Egypt: El-Sisi Announces New Mega-Project on the Suez Canal

President Abdel Fattah El-Sisi announced, 5 August, a new plan to build additional channels on the Suez Canal which would deepen and widen the current passageway and construct new channels to speed up traffic, with an aim to greatly expand traffic along the trade route.

Admiral Mohab Mamish, the Chairman of the Suez Canal Authority (SCA), has said that the new channel would take five years to be completed, although the President has subsequently said that he would like to see the project completed in just one year. 

An official with the SCA estimated that revenues from the expansion would reach US$13.5 billion by 2023, more than doubling its current revenues. We have not been able to determine how accurate these forecasts are, however, and remain sceptical about the merits of the new plan which will just cut waiting times to use the Canal and speed up transit. We are also unsure if this project, once complete, will attract additional ships to transit through it.

In the local media, the announcement has been hailed as the country’s new mega-project, and serves as a further indication of the scale of the new President’s ambitions, as well as tapping into the vein of nationalism. El-Sisi made clear that the army would take the lead and that any private partners (he mentioned that up to 20 firms could eventually be involved) would work under its supervision. 

Work has already begun, with no public discussion of the merits of this investment and we have been told informally that the thousands of vehicles working on the project will use significant supplies of fuel, which remains in tight supply in the market at times. The President noted that shares would be offered to finance this project at different prices, although the financial regulator noted that the differential pricing of shares is illegal. It still remains uncertain how this project will be financed and, if shares are sold to finance it, what the shareholder would then be entitled to in the future.

At an expected cost of US$4 billion, we believe the economy would be improved more efficiently by investing in the modernisation of Egypt’s railway system, adding to the main cities’ mass public transport systems, and power stations (given the continuing power cuts, which are now running at up to five times a day in some areas), as well as spending on road building, water and electricity distribution in poor areas.

For expert analysis of Egypt's security, politics, economy, and business environment see Egypt Politics & Security or contact info@menas.co.uk

© 2014 Menas Associates

Egypt's economy and tourism

Egypt's foreign exchange reserves were up very slightly in June, reaching US$15.5 billion. External debt was US$33 million in March (the latest figure issued). But few Egyptian economists have taken comfort from these figures. Bearing in mind that foreign exchange reserves were US$36 billion in late 2010, the new figures merely show the depth of Egypt's problems and the urgent need to generate more foreign income and foreign direct investment.

There are few indications of internal performance but one potentially significant one is a drop in demand for steel. Suez Canal revenues are still below 2011 levels, affected by the slowdown in the world economy and troubles in the EU.

The head of Egypt's tourism authority is seeking an urgent meeting with Morsi to persuade him to take early action to boost tourism. Numbers are improving but are well below 2011 figures and concern about criminality is deterring high spending visitors from the Arab world. Ramadan, which starts at the end of next week, usually provides a short-lived but important economic stimulus.

Another big issue that will have to be tackled – but may have to wait until there is a new parliament – is the question of subsidies. The current budget would see significant cuts, which all know are needed but would hit people hard and make whoever implements the measures deeply unpopular. It seems likely that President Mohammed Morsi's government will find a way of stopping the cuts or leaving the decision until after parliamentary elections.

For more news and expert analysis about Egypt, please see Egypt Politics & Security.

© 2012 Menas Associates

Egypt's economic news

Egypt's battered banks are starting to hold their own, at least as far as the non-performing loans are concerned. Leading banks have reported either an improvement or no deterioration in this situation. This might seem a rather strange measure to judge the success of banks but given the history and the fall in Egyptian GDP in the first few months of 2011, it is mildly encouraging.

Tourism is down by 7.8 per cent in the first half of 2011 but, so far, Suez Canal tolls were up in June 2011 compared with the previous year, and remittances from Egyptian expatriates were at US$9 billion, well up on the US$6 3 billion of 2010 despite what is happening in Libya. Inflation fell in June.

The government has continued to prepare industrial enterprises for the proposed cut in subsidies for the industrial sector to save around US$0.85 billion in the budget, pointing to the earlier increase in production and experts from this sector.

Palm Hills, the real estate developer known for its luxury compounds and associated with the father-in-law of Alaa Mubarak, has reported second quarter losses. The company and some of its senior executive are being investigated as a part of the probes being made into the sources of revenue of people associated with the Mubarak regime.

For more news and expert analysis about Egypt, please see Egypt Politics & Security.

© 2011 Menas Associates

Two Iranian vessels enter Suez Canal

Maritime officials say two Iranian warships have entered Suez Canal and are making headway to the Mediterranean Sea. According to Iran, the ships are headed toward Syria for training. Israel has voiced concern about the mission, calling it a "provocation".

It is thought that the vessels are the first two to have passed through the waterway since Iran's Islamic Revolution, in 1979. They entered the “canal at 0545 (0345 GMT)".

Egyptian officials have been assured by Iran that the ships contain no military equipment or nuclear materials. The only way Egypt could have denied transit through the strategic waterway is if there was a threat of war. The Iranian ships are to be based at a Syrian port, thus solidifying the close ties between Damascus and Tehran.

Israel is concerned about Iran's latest undertaking as it considers the Islamic Republic a threat due to its controversial nuclear programme and support of Lebanese and Palestinian militant groups.

Last week, Israel's Foreign Minister Avigdor Lieberman said: "To my regret, the international community is not showing readiness to deal with the recurring Iranian provocations. The international community must understand that Israel cannot forever ignore these provocations.”

Sources: BBC News, Washington Post, Jerusalem Post, AFP

For more news and expert analysis about Iran, please see Iran Strategic Focus.