Amid rising water security challenges and geopolitical rivalries, Egypt ramps up investments and diplomacy in Africa to sustain its lifeline to the Nile.
Egypt’s business community is witnessing a revival of an investment trend that was thought to have died with former President Gamal Abdel Nasser (1954–1970). Africa is once again becoming attractive to both policymakers and investors.
CI Capital, a leading investment platform, has dominated business news over the past month following its announcement that it had acquired a stake in a storied Kenya-Uganda railways company. The company plans to deploy US$200–400 million across East Africa between 2010 and 2012.
While CI Capital, as one of Africa and MENA’s largest investors, may simply be seeking untapped profit opportunities, the timing and geography cannot be divorced from the broader economic and political landscape.
The escalating issue of water resources and Egypt’s concern over its Nile water quota have resurfaced as pressing matters, especially after delegates from Nile Basin countries failed to reach an agreement in Alexandria last July. It was evident that the Egyptian government would need to adjust its policies.
Just weeks before CI Capital’s announcement, other official developments hinted at Egypt’s renewed African focus. A delegation of ministers, led by Prime Minister Ahmed Nazif, paid a three-day visit to Ethiopia, concluding on the final day of 2009. The visit sought to re-establish economic ties within what International Cooperation Minister Fayza Abul Naga referred to as ‘the golden triangle,’ comprising Egypt, Ethiopia, and Sudan.
Nazif held a meeting with Ethiopian Prime Minister Meles Zenawi, accompanied by high-profile officials from both countries. The discussions centred on potential cooperation in investment, trade, human development, training programmes, agriculture, and increasing Egypt’s imports of Ethiopian meat.
He also visited El Sewedy’s factory for cable production, located near the capital Addis Ababa, with an investment of US$50 million.
The visit succeeded in securing several written and verbal agreements between the two countries, which are expected to herald a ‘new era’ in their historical relations.
Minister of Electricity Hassan Younis pledged to send Egyptian companies to construct three electricity plants in Ethiopia, although negotiations on the specifics remain ongoing.
Minister of Trade and Industry Rachid Mohamed Rachid agreed with the Ethiopian government to prepare a list of their local commodity needs to present to Egyptian producers, with promises of special export facilitations.
He expects a visit from an Ethiopian delegation in early 2010 to discuss this list, which is intended to be tied to the volume of Egyptian investment inflows into Ethiopia’s economy.
‘The trade balance between the two countries is small, and we hope it reaches US$500 million within three years. Achieving this will require significant effort, as it represents about 10% of Ethiopia’s current trade balance, which stands at US$8 billion,’ Rachid told media in Addis Ababa, according to Al-Masry Al-Youm.
During the visit, Hussein Sabbour, head of the Egyptian Businessmen’s Association (EBA), announced the establishment of an Egyptian-Ethiopian business council comprising local representatives from the private sector.
He also explained to Business Today (BT) how EBA’s new project, the African Company for Investment and Development (ACID), will support this trend.
‘The company will identify investment opportunities in Africa and provide research for Egyptian businessmen. The legal procedures for the company are nearing completion, and its membership already includes major banks and influential business figures,’ Sabbour said.
Ethiopia was not the only African country of interest for the Egyptian government in recent weeks. Other Nile Basin countries have also received considerable attention.
The government announced the creation of an investment fund, marking the first step in a series of funds aimed at significant investment in Egypt’s neighbouring Nile Basin countries.
The fund will have a total capital of US$1.3 billion, with US$150 million already contributed by the National Bank of Egypt, Banque du Caire, and the Export Development Bank, according to Mohamed Shaker, head of the Export Council for Construction, as reported by Al-Masry Al-Youm.
In Ghana, during the African Investment Forum, Minister of Investment Mahmoud Mohieldin held several bilateral meetings with his African counterparts. Discussions centred on trade relations, infrastructure investments, reviving previous agreements, and extending Egypt’s invitation to the Common Market for Eastern and Southern Africa (COMESA) conference on 13 April.
This intense economic diplomacy also carries a soft power dimension, reflecting competition between Egypt and Israel.
Through the government-owned Middle East News Agency (MENA), Fayza Abul Naga announced that Egyptian investments in Ethiopia have surpassed US$1 billion, covering sectors such as agriculture, industry, and services. She added that Israeli investments in Ethiopia amount to just US$120 million, primarily focused on flower production.
Abul Naga also reiterated Egypt’s commitment to maintaining strong relations with African countries, particularly the Nile Basin nations, which she described as Egypt’s strategic depth.
