Ras al-Hekma: How the UAE-Egypt deal dumps the UN in choppy waters

The beaches of Egypt’s Mediterranean coast have long attracted tourists from across the world. They are now also catching the eye of foreign investors with tens of billions of dollars to spare. On February 23, Reuters reported that Egypt and the United Arab Emirates concluded a $35 billion deal for the development of Ras al-Hekma, a peninsula and tourist destination about 200 kilometres west of the Egyptian city of Alexandria.

The agreement has offered Egypt’s economy a lifeline as it continues to struggle with record inflation and a shortage of hard currency.

"If they renege on evolving commitments to turn Ras al-Hekma into a model of sustainable development, Egypt will set a troubling precedent for cash-strapped countries across the Middle East"

How will Ras al-Hekma be financed?

Much of the financing will come from ADQ, one of Abu Dhabi’s sovereign wealth funds and the leader of the consortium behind the investment. ADQ outlined plans to turn Ras al-Hekma into a “next-generation city” featuring amenities from amusement parks to an airport and a marina. The site will span 170 square kilometres, with construction set to start early next year.

The financial aspects of the deal are already moving into place. The Emirati newspaper The National indicated that the $35 billion would come in two parts.

First, the ADQ consortium offered $24 billion for the rights to develop the Ras al-Hekma area, with $10 billion already deposited at the Egyptian Central Bank and ADQ promising to make the second deposit within two months of the signing of the agreement. The UAE then pledged that $11 billion of its deposits in the Central Bank “would be relinquished” to Egypt, in the words of The National.

That $11 billion has the potential to travel far beyond Ras al-Hekma, going toward what ADQ termed “investment in prime projects across Egypt to support its economic growth and development.” The National, meanwhile, called the overarching investment “the largest in Egypt’s history.”

Egypt, which still has a 35 percent stake in the Ras al-Hekma project, expects the payouts to keep growing. Egyptian Prime Minister Mostafa Madbouly said that he saw investment in Ras al-Hekma reaching $150 billion and that the area would grow into a “fully functional urban community and not just a beach resort.”

That sum would mark a significant change of pace for Egypt, whose net foreign investment Reuters put at just $10 billion in the 2022-2023 financial year. And that hard currency could go a long way toward stemming Egypt’s financial crisis, with the inflation rate hovering around 30 percent in recent months. In this sense, the ADQ agreement is a boon both for Egypt’s indebted government and for its inflation-battered citizens.

Egyptian concerns

Yet the project offers hints of controversies to come. As rumours of the deal circulated in early February and Egyptian leaders offered few details, Middle East Eye reported that leading figures in Egypt’s beleaguered community of dissidents were already condemning it.

Concerns ranged from the possibility of overdevelopment to the choice of a foreign developer, with the activist Mamdouh Hamza suggesting that the contract should go to Egyptians.

Whoever builds up Ras al-Hekma, criticisms of the cost to the natural environment are likely to grow. Egyptian officials, for their part, are well aware of Ras al-Hekma’s significance and the potential environmental issues.

Though scientists have ranked the peninsula as less biodiverse than other parts of Egypt, a 1999 report prepared by the United States Agency for International Development in cooperation with Egyptian leaders included Ras al-Hekma on a list of “proposed protected areas.”

Last year, a study by researchers affiliated with the Egyptian National Water Research Center, a government agency, also attributed “shoreline displacement” around Ras al-Hekma to “major activities of unplanned coastal development,” including “uncontrolled coastal urbanization, the lack of commitment to the setback regulations for building constructions, and the development of tourism resorts and recreational facilities which leads to habitat loss and the destruction of the natural protection system of the shore.”

"Whoever builds up Ras al-Hekma, criticisms of the cost to the natural environment are likely to grow. Egyptian officials, for their part, are well aware of Ras al-Hekma’s significance and the potential environmental issues"

Why is the UN implicated in the deal?

Egypt has given conflicting signals on its plans for environmental protection in Ras al-Hekma. The United Nations Human Settlement Program —better known as UN-Habitat — announced several years ago that it was working with the Egyptian Ministry of Housing, Utilities, and Urban Communities on an ambitious project: “a socially, environmentally and economically sustainable Ras al-Hekma water-front city” with a focus on “a new level of sustainable environmental-based development principles” to preserve the peninsula’s “exceptional environmental features.”

Yet the unprecedented scale of the ADQ project could portend the exact kind of overdevelopment about which Egyptians inside and outside the government have been warning.

In theory, the ADQ development could incorporate the earlier UN-Habitat initiative, with government-friendly outlets like Al-Ahram writing of “a sustainable eco-tourism city in harmony with the local environment and community needs that can compete globally.”

The extent of environmental degradation from the Emirati-led overhaul of Ras al-Hekma is also a matter of conjecture. The damage to the environment, if any, will only come into focus after construction gets underway a year from now, assuming that it even starts on schedule.

But the opacity of the decision-making behind the deal has hurt Egyptian officials’ credibility. If they renege on evolving commitments to turn Ras al-Hekma into a model of sustainable development, Egypt will set a troubling precedent for cash-strapped countries across the Middle East: the immediate need for foreign direct investment outweighs the long-term preservation of the environment, which could suffer the consequences for decades to come.