Egypt’s membership in BRICS, multilateral trade with main BRICS members, the consequences and effects of membership, and trade and investment prospects
By Farzad Ramezani Bonesh
Egypt’s BRICS Membership Process
Over the past decade, the BRICS has increased its attractiveness by holding dozens of successful meetings and summits. The increasing economic position of BRICS and its leading business capabilities have made Cairo interested in joining the group. Negotiations for Egypt’s membership in the BRICS group began in 2009, but after a period of changes in Egypt, Cairo applied for membership again under Abdel Fattah al-Sisi.
The BRICS Plus 1 was created in 2017 and provided an opportunity for Egypt’s multi-dimensional presence in BRICS mechanisms. Cairo participated in the meetings and summits of BRICS leaders in 2017, 2022, and 2023.
Egypt subsequently applied to join the BRICS countries in 2023, with Cairo’s good relations with BRICS members supporting their efforts to join the bloc. At first, Cairo became a member of the BRICS New Development Bank (NDB). Then the recent 15th BRICS summit saw an invitation to Egypt to become a full BRICS member from January 1, 2024.
The Consequences and Opportunities of BRICS for Egypt
Egypt will be considered an official member of BRICS from January 2024. The President of Egypt, Abdel Fattah El-Sisi, has also publicly expressed his appreciation of the decision of the BRICS leaders to grant full membership to Egypt.
From Cairo’s point of view, BRICS, with about 26% of the area and about 42% of the world’s population; and in strengthening its economic and financial cooperation has an increasing role in the future of the economy and geopolitics of the world.
BRICS efforts in forming alternative payment systems, and non-dollar financial systems, moving away from a reliance on the US dollar, increasing trade with domestic currencies, and the longer- term possibility of creating a common currency can all benefit Egypt.
Egypt does have a lack of USD and Euro foreign currency reserves; however, Cairo can diversify its portfolio of foreign currencies in use of the BRICS currencies instead.
By possessing membership in BRICS, Egypt wants to develop alternative supply chains, promote economic growth, diversify the economy, minimize costs, develop e-commerce and market integration, and cooperate with the other BRICS countries – which now will also include fellow Islamic members Saudi Arabia and the UAE. Egypt has good relations with these countries, while they are all members of the same Free Trade bloc – the Greater Arab Free Trade Area (GAFTA).
Egypt and the New Development Bank
Meanwhile, efforts of the New Development Bank in granting US$10 billion in loans so far this year (a minimum of 30% of each loan being in BRICS currencies) while focusing on the implementation of projects and supporting BRICS infrastructure means Egypt’s participation in the bank and gaining voting power will lead to financial aid, technical, and soft loan support to assist sustainable development and investment in Egypt.
In fact, the BRICS card can be an important option hedging against Western-oriented institutions such as the World Bank and the International Monetary Fund; and can make difficult lending conditions imposed by these easier to circumnavigate for Cairo. The New Development Bank will be more useful and will not impose strict political conditions.
Egypt expects to raise the value of its local currency by becoming a member of BRICS and using an alternative currency to implement several trade initiatives with Russia, China, and India to help reduce dependence on the dollar.
Its membership in BRICS can be steps to develop trade with emerging economies, rapid economic growth, opening new markets, signing new trade agreements (in the currency of Egypt and BRICS countries), and attract investment deals for Cairo.
In fact, BRICS can be a potential source of foreign direct investment (FDI) in Egyptian production. Many in Cairo consider the BRICS card to be effective in reviving the Egyptian currency, increasing the purchase value of the Egyptian Pound against the US Dollar, reducing Egypt’s US dollar debt problems within its economy, therefore helping to open new markets for Egyptian exports, while reducing USD-Pound Forex costs while improving access to alternative financing. Both Saudi Arabia, and the UAE, as additional NDB members, will be sympathetic to Egypt’s requirements.
Egypt – Economic Problems
Some Egyptian analysts consider Egypt’s presence in BRICS to save about US$25 billion dollars due to a strengthening of the Egyptian pound via increased usage of its own currency when importing from BRICS countries.
Egypt has been caught in an economic crisis for the past few years. A 50% drop in the value of the Egyptian Pound against the US dollar, an annual inflation rate of 36.5%, a lack of US dollar reserves, the negative consequences of the Ukraine crisis, an increase in food prices, supply chain fluctuations, a high public debt volume (estimated to reach US$510 billion by 2028, the absorbing of over 9 million immigrants and refugees are very apparent, and difficult problems to resolve.
Egypt’s foreign debt reached US$165 billion by Q1 2023. Egypt hopes that by joining BRICS, it can make efforts to reduce its foreign debt burden (through forgiveness, and longer-term repayment schedules), while also establishing a fund to support developing countries.
