04/05/2018 – Country Focus / Egypt / Africa

Gathering Strength

Seven years on from the uprising that resulted in the fall of former president Hosni Mubarak, and the political and economic uncertainty that followed, the Arab world’s most populous country is going all out to revive its regional leadership role. Gemma Kent reports on the slew of ambitious and often controversial projects planned and underway in Egypt, and the challenges the nation is likely to face in its pursuit of sustainable development.

 

In his first public trip abroad since becoming heir apparent last year, Saudi Arabia’s Crown Prince Mohammed bin Salman recently travelled to Egypt, where more than 1,000 square kilometres have been earmarked for a huge development set to further strengthen the strategic ties between the two Arab nations. Described on its website as “the world’s most ambitious project”, NEOM is a US$500-billion scheme to build a futuristic mega-city that will straddle Saudi Arabia, Jordan and Egypt’s southern Sinai, with a combined final area of around 26,500 square kilometres. Egypt and Saudi Arabia have established a US$10bn joint fund to develop the project, which is intended to run on 100-per-cent renewable energy.

 

Turbulent waters

 

Egypt’s commitment of a tract of its Red Sea territory to the NEOM project goes hand in hand with plans to develop the existing resort cities of Sharm El Sheikh and Hurghada, and is the latest in a long list of major projects proposed by President Abdel Fattah el-Sisi. Indeed, since his landslide victory in the 2014 election the former army general has decreed an unprecedented number of vast infrastructure projects, many of which have prompted questions concerning their economic feasibility at a time when Egypt’s infrastructure and public services are in need of improvement.

 

In August 2014 President Sisi launched the Suez Canal expansion project, which was completed two years ahead of schedule in August 2015. The US$8.2bn expansion involved widening and deepening the waterway as well as digging a parallel 34km channel, allowing for two-way traffic along part of the route and cutting navigation time for ships from 18 hours to 11 hours. While Suez Canal Authority officials predicted the number of ships sailing through the canal would double by 2023, generating income of US$13bn, rating agency Moody’s cautioned that global trade “would have to grow by around 10 per cent a year between 2016 and 2023 to achieve the projected US$13bn in annual revenues”.

 

The future of the project also rests largely on the implementation of the wider Suez Canal Economic Zone (SCZone) project, a 461-square-kilometre area incorporating six existing ports on both sides of the canal, where the government is developing an industrial and transport hub. A smattering of MoUs have so far been signed with prospective zone participants, from countries including Russia, Spain and Japan, while one of the oldest and largest industrial developers of the zone is China’s TEDA corporation, which has replicated its Chinese zone-development model in Egypt. During a January 2016 visit to SCZone, President Xi Jinping said 32 Chinese companies had invested more than US$400m in the hub, which would eventually increase to 100 firms and an investment of US$2.5bn.

 

Constructing a new capital

 

Egypt is also said to be seeking Chinese investment in what is arguably President Sisi’s most ambitious project of all. Announced in 2015, the project currently referred to simply as New Administrative Capital is being touted as a solution to chronic overcrowding, pollution and congestion in the ancient city of Cairo, whose population has ballooned to almost 10 million. In a location about 45km east of the present capital, the emerging desert metropolis is expected to house 6.5 million people and host Africa’s tallest skyscraper, together with luxury hotels, a modern airport, a 5,000-seat conference centre, nearly 2,000 schools and colleges, a diplomatic quarter with space for more than 100 embassies, and a manmade river to simulate the Nile. In addition, the authorities plan to move all government, parliament and administrative buildings to the new city by 2019.

 

Last October President Sisi signed a US$3bn deal with the China State Construction Engineering Corporation to build the project’s central business district, while the first phase of the infrastructure build is expected to cost around US$4.5bn. It remains unclear where this money will come from, however. Reports of a US$20bn investment from China Fortune Land Development have been branded misleading by some FDI analysts, and many argue that Egypt – with its budget deficit of 10.9 per cent of GDP – simply cannot afford the cost of building a new city on such a scale. On top of that, critics of the project refer to the nearby planned city of New Cairo, which was intended to house four million people but has only attracted 1.5 million.

 

Regardless of whether or not millions of Egyptians will soon be relocating to the New Administrative Capital – or to any of the several new cities and urban areas planned by President Sisi, such as the US$3.4bn New Mansoura City – construction of new housing and facilities is imperative on account of the country’s exponential population growth rate. Indeed, in the year 2000 the UN forecast that Egypt’s population would reach 96 million in 2026. It passed that point last year, a decade early, and the government is now projecting a population of 127 million by 2030 – if efforts to bring down the fertility rate fail. “It’s the bomb of the Middle East,” says Mona Khalifa, Professor of Demography at Cairo University.

 

The Gift of the Nile

 

The staggering growth rate in what is already the most populous Arab nation is threatening to overshadow any increase in economic growth, and is putting a strain on the most vital of resources, leading the UN to predict that Egypt will start suffering water shortages by 2025, while a new report published by the BBC suggests that Cairo is at risk of running out of drinking water. The pharaohs may have described Egypt as the gift of the Nile, but today the river is struggling to support an unprecedented population boom that only exacerbates its other problems, which include climate change, urban sprawl and rising sea levels that lead to saltwater intrusion.

 

Compounding those concerns is the prospective impact of the Grand Ethiopian Renaissance Dam (GERD), currently under construction in the headwaters of the Blue Nile, which is causing tensions between Egypt and its neighbours. While Sudan stands to benefit from cheap electricity and improved irrigation when the 6,000MW power plant is completed, experts say the Nile’s freshwater flow to Egypt may be cut by 25 per cent during the filling of the GERD’s reservoir, potentially crushing the nation’s agricultural sector among other industries.

