Tuesday, Jul 16, 2024
Update At 14:00    USD/EUR 0,00  ↑+0        USD/JPY 0,00  ↑+0        USD/KRW 0,00  ↑+0        EUR/JPY 0,00  ↑+0        Crude Oil 0,00  ↑+0        Asia Dow 0,00  ↑+0        TSE 0,00  ↑+0        Japan: Nikkei 225 0,00  ↑+0        S. Korea: KOSPI 0,00  ↑+0        China: Shanghai Composite 0,00  ↑+0        Hong Kong: Hang Seng 0,00  ↑+0        Singapore: Straits Times 0,00  ↑+0        DJIA 0,00  ↑+0        Nasdaq Composite 0,00  ↑+0        S&P 500 0,00  ↑+0        Russell 2000 0,00  ↑+0        Stoxx Euro 50 0,00  ↑+0        Stoxx Europe 600 0,00  ↑+0        Germany: DAX 0,00  ↑+0        UK: FTSE 100 0,00  ↑+0        Spain: IBEX 35 0,00  ↑+0        France: CAC 40 0,00  ↑+0        

Suez Canal expansion and infrastructure improvements reposition Egypt as regional trade and logistics hub

Article - March 13, 2016

Egypt’s vast infrastructure ambitions are most impressively illustrated by the immense Suez Canal expansion that has transformed the vital waterway, while numerous other projects for roads, rail and airports are also now being developed


The Suez Canal opened in 1869 and revolutionised global trade by providing a quick and efficient transit route for ships passing through Asia and Europe. Fast forward 150 years and the Canal - and Egypt - remain at the heart of trade routes between the two regions, with the enlarged waterway now more than ever a vital part of international commerce.

Part-funded by the country’s population through a tax-free investment scheme, the expansion of the Canal is set to not just transform logistics throughout Egypt but also trade within the country.

The 45-mile canal was inaugurated in August by Egyptian President Abdel Fattah El Sisi, with French president Francois Hollande and Russian Prime Minister Dmitry Medvedev amongst the international dignitaries present. It eliminates the need for the biggest container ships to sail around Africa’s Cape of Good Hope and will accommodate 97 vessels each day by 2023, up from 49 at present, while two-way traffic will also be possible for the first time.

Importantly, the Canal’s development – using the manpower of 41,000 workers – will also provide huge opportunities to businesses that operate on its banks, with estimates pointing to the potential of one million new jobs and around $1 billion in annual revenues.

“Around the Suez Canal there are different projects that will be initiated under the Suez Canal project,” says  Dr Khaled Hanafy, Minister of Supply and Internal Trade, who adds that the Canal will be home to an array of developments crossing every facet of the industrial, trade and logistics sectors.

And it is not all simply roads and port developments. A new shopping ‘city’ is in the works, which will target not just Egyptians but people from across the region, especially those from the Gulf. Specific areas of the facility will be focused on representing different areas around the world, with nine ‘cultures of shopping’ planned to provide a one-stop shopping destination. Alongside this will be a convention centre, a theme park and a factory outlet area, highlighting the expansive trade development plans that officials have developed.

“The success of the Suez Canal Expansion has proven to the world that Egypt is reliable. We now need to put this behind us and focus on implementing the Suez Canal Development area to ensure that we capitalise on the momentum and potential of the area.”

Karim Sami Saad, Chairman, Samcrete

Such projects, and the wider infrastructure developments underway across Egypt, are ramping up demand for the country’s construction sector and opportunities are opening up for both international and domestic companies. The latter are particularly well placed to capitalise, says Osama Bishai, CEO at Orascom Construction.

“Egypt is a very difficult market because in a populous country you need to hire local manpower and managing a local workforce, for foreign companies is not an easy task,” he explains.

“Our people think that these foreign companies come here for a short period of time and the job security is not there, so they demand a higher price. Instead, with us, the local work force knows they have work today, tomorrow, next week, next month, and so on. Historically, there is not a single foreign constructor that stays more than six years. It is not an easy market for them.”