BRICS – and especially China, Saudi Arabia, the UAE as well as India and to a lesser degree Russia can all take steps to facilitate economic support, the restricting of debt repayments while at the same time participate in large investments into infrastructure and industrial projects with returns on those investments in Egypt.
An Egypt – BRICS Trade & Influence Balance
Quite apart from the energy sector, where Egypt has total proven natural gas reserves reaching 2,209 bcm, producing more than 79 bcm in 2021 and is a major exporter, Egypt has trade balancing needs that align with the BRICS.
It imports 60% of its basic food needs, and it imports almost 50% of its grain from Russia. Egypt, Russia, and India have already discussed trading wheat and rice trade in national currencies, which when agreed, will make it easier to supply Egypt with the basic needs of strategic goods through BRICS. This will make it easier for Cairo to achieve easier delivery of raw materials, grains, reduce supply chain costs, potentially host a North African center for grain supply and storage, and help deal with the global food crisis.
These positive effects of BRICS membership are expected to help economic reforms, increase production volume, increase the competition of Egyptian goods abroad, stimulate Egyptian exports, increase trade exchanges, and attract direct and joint investment.
The BRICS assistance in achieving Egypt’s 2030 vision and development goals, reaching US$100 billion in annual exports, and increasing the volume of GDP will other effects of joining the bloc. In addition, Egypt’s joining of the BRICS group increases Cairo’s regional geopolitical and geo-economical power in Africa and the Middle East.
It is also likely that Egypt’s membership in BRICS will accelerate Africa-BRICS cooperation, the implementation of the African Development Agenda 2063, as well as the goals of the African Continental Free Trade Agreement (AfCFTA), which includes 54 African countries and is phasing out intra-African tariffs on 95% of all products. That is important for Egypt as this effectively makes sourcing in Africa easier and less costly. With Egypt facing Europe and having Free Trade Zones around the Suez Canal, (including China and Russian invested SEZ) it can position itself as a manufacturing export hub serving the European – and BRICS markets.
Egypt’s Bilateral Trade with BRICS Members
Egypt – BRICS 2022
The overall value of trade between Egypt and the BRICS countries increased to US$31.2 billion in 2022, compared to US$28.3 billion in 2021. The value of Egypt’s exports to BRICS countries was US$4.9 billion in 2022, while Egypt’s imports from the BRICS countries reached US$26.4 billion dollars the same year.
Of the BRICS nations, India was the top BRICS importer of Egyptian products in 2022, while China was the top BRICS exporter to Egypt the same year. In fact, a large part of Egypt’s imports are already from the BRICS countries.
The investment of BRICS countries into Egypt reached US$891.2 million in the financial year 2021/2022. The value of remittances from Egypt to BRICS countries also increased during the 2021/2022 fiscal year.
Egypt – Brazil
The economic relations between Egypt and Brazil are distinct and diverse in their fields, and the views on many international political and economic issues are almost the same.
Egypt is one of the main trade partners of Brazil in the African continent and its leading trade partner among the Arab countries. Brazil is Egypt’s largest trade partner in Latin America.
There are outstanding investment opportunities for Brazil in Egypt. Egypt can access about 4,000 exemptions from customs tariffs and trade agreements such as (Mercosur) to help strengthen its exports.
In 2021, Brazil exported US$2.09 billion to Egypt, while that same year, Egypt exported US$680 million of goods to Brazil. These included Egypt’s major imports from Brazil being cereals, meat and edible meat offal, slag ores and ash, sugars and sugar confectionery, wood pulp, fibrous cellulosic material and waste, oil seeds, ellagic fruits, grain, seed, and fruits.
Egypt’s main exports to Brazil included fertilizers, salt, sulphur, rare earths, stone, plaster, lime and cement, glass and glassware, vegetables, fruit, nut food preparations, iron, and steel.
Egypt – Russia
Apart from the strategic cooperation agreement of 2018, there are many trade platforms between the two countries, including oil and gas extraction, the establishment and investment in Egypt’s industrial zones, while an Egypt-Eurasian Economic Union (EAEU) free trade agreement is also being discussed. The EAEU includes Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia. Cooperation in nuclear power plants, cooperation in production chains, and traditional grain and fertilizer supply are also important.
Russia’s trade with Egypt increased by 30% in 2022, with Russia one of the leading arms sellers to Egypt. Egypt’s exports to Russia increased to US$595.1 million, while Egypt’s imports from Russia increased to US$4.1 billion in 2022. In the first six months of 2023, 750,000 Russian tourists visited Egypt.
