By Aamer Yaqub

In a breakthrough for regional economic integration, Egypt and Saudi Arabia have signed a landmark agreement to enhance trade cooperation between the two countries. This strategic deal enables the mutual recognition of Authorized Economic Operator (AEO) programs, which are administered by the Egyptian Customs Authority and the Saudi Zakat, Tax, and Customs Authority (ZATCA).

This agreement is the first of its kind for Egypt under the AEO program and marks a major leap forward in bilateral economic relations. It streamlines cross-border trade, accelerates customs clearance, and opens the door for businesses to operate more efficiently in both countries. Beyond its economic implications, the deal signifies Egypt and Saudi Arabia’s shared commitment to regional economic integration.

The agreement provides faster customs clearance, reduced inspections, and cost savings for businesses, benefiting exporters, importers, and consumers. In this detailed analysis, we explore the essence of the agreement, its impact on key sectors, and the broader implications for trade, investment, and foreign direct investment (FDI) between the two Middle Eastern powerhouses.

1. The Authorized Economic Operator (AEO) Program

To fully grasp the significance of the Egypt-Saudi Arabia trade cooperation deal, it’s essential to understand the AEO program. Developed by the World Customs Organization (WCO), the AEO framework promotes trade facilitation and global supply chain security. It offers companies certified as AEOs several benefits, including faster cargo release, fewer customs inspections, and priority clearance.

Companies that qualify for AEO status must meet certain criteria, such as:

• customs regulations
• Financial solvency
• Risk management

Key Benefits

1. Faster Customs Clearance: Cargo is released more quickly, enabling just-in-time inventory.
2. Reduced Inspections: Physical inspections are reduced significantly, cutting down shipment delays.
3. Priority Processing: During trade disruptions, AEO-certified companies receive priority clearance.
4. Lower Costs: Reduced inspection and demurrage fees lower shipping costs for exporters.

With this mutual recognition, AEO-certified companies in Egypt and Saudi Arabia can now reap these benefits across both nations’ borders.

2. The Egypt-Saudi Arabia Trade Agreement

The agreement incorporates several notable components that enhance the speed, efficiency, and security of trade between Egypt and Saudi Arabia. Here are some of its key features:

 Mutual Recognition of AEO Programs

This is the central feature of the agreement. Egypt and Saudi Arabia will recognize each other’s AEO certifications, allowing businesses to benefit from faster customs clearance and reduced inspections when shipping goods between the two countries.

• Harmonized Customs Procedures

The agreement removes the need for duplicate inspections at border points, saving businesses both time and money. Customs clearance procedures are now unified, resulting in reduced shipment delays.

• Supply Chain Security

One of the goals of the AEO program is to strengthen supply chain security. Businesses certified as AEOs follow strict security protocols, and with the new agreement, Egypt and Saudi Arabia can now synchronize security protocols and share real-time customs data.

• Trade Facilitation for SMEs

Small and medium-sized enterprises (SMEs) are often the hardest hit by customs delays and red tape. This agreement allows SMEs to benefit from the AEO program, enabling them to export faster, compete on a global scale, and reduce operational costs.

Impact of the Agreement

The Egypt-Saudi Arabia trade agreement will have a profound impact on the economies of both countries. The deal aligns with Saudi Arabia’s Vision 2030 and Egypt’s vision of expanding its export markets. Below are the key economic impacts of the agreement.

1. Increase in Bilateral Trade

With streamlined customs procedures, trade between Egypt and Saudi Arabia is projected to increase substantially. In 2024 alone, bilateral trade reached $7.5 billion in just nine months, marking a 33.9% increase compared to the same period in 2023. This growth will only accelerate as businesses benefit from the newly simplified trade system.

2. Reduction in Trade Costs

When companies experience faster customs clearance, they reduce their costs in multiple ways:

• Demurrage fees (port storage fees) are minimized.
• Warehousing charges are reduced.
• Customs compliance costs for inspections and delays are lowered.

