Saudi King Salman bin Abdelaziz's state visit to Cairo last month was greeted with unprecedented fanfare. To ensure security and the proper visuals, the interior ministry cordoned off entire sections of central arteries in the Egyptian capital for the king's entourage. The worse than usual gridlock that resulted left grumbling commuters sitting bumper-to-bumper under Saudi flags fluttering from lampposts.

The Egyptian government, meanwhile, focused on shows of adulation for the Gulf monarch. For four days beginning on April 7, the 80-year-old king was treated to fireworks displays and poetry readings, named chairman of Egypt's number-two football club and awarded an honorary doctorate from Cairo University. The Egyptian parliament gave King Salman a standing ovation following his six-minute speech before lawmakers. More tangible gestures of friendship included the announcement of a 50-kilometer long bridge linking the two countries via the Red Sea--to be named after the king--ostensibly to boost trade, and the controversial territorial handover of two unoccupied islands. "I agreed with my brother his Excellency President Abdel Fattah el-Sisi to build a bridge connecting the two countries," the king told reporters at an official press conference, calling it a "historic step" that will increase trade between Africa and Asia "to unprecedented levels."

The visit, which was King Salman's first trip to Cairo since ascending the throne last year, was intended to send a "message of reassurance," to Saudi investors, a government source told the Daily News Egypt, with some $25 billion worth of agreements signed, according to the Ministry of International Cooperation, including one ensuring Egypt's petroleum needs for the next five years. Officials touted the visit as marking a new stage in Saudi-Egyptian relations, though analysts noted that the deals included few specifics.

And analysts note that even if the investments do go through as planned, in contrast to the past, the recently announced Saudi support doesn't include plans for even $1 to be deposited into Egypt's Central Bank. On the other hand, the United Arab Emirates said late last month that it would commit $2 billion to boosting Egypt's reserves, in addition to another $2 billion in investments. However, this is still a drop in the bucket compared to the Gulf's largesse of recent years. "It's definitely a shift," says Amr Adly, an economic researcher at the Carnegie Center for Middle East Studies, adding that Saudi Arabia, which is facing an economy that has been rocked by record low oil prices, cannot realistically be expected to continue funding Egypt's chronic budget deficit. "Egypt is a big country, beyond the means of any country to carry on financing," he says.

Bridge over troubled water?

It is no secret that Egypt has in many ways come to regard its deep-pocketed friends in the Gulf, led by Saudi Arabia, as its most steadfast friends in recent years. Gulf countries bailed out the cash-strapped Egyptian government to the tune of around $20 billion between 2013 and 2015, following the ouster of President Mohamed Morsi and his Islamist government, a political development that Riyadh was more than happy to support. Saudi Arabia has since pumped billions in aid, low-interest loans and fuel supplies into the struggling republic, which it sees as an important strategic regional ally.

"It's clear Saudi Arabia wants a stable and secure Egypt," says Emily Hawthorne, an analyst at Stratfor, a U.S.-based intelligence firm. With 90 million people, Egypt's political and economic fortunes determine the direction of the entire region. Particularly since the instability of the 2011 Arab Spring, the Saudis are determined to do what they can to prevent Egypt from going the way of neighboring Libya or Syria, both countries currently wracked by civil conflicts.

Saudi Arabia's regional policy is in response to a changing geopolitical climate in the Middle East. "There is growing perceived Iranian influence in the region," says Hawthorne, particularly with the recent lifting of many economic sanctions against Iran by Western nations in exchange for agreements to curb its nuclear program. In light of this, Saudi Arabia, now the world's third biggest military spender, is pursuing a more aggressive foreign policy, with 150,000 Saudi troops leading a coalition against the Iranian-backed Houthis in Yemen and sponsoring anti-government militias in Syria.

