in view the geopolitical situation that Egypt finds itself in the region.

*****

*Dr. Arshad, Research Fellow, Indian Council of World Affairs, New Delhi.
Disclaimer: Views are personal 

Endnotes

[i] “Egypt devalues currency, hikes interest rates but will reforms stick?” Global Finance, March 18, 2024, accessed https://tinyurl.com/yfyrzwz8, July 15, 2024

[ii] “Is Egypt finding its path towards economic recovery,” The New Arab, March 12, 2024, accessed https://tinyurl.com/mwppyj32, July 16, 2024

[iii] “The European Union and Egypt,” European Union, July 28, 2021, accessed https://tinyurl.com/yjvufkbz, July 5, 2024

[iv]“European Neighbourhood policy and Enlargement  Negotiations,” European Commission, accessed https://tinyurl.com/86n78j28, July 5 2024

[v]“EU plans to fast-track some financial aid to Egypt, without the usual safeguards,” The Hindu, March 29, 2024, accessed https://tinyurl.com/5x4fv3d3, July 1, 2024

[vi]“Speech by President von der Leyen with Egyptian President El-Sisi at the EU-Egypt Investment Conference,” European Commission, June 29, 2024, accessed https://tinyurl.com/4tvhckn5, July 1, 2024

[vii]“EU finalizes up to 1 Billion Euro in aid to Egypt as part of migration deal,” June 29, 2024, accessed https://tinyurl.com/3yv85mcm, July 1, 2024

[viii]“EU companies to sign 40 billion euros’ worth of deals with Egypt,” Euro News, June 29, 2024, accessed https://tinyurl.com/yc5n47r6, July 1, 2024.