Mega plans for Suez

Over recent weeks the Suez Canal has resurfaced in the news not because ships carrying weapons or nuclear waste to certain controversial destinations are passing through it, or because the canal’s tolls have been increased, but instead because of a debate on how to make the most of this strategic facility in boosting economic development and creating jobs.

The Suez Canal is one of Egypt’s main sources of hard currency earnings along with tourism, exports and remittances from abroad. Its revenues, in the range of $5 billion for the past two years, have been one of the cornerstones of the country’s economy. Unlike foreign investors and tourists who have unfortunately sometimes shied away, ships have continued to sail through the canal.

However, today experts are saying that the canal’s revenues could be multiplied by some 20 times if more were done with the facility than just collecting tolls. The whole Suez Canal Corridor, they say, which extends for some 200km, could be developed to become a global centre for industry and logistics, capitalising on the fact that 10 per cent of global trade and 20 per cent of container trade pass through the waterway.

Plans have been put forward that envisage the development of three key spots along the path of the canal: Port Said, Ismailia, which lies half way down the canal, and Suez at its lower end. Within these three spots, some areas stand out, such as East Port Said, the North West Gulf of Suez and Technology Valley. With a timeframe of around 20 years, a project built on these plans hopes to create some 450,000 direct jobs and 1.2 million indirect ones.

Although the project was not included in President Mohamed Morsi’s election campaign, the government has made it its baby, setting up a technical secretariat under the auspices of the Ministry of Housing and Urban Development to see it through. According to Walid Abdel-Ghaffar, head of the secretariat, no other location can beat the Suez Canal.

“We are very late in benefiting from the strategic and competitive advantage of Egypt’s location,” he said. By developing the canal, the government is targeting an increase in foreign direct investment, the transfer of technology, and an increase in Egypt’s exports, all of which should provide jobs, improve expertise, develop local communities and increase national income through the collection of increased taxes and customs and other fees from activity in the region.

The project’s secretariat is now in the process of selecting the consultancy firm to draw up a master plan for the project. However, not everyone has been seeing eye-to-eye with the government on how the project should proceed.

THE ECONOMY AS THE FOCUS: Economist Rasha Qenawi was formerly with the Ministry of Investment and was part of a team that included the Ministry of Industry and USAID that was brought together to study the project in 2007. “We were not the first. Discussions started early on during the tenure of former minister of housing Hasaballah Al-Kafrawi,” she said “Nobody is the owner of the project. All of us are contributors.”

Qenawi said the early team’s focus was on the development of the governorates from Port Said to Suez as well as in Sinai. “In 2009, we had almost finished the study, but the political will was lacking because we were approaching the 2010 parliamentary elections. As a result, it was shelved.” The team members had wanted to create something similar to the Delhi-Mumbai Industrial Corridor in India, a mega project costing some $90 billion and covering 1,483km between the country’s political and business capitals.

Such corridors depend on an ambitious economic vision, however, Qenawi said, and this has been lacking in Egypt. She lamented the fact that an economist had not led the project and that there had been little economic vision for the area. The government had originally assigned the project to the Ministry of Transportation at a time when the minister of housing was its manager. Since then, it has remained under the auspices of the Ministry of Housing.

Qenawi described the project as a “gem” and the country’s “last chance” of improving its economic conditions. “We do not want it going to waste like the Toshka Project,” she commented, a reference to the Toshka Canal Project in Upper Egypt that had cost the government billions to create a new agricultural area that would create jobs and become a destination for relocation for the country’s population. However, the project was never completed.  

Acting with colleagues from the ministries of investment and industry, Qenawi and the team decided to establish a pressure group, the Popular Front for the Suez Canal Corridor, which would push for greater accountability and transparency in the Suez Canal project. The pressure group, formed in February 2013, has issued seven recommendations aiming to guarantee that the project realises its aims.

It recommends that employment should be made the focus of the project. An investment map should be drawn up, Qenawi said, setting out priority investment areas. “These sectors should be identified even before a master plan is developed for the area.” Employment should be the priority, she said, since unemployment, currently 13 per cent of the working population according to official figures and up to 22 per cent unofficially, was a “time bomb”, in Qenawi’s words.

“We won’t be able to exit from our economic troubles if we do not opt for labour-intensive sectors and industries. Our target should not be to go after investors who will pay money even if they are not buying the land,” she said. “Before a consultancy develops the master plan, we must be clear about what our vision for the zone is. That is not currently the case.”

Qenawi said that before the 25 January Revolution Egypt had been posting growth rates of seven per cent per annum but people had not felt it. “We have to find out what went wrong, and this has not been a priority of the current regime,” she said. High growth was achieved because of huge capital intensive investment, mostly in the petroleum sector, and it was for this reason that unemployment did not improve as much as had been hoped, she added. Moreover, the growth had not been balanced geographically. All the investment had been made in Cairo and Alexandria, and nothing had been left over for Upper Egypt or the canal governorates.

Qenawi lamented the fact that the government had already been marketing the area around the new project, even signing contracts before the master plan was complete. A month ago, Mashreq, an affiliate of Citadel Capital, inked a 25-year concession agreement to build a fuel-bunkering terminal and logistics hub in the North West Gulf of Suez (NWGS) area. The government has also signed an investment agreement with the Chinese TEDA Corporation to develop six square kilometres of a joint industrial zone in NWGS.

“No land should have been assigned before the master plan was complete, because the latter will tell us which land is suitable for which industry and which governorates have which comparative advantages,” Qenawi said.