 

Given the scenario facing the desert nation, which obtains 97 per cent of its fresh water from the Nile, desalination is becoming an increasingly attractive option. “Egypt is going fast in desalination,” says Hosam Shawky, a director at the Egyptian Desalination Research Centre. “It plans to reach 500,000 cubic metres of capacity in three years and one million cubic metres in seven years.” To that end, in 2016 the army commissioned construction of three 140,000-cubic-metre-per-day plants, including one at the northern entrance of the Suez Canal near the industrial zone of East Port Said. There will also be a plant at the canal’s southern entrance, at the new city of Al Galala, and one near El Alamein on the north coast, the site of another of President Sisi’s new city projects. Desalted water is far more expensive than Egyptians are used to paying, however – even despite the cost of desalination having fallen to between US$0.50 and US$1 per cubic metre worldwide – and continuous innovation to drive down the price further will be key to making such endeavours viable.

 

Powering change

 

Desalination is certainly an energy-intensive process, and the government is moving to address Egypt’s growing power demand, which has been increasing at a rate of more than 10 per cent a year since 2010. The nation took a major step towards its goal of energy self-sufficiency last December, when the Eni-operated Zohr gas field – the largest in the Mediterranean – started production with an initial output of 350 million cubic feet per day, a figure that is set to rise to about 1bn in June and 2.7bn by the end of 2019, according to oil minister Tarek El-Molla. A game-changer for Egypt, the Zohr field could put an end to expensive foreign gas imports and reinstate the country as a net exporter of gas to nations throughout the MENA region.

 

Egypt is also ramping up its renewable power generation, which the government hopes will supply 42 per cent of the nation’s electricity by 2025. A significant proportion of that power will come from the Benban Solar Park near Aswan, a vast complex that will encompass 32 solar plants providing 1.6–2GW of electricity by mid-2019, making it the largest solar park in the world. Egypt is also developing wind energy, with around 500MW of wind power plants in operation and 1,340MW under implementation and development, with a plan to generate 7.2GW from wind by 2022. Meanwhile, Russian firm Rosatom has signed a US$30bn deal with Egypt to build, operate, maintain and provide fuel for the 4,800MW El Dabaa nuclear power plant in the Matrouh region, in the biggest non-feedstock deal in Russian history.

 

Evolving infrastructure

 

While enthusiasm surrounding the Zohr, El Dabaa and Benban developments – among other energy projects – has undoubtedly contributed to the Egyptian government’s decision to revise up its 2018 economic growth forecast to between 5.3 and 5.5 per cent, the transportation sector is one of the main drivers of economic development and growth in Egypt. Indeed, the country’s unique geographic location combined with an expanding infrastructure base is enhancing its position as a key global logistics hub, according to KPMG. However, many bottlenecks exist in this respect: almost all commercial goods in Egypt are moved via road, yet the nation’s highways are heavily congested, while its ports and railways are in need of further investment.

 

In March 2017 Egypt’s Minister of Transport, Hesham Arafat, announced that the country was targeting up to e14.4bn worth of investment in new rail and metro projects, including three high-speed lines running from Luxor to Cairo, Alexandria to Cairo and Luxor to Hurghada. “These three lines are proposed for promoting tourist activity that is expected to reach more than 30 million tourists per year by 2025,” said Mr Arafat. The biggest of these is the e6bn Cairo–Luxor line, a 700km line that will take around five years to build, while last October an MoU was signed with Chinese company BYD to conduct a feasibility study for a 128km monorail in Alexandria, set to be Africa’s first monorail line.

 

Moreover, the government is reported to be aiming to triple trade handled by Egypt’s ports, having drafted a scheme to more than triple port capacity to 370 million tonnes by 2030, while the longer-term National Ports Development Plan is targeting an increase in tonnage handled to 600 million tonnes per year within 35 years, requiring US$12.4bn in improvements, according to Oxford Business Group. As part of that plan, a US$497m expansion is underway at East Port Said, where commercial container capacity is set to rise from four to seven million, while the government expects it to reach 11 million over the next four years. At the industrial port of Safaga, new facilities are being developed to enhance capacity in phosphate ore and liquids, livestock, meat and grain processing, while Port Tawfik, at the southern end of the Suez Canal, will benefit from a new 250,000sqm cargo terminal that will boost capacity to 1.5 million tonnes.

 

In addition, last December the Egyptian government opened a bidding process to develop and operate the 6th of October Dry Port via a 30-year PPP contract – the country’s first inland port PPP – with construction expected to begin in late 2018. Extending over an area of nearly 100 acres, the dry port will be the largest logistics centre in the Greater Cairo region and will incorporate 13 specialised zones to receive and store containers, liquid and dry-bulk cargo, alongside multi-purpose warehouses.

 

Reforming for the future

 

Almost 18 months after Egypt’s rising economic imbalances prompted the government to embark on an IMF-supported reform programme aimed at restoring financial stability and promoting growth, the economy is indeed recovering. The IMF approved the third instalment of its three-year, US$12bn extended fund facility last December, while urging Egypt to deepen its reforms to raise economic growth further, make it last, and spread its benefits to the country’s rapidly growing population – particularly its youth and women.

 

Despite its socioeconomic, financial and political challenges, there is certainly no denying Egypt’s growth potential, especially with regard to continental commerce. “Egypt has a unique opportunity in light of its sizeable economy and population and production for local consumers and exports as well,” says Janet Heckman, MD for the Southern and Eastern Mediterranean region at the European Bank for Reconstruction and Development (EBRD), which is investing at least e1bn in Egypt in 2018. “This is a huge opportunity for Egypt to improve production for exports and promote ties with the rest of Africa,” she adds.

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