As trade costs fall, businesses become more competitive, enabling them to offer better prices for their products in international markets.

3. Increased Export Volumes

Faster clearance times allow companies to export larger quantities of goods at a faster rate. This will enable Egypt to boost its exports of fruits, vegetables, and seafood, while Saudi Arabia will be able to expedite its exports of petrochemicals and raw materials.

4. Attracting Foreign Direct Investment (FDI)

Foreign investors are drawn to markets with transparent and efficient customs processes. The mutual recognition of AEO certifications sends a strong message to international investors that Egypt and Saudi Arabia are serious about removing trade barriers. FDI inflows are expected to rise as investors see greater ease of doing business in these two economies.

Sectors That Will Benefit

The mutual recognition of the AEO program will create significant opportunities in several critical sectors. Here’s a look at the key industries that stand to benefit the most.

• Agriculture and Perishable Goods

Faster customs clearance means fresher produce. For Egypt’s exporters of fruits, vegetables, and grains, this agreement ensures their produce reaches Saudi Arabia in fresher condition.

• Food and Beverage Sector

The agreement is also a game-changer for the halal food market. With quicker trade clearance, companies in both countries can capitalize on the growing demand for halal-certified products.

• Industrial Goods and Machinery

For exporters of heavy machinery and industrial equipment, the new customs procedures will reduce time-to-market. This is especially important for companies supplying equipment for Saudi Arabia’s infrastructure megaprojects under Vision 2030.

• Logistics and Shipping

Faster border clearance is a significant advantage for logistics providers. 3PL (third-party logistics) providers will benefit from fewer disruptions and faster transit times, increasing profitability.

• Broader Regional Implications

While the agreement focuses on Egypt and Saudi Arabia, it could influence trade across the Gulf Cooperation Council (GCC) and North African economies. Here’s how:

1. Gateway to Africa:Egypt serves as a gateway to African markets. By streamlining customs with Saudi Arabia, Egyptian firms gain more capacity to connect to GCC markets.
2. Boosting Regional Trade Integration:This agreement could inspire other GCC and Middle Eastern countries to pursue similar customs harmonization, leading to greater economic integration.

Although the deal offers multiple benefits, there are several potential challenges:

• Compliance Costs for SMEs: SMEs may need to invest in customs compliance training to meet AEO certification criteria.
• Technical Barriers: Customs authorities in Egypt and Saudi Arabia will need to align software and digital systems to ensure smooth data exchange.
• Data Sharing Risks: Customs agencies will need to ensure secure handling of data-sharing protocols to prevent breaches.

Recent Developments in Egypt-Saudi Relations

The trade deal is part of broader efforts to enhance bilateral cooperation:

1. Supreme Coordination Council: Egypt and Saudi Arabia established this council to enhance cooperation in trade, energy, and infrastructure.
2. PIF Investment in Egypt: The Saudi Public Investment Fund (PIF) plans to invest $5 billion in Egypt’s renewable energy, tourism, and real estate sectors.
3. Bilateral Trade Volume: Trade between the two countries has been growing rapidly, with total trade reaching $7.5 billion in the first nine months of 2024, up from $5.6 billion in 2023.

The Egypt-Saudi Arabia trade agreement represents a monumental shift in Middle Eastern trade relations. By recognizing each other’s Authorized Economic Operator (AEO) programs, the two countries will see faster customs clearance, lower operational costs, and stronger supply chain security. Trade between the two countries is expected to surpass $10 billion annually in the coming years.

This agreement is a key pillar of regional trade integration, aligning with Saudi Arabia’s Vision 2030 and Egypt’s plans to become a major export hub. It also strengthens the region’s position as a logistics powerhouse, paving the way for sustainable growth in trade, foreign direct investment (FDI), and job creation.

This agreement will be seen as a blueprint for customs modernization in other Middle Eastern countries, helping them reduce trade barriers, increase competitiveness, and attract foreign investment. For businesses and investors, the future of Egypt-Saudi trade looks brighter than ever.

