Capitalising on land - Economy - Al-Ahram Weekly

Al-Ahram Weekly

21-06-2025

Egypt is using land as collateral to meet its financing needs
In a much-publicised move, 174 km² of land in Ras Shukeir overlooking the Red Sea was allocated to the Finance Ministry by a presidential decree last week.
According to a Ministry of Finance statement, the allocation does not entail selling the land but rather developing it while using a portion as collateral for sovereign sukuk (Islamic Bond) issuance. This will provide financing to meet state budget needs on favourable terms.
The land used as collateral will remain under the full ownership of the Egyptian state represented by the Ministry of Finance and certain government-affiliated economic entities, the statement said.
The upsides of the scheme are multiple, experts say. Using a tangible asset as collateral enhances investor confidence and potentially secures better issuance terms, economist Mohamed Fouad told Al-Ahram Weekly.
Moreover, it will stimulate real estate, tourism, and public services development in the location, generating long-term revenue streams. It aligns with the government's objective to reduce public debt, lower debt-servicing costs, and manage fiscal pressure.
According to the ministry's statement, the initiative will replace existing budget-sector debt with joint investments and reduce debt burdens and servicing costs. Earlier this year, the minister of finance said external debt repayments in 2025 stood at $16 billion. Egypt's foreign debt stood at around $155 billion in December 2024.
Mohamed Hafez, a consultant and geoeconomics researcher at Nottingham Trent University in the UK, said the decision would help Egypt diversify its debt instruments and minimise borrowing costs.
The land in question is currently idle but holds significant development potential, which makes the decision a smart move to leverage a prime asset and unlock its value through joint ventures in sectors like tourism, industry, energy, and real estate.
'The proceeds could help reduce debt-servicing costs and fund infrastructure, though the benefits will ultimately depend on whether real development follows or it turns into another fiscal stopgap,' Hafez said.
Finance Minister Ahmed Kouchouk said Egypt plans to issue $2 billion in sukuk in 2025 via multiple offerings. It has appointed banks to oversee the issuance, Reuters reported in April.
The sum partly addresses the country's external financing gap, Fouad said, adding that Egypt's Gross Financing Needs (GFN) stand at 40 per cent of GDP, the highest globally. Egypt is looking to roll over the maturity of its debt to reduce fiscal strain due to the heavy GFN.
This would not be the first time that land has been used to generate revenue to help repay debt. In February 2024, the government concluded the Ras Al-Hekma deal, whereby the Abu Dhabi Sovereign Fund ADQ pumped in $24 billion in investments to develop prime land on the North Coast.
Some $11 billion of UAE deposits with the Central Bank of Egypt (CBE) were swapped for investments.
Hafez explained that though the arrangements involve asset monetisation for fiscal relief by converting land value into upfront cash, the two deals differ significantly in scope, structure, and implications.
The Ras Al-Hekma deal was an equity-for-land deal with an immediate bailout component, whereas the Ras Shukeir plan is a debt instrument that keeps the asset in Egyptian hands, he said.
Fouad said using land to resolve the issue of debt was 'a pragmatic, strategic approach' to the issue. Using underutilised assets to finance public obligations reduces the reliance on higher-cost borrowing, he said, explaining that it transforms unutilised state land into productive, revenue-generating infrastructure. The sukuk issuance is also good for book-keeping as the yields paid to investors will not be written down as debt service, but rather operational costs.
Nonetheless, he noted that Egypt must avoid becoming a quasi-rentier state that relies on such rent-based sources of finance rather than being a productive economy.
On a similar note, Hafez said that given the rapid shifts in the global and regional economic and geopolitical dynamics, as well as rising unpredictability that has undermined development plans in many developing economies, the strategy would be effective in unlocking dormant capital, such as from vast state-owned lands, he said.
'The key point here, however, is not to adopt this strategy as a standalone or quick win, but as part of a broader, deep structural reform agenda, which the government is already implementing,' Hafez stressed.
According to Fouad, owing to the plan's assetbacked structure and Sharia compliance, demand from Islamic investors in the Gulf and global markets is expected to be strong.
'The Red Sea region's development appeal enhances investor interest,' he said, pointing out that Egypt's prior sukuk issuance of $1.5 billion in 2023 demonstrated active appetite. The 2023 issuance offered an 11 per cent yield that was aligned with market rates and sovereign bond benchmarks at the time, Fouad explained.
The sukuk market is estimated at $850 billion, with an average annual issuance of $160 billion.
Likely buyers of sukuk bonds, according to Fouad, are Islamic institutions and sovereign wealth funds in the Gulf Cooperation Countries (GCC) interested in yield and Sharia-compliant exposure.
Global fixed-income investors seeking diversification and strong collateralisation are also potential buyers, as well as domestic and regional banks and insurance firms looking for compliant instruments with structured returns.
To make the most of this initiative, Fouad recommended maximising land utilisation by structuring the sukuk with clear, revenue-generating development plans such as tourism projects. He also suggested diversifying maturities and currency exposure to enhance resilience and fiscal flexibility.
Hafez warned that given the rapidly evolving regional geopolitical environment and its potential to unsettle the financial markets, the government should be prepared for possible under-subscription or high yields and avoid relying solely on optimistic interest rate forecasts.
Moreover, success depends not just on raising funds, but also on converting land into sustainable, well-managed cash flows, he said. 'The government speaks of using the proceeds for productive projects, but this will require disciplined execution to ensure sukuk-funded developments drive real economic growth and do not become white-elephant ventures,' he stressed.
* A version of this article appears in print in the 19 June, 2025 edition of Al-Ahram Weekly
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