On
December 11, 2017, Russia's President Vladimir Putin visited Cairo and met
Egypt's President Abdel Fattah al-Sisi,
and two leaders signed numbers of
economic agreements for promoting bilateral relations and pushing the relations to a new high.
Obviously, the close of Russia with Egypt is not only driven by geopolitical concern and also by economic consideration.
Basically speaking, there are two major and fundamental interests that determine the pattern of
Russian behavior in the Middle East
in general and the Arab region in
particular: The first is to work on crowding the US out in the region by drawing Washington into debates on more than one arena, one of which
is naturally Israel and this stems from the realization of the Russian leadership when the time comes to recalculate the global balance
of power.
Although Moscow knows perfectly well that it cannot equal US economic or military power any time
soon, it can then refuse to remain as a global
class II power and insist on the need to reshape the global balance of power. The second
is linked to Russia's economic
interests in the Middle East. Russia
has succeeded in the era of Putin in reconciling the economic objectives of the region, and the above strategic interest.
Deepening Economic Ties between Russia and Egypt
During Putin’s visit to Cairo, the agreement on the Egyptian-Russian Industrial City was signed, which is another huge project that will add a lot to the partnership between the two countries on the technical and economic level, especially in the field of industries feeding the automotive
industries, aircraft, engineering goods, electronic computers and others. The
city is to be built in the East Port Said area of the Suez Canal axis on an
area of 5 million square meters, over 13 years, with investments exceeding $7
billion and construction costs of $ 190 million. The city will strengthen Egypt's role as a gateway to African
and Middle Eastern markets, as Egypt has trade
agreements with preferential terms with
North African and the Middle East
countries. The two countries also agreed to establish a free trade zone
between Egypt and the Eurasian Economic Union,
which includes Russia, Belarus, Kazakhstan,
Armenia and Kyrgyzstan, opening
up new markets for Egyptian products and boosting Egyptian exports to Russia
and the central Eastern Europe
countries at a large.
It was also agreed on Russia's participation in the Egyptian
project to establish the International Logistics Center for the storage and
handling of grain, the zone will be
an important base for Russian investment into
African and Middle Eastern markets.
Africa is currently in the spotlight, it is a serious
market worth fighting for, Russia's Economic Union focuses on energy, weaponry, agriculture, and raw materials; thus, the trade zone will likely focus on
these sectors.
Apart from geopolitical factors
driving Russia and Egypt closer,
the two countries are
deepening their economic ties. Putin's visit to Cairo has witnessed the signing
of a $25 billion deal to start work on Egypt's Dabaa nuclear power plant in
which Russia aims to help Egypt realize its long-dreamed goal of building its
first nuclear power plant.
The nuclear power plant agreement is for the
construction and operation of four 1,200 MW reactors. The plant will make Egypt the regional leader in the field of
nuclear technologies and the only country in the region that will have a
generation 3+ plant. The plant in Dabaa will be the largest joint project
between Russia and Egypt since the Aswan Dam was set up in 1970, and will
become truly a new page in the history of bilateral intergovernmental relations
between Russia and Egypt.
Furthermore, after nearly two years' suspension of Russian
flights to Egypt due to a Russian
passenger plane crash in Egypt's
Sinai Peninsula in November 2015
caused by a terrorist act,
which led to the deaths
of 217 Russian tourists and seven crew members
aboard, Russian civilian flights to Egypt
are scheduled to resume in
early February 2018. Russian tourists have been the biggest contributors to Egypt's tourism industry and nearly
3 million Russian tourists visited
Egypt in 2014. So there is no doubt that Moscow's flight
suspension decision in November 2015 heavily damaged the already struggling Egyptian tourism industry.
With the reopening of air links between Russia and Egypt,
it is expected that a 10
to 35 percent shift of Russia's
tourism traffic will
occur from Turkey back
to Egypt. According to the competitive pricing
policy of Egyptian hotels, Egypt will now be able to compete with Turkey for tourism
revenue in the coming summer.
The average price of a Turkish hotel is $60-70
per night, but the price of an Egyptian
one is just $30 per night, so if a trend for
Russians to travel to Egypt
is started, there will be an increase in demand for it. Most likely,
Egypt will enter into
a good tourist season
in the first quarter
or the first half
of 2018.
More than 14.7 million tourists visited Egypt in 2010, down to 9.8 million in 2011 and 4.5 million in 2016. Egypt's revenues from tourism were $3.4 billion in 2016. Egypt expects tourism revenues to reach
$6 billion by
the end of 2017. Russian tourists coming back
to Egypt will certainly
play a major role
in the expected Egyptian tourism industry boom.
What's the
influence on China of Russia – Egypt Closer?