However, Abdel-Ghaffar said that the projects were not new but had been pending since the time of the former Mubarak regime. They had just been waiting for certain problems to be resolved, he said.

EAST PORT SAID: One key spot is the East Port Said zone. This is an area whose development started during the previous regime, and a port is already in place as well as a couple of container terminals.

This part of the project targets the creation of a global trade hub with container terminals, logistics areas, ship-repair yards and a train station. An advisory committee formed by former prime minister Essam Sharaf has been a strong supporter of this part of the project, believing that since it is already largely up and running investment in the area can now take off. Moreover, the committee believes that the East Port Said area should be part of a free-trade zone to allow for the speedy movement of goods in and out of the port and away from the bureaucracy of local regulation.

Another strong supporter of the development of this area is Hassan Omar, a former judge, who claims ownership of the idea of developing the area. Omar says he first wrote about the project in the early 1990s, and he is not happy about the government’s plans for the area or with Sharaf’s ideas.

The government was focussing primarily on maritime transport, he said, which he argued should not be the case. “There should be an airport as well to handle cargo on an unprecedented scale as well as passenger traffic,” he said. The storage and handling capacities of this airport, according to Omar, would exceed those of existing airports in the Middle East.

Qenawi also had reservations about the urgency of the projects in East Port Said. She argued that this area should also await the master plan. The area had problems of its own regarding the investments that were already in place, she said, and these should be studied before new projects were tendered.

THE NEW LAW: At the heart of the debate over the Suez Canal Corridor is a proposed draft law regulating development in the area that has been met with opposition across the board.

The controversial law has not yet been presented to the Shura Council, the country’s current legislature, and neither has it been discussed by the cabinet. One of its main opponents is Sharaf, who has announced that he and his advisory group have washed their hands of any responsibility for the proposed law.

“Nobody is against plans to develop the zone, but this new law is unacceptable,” Taher Hozayem, a member of the group, told Al-Ahram Weekly. Experts have criticised the preliminary drafts, saying that they contained articles that could jeopardise the sovereignty of Egypt over the canal and threaten national security. They have also criticised the proposed structure of the new management authority, which would be made up of 14 members, all of them appointed by the president. According to the proposed law, the authority would have power over all the land in the area and could even take over land in neighbouring governorates.

Hozayem said that one of the faults of the law was that one law would apply to the whole zone despite the fact that the proposed Technology Valley would require different laws, for example, governing copyright. “Under the umbrella of wanting to liberalise transactions in the area, the law creates an entire region that does not abide by Egyptian law,” Hozayem said. The law would set up an investment authority not answerable to the People’s Assembly or Egyptian laws, making it in charge of all aspects of life within the zone. “In short, the proposed draft law indicates that the whole area would not be subject to Egyptian laws,” Hozayem said.

However, according to Nagui Hendi, a member of the government secretariat, the main aim of the law was to facilitate transactions in the area. He pointed out that currently there were various laws governing each region of the corridor. Having one law would unify the whole area, Hendi told the Weekly.

Abdel-Ghaffar, head of the secretariat, said that one of the main problems investors faced in Egypt was having to deal with more than one authority to get businesses started. The government was trying to solve this problem by issuing a single law for the new zone, he said, though he added that the new law was just a proposal that would be modified to meet legitimate criticisms.

As for fears regarding national security, Hendi said that the secretariat included members of the Armed Forces as well as Egypt’s intelligence bodies. These were very well aware of the issues, he said.

THE LAND IS NOT FOR SALE: One of the concerns related to national security has been the ownership of the land in the area, since there have been fears about strategic spots falling into the wrong hands.

However, Prime Minister Hisham Kandil has said that the land in the Suez Canal Corridor is not for sale, though parts of it will be made over for usufruct in investment projects. Responding to this statement, Qenawi said that this could also encounter problems if the terms of sale were not correct and if land was ceded for long periods of time. There had been cases of contracts concluded before the revolution which had been made at a loss for the country as a whole, she said. “We do not want any more contracts of this type,” she said, “even if the land is still ours on paper.”

Qenawi argued that the whole corridor was in need of development and that with the exception of certain projects in East Port Said and North West Gulf of Suez, everything should be owned by Egyptians only. Military strategists and Suez Canal experts believe that any development should be limited to these two spots only.

Adel Fadel, a former head of the Suez Canal Authority, said at a recent seminar on the subject that the banks of the waterway had to be kept clear since the canal needed to be deepened and widened to accommodate more traffic. This work involved the dredging of the canal, with the waste being dumped in basins on the banks of the canal. “Any development of the area will stand in the way of improving the canal” as a result, he argued.

On another note, strategist Ahmed Abdel-Halim, also speaking at the seminar, said that Egypt’s eastern borders continued to be vulnerable and could even be occupied. They must be kept clear for military purposes should the need arise, he said.

Another concern has been regarding the ownership of the companies in the proposed new area, though Hendi stressed that what was being studied at the moment was majority ownership by an Egyptian partner. “There are various ways of preserving national sovereignty,” he said.  

A LOGISTICS HUB: According to Sharaf, Egypt scores very low on the Enabling Trade Index (ETI) at 90 and on the Logistics Performance Index (LPI) at 92. The ETI measures factors, policies and services that facilitate trade in goods across borders and to destinations, and LPI is the capacity of a country to efficiently move and connect manufacturing and consumers with international markets. Singapore is number one on the ETI and Saudi Arabia is number 27.

Egypt is doing better on the Linear