Dr Samir Radwan, a board of trustees member of the General Authority for Investment (GAFI), commented on this renewed focus, telling Business Today: ‘Although it’s late, we desperately need it. Egypt needs this more than ever.’
He added: ‘We have ignored these countries for too long, and now they hold an unfriendly stance towards us.’
Israel’s Growing Footprint in the Nile Basin
Since July 2009, when Israeli Foreign Minister Avigdor Lieberman undertook a tour of the Nile Basin, local and regional media have intensified their focus on Egypt’s water resource concerns and the rising influence of Israel in this critical geopolitical challenge.
Lieberman, accompanied by Israeli officials and businessmen, spent 10 days in the region promoting Israel’s investment agenda, starting with Ethiopia—mirroring the Egyptians’ approach shortly thereafter.
To understand the growing indirect conflict, it is essential to examine the dynamics of the Nile Basin, which comprises ten countries along the river: Burundi, Rwanda, Tanzania, Kenya, Congo, Uganda, Ethiopia, Eritrea, Sudan, and Egypt. The Nile travels 6,760 kilometres, emptying into the Mediterranean.
In 1894, Britain, France, and Belgium—then colonial powers in the region—signed an agreement to manage the Nile’s water resources, granting Egypt a quota of 56 billion cubic metres. This was later reinforced by the 1929 agreement between Egypt and Britain, then the occupier of Uganda, Tanzania, and Kenya. The agreement reaffirmed Egypt’s water rights and stipulated that any changes could be deemed a declaration of war on Egypt.
Following Egypt’s 1952 revolution, President Gamal Abdel Nasser worked to strengthen ties with Nile Basin countries, aiming to end British control over the southern reaches of the river and safeguard Egypt’s water resources. In 1959, Egypt secured a new Nile Basin agreement that reaffirmed its water quota, following significant political and military efforts.
However, when Tanzania, Uganda, and Kenya sought negotiations with Egypt over water resource management in 1964, Egypt dismissed their request. By 1977, Tanzania, Rwanda, and Burundi had signed an agreement disregarding the 1929 treaty. This shift emboldened Ethiopia, which built the Fisha Dam on the Blue Nile in 1984 and announced plans for additional dams with Israeli support—threatening Egypt’s water allocation.
Dr Mahmoud Abu Zeid, former Egyptian Minister of Water Resources and Irrigation and current head of the Arab Council for Water, commented during a seminar titled The Nile Water from the Upstream to the Mouth: ‘There’s an Israeli presence in the Nile Basin, particularly in Ethiopia. While it hasn’t affected Egyptian interests yet, attention must be paid to it.’
He added: ‘Israel has interests in the Nile Basin that could grant it a significant role in the future,’ according to Al-Youm Al-Sabea.
Asked by Business Today whether Egypt’s recent investment strategies could curb Israeli influence in the Nile Basin, Dr Samir Radwan expressed doubt. ‘No, we’ve already left the field open to Israeli influence, which has been very well-organised,’ he said.
Radwan argued that Egypt needs a ‘return strategy,’ not just to counter Israeli influence but also to reclaim ground lost to Gulf countries, which he noted have also gained prominence in the region.
Omar Bedawi, head of the direct investment department at the Arab African International Bank (AAIB), echoed Radwan’s scepticism. ‘Definitely not! Everyone is vying for a piece of the pie, and the largest piece will not go to Egypt,’ he remarked.
Dr Adel Beshai, co-chair of the American University in Cairo’s (AUC) business school, voiced even greater concern about Chinese influence in the region. ‘China’s influence is the largest, as it strategically serves its own interests,’ he said.
He highlighted China’s expansive agricultural investments in Sudan, where it cultivates four million acres of wheat, contrasting this with Egypt’s urban sprawl on fertile farmland.
‘I see alarming Chinese colonialism. They are exploiting natural resources,’ he warned.
Investments and Rivalries
Egypt appears to be making significant efforts to regain influence over its African backyard. In February, the government invited 20 newspaper chief editors to Cairo, where they were addressed by Prime Minister Ahmed Nazif at an event organised by the Ministry of Media.
Nazif emphasised that relations among Nile Basin countries should extend beyond sharing water resources. He stressed the importance of fostering trade relations, mutual investments, and interconnected infrastructure.
This diplomatic push may be seen as a reaction to the failed Nile Basin Initiative negotiations in Alexandria last July, where the ten water resources ministers were unable to reach a compromise on three contentious points: the concept of water security, prior approval for water projects, and the historical water rights of Egypt and Sudan.
The only consensus reached was to reconvene six months later for further negotiations—a meeting that was supposed to take place in January but never materialised.
