It’s amazing the difference that $35 billion can make.
Go back to the start of this year, and Egypt — home to 105 million people, and one of the world’s great crossroads of culture and trade — seemed to be teetering on the brink. Interest rates that fell as low as 8.25 percent two years earlier were surging toward their current 27.25 percent. Hot money that had temporarily plugged the country’s persistent trade deficit was stampeding for the exits, draining the central bank’s foreign exchange reserves.
Suddenly, things are looking far more healthy. A $35 billion deal that involves the United Arab Emirates underwriting a vast property development on the Mediterranean coast has revived animal spirits, as Bloomberg News wrote this week. That spend has given other donors the confidence to join in recent days: The International Monetary Fund and World Bank have promised to contribute a combined $14 billion, while the European Union will add about $8 billion in aid, loans and grants.
All this cash does far too little to address the root cause of the problem, though. Like several other major emerging economies with shaky currencies, Egypt suffers from a serious energy deficit that puts a brake on its ability to grow. Unless more money is dedicated to bringing renewable investment up to the level of its neighbors, it won’t be long before it burns through the latest cash infusion.
Petroleum has overtaken cereals as Egypt’s biggest import category, accounting for more than 17 percent of the gross bill in 2022. Even booming prices for gas from offshore fields in the Mediterranean have barely been sufficient to turn it into a net exporter of hydrocarbons. Of the 6.2 billion cubic feet of gas produced last year, 5.9 billion cu ft was consumed at home, more than half of it to produce heavily-subsidised electricity.
Soaring demand from a growing population and hotter summer temperatures mean domestic power consumption is set to suck up still more molecules, even as output from the Zohr field that’s underwritten Egypt’s gas boom starts to choke.
That’s eliminating the one export sector the country has been able to count on in recent years. Despite a global race to secure LNG supplies, Egypt’s outbound shipments in the current quarter came to just 413,906 metric tons, according to vessel-tracking data compiled by Bloomberg — down about 93 percent relative to the March quarter average in the previous three years. The war in Gaza has made things even worse: Pipeline imports from Israel were being counted on to replenish gas export terminals as domestic production fell, but the conflict has seen those dwindle to zero.
All of this echoes a pattern that has plagued Pakistan for decades — another poor, populous nation whose slim domestic gas reserves were quickly used up and proved inadequate to support its development. Whenever the economy started moving faster, demand for imported power went up. That drained foreign exchange reserves and provoked a balance-of-payments crisis, sending the country back to square one again.
Kickstarting Egypt’s clean-energy sector could make a real difference here, by providing a lasting domestic source of power. Baking deserts and long, windy coastlines give it stunning solar and wind potential that’s still barely exploited. There’s no shortage of transformational projects proposed to change this, from 10-gigawatt wind farms and undersea power cables to Greece and Italy, to a tentative $40 billion of potential green hydrogen projects announced in a meeting last month.
The problem is in execution. Just 11 percent of electricity came from renewables in 2022, well below a government target of 20 percent, and wind and solar made up only 4.5 percent of the total. Of the 7 gigawatts of wind the government had promised to connect by 2022, less than 2 GW was completed.
Things aren’t set to improve. Only 15 percent of planned power generation projects between 2021 and 2025 will be wind and solar, compared to 62 percent for Morocco, 39 percent for Tunisia, and 36 percent for Algeria, according to the International Renewable Energy Agency. With fees and charges being applied to renewable developers in a chaotic fashion, it seems vanishingly unlikely the country will come close to its 2030 target of a 42 percent renewables share, let alone an upgraded 60 percent goal.
Cairo’s lack of vision on renewables doesn’t just damage the climate — it short-changes an Egyptian population who desperately need an escape from repeated cycles of economic crisis. Whatever gas remains in its wells should be exported to replenish its foreign exchange coffers, rather than getting sold to domestic consumers at subsidised rates when cheaper, cleaner alternatives are available.
To be sure, it would be foolish to underestimate the barriers to major investment in a country with a shaky currency, an economy dominated by the military, and a location in the middle of a war-torn region. Mobilising cash, however, is not the main problem here: the $35 billion from the UAE is real money, as will be much of the $22 billion now pledged by the World Bank, IMF and EU.
The real issue can be seen in the problems constructing the proposed El Dabaa nuclear plant, close to the UAE’s real estate development on the Mediterranean coast. The $30 billion Russian-built generator started laying foundations in January with a virtual joint announcement by Presidents Vladimir Putin and Abdel-Fattah El-Sisi — but after 40 years of abortive proposals, it’s anyone’s guess when, or indeed whether, it gets finished.
A key advantage of renewable power is its ability to grow via incremental projects that require millions rather than billions of upfront investments. Egypt’s special talent is in announcing bold megaprojects with the nation-building potential of the Suez canal, El Dabaa nuclear plant, or its new capital city outside Cairo, and then frittering the opportunity away amid counterproductive regulations, corruption and cash shortages. Paradoxically, what Egypt and the planet might need this time around is a bit less ambition.
David Fickling is a Bloomberg Opinion columnist. Views do not represent the stand of this publication.
Credit: Bloomberg
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