In this same vein, Saudi Arabia has sponsored a Joint Arab Taskforce, an anti-Iranian military coalition of Sunni Muslim states. With some 700,000 troops, the Egyptian army is the largest in Africa and the Middle East and an attractive resource for Saudi aspirations. It is logical for Riyadh to look to Egypt as a source of military manpower, analysts say. Last September, Egypt announced that it was sending 800 troops to support the Saudi-led coalition in Yemen, in addition to lending naval support. But faced with fighting a growing terrorist insurgency at home in the Sinai Peninsula as well as instability along the Libyan border, President Sisi is unlikely to be enthusiastic about making a major, long-term commitment of soldiers to regional conflicts--notwithstanding his pledge in January last year to coordinate "with our Arab brothers" to fight the growing threat of armed movements in the region. This reluctance hasn't gone unnoticed by the Saudis, says Adly. "Last year the Saudis were frustrated with Egypt over Yemen and Syria," says Adly, who notes that last year, there was "almost a complete halt" of Saudi aid to Egypt.

Moreover, with the United States retreating from its "historically intense role in the Middle East," as two analysts with the Council on Foreign Affairs put it in a November report, "Egypt and Saudi Arabia are now finding themselves, for the first time in years, having to form policies without U.S. input" on such issues as Iran and the growing threat of the terrorist Islamic State as well as the crises in Yemen and Syria. With Egypt desperately trying to right its economy amid a hard currency shortage and foreign reserves that have dipped to near critical levels in the wake of declining tourism and foreign investment, Egypt has little choice but to play ball with Riyadh.

Following the economic turmoil of the last five years, Saudi petro-dollars have been a great boost to Egypt's economy. The breakdown of tourism since the turmoil that began in 2011 has left Egypt struggling to find adequate dollar supplies to meet its import demands. Last year, at a high-profile economic summit in Sharm el-Sheikh that was meant to restore Egypt's global image as an investor friendly nation, Saudi Arabia, Kuwait, the United Arab Emirates and Oman pledged a staggering $12.5 billion in loans, grants and investments.

But by all accounts, Egypt has since burned through that cash, with companies increasingly struggling to get their hands on hard currency for imports. "This happened when GCC money stopped," says Adly. "This is exactly why we've been having a crisis in the last year."

In December, King Salman gave orders to increase the country's investments in Egypt to around $8 billion as well as to secure Egypt's petroleum demands for the next five years and to increase Saudi traffic in the Suez Canal. Annual FDI from Saudi Arabia increased from $192 million in fiscal 2012/13 to 649 million in fiscal 2014/2015. Moreover, the plans announced during the king's recent visit include a $16-billion investment fund aimed at developing the Suez Canal Economic Zone in addition to a number of smaller, non-binding commitments. Officials also said Saudi Arabia had agreed to finance large-scale development in the Sinai, with a $1.5 billion concessional loan and $200 million grant signed to develop housing, infrastructure and agriculture projects, as well as the new King Salman University to be built in the South Sinai city of El-Tor. "Sinai falls in between Egypt and Saudi Arabia," explains Hawthorne, "and the militancy issue is a concern." The investment is supposed to create job opportunities to counter the chronic unemployment in the region that has made it fertile ground for the recruitment of insurgents. A $120 million loan to renovate Cairo's Kasr al-Aini government hospital and a $100-million loan to increase the capacity of West Cairo Power Station by 650 megawatts were also announced.

While officials made much of these agreements, few details were disclosed on the deals, nearly all of which came in the form of Memoranda of Understanding rather than binding contracts. Many of the MOUs touted during last March's Sharm el-Sheikh summit have yet to come to fruition. The most tangible aid recently announced from Saudi Arabia came from the Saudi Fund for Development, which agreed to finance the purchases of the Egyptian General Petroleum Co. to tune of $23 billion over the next five years. Under the new deal, the Saudi national oil company will supply 700,000 tons of fuel to Egypt each month, to be repaid by the EGPC over a period of 15 years at an interest rate of 2 percent.

Last stop on the money train

A sustained period of low oil prices has suddenly changed the economic realities facing petroleum-dominated Saudi Arabia, forcing the kingdom to dip into its massive stores of foreign currency reserves. Hawthorne, the Stratfor analyst, notes that while the wealthy monarchy can afford to weather a period of lean oil revenues, Saudi Arabia's economy is in need of diversification and other reforms in the long term, a fact that its leaders recognize. This backdrop has clearly factored into Saudi Arabia's shifting emphasis on private sector investment in Egypt. "They want to make sure the money they send has a return," she says.