African countries are facing tough financial times. External debt has tripled since 2008, dramatically pushing up the amount being spent on servicing loans. This means there’s less money to spend on critical things like health and education. Kevin P. Gallagher and Abebe Shimeles argue that the International Monetary Fund (IMF) has the means to make a huge difference by making better and more extensive use of Special Drawing Rights. These aren’t a currency, but countries can use them to pay back IMF loans, or they can exchange them for foreign currencies. African countries should use the IMF meetings underway in Washington to lobby for more of these rights to be issued and for their distribution to be made more equitable and easier.

At the 2021 UN Climate Summit, Barbados prime minister Mia Mottley called for more and better use of special drawing rights (SDRs), the International Monetary Fund’s reserve asset. The special drawing right is an international reserve asset created by the IMF. It is not a currency – its value is based on a basket of five currencies, the biggest chunk of which is the US dollar, followed by the euro. It is a potential claim on the freely usable currencies of IMF members. Special drawing rights can provide a country with liquidity.  Countries can use their special drawing rights to pay back IMF loans, or they can exchange them for foreign currencies.

As Mottley is the newest president of the Climate Vulnerable Forum and Vulnerable Group of 20 (V20) finance ministers, which represents 68 climate-vulnerable countries that are among those with the most dire liquidity needs, including 32 African countries, her call would be directly beneficial to African countries.

In August 2021, as the shock from the COVID-19 pandemic battered their economies, African countries received a lifeline of US$33 billion from special drawing rights. This amounts to more than all the climate finance Africa receives each year, and more than half of all annual official development assistance to Africa. This US$33 billion did not add to African countries’ debt burden, it did not come with any conditions, and it did not cost donors a single cent to provide.

IMF members can vote to create new issuances of special drawing rights. They are then distributed to countries in proportion to their quotas in the IMF. Quotas are denominated in special drawing rights, the IMF’s unit of account.

Quotas are the building blocks of the IMF’s financial and governance structure. An individual member country’s quota broadly reflects its relative position in the world economy. Thus, by design, the poorest and most vulnerable countries receive the least when it comes to quotas and voting shares.

Special drawing rights cannot solve all of Africa’s economic challenges. And their highly technical nature means they are not always well understood. But at a time when African countries are facing chronic liquidity challenges – most countries in the region are spending more on debt service payments than they are on health, education, or climate change – our new research shows that special drawing rights can play an important role in establishing financial stability and enabling investments for development.

Financial stability includes macroeconomic stability (such as low inflation, healthy balance of payments, sufficient foreign reserves), a strong financial system and resilience to shocks.

African leaders are approaching a critical year-long opportunity: in November, the first Group of 20 (G20) summit will convene (with the African Union in attendance as a member for the first time). Then in December South Africa assumes the G20 presidency.

As African leaders advocate for reforms to the international financial architecture, maximising the potential of special drawing rights should be a central component of their agenda.

The problem

African countries’ finances are facing tough times. External debt in sub-Saharan Africa has tripled since 2008. The average government is now spending 12% of its revenue on external debt service. The COVID-19 pandemic, Russia’s war in Ukraine, and rises in interest rates and the prices of commodities, like food and fertiliser, have all contributed to this trend.

Debt restructuring mechanisms have also proved inadequate. Countries like Zambia and Ghana got stuck in lengthy restructurings. Weak institutional capacity and poor governance also impede efficient use of public resources.

At the same time, African economies need to increase investment to advance development, support a young and growing population, develop climate resilience and take advantage of the opportunity presented by the energy transition.

To meet the resources for a just energy transition and the attainment of the UN 2030 Sustainable Development Goals, investment in climate and development will have to increase from around 24% of GDP (the average for Africa in 2022) to 37%.

Special drawing rights have proved to be an important tool in addressing these challenges. Research by the IMF and others shows that African countries significantly benefited from the special drawing rights they received in 2021 to stabilise their economies. And this happened without worsening debt burdens or costing advanced economies any money, particularly as they cut development aid.

