The European Union remains Egypt’s largest investors
Three-quarters of foreign direct investment come from EU states, and trade represents a third of the country’s GDP. The has been constant EU assistance and partnership programs since 1998, which established stable relations between Egypt and the EU. The Association Agreement was the most effective agreement when it came into force in 2004. Since this year, the bilateral trade volume has more than doubled to reach EUR 27 312 million in 2017. There has been increasing interest from the EU into Egypt’s new energy projects and other development plans, in which the EU will support through its new revised European Neighbourhood Policy which was launched in February 2016. Between 2014 and 2020, the new European Neighbourhood Instrument (ENI) is the EU primary financial instrument for cooperation and partnerships with Egypt. Over decades, Egypt has been a constant buyer of European weapons, primarily from France but also from Germany and other European countries.
Trade: In 2001, Egypt and the European Union Member States signed an association agreement in Brussels, the agreement aimed to establish a free trade area over a 12-year transitional period. The agreement came into force in 2004. It states removing tariffs on industrial products and facilitating trade in agricultural products is essential. Further contracts were signed later to promote trade. Between 2002 and 2016, bilateral trade in goods between the EU and Egypt grew by 170% from EUR 10 101 million to EUR 27 343 million. The Association Agreement was extended by the EU-Egypt Action Plan in 2007, which enhanced economic cooperation between Egypt and the European Union states.
In 2017, Fuel and mining products were the EU’s main imports of goods from Egypt at EUR 3 223 billion, followed by chemicals at EUR 1 334 million, textiles and clothing at EUR 8 623 million. The EU main exports to Egypt were machinery and transport equipment at EUR 6 923 million, followed by fuels and mining products and agricultural products (EUR 3 923 million). Egypt’s exports to the EU increased 24% year-on-year in 2017 reaching EUR 7 523 million, while imports dropped by 3% in the same period reaching EUR 18 223 million.
The Egyptian economy has a trade deficit and real economic challenges after the events of 2011 and then 2013. The exchange rate started to fluctuate in 2015. This led to floating the currency, making a devaluation of the national currency and enabling the liberalization of the import system. Some industries, such as the non-hydrocarbon exports gained a profit from the devaluation of the Egyptian Pound.
Egypt-EU relations between 2013-2017: In 2013 the EU and Egypt began discussing how to deepen their trade and investment relations utilizing the Deep and Comprehensive Free Trade Agreement (DCFTA). After hesitations European countries are increasingly embracing Egypt’s new vision for; development, building stability, combating terrorism, illegal migration, and other economic and social sectors. During the EU-Egypt Association Council in 2017, the parties signed on the revised European Neighborhood Policy, which is supposed to replace the previous Action Plan and made a new partnership, with an allocation range of EUR 432 – EUR 528 million. The assistance program will focus on three priorities: Economic modernization and energy sustainability, social development, and enhancing stability and democracy.
European Business in Egypt
The United Kingdom is by far the largest investor in Egypt, with total investments of EUR 43 723 million over the past decade, followed by Netherlands, Italy, and France. The latter ranks number 12 among the largest investors in Egypt with more than 700 companies. While Spanish investments in Egypt reached EUR 830 million in 2018 alone with 183 companies, most of them in the industrial sector.
Egypt started large projects with many European corporations in the last few years. In June 2015, German firm Siemens won a contract to build three power plants and six substations in Egypt, the most significant order in the firm’s history at the cost of EUR 6 000 million, the contract was supported by the governments of Egypt and Germany. Notably, the number of German firms in Egypt had exceeded one thousand in 2017. Another example of European companies engaging in Egypt is engineering firm CDM Smith and its work in building tunnels under the Suez Canal as part of the last phase of Egypt’s national tunneling system project. Also Italian PV company Enerray which was commissioned to build three solar plants in Benban Solar Park in Aswan, which after completion will be the largest solar installation in the world. The project primarily obtained financing from German bank Bayern, British financing firm CDC Group and Europe Arab Bank as investors in the Benban project.
