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Egyptian Parliament Approves the Ki

Egyptian Parliament Approves the King Salman Bin Abdelaziz Program for the Development of the Sinai Peninsula
On 26 June 2016 the Egyptian Parliament approved Presidential Decree No.181 of 2016 regarding the agreement signed on 20 March 2016 between the governments of Egypt and Saudi Arabia for the provision of $1.5 billion for the "King Salman Bin Abdelaziz Program for the Development of the Sinai Peninsula”.[1] The said finance is divided into $1 billion to purchase Saudi oil, besides loans worth a total of $500 million from the Saudi Fund for Development to establish development projects in the region. Such projects include the establishment of the King Salman Bin Abdelaziz University in the city of Toor, construction of a number of roads including the Axis of Development, the Gadiey, the Nafaq/Naqb and the Coastal roads. This is in addition to the establishment of a number of housing and agricultural projects, the construction of a tripartite wastewater treatment plant in the Mahsamah village with the capacity of 1mm³, and the establishment of a new culvert. It is worth noting that the repayment period of such loans is 20 years, including a 5-year grace period, with an interest rate of 2% annually.
Background
The abovementioned Parliamentary approval complies with Article No. 127 of the Egyptian Constitution, which states that "the executive authority may not contract a loan, obtain funding, or commit itself to a project that is not listed in the approved state budget entailing expenditure from the state treasury for a subsequent period, except with the approval of the House of Representatives". It is worth noting that the government working program approved by the Egyptian Parliament on 20 April 2016[2] includes twelve mega projects among which is the “establishment of the Sinai Company for Investment and Development” which aims at optimizing the region’s competitive advantage and its natural, human, and agricultural resources especially in the sectors of manufacturing, agriculture, services and tourism. The program states that those mega projects are to be financed either through public-private partnerships (PPP), or under the umbrella of BOT (design, procurement, establishment, and financing), or through concessional foreign financing. This means that government financing for such projects is planned to be limited – through public investment expenditures – and therefore not entail extra financial burdens on the State Budget. In light of the aforementioned, foreign borrowing for the establishment of development projects in Sinai is in accordance with what has been mentioned in the government program in this regard.
Consequences of the Agreement
However, consequences of relying on foreign borrowing to finance the said program on the country’s external debt must be taken into consideration; especially that it has reached $53.4 billion in March 2016, constituting 16.5% of GDP. Although external debt rate is still in its safe threshold given international standards, yet, its increase by 14% in the past two years makes it necessary to have a clear strategy for foreign borrowing in accordance with urgent priorities as well as repayment ability. While projects in the Sinai program are of important developmental nature, they are not of an investment nature, and consequently mechanisms for repaying the Saudi loans from the State Budget must be clarified. On the other hand, the Sinai region falls under special regulations pertaining to private investment, by virtue of Decree No. 14 for 2012 for the Comprehensive Development of the Sinai Peninsula amended by Decree No. 95 of 2015 , especially with regard to the issuance of licenses, permits, and approvals – through the Sinai Development Agency – needed for the establishment of investment projects in the region. This is in addition to restrictions on land utilization. Moreover, the law restricts foreign direct investment in the region. According to Article No. 4 of Law No. 95 of 2015, any established project in the region must take the form of a joint stock company whereby the contribution of Egyptians must not be less than 50%. In light of the aforementioned, the development process in the Sinai region will remain tied to available finance from public investments or foreign borrowing. [1] The Sinai Development Agency, press release issued on 26 June 2016, available through this link. [2] Commentary on the Government Program was provided in the ELU edition of April 2016, Week 1.
On 26 June 2016 the Egyptian Parliament approved Presidential Decree No.181 of 2016 regarding the agreement signed on 20 March 2016 between the governments of Egypt and Saudi Arabia for the provision of $1.5 billion for the "King Salman Bin Abdelaziz Program for the Development of the Sinai Peninsula”.[1] The said finance is divided into $1 billion to purchase Saudi oil, besides loans worth a total of $500 million from the Saudi Fund for Development to establish development projects in the region. Such projects include the establishment of the King Salman Bin Abdelaziz University in the city of Toor, construction of a number of roads including the Axis of Development, the Gadiey, the Nafaq/Naqb and the Coastal roads. This is in addition to the establishment of a number of housing and agricultural projects, the construction of a tripartite wastewater treatment plant in the Mahsamah village with the capacity of 1mm³, and the establishment of a new culvert. It is worth noting that the repayment period of such loans is 20 years, including a 5-year grace period, with an interest rate of 2% annually.
Background
The abovementioned Parliamentary approval complies with Article No. 127 of the Egyptian Constitution, which states that "the executive authority may not contract a loan, obtain funding, or commit itself to a project that is not listed in the approved state budget entailing expenditure from the state treasury for a subsequent period, except with the approval of the House of Representatives". It is worth noting that the government working program approved by the Egyptian Parliament on 20 April 2016[2] includes twelve mega projects among which is the “establishment of the Sinai Company for Investment and Development” which aims at optimizing the region’s competitive advantage and its natural, human, and agricultural resources especially in the sectors of manufacturing, agriculture, services and tourism. The program states that those mega projects are to be financed either through public-private partnerships (PPP), or under the umbrella of BOT (design, procurement, establishment, and financing), or through concessional foreign financing. This means that government financing for such projects is planned to be limited – through public investment expenditures – and therefore not entail extra financial burdens on the State Budget. In light of the aforementioned, foreign borrowing for the establishment of development projects in Sinai is in accordance with what has been mentioned in the government program in this regard.
Consequences of the Agreement
However, consequences of relying on foreign borrowing to finance the said program on the country’s external debt must be taken into consideration; especially that it has reached $53.4 billion in March 2016, constituting 16.5% of GDP. Although external debt rate is still in its safe threshold given international standards, yet, its increase by 14% in the past two years makes it necessary to have a clear strategy for foreign borrowing in accordance with urgent priorities as well as repayment ability. While projects in the Sinai program are of important developmental nature, they are not of an investment nature, and consequently mechanisms for repaying the Saudi loans from the State Budget must be clarified. On the other hand, the Sinai region falls under special regulations pertaining to private investment, by virtue of Decree No. 14 for 2012 for the Comprehensive Development of the Sinai Peninsula amended by Decree No. 95 of 2015 , especially with regard to the issuance of licenses, permits, and approvals – through the Sinai Development Agency – needed for the establishment of investment projects in the region. This is in addition to restrictions on land utilization. Moreover, the law restricts foreign direct investment in the region. According to Article No. 4 of Law No. 95 of 2015, any established project in the region must take the form of a joint stock company whereby the contribution of Egyptians must not be less than 50%. In light of the aforementioned, the development process in the Sinai region will remain tied to available finance from public investments or foreign borrowing. [1] The Sinai Development Agency, press release issued on 26 June 2016, available through this link. [2] Commentary on the Government Program was provided in the ELU edition of April 2016, Week 1.