However, advanced economies exercise significant control over the availability of special drawing rights. The IMF’s quota system determines both voting power and their distribution. Advanced economies control most of the IMF’s quotas.

The advanced economies made the right decision in 2021 and in 2009 to issue new special drawing rights and the time has come again.

The solution

African and other global south leaders need to make a strong case for another issuance of special drawing rights at the IMF and World Bank meetings in Washington.

In addition to a new issuance of special drawing rights, advanced economies still need to be pressured to re-channel the hundreds of billions of special drawing rights sitting idle on their balance sheets into productive purposes.

The 2021 allocation of special drawing rights amounted to US$650 billion in total. But only US$33 billion went to African countries due to the IMF’s unequal quota distribution. Meanwhile advanced economies with powerful currencies and no need for special drawing rights received the lion’s share.

The African Development Bank has spearheaded one such proposal alongside the Inter-American Development Bank. Under this plan, countries with unused special drawing rights could re-channel them to the African Development Bank as hybrid capital, allowing the bank to lend around $4 for each $1 of special drawing rights it receives.

The IMF approved the use of special drawing rights as hybrid capital for multilateral development banks in May. But it set an excessively low limit of 15 billion special drawing rights across all multilateral development banks.

Even so, advanced economies have been slow to re-channel special drawing rights. The close to $100 billion that have been re-channelled – mostly to IMF trust funds – is meaningful.

But it still falls short of what should have been re-channelled. In the long term, IMF governance reforms are needed to avoid a repeat of the inefficient distribution of special drawing rights.

As African countries rightly push to change shortcomings of the international financial architecture, new special drawing rights issuances should be at the centre of such a strategy. The IMF’s 2021 special drawing rights issuance showed the tool’s scale and importance. And special drawing rights re-channelling has had positive effects in easing debt burdens and freeing up financing to recover from the COVID-19 pandemic.

With 2030 approaching and the window shrinking for climate action, global leaders should be using all the tools at their disposal, including special drawing rights, to build a more resilient future.

Kevin P. Gallagher is a Professor of Global Development Policy and Director, Global Development Policy Center, Boston University

Abebe Shimeles is a Honorary Professor, University of Cape Town

Courtesy: The Conversation

Western states will have been watching the recent Brics summit with interest. The Brics alliance has expanded from its first five members – Brazil, Russia, India, China and South Africa – to nine. On paper it looks powerful, with prospects of reshaping the global order towards one where the east dominates. International studies expert Anthoni van Nieuwkerk explains, however, that various barriers stand in the way of the group achieving this goal.

The last two summits of Brics countries have raised questions about the coalition’s identity and purpose. This began to come into focus at the summit hosted by South Africa in 2023, and more acutely at the recent 2024 summit in Kazan, Russia.

At both events the alliance undertook to expand its membership. In 2023, the first five Brics members – Brazil, Russia, India, China and South Africa – invited Iran, Egypt, Ethiopia, Saudi Arabia and the United Arab Emirates to join. All bar Saudi Arabia have now done so. The 2024 summit pledged to admit 13 more, perhaps as associates or “partner countries”.

On paper, the nine-member Brics+ strikes a powerful pose. It has a combined population of about 3.5 billion, or 45% of the world’s people. Combined, its economies are worth more than US$28.5 trillion – about 28% of the global economy. With Iran, Saudi Arabia and the UAE as members, Brics+ produces about 44% of the world’s crude oil.

Based on my research and policy advice to African foreign policy decision-makers, I would argue that there are three possible interpretations of the purpose of Brics+.

• A club of self-interested members – a kind of global south cooperative. What I’d label as a self-help organisation.
• A reforming bloc with a more ambitious goal of improving the workings of the current global order.
• A disrupter, preparing to replace the western-dominated liberal world order.