Energy Sector in Egypt
Egypt is the second largest gas producer in Africa and the largest non-OPEC oil producer in the continent and has been playing a crucial role in the energy market regionally and globally. In 2009 Egypt was exporting nearly third of its natural gas, and as a result of the political struggle that followed the 2011 revolution, the energy sector went into multiple crises when domestic demand outstripped production. Many serious steps were taken to ensure growth and investment in the sector with more focus on renewable energy and exporting natural gas to new markets. It’s notable that Egypt has an abundance of land and sunny weather along with high wind speed, which makes it a perfect location for renewable energy projects, though over decades it has been a challenge for the country to continue its energy developing projects. In 2014, the government started a new energy strategy in which 56 concessions and agreements were signed. The following years included huge investments and promoting new approaches to enhance the energy sector.
According to the Tracking SDG7 Report (jointly prepared by IEA, IRENA, WHO, and others), the total population in Egypt has had access to reliable energy sources in the recent years, though there are other reports depicting many villages in upper Egypt and other areas where people can’t have access to reliable energy resources. By 2022, Egypt attempts to get 20% of generated electricity from renewable resources. Egypt has two liquefied natural gas export complexes, both on the Mediterranean sea cities of Damietta and Idku, the complexes’ joint capacity is 12.2m tonnes per year as of 2015.
For the 2017-2022 period, the Egyptian government announced the addition of 7,160MW coal-fired power plants with direct engagement of the private sector. Also, Japan’s Sumitomo has plans to build a coal-fired plant at Sidi Shabib in Marsa Matruh on the Meditteranean sea, China’s Shanghai Electric announced that it would build another plant in Hamarwein. Egyptian developer Elsewedy Electric engaged in developing a wind power project in the Gulf of Suez with Japan’s Marubeni. Other projects in 2018 include Enara’s EUR 175 million investment on solar projects in Egypt, and Spain’s TSK investment on Kom Ombo to set up a photovoltaic plant.
Egypt-EU Energy Projects
According to a study of the European Parliment Committee on Foreign Affairs published in 2018, Egypt is currently the only state in the southern Mediterranean area that has the ability to export gas to Europe independently because of the size of its reserves and most importantly because it has proper infrastructure for export. This approach became stronger after Zohr gas field was discovered in 2015 by Italian energy company Eni and followed by other nearby fields. The estimated amount of gas in the place is around 850 billion cubic meters, which makes it the largest gas reserve in the Mediterranean Sea beside the nearby Leviathan gas field. Notably, this amount at the newly discovered Zohr is close to the rest of Egypt’s gas fields combined. According to experts, that would make Egypt a regional Gas hub and an important Natural Gas resource to Europe.
EU assistance and partnership programs to develop the energy sector have been prioritized. The Egyptian Gas Connection Project was recently included in the framework of the revised ENP with a EUR 68 million grant. Moreover, The Egyptian Sustainable Energy Strategy for the period 2016-2020, includes building a new wind farm in the Gulf of Suez. Another reason for more understanding between Egypt and the EU environmental and health issues is that Egypt had taken a pledge to on issues like climate as rising tides will severely affect the Nile Delta region. As salty seawater leeches into low-lying agricultural areas, Egypt could face serious food shortages.
Challenges and Cooperation
Egypt has its challenges and faces regional threats, most experts count population growth as the most critical challenge for Egypt in the following decades. Other areas include education, social justice, democracy, and vital aspects. EU is set on building new paths of cooperation and more in-depth economic plans to help Egypt overcome domestic issues while using its role to stabilize the region. EU officials consider Egypt as the first line of defense against illegal migration, but the country itself still a significant source of migrants.
Egypt-EU relations 2019-2020
Experts believe that Egypt will attract more EU investments by 2020 especially in the energy sector, and an increase in the bilateral trade in case that the two parties agree on removing more tariffs over particular products to make a wider free trade area. For Egypt, it would be a profitable path to increasingly export its products into the EU market. The European Union is confident Egypt’s reform plans, will improve future cooperation.