There is no doubt
that the impact
of the Egyptian-Russian relations on Egyptian-Chinese relations will take many years to be clear. Russia’s constant search for short-term gains
has played well to exploit the region’s conflicts
to encourage security cooperation,
an area China has shied away from. But security issues must give way to more
economic action if Russia wants to
cement its gains as a regional actor. Russia has a few tricks up its sleeve that amplify its significance for Egypt even as China
has overtaken it economically
in the region. Russia and China
have competed abroad
before, China and the Soviet Union competed for influence in the developing world between the late 1950s and mid- 1970s. Ideologies have since evolved and changed in importance
but there are reasons to assume that
all authoritarians think alike though they cooperate
in many spheres. China’s Belt and Road, BRI has implications
for Russia’s Middle East policy. Russian
intervention in Syria
and growing involvement in the Middle East
are most directly
linked to the Ukraine crisis and Russian interests in asserting Great Power status. However, Russia is not blind
to the fact that China has increased its economic presence to become the largest foreign investor in the region.
Apart from strategic cooperation
on many international issues between China and Russia, Russia is also among the top 10 trading
partners with China. And China relies
heavily on Russia to modernize its army, thus importing military
equipment largely from Russia. China
also imports Russian wood, oil, and
ferrous metals. In contrast, Russia imports
most consumer goods from China. Russia aspires
to increase China's direct investment in its economy. The
two countries are working to
activate industrial cooperation by developing their industry. The agreement on technology cooperation in October 2011
states that China and Russia will push
forward joint research
in the fields of nanotechnology, biotechnology, informatics
and medicine in order to benefit commercially and industrially from the results of this research. New deals in the railway and telecommunications sectors may set important precedents for bilateral relations. These projects could reduce Russia’s technological links with the West and increase its dependence on China. In 2017 Beijing “Belt & Road Summit”,
China pledged to set up
the China-Russia Development Cooperation Investment Fund total
size of RMB100 billion to further promote the cooperation between
the Northeast China and the far east of Russia.
Egypt has tightened its economic relations
with China and strongly welcomed the participation in the Belt & Road initiative
which reflected in The Chinese industrial zone "TEDA" in the Gulf of
Suez region, as well as oil investments of Sinopec Chinese Company in Western Sahara. As well as China's investment in the
government district of the new administrative capital project, Egypt is cooperating with China to implement an electric train
project to reach the new administrative capital. In the beginning of 2017,
Egypt Bank, the second largest bank in Egypt, opened its branch in Guangzhou, southern China, and then in April followed
by the signing of a $ 500
million loan agreement with the
China Development Bank before
the Summit of
the Belt and the Road for International Cooperation in May 2017, which marked
a new beginning of financial and
banking cooperation between the two countries and provided
a platform to strengthen
the investments of Chinese companies
operating in Egypt and strengthen bilateral trade between the two
countries.
How Chinese government and enterprises
to deal with the new development of Egypt – Russia closer?
Egypt is particularly eager
for investment from China, evidenced by the fact that Egypt was the first African nation to join the Asian Infrastructure Investment Bank
(AIIB) in 2015. China has targeted Egypt because the Suez Canal is a crucial chokepoint
in China’s envisaged maritime Silk Road
under the umbrella of BRI. Whereas China was Egypt’s 23rd
largest investor at $500 million total invested
until 2016. It invested $10 billion
into Egypt last year through large deals. The Industrial and Commercial
Bank of China has
announced to invest up to $20 billion into Egypt,
and intentions to invest up
to $35 billion into Africa.
As a matter of fact, since both Russia and Egypt are the
strategic pivot countries along the Belt and Road initiative, the closer of
Russia and Egypt will be not only beneficial these two countries themselves, but also helpful for
China’s further engagement with the two countries as well as in the Central
Eastern Europe and the Middle East/North Africa as a whole. These trilateral
mutual supportive roles can also have been seen in a very clear way that
without the $25 billion offered from Russia government the above deals with China will hardly to happen due to
the low financial capacity for the Egyptian side to cover such huge project.
Nevertheless, on the other hand, from
Russia-Egypt closer ties proceeding, the Chinese government may also need to
catch up for supporting some long term high finance strategic projects with Egypt. Actually, the nuclear reactor building agreement with Russia is
not the last project, Egypt still needs to build at least 10 more nuclear power
reactors, not only in the field of energy also in the field of machines and
building factories. Chinese government can provide support for factories reform
which specially in the field of cotton and textile industry which Egypt needs
very urgent. Chinese enterprises should be in the front to find all possible
cooperation chances and explore all the ways to support the frame work with Egyptians enterprises. Making plans earlier and plan
longer term will be certainly very fruitful for both sides and will be very
effective to spread across the wide economic sectors.Only through building the
stronger partnerships between Egypt – China, the roots of the closer ties can't be easily
influenced by any others.
By He Wenping，Senior Research Fellow of the Charhar Institute & African Studies of Chinese Academy of Social Sciences.
Hisham AbuBakr Metwally，Chief Economist in Egyptian Ministry of Trade & Industry.
Source: China Investment, Issue 2,
January 2018