In addition to grain, Egypt’s imports from Russia include iron, steel, copper, wood, mineral fuel, machinery, and electrical equipment. Russia’s imports from Egypt include fruits, vegetables, plastics, soap, salt, sulphur, and cement.
Egypt – India
Egypt is one of the most important trade partners of India in the African continent. India became the fifth largest trade partner of Egypt in 2022. Both countries are looking to increase bilateral relations to US$12 billion by 2030.
More than 450 Indian companies are registered in Egypt with a combined investment of more than US$3.15 billion. In 2022, India and Egypt recorded the highest bilateral trade at US$7.26 billion. New Indian investments worth US$700 million are projected to be injected into the Egyptian economy over the coming 12-18 months.
In 2021, India exported US$3.33 billion of goods to Egypt, while Egypt exported US$2.51 billion to India. India’s exports to Egypt increased in 2022 to US$4.1 billion, however Egypt’s exports to India last year have decreased by US$1.9 billion.
The items exported by India to Egypt were petroleum oils, meat, ferroalloys, rice, and rolling products. The items imported by India from Egypt were oil, petroleum gas, chemical fertilizers, ammonia, and phosphoric acid.
Egypt – China
Egypt and China have increased their economic cooperation after signing a comprehensive strategic partnership in December 2014. China’s Belt and Road Initiative (BRI) is aligned with Egypt’s 2030 National Development Plan. China and Egypt have also deepened trade relations with exchange agreements, local currency swaps, financial assistance, and loans from Chinese institutions.
Chinese investment in Egypt has increased over the past 10 years, and more than 140 Chinese companies now play an important role in Egypt, including major infrastructure projects.
In 2021, China exported US$18.1 billion of goods to Egypt, while Egypt exported US$1.17 billion to China.
China’s total investments in Egypt in the fiscal year 2021-2022 were US$563.4 million.
As recent indicators, in June 2023, China exported US$1.34 billion to Egypt and imported US$91 million in return. That month, the top exports of China to Egypt were telephones, synthetic filament yarn and woven fabrics, flat panel display modules, cars, and light fixtures. The top imports from Egypt to China were refined petroleum, crude petroleum, starch residue, marble, alabaster and raw cotton.
Egypt – South Africa
After the full diplomatic normalization of relations between Egypt and South Africa in 1994, significant progress has been made in bilateral, political, and economic cooperation through various bilateral mechanisms, including a Bilateral Joint Commission.
Holding a joint committee between Egypt and South Africa, activating the Tripartite Free Trade Area Agreement (TFTA), activating the African Continental Free Trade Area (AfCFTA), expanding cooperation in various fields such as energy, mining, petrochemicals, infrastructure, the Cairo-Cape Town Highway are all important.
The latter is officially known as Trans-African Highway Four; and is part the transcontinental road network being developed by the United Nations Economic Commission for Africa (UNECA), the African Development Bank (AfDB), and the African Union. The route has a length of 10,228 km (6,355 mi) and links Cairo in Egypt to Cape Town in South Africa. It is scheduled to be inaugurated in 2024 and links two of the BRICS African nations – north and south.
Mutual trade volumes however remain small. In 2021, South Africa exported US$120 million of goods to Egypt, while Egypt exported US$142 million to South Africa. As a general trade product indicator, in May 2023, the main exports of South Africa to Egypt were delivery trucks, ferroalloys, frozen bovine meat, and coal briquettes. The top exports from Egypt to South Africa were petroleum jelly, sugar, soap, and carbonates.
The Egypt -BRICS Future Vision
The BRICS are still not a complete international or regional body and there is some inconsistency between some members. Egypt imports more than the BRICS countries, and their investments in Egypt are still not considerable, meaning no immediate jump in trade and investment can be expected in the short term. However, the potential of most of the BRICS members can be of great help to facilitate economic transactions and reduce the intensity of the Egyptian economic crisis.
Egypt also has significant economic potential with a population of more than 105 million people. In fact, in the short and medium term, Egypt’s membership in BRICS can have a very positive effect on foreign direct investment, overcoming Egypt’s economic challenges, creating a clear vision for 2030, increasing the growth rate, and reducing Egypt’s foreign debt.
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Silk Road Briefing is written and produced by Dezan Shira & Associates. As global geopolitics change the way supply chains are developing, we provide regional analysis of the emerging trends and where opportunities for foreign investors are. Our firm provides market research and intelligence for issues affecting all the Belt and Road Initiative countries with assistance from our wide business network of over 100 regional offices. To learn more about how we can help your business evaluate the changing dynamics, email us at silkroad@dezshira.com or visit www.dezshira.comEgypt’s Pending Membership Of BRICS – An Overview - Silk Road Briefing
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