Abu Dhabi, UAEWednesday 26 February 2020

Suez project has the potential to transform Egypt

Announced last month, the new Suez Canal project has the power to transform Egypt if the global economy does not get blown off course

“It is the Egyptian people’s gift to the world.” This is how Egyptian president Abdel Fattah El Sisi referred to the new Suez Canal in his speech at the UN general assembly in New York last month. A massive project in its own right, it is the centrepiece of an even more ambitious undertaking, a comprehensive development plan for the whole Suez Canal Zone (SCZ).

The Suez Canal is a major transit route for international trade, including the transport of crude oil, petrochemicals, and Liquefied Natural Gas (LNG). In 2012 about 8 per cent of world maritime trade, 7 per cent of total seaborne-traded oil, and 13 per cent of globally trade LNG passed through the canal.

Its strategic location is unmatched, just as there is no substitute for maritime transport (the cheapest) in world trade (80 per cent of global trade by volume).

Since its construction, the canal has been expanded several times to keep up with the changing needs of maritime trade. Today the canal consists of a single-lane channel, except along 40 per cent of its 193.3km length. Because two-way traffic is confined to these 80.5km that comprise six bypasses where ships can change direction, crossing can take up to half a day.

The canal’s expansion project involves digging a new 34.4km waterway parallel to the existing one and expanding and deepening 37.6km of four of the six bypasses. This would cut ships’ crossing time in half, reduce operating costs and double the canal’s carrying capacity to about 95 ships per day.

The SCZ’s development, a major priority for the new government, has been greeted with enthusiasm by the Egyptian people. In eight business days in September, Egypt experienced the largest public offering and fund-raising campaign in its history, launched to finance the canal’s expansion project.

Approximately 64 billion Egyptian pounds (Dh32.8bn), four billion more than had been targeted, were collected through the sale of investment certificates with 12 per cent annual interest rate. This rate is on par with interest rates offered on almost all similar-term investment certificates many of Egypt’s banks issue.

Individuals and households contributed more than 80 per cent of the collected funds, an amount roughly close to one tenth of household bank deposits. Around 27 billion Egyptian pounds came from outside the banking system – testimony not only to Egyptians’ level of confidence in the project itself, but also in the confidence they have for the new leadership. Initially planned to be finished in 2017, the canal’s expansion work was later rescheduled for completion in one year. 

Egypt has much to gain from this project and from the SCZ’s development plan. The government has estimated that transit fees would double to about $10 billion when the canal operates fully at its new capacity. Total revenues would also increase with the additional earnings associated with the SCZ’s services. The zone’s development plan includes establishing petrochemical, commercial and financial services and opening up one million jobs.

The emergence of a strongly diversified economic hub in that area will be favourable for expansion in trade, tourism and retail business. Spillover socioeconomic gains are expected to reach surrounding areas, and contribute to Sinai’s development. An achievement that cannot be monetised, however, has been the positive impact the project’s launch has had on Egyptians’ perceptions about their country’s future and its economic prospects. After three terribly depressing years since the 2011 revolution, there is a more optimistic mood in the air.

Obviously, how much traffic passes through the canal doesn’t depend only on the channel’s length and depth, or on the efficiency of delivering the SCZ’s new and enhanced menu of services. The health of the global economy, the stability of the region, global trade demand, Opec’s policies and petrochemical industry developments also all come into play.

They will in turn determine the extent to which the government can repay the debts that are associated with the project without crowding-out other competing national expenditure priorities. Also important are the rate and nature of the Egyptian economy’s growth and the relative contributions of sectors other than the Suez Canal to rebuilding foreign reserves, as well as the Central Bank’s monetary policy.

The canal’s expansion plan is promising, subject to an array of factors. The government’s capacity for steering through intricate layers of international, regional and local conditions that have bearings on this courageous national endeavour will be critical for it to bear fruits. A lot hinges on the authorities’ monitoring of developments and their flexibility in making adjustments to and taking precautions against challenges that could arise along the way.


Amal A Kandeel is an economist and director of Pioneers International, an international business development and geoeconomic analysis services company specialising in the Middle East and North Africa

Updated: October 18, 2014 04:00 AM



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