Egypt: Does new Suez Canal make sense?

Does Egypt need project on new Suez Canal, could it lead to boosting of the economy or maybe the government should pay more attention to other sectors of the Egyptian economy? Read few comments.

Tarek Osman, Author of the Book Egypt on the Brink: From Nasser to Mubarak

My understanding is that the 72-Km new waterway that will be dug alongside the Suez Canal, is in effect an extra lane. But there are many details that remain unclear.

– On the economic side, at this stage, we know that it would have direct benefits to the Canal as it would deepen it, widen its path-ways, reduce waiting times, allow for the simultaneous passage of ships, and for the passage of mega-carriers. All of that will, of course, result in significant increases in the Canal’s revenue.

– But what’s more important is that this waterway is one component of a mega project that has been presented before, and that Egypt’s current administration seems intent to take forward, which is the “Suez Canal Area Development”. In addition to creating this extra lane, this project entails significantly enlarging three ports in the Suez Canal area, creating two new ones in Sinai, developing an industrial and technological area close to the Canal city of Ismailia, and increasing the capacity of the Sharm el-Sheikh airport. This highly ambitious project has the potential of overhauling the entire Suez Canal – and Sinai – region, and creating a major and advanced logistical corridor.

– If this mega project materialises, it would not only add to the country’s economy, but would also result in a major development of the whole of Egypt’s north-eastern region, and likely a significant increase in the percentage of the population living in the area.

– And here is the answer to your question: does Egypt need it? The administration’s political-economy thinking is that Egypt needs to diversify the economy, widen the state’s revenue base beyond its current limited sources, to move towards higher-value add industries, create job opportunities catered to the middle – and especially lower – middle classes, and dilute the demographic and economic concentration in Cairo.

– I agree with these objectives. But there are key challenges. The first is the expected timeframe. Projects of this size take significant time to develop; we should think in terms of years; so expectations about the short or even medium term impact of such project need to be managed. Two: financing. The administration seems intent to retaining control, and potentially majority ownership for Egyptian investors. The process of offering equity to ordinary Egyptians, which was announced today, is probably a first step in a plan to source financing from individuals and local entities. But for a project of this size, there will be serious and major needs for international financing. The good news is that several major sovereign wealth funds in the Arab world, and from countries that are supportive of Egypt’s current administration, have ample liquidity, and could, at some stage, get involved as part of investment consortiums engaged in the project. But still, I believe for a project of this size, there will be a need for a combination of developmental finance (which might be the first port of call, especially in the early stages of the project), and various debt structures, in addition to principal investing. The third challenge is execution. A project of this scale would require serious sophistication in planning, and highly advanced management, logistical, financial, and monitoring operations. Putting these capabilities in place and getting them to work smoothly will be crucial – as well as difficult, and would take serious time.

– So, the thinking behind the project is interesting; the ambition is justified; and there is a real economic case for it. But the challenges to execution are significant. And so expectations need to be managed. This is a marathon, not a sprint.

Bessma Momani, Senior Fellow, Centre for International Governance Innovation (CIGI), Associate Professor of Political Science, University of Waterloo

In my opinion, I do not think the Suez Canal is a good use of public funds. As it stands, Egypt has a complete monopoly over the Suez Canal and there is no reason to cater to shipping companies who wait for a shipping lane to open. After all, the alternative for shippers is to go around the horn of Africa, which takes weeks and months to travel. Investing billions into the canal only serves the interest of shipping companies coming from the far east and oil tankers from the Persian Gulf. More over, the canal will likely be built by the military which will not employ the average Egyptian. The Suez Project is likely to provide symbolic and nationalistic pride, reminiscent of Gamal Nasser to whom current President Sisi is often compared to.

Robert Springborg, Professor of National Security Affairs, US Naval Postgraduate School

Republican Egypt has a long history of large, “showcase” projects going back to Nasser’s Liberation Province launched in 1953 and ending with Mubarak’s Tushka. None of them prospered and indeed, most of them did not survive. Might a new Suez Canal be different? Possibly, but where is the planning, the international involvement, and the linkage into the rest of the economy? A project of this magnitude requires all of this and more. Instead, this seems a rushed announcement timed possibly to take attention away from Israel’s assault on Gaza. So, like its predecessors, it is likely not to result in success.  Even more negatively it will distract attention away from the micro and macro economic reforms necessary to accelerate development.

Ahmed Morsy, Nonresident Research Associate in the Democracy and Rule of Law Program, Carnegie Endowment for International Peace

The new project has been kept in the government drawers for over a decade, like several other mega projects. The Suez Canal has undergone various phases of increasing its depths over the past 2 decades, but never seen any real development. The Canal is an important waterway that represent an opportunity, if properly developed, for growth and investment in Egypt. However, the key question is how to run and manage such project, and the ability to attract enough investments and businesses.

However, the direct involvement of the Egyptian military, beyond securing the waterway, in all aspects of the project raises several questions regarding competitiveness, management and the transparency of the whole process.

The Egyptian government should work to jump start its economy beyond the Suez Canal project by looking at labor intensive projects and attracting foreign investments. However, the first step for that is to revisit the existing legal framework (investment laws for example); political will, public consensus and better security.

Hassan Aly, Professor, Economics Department, Ohio State University, President of the Middle East Economic Association

I think the new projects pertaining to Suez Canal is one of the national projects that is needed right now for a host of reasons:

1. This project is promised to be labor intensive and it is projected to employ around 1 million workers. Certainly a badly needed step in the road toward more reasonable and reduced unemployment rate.

2. The expansion and renovation of the Suez Canal is needed and vital in keeping it as a major source of revenues (foreign currency) given the talked about competition that may be coming from some regional players.

3. Sale of stocks or / and bonds to Egyptian national to finance the project will be a good tool  of mobilizing the resources of small savers in addition to Egyptians abroad.

4. The project is quite timely  given the state of affairs in the country and the need for a national project that could get the populace around it and unify the divided Egyptians community

5. The array of complementary and spin-off projects that is following this major one will enhance the value added of the region and should assist in reducing unemployment as well.

6. Participation of other regional and multinational investors should improve the business environment and add to the absorptive capacity of the country

7. The project may help in transfer some new technology to other parts of the Suez  region (specially supply chain and logistics facilities)

8. The project may help transfer a good number of workers to the region and as such help better distribution of population and help reduce density and congestion in the capital city

9. Over all help increase the country GDP and better distribution of national income.

 

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One Response

  1. […] حد سواء..وهي إصلاحات لا غنى عنها للإسراع من التنمية..المصدر1 المصدر […]

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