Such a market makes the potential for international partnerships great and most Egyptian firms, including Orascom Construction, are keen to explore opportunities to link with multinational firms to share their expertise and local knowledge with global prowess.

“We are used to doing joint ventures, and we have had great experiences and successful projects. It also helps our people to get exposed and to get trained. And this is an advantage, our exposure to international companies, in these terms, makes us different.”

“It’s important to understand how the numbers and revenues are changing. There’s a lot of traffic that goes from Southeast Asia to the Panama Canal (but) it is expected that with the work that has been performed in the Suez Canal, we will be able to attract 20 to 35 per cent of those vessels, so that instead of going East they go West.”

Basil El-Baz, Chairman, Carbon Holdings

Orascom Construction is already present in Saudi Arabia, United Arab Emirates, Algeria and Kuwait while plans to expand in the US are also on the table. “As for our strategy, it is indeed to promote in the region but we are always open to opportunities to invest in infrastructure,”  Mr Bishai adds.

While local and multinational firms are making the most of Egypt’s government-focused infrastructure projects, there are also other pan-regional boons that are set to benefit the country. Perhaps the biggest resulting from the Suez Canal expansion will be the cementing of its role as a gateway and hub that unites countries from across Asia, Africa and Europe, something that  Dr Hanafy says was clear at the recent Egyptian Economic Development Conference.

“The participation of the delegates and the leaders that came [to the Conference] showed the diversification of the Egyptian external orientation – it showed that we received leaders from the West and from the East, from Asia and Africa, as well as from the Gulf countries and the Arab countries.

“This showed that Egypt is not speculating or gambling with its international relations, and this could be considered something relatively new because normally the focus used to be on one side against the other side. Now we are talking about a wide range, so this I believe is a great political message as well as being an economic message that showed that the country is open to the whole world and this gives more market access.”

Improving Egypt’s wider infrastructure has also been a clear target for the country’s government and numerous reforms to regulations, tax systems and red tape are being made to improve the flow of trade and the ease with which international investor can set up business in Egypt and engage with domestic partners. Diversification of the economy is vital to achieving Egypt’s wider economic targets and delivering better infrastructure – ranging from improved rail links to better-connected and maintained roads – is seen as a means for this to be achieved.

“We are used to doing joint ventures, and we have had great experiences and successful projects. It also helps our people to get exposed and to get trained. And this is an advantage, our exposure to international companies, in these terms, makes us different”

Osama Bishai, CEO, Orascom Construction

And there remain extensive investment opportunities for global firms looking to put funds into Egyptian projects, says  Mr Bishai, who adds that Egypt’s strategic location positions it as a vital partner for countries across the region that can help cross-border growth and provide numerous services for neighbouring countries.

“All this shows that Egypt is a hub,” says  Dr Hanafy. “If you consider as well that our economic agreements or trade agreements with other countries that import products originating in Egypt [means] the market access expands to more than 1.6 billion citizens.”

Infrastructure improvements designed to help further Egypt’s role are already underway with a new grain logistics hub being built in Damietta, along with energy plants, water works and the shopping complex next to the Suez Canal all in the pipeline. This array of development, it is hoped, will also encourage further inflows of foreign direct investment from abroad, including from countries such as the UK which spent around $1.5 billion in the country last year.

 Dr Hanafy says making more of Egypt’s hub status can result in further investment. “When we have more logistics centres and hubs here in Egypt, linked with the maritime transportation lines that will enhance this, dealing in both way trade will enhance commerce.

“UK investors, for example, might benefit from the lower unit labour cost in Egypt, and benefit from the access of products to a market of 1.6 billion citizens. So if we take this into consideration, this will make Egypt more attractive.”

To reinforce its regional hub status, Egypt is now embarking on a series of free trade agreements (FTAs) that will enable cross-border relationships to be forged and strengthened. One of these FTA zones is being developed at East Port Said, a 75km2 site located next to the Canal. And while the project has yet to be formally green lit, local firm Samcrete has already begun to develop the area in preparation.

