As it pushes ahead with its One Belt One Road (OBOR) initiative across the Middle East and Africa region, China has emerged as the largest international investor in Egypt’s Suez Canal Economic Zone.
Over the past few years, the Asian giant has sealed “comprehensive strategic partnership” with Iran, Saudi Arabia and Egypt, while five strategic partnership agreements have been signed with major countries in the Middle East including the UAE, and a further three are reportedly in the pipeline.
China sees Egypt as a gateway to the wider African region. In 2016, Beijing pledged investment and aid worth billions of dollars, during a visit by president Xi Jinping.
The deals aim to increase Chinese presence in Egypt’s Suez Canal Economic Zone (SCZone) from 32 Chinese companies, which collectively invest more than USD 400 million, to 100 companies pouring as much as USD 2.5 billion in the next phase of the project.
Some of the agreements included the construction of a new Egyptian administrative capital, apart from a USD 1 billion financing agreement for Egypt’s central bank, and a USD 700 million loan to the state-owned National Bank of Egypt.
The SCZone builds on the Suez Canal’s historic and strategic importance as a global logistics hub, reducing travel times between western nations and eastern economies.
In 2015, Egypt expanded the Suez Canal at a cost of USD 8 billion to serve as a logistics and manufacturing hub for the wider region. The SCZone spans 461 square kilometres, featuring four zones and six strategically-located ports.
China’s investments in the SCZone is part of a greater ambition to widen its economic network across the Middle East.
"We're opening for Chinese investors 26 African countries due to our trade agreements. When they have the 'Made in Egypt' label on their products, they go through zero trade barriers and zero customs," Ahmed Darwish, chairman of SCZone, said in an interview with China’s Xinhua news wire.
China has pledged to invest as much as USD 20 billion in Egypt over the next 10 years, through a package of bank-financed projects focusing on SCZone. A further USD 45 billion will be poured into the new Capital City, which is being developed adjacent to Cairo.
In addition, China Fortune Land Development Co. Ltd. has been awarded a contract to develop and manage 14,000 acres (5,700 hectares) of Egypt's new administrative capital at a cost of USD 20 billion, the Egyptian cabinet said in a statement.
As a testament to the strengthening trade relations between the two countries, Chinese exports to Egypt reached USD 9.77 billion in 2015, compared to over USD 8 billion in 2014, according to latest available data from the International Trade Centre. Meanwhile, Egypt exports to China hit USD 442.6 million in 2015, versus USD 329.9 million the year before.
The Chinese government is keen to support qualified Chinese companies in contributing towards realising Egypt’s string of mega-projects that are underway. Egypt is also hoping to secure funding for a spate of projects, including electricity, construction, port, mining, nuclear energy, and infrastructure.
Meanwhile, China is forging closer ties with UAE with a massive USD 2.65 billion oil deal earlier this year.
China’s National Petroleum Corporation (CNPC) signed a USD 1.77 billion deal with the Abu Dhabi National Oil Company (ADNOC) for an 8% stake in the Abu Dhabi company’s 40-year concession. China Energy Company Limited (CEFC China) also finalised an agreement with the Abu Dhabi government and ADNOC for USD 888 million.
CEFC China has agreed to a long-term supply of 10 million tonnes of crude oil each year, to ensure the Asian powerhouse has a stable supply of over 13.2 million tonnes of high quality crude oil annually, the company said.
In addition, UAE and China launched a USD 10 billion fund in late 2015, focusing on sectors of strategic importance for the two countries.
"This fund will also play a critical role in supporting the One Belt, One Road initiative, as we work towards improving connectivity and cooperation with our regional partners across Eurasia,” Chinese president Xi Jinping said at the time.
Indeed, both the UAE and China are keen to expand their trade and investment ties beyond crude oil. As a result, UAE-China trade exceeded USD 60 billion in 2016 and would likely cross USD 80 billion over the next two years.