The investment deal was announced on Sunday as Saudi Crown Prince Mohammed bin Salman met with Egyptian President Abdel Fattah al-Sisi in Cairo. It was Bin Salman's first public trip abroad since becoming the heir apparent in 2017.
Saudi Arabia and Egypt, respectively the richest and most populous Arab states, have strengthened their strategic ties since Sisi came to power in 2013.
The deal to build a mega-city comes just three weeks ahead of a presidential election in Egypt, with Sisi looking to secure a second term in office. The vote has sparked international outcry as critics have denounced its apparent lack of democratic merit.
In February, 14 international and Egyptian rights groups published a joint statement, accusing Sisi of having "trampled all over even the minimum requirements for free and fair elections."
The Egyptian leader is widely expected to continue his premiership at the end of the month.
How does this compare to Saudi's NEOM project?
Late last year, Saudi Arabia's government announced it was going to build a $500 billion mega-city called NEOM. The city, which is planned to run on 100 percent renewable energy, is part of a wider project to diversify the kingdom away from its traditional, but volatile, oil-based economy.
The NEOM project is expected to cover 10,230 square miles, linking with both Jordan and Egypt. The Saudi government said industries such as energy and water, biotechnology, food, advanced manufacturing and entertainment would all be priorities in the new city.
Shortly after his three-day visit to Cairo, the Saudi prince is due to head to Britain on Wednesday before visiting the U.S. later in the month.