Egypt’s New Suez Canal: A passage to economic recovery

Egypt is set to witness a robust transformation in its economy with the construction of a second Canal now referred to as   “The New Suez Canal.” IBRAHIM RAMALAN writes.
The old Suez Canal is a remarkable waterway that has for so many decades served as sea trade route between the Mediterranean Sea and the Red Sea.

On November 17, 1869, the Suez Canal was opened to navigation. When it opened, the Suez Canal was only 25 feet deep, 72 feet wide at the bottom, and 200 to 300 feet wide at the surface. Consequently, fewer than 500 ships navigated it in its first full year of operation.

Major improvements began in 1876, however, and the canal soon grew into the one of the world’s most heavily traveled shipping lanes.
The canal is the fastest shipping route between Europe and Asia and serves as alternative to Cape of Good Hope route. It handles 7% of global sea-borne trade, and is one of Egypt’s main sources of foreign currency income.

According to reports from the Egyptian embassy in Nigeria, the new canal project was launched simultaneously with plans to build six new tunnels under the canal and to transform a 76,000 km area on both banks of the canal into an international logistics, commercial and industrial hub that would “create one million jobs”. It was launched by Egyptian President Abdel Fattah el-Sisi on 5 August 2014.
According to the Press Attache to the Egyptian Embassy in Abuja, Ahmed Maher, the new project will increase trade alongside the canal. “The enlarged canal will allow ships to sail in both directions at the same time over much of the canal’s length.

This is expected to decrease waiting hours from 11 to 3 hours for most ships and to double the capacity of the Suez Canal from 49 to 97 ships a day.
“The New Suez Canal works are expected to be 72 km (45 mi) long – this will involve 35 km (22 mi) of dry digging, and 37 km (23 mi) of “expansion and deep digging”, whereas the whole canal is 164 kilometres (102 mi) long. Six new tunnels for cars and trains are also planned to end the isolation of the Sinai peninsula, connecting it better to the Egyptian heartland. As of 2015, there was only a single tunnel under the Canal, the Ahmed Hamdi Tunnel that connects Suez with the Sinai,” he said.
The construction of the new canal itself was initially scheduled to take five years. It was then first reduced to three years and finally ordered by President Abdel Fattah el-Sisi to be completed in one year only.
The Suez Canal Area Development and the Second Suez Canal Projects are the most important drivers of economic recovery in Egypt and mark a turning point for a country that has been marred by continuing instability.

These two projects will transform several cities along the canal, as well as construct a new Suez Canal, and importantly will create hundreds of thousands of jobs over the next three to five years.
The Suez Canal Area Development Project aims to attract private investment to the area surrounding the canal, transforming several cities into a regional—and hopefully global—logistics hub.  Investments have already been pledged by companies in the maritime, infrastructure and tourism sectors to finance the urban transformation.

The original Suez Canal first opened for navigation in the 19th century and has survived Egyptian government transitions, two World Wars, and regional instability by remaining an essential part of world trade networks. Today, the world still relies on this Egyptian waterway as 7 percent of world trade runs through it, according to the State Information Service. In order to realize the full potential of this important regional waterway, the Egyptian government has recently begun construction of this second Suez Canal that will run parallel to the original canal. The government also will deepen and widen the existing canal to accommodate super-sized vessels.

The Suez Canal Authority expects the new canal to double the number of ships passing through the canal daily—which is currently around 50— by 2023, and to generate an estimated $12-13 billion of increased revenue over the same period. As a result, the expanded canal will enhance Egypt’s global visibility and its economic standing worldwide.

When determining how to raise the capital to finance the Second Suez Canal project, Egypt unconventionally turned to its people for the support and issued bonds. NBC News reported that individuals, as opposed to institutions, made up about 82 percent of the investments in the canal. In just one week the government raised an unprecedented $8.5 billion dollars.

The overwhelming support of both of these projects signifies the belief of the Egyptian people in their country and confidence that the New Suez Canal and the transformed urban areas along the Canal will bolster the country’s economic future. The improved fiscal health and job growth will go a long way to stabilize the economy.

It is hard to ignore the growth and development occurring in Egypt that will, in turn, lead to restoring economic health to the country. It is clear that both for the citizens of Egypt and for the world, the Suez Canal Development Project and the Canal expansion have sparked renewed optimism in Egypt. The world should take notice of the monumental investment the Egyptian people have made in their own country and to view Egypt as a promising investment destination for the future.

Benefits and risks
The chairman of the Suez Canal Authority, Vice-Admiral Mohab Mamish, announced that the revenues from the Suez Canal would jump from 5 billion dollars to 12.5 billion dollars annually. There are major risks to the economic viability of large-scale infrastructure projects such as the New Suez Canal. These include delays during construction, cost overruns, and lower than expected revenues. Due to poor planning, technical difficulties have already arisen, such as the flooding of the new canal through seepage from the existing canal.

This has apparently happened because the distance between the two canals is only 750 meters, half the distance recommended by engineers. Furthermore, the official estimate that traffic will double in the first year of the canal’s operation is vastly exaggerated, according to the Egyptian trade expert Dr. Omar el-Shenety. Furthermore, any traffic projection could be affected by a slump in global trade or by higher fees that are expected to be levied.

Cost and funding
The expansion of the canal and the tunnels are expected to cost around 60 billion Egyptian pounds (US$8.4 billion). 30 billion Egyptian pounds will be for digging the new canal and the other 30 billion will be for the 6 new tunnels.

President el-Sisi refused to allow foreign investors to invest in the project, but rather he urged Egyptians to participate in funding the project. Initially the project was to be financed through a stock market IPO, allowing partial private ownership of the project. However, the government quickly changed its financing strategy, relying on interest-bearing investment certificates that do not confer any ownership rights to investors. Resident Egyptian citizens were asked to buy certificates worth 10, 100 or 1000 Egyptian pounds. The smallest investment certificates would allow students to invest in the project.
After President el-Sisi announced the project, Egypt’s stocks briefly rose to the highest level in the past six years, but dropped again sharply in the course of September.

On 19 August 2014, a Master Plan for the study of investment opportunities in the Suez Canal area was awarded after competitive bidding to the engineering firm Dar Al-Handasah in cooperation with the Armed Forces Engineering Authority. It is expected to last six months, resulting in an investor’s conference in March 2015. Additionally, the French engineering services company Egis Group was nominated by the World Bank to evaluate the performance of the master plan.

During a state visit to Russia, President Abdel Fattah el Sisi said that he had agreed with his Russiancounterpart President Vladimir Putin to establish a Russian industrial zone as part of the new project. The Egyptian leader has with pomp and patriotism announced that the “new” Suez Canal will be open for business on August 6.