Analysing the commitments that were made at the meeting in Russia, I would argue that Brics+ sees itself more as a self-interested reformer. It represents the thinking among global south leaders about the nature of global order, and the possibilities of shaping a new order. This, as the world moves away from the financially dominant, yet declining western order (in terms of moral influence) led by the US. The move is to a multipolar order in which the east plays a leading role. However, the ability of Brics+ to exploit such possibilities is constrained by its make-up and internal inconsistencies. These include a contested identity, incongruous values and lack of resources to convert political commitments into actionable plans.

Summit outcomes

The trend towards closer trade and financial cooperation and coordination stands out as a major achievement of the Kazan summit. Other achievements pertain to global governance and counter-terrorism.

When it comes to trade and finance, the final communiqué said the following had been agreed:

• adoption of local currencies in trade and financial transactions. The Kazan Declaration notes the benefits of faster, low cost, more efficient, transparent, safe and inclusive cross-border payment instruments. The guiding principle would be minimal trade barriers and non-discriminatory access.
• establishment of a cross-border payment system. The declaration encourages correspondent banking networks within Brics, and enabling settlements in local currencies in line with the Brics Cross-Border Payments Initiative. This is voluntary and nonbinding and is to be discussed further.
• creation of an enhanced roles for the New Development Bank, such as promoting infrastructure and sustainable development.
• a proposed Brics Grain Exchange, to improve food security through enhanced trade in agricultural commodities.

All nine Brics+ countries committed themselves to the principles of the UN Charter – peace and security, human rights, the rule of law, and development – primarily as a response to the western unilateral sanctions. The summit emphasised that dialogue and diplomacy should prevail over conflict in, among other places, the Middle East, Sudan, Haiti and Afghanistan.

Faultlines and tensions

Despite the positive tone of the Kazan declaration, there are serious structural fault lines and tensions inherent in the architecture and behaviour of Brics+. These might limit its ambitions to be a meaningful change agent.

The members don’t even agree on the definition of Brics+. President Cyril Ramaphosa of South Africa calls it a platform. Others talk of a group (Russia’s President Vladimir Putin, India’s Prime Minister Narendra Modi) or a family (Chinese foreign ministry spokesperson Lin Jianan).

So what could it be?

Brics+ is state-driven – with civil society on the margins. It reminds one of the African Union, which pays lip service to citizens’ engagement in decision-making.

One possibility is that it will evolve into an intergovernmental organisation with a constitution that sets up its agencies, functions and purposes. Examples include the World Health Organization, the African Development Bank and the UN general assembly.

But it would need to cohere around shared values. What would they be?

Critics point out that Brics+ consists of democracies (South Africa, Brazil, India), a theocracy (Iran), monarchies (UAE, Saudi Arabia) and authoritarian dictatorships (China, Russia). For South Africa this creates a domestic headache. At the Kazan summit, its president declared Russia a friend and ally. At home, its coalition partner in the government of national unity, the Democratic Alliance, declared Ukraine as a friend and ally.

There are also marked differences over issues such as the reform of the United Nations. For example, at the recent UN Summit of the Future the consensus was for reform of the UN security council. But will China and Russia, as permanent security council members, agree to more seats, with veto rights, on the council?

As for violent conflict, humanitarian crises, corruption and crime, there is little from the Kazan summit that suggests agreement around action.

Unity of purpose

What about shared interests? A number of Brics+ members and the partner countries maintain close trade ties with the west, which regards Russia and Iran as enemies and China as a global threat.

Some, such as India and South Africa, use the foreign policy notions of strategic ambiguity or active non-alignment to mask the reality of trading with east, west, north and south.

The harsh truth of international relations is there are no permanent friends or enemies, only permanent interests. The Brics+ alliance will most likely cohere as a global south co-operative, with an innovative self-help agenda, but be reluctant to overturn the current global order from which it desires to benefit more equitably.

Trade-offs and compromises might be necessary to ensure “unity of purpose”. It’s not clear that this loose alliance is close to being able to achieve that.

Anthoni van Nieuwkerk is a   Professor of International and Diplomacy Studies, Thabo Mbeki African School of Public and International Affairs, University of South Africa

Courtesy: The Conversation