Another issue is Egypt's growing foreign debt, which must eventually be paid back in hard currency. Alia el-Mahdi, an economics professor at Cairo University says: "We used to have a saying in Mubarak's time--never let the foreign debt exceed $35 billion. Now it's close to $50 billion."

However, without a stopgap source of dollars, and foreign reserves at less than half of their pre-2011 revolution levels, Egypt will continue to struggle to pay for critical commodities imports like food and fuel. "We have good relations with Saudi Arabia," says Mahdi, "but they are a bit stressed. Egypt cannot wait to get assistance from anyone. It has to start working and encouraging a private sector." Plans to develop industry in places like the Sinai and the Suez Canal are meant to do just that--to encourage more lasting sources of revenue for the Egyptian economy.

Leading a horse to water

The question is whether Saudi businesses will follow through with promised investments in Egypt in light of the challenges that have scared away other foreign investors in recent years. Just days after King Salman concluded his visit, Al Borsa reported that the Saudi energy firm Abdul Latif Jameel planned to pull out of $700 million worth of investments in Egypt's renewable energy sector, citing excessive red tape. Egyptian authorities denied that claim, saying the energy giant had pulled out of just one of several projects due to lack of financing. In any case, analysts say the news isn't surprising given the difficult environment faced by foreign investors in Egypt, who now face an unstable currency and a dollar shortage in addition to chronic problems of bureaucracy and regulatory issues. Egypt ranked 131 out of 189 countries in the World Bank's 2016 Doing Business Report, below Iran and the Occupied Palestinian Territories. "Not only Saudis are complaining, Egyptians are also complaining," says Mahdi, the Cairo University economics professor, who says the government must commit to real long-term reforms to make Egypt more business friendly.

However, the ongoing hard currency shortage has made things increasingly difficult for attracting prospective investment. "Nobody wants to put their money in Egyptian pounds," says Patrick Werr, an Egypt-based economic columnist at The National, an Emirati publication. Investors are understandably leery of an unstable currency, especially one like the pound, which many analysts still consider overvalued. Fearing widespread inflation, Egypt's Central Bank has continued to keep the pound at artificially high levels, which chases away FDI. "If you were a businessman, why would you want to invest?" asks Werr.

The most contentious development coming out of Salman's visit was the demarcation of the maritime borders, which placed the two disputed islands of Tiran and Sanafir under Saudi control. The news angered many Egyptians, many of whom saw it as essentially selling off their country to the highest bidder. Many observers also saw it as embodying unhappiness with the lack of transparency that has accompanied many such decisions. Notable political figures such as Mohammad Abdul Hadi Allam, the editor-in-chief of state-owned Al Ahram, vocally opposed the move.

On the Friday following the king's departure, which crowds dubbed the "Friday of the Land," citizens took to the streets around Cairo for a rare show of public dissent to protest the decision--marking the first major organized rallies since the government outlawed public protests in late 2013. Cries of "Awad sold his land", referenced a popular song about a man who drew shame by selling off his ancestral real estate. Parliament has vowed to investigate and political parties have joined forces to petition the government to reverse the deal.

The other announcement from April that promises controversy down the road is the plan to build a bridge connecting Saudi Arabia to South Sinai across the Straits of Tiran. Originally proposed during the Mubarak era, the bridge is meant to strengthen trade ties, increase tourism and provide an alternate hajj route. The project was shelved in 2005 over security concerns, but was resurrected by the Morsi administration. Critics fear the massive construction project will damage the world-famous coral reefs in the strait and along South Sinai's coastal protected areas, killing off Sharm el-Sheikh's lucrative scuba diving tourism in the process.

In the wake of the public uproar over the handover of Tiran and Sanafir, Saudi and Egyptian officials responded by saying the Red Sea islands belong to the kingdom and were only under Egyptian control because Saudi Arabia had asked Cairo in 1950 to protect them. "We didn't relinquish even a grain of sand," Sisi said in a televised speech April 13. "Please let us not talk about this subject again."

Business Monthly 2016