The site is overseen by the Suez Canal Development Authority, which is in charge of administrating and implementing the Suez Canal Development Zone (SCDZ) that covers 460 kilometres alongside the Canal. The SCDZ will be split into three zones, with the East Port Said Industrial Development located to the north Northern part of the SCDZ.

“The success of the Suez Canal Expansion has proven to the world that Egypt is reliable,” says Karim Sami Saad, Chairman of Samcrete. “We now need to put this behind us and focus on implementing the Suez Canal Development area to ensure that we capitalise both on the momentum and potential of the area.”

“Around the Suez Canal there are different projects that will be initiated under the Suez Canal Project. When we have more logistics centres and hubs here in Egypt, linked with the maritime transportation lines that will enhance this, dealing in both way trade will boost commerce”

Dr Khaled Mohamed Hanafi, Minister of Supply and Internal Trade

The first phase of development for the East Port Said project will total 16km2 with the rest of the area being completed over the next 20 years. Industrial investors are being sought to help finance the project with European and South East Asian firms, operating across packaging, auto-parts, chemicals, house appliances and other sectors, among those keen to explore the possibilities of basing their interests within the zone.

Egypt has also looked further afield for FTA potential and one of the most ambitious agreements comes in the form of the Tripartite Free Trade Area (TFTA), which was forged in June. It has created the largest free-trade zone in Africa, with 26 countries covered - ranging from South Africa in the South to Egypt in the far-north.

The idea is to better integrate African economies and for Egypt, the benefits could be huge, with the country being a lynchpin that links businesses on the continent with markets across Asia and Europe.

Challenges remain, not least the fact that the agreement needs full ratification through the numerous parliaments, but the benefits to Egypt and the wider region are clear to  Dr Hanafy, with around $1 trillion of economic activity set to be stimulated by the wide-ranging arrangement.

“[It would provide] more market access and we are moving forward towards more integration with Africa,” the minister says. “We believe the relationship with Africa is both ways, we are not just talking about Africa as a destination for our products, to export, but also as a source of imports. If we do this, we can guarantee some competitive advantage because we are going to have access to sources with relatively low cost of production. Enlarging the market by these agreements gives more access and improves the competitiveness.”

While FTA zones and the Suez Canal project have understandably taken much of the global focus, Egypt has also been investing time and money in improving the full spectrum of its logistical network. More than $650 million, for instance, is now being invested to expand the Sharm el-Sheikh Airport, with a new terminal building, runway and air traffic control tower being constructed.

Egypt has already secured international support for this project as well, highlighted by the $50 million loan arrangement agreed with the African Development Bank for development of airport infrastructure. The project, which will again generate both construction jobs and longer-term service employment, will allow the airport to handle around 18 million passengers each year – up from the current maximum of 10 million. Educational facilities will also be improved to allow Egypt to increase its workforce with expertise in the sector, another legacy of such infrastructure investment. Meanwhile the rail network is being upgraded and 15 new road projects are underway across the country that will extend the range of its highways by around 1,200kms. The $2.37 billion projects should be completed this year and are part of a wider strategy outlined in the country’s development plan to increase the road network by 3,200km in total.

The expansion of the Suez Canal captured the imagination of countries around the world during the summer but it is clear that Egypt is now attempting to use this attention to turn its development plans into concrete action. The Canal has become a key part of Egypt’s plans for its future prosperity but it has also become a statement of the country’s intent and something that it hopes will prove to the world that the nation is once again back on the international stage for the right reasons.

The economic benefits of the Suez Canal expansion are already beginning to be felt and the country’s officials are now expanding their ambitions to ensure that infrastructure projects across Egypt are focused, well capitalised and delivered to deadlines. The result should be a more prosperous nation with a diversified, vibrant economy that acts as a vital gateway for countries across the region.