The Africa Report by Ashok Swain and Isabel Nanton in its May issue added to Egypt’s concerns with its section titled Water Wars. The report predicted rising tensions in the basin, particularly over the Blue Nile, which contributes over 85% of the water flowing into Lake Nasser. Ethiopia, with its ideal locations for large dams, poses a significant challenge.
Egypt and Sudan are ostensibly aligned against the other eight Nile Basin members. However, historical events complicate this partnership. For example, Sudan’s involvement in the failed 1995 assassination attempt on President Hosni Mubarak in Addis Ababa strained relations between the two countries. While diplomatic ties resumed a few years later, the trust was never fully restored.
During that period, Hassan al-Turabi, leader of Sudan’s National Islamic Front, threatened to redirect the Nile’s flow and cut off water to Egypt. President Mubarak responded strongly in an interview with Al-Akhbar newspaper: ‘Those who play with fire in Khartoum will push us to confrontation to defend our rights and lives,’ according to Africa Report.
Although relations with Sudan have improved significantly since 1995, economic growth demands may reignite tensions. With Chinese and Arab funding, Sudan has constructed the massive Merowe Dam for hydropower and plans to expand its capacity for irrigation. This could necessitate Sudan exceeding its current water quota from the Nile.
Gradually, Sudan seems to be positioning itself to challenge Egypt’s dominance in the basin, as Swain and Nanton forecasted.
Dr Samir Radwan offered an interesting perspective, suggesting that as these countries achieve peace—like a future Sudan free from civil unrest—they will shift their focus to development. This, in turn, will heighten their demand for water and escalate tensions over resource allocation.
‘Regardless of pessimism or optimism, investing in the Nile Basin is fundamental to securing Egypt’s water future,’ Radwan stated.
Professor Adel Beshai cautioned the Egyptian government against what he termed the “internationalisation of water resources” by global powers. He advocated for strong, strategic investment relations in the basin, with water resource officials drawn from highly skilled professionals.
‘In the past, the Egyptian chief irrigation engineer was more influential in Sudan than the Egyptian ambassador. That is no longer the case,’ Beshai lamented.
Investments Abroad vs. Local Demands
Egyptian investments abroad have surpassed US$100 billion, primarily concentrated in five Arab countries: Algeria, Saudi Arabia, Morocco, and Sudan, according to the MENA Finance Network (MENAFN).
Sudan is the largest recipient of Egyptian investments in the Nile Basin, with a total value of US$7.1 billion focused on agriculture and construction. Additionally, US$1 billion has been invested in Ethiopia, with expectations for further growth.
Given that Egypt has not fully emerged from the current economic crisis, this raises questions about economic priorities. Shouldn’t the national economy benefit from such investments being redirected locally, rather than injecting capital into other economies?
These outflows represent a direct subtraction from Egypt’s balance sheets, especially when production in those countries is exported back to Egypt. This creates a double burden: one investment simultaneously contributes to capital outflow and a trade balance deficit.
However, in a free market economy, the private sector prioritises profit maximisation, often without regard for national concerns.
Conversely, some argue that Egyptian foreign direct investment (FDI) in other economies, particularly in strategically important regions like the Nile Basin, offers both political and economic benefits.
Dr Samir Radwan sees no economic contradiction in the government’s strategy of encouraging investment in Africa. He predicts strong financial returns for national companies.
‘Most investments flowing to Africa are in saturated sectors. Once returns are generated, I expect they will be reinvested domestically in high-tech industries, which are more critical,’ says Radwan.
Others view the value of these investments as dependent on the sector.
Omar Bedawi, a direct investment professional, highlights cement as a prime example of a viable investment abroad. ‘No new licences are being issued locally, and energy prices are already high. Meanwhile, many African countries offer significant procedural facilitations and even financial support,’ he explains.
Bedawi notes that private investors are ultimately driven by returns, regardless of whether they invest domestically or abroad. ‘Many industries in Egypt are saturated, while African markets remain untapped.’
Some go further, arguing that Egyptian investments abroad are critical for the national economy.
‘Investing in the Nile Basin is essential because it is simply profitable,’ says Hussein Sabbour. ‘El Sewedy, for example, profited from his investments in Ethiopia, which in turn benefited the company’s local operations.’
On the other hand, some economists discount concerns about investment outflows detracting from the domestic economy.
Dr Adel Beshai shifts the focus to the inefficiency of domestic investments, which he sees as a larger issue. ‘Sending a couple of billion dollars to Africa isn’t the problem. The real issue is incomplete local projects that have been left to stagnate for years. Isn’t it better than leaving water facilities worth billions to rust?’ he asks, with a hint of irony.
Another version of this article is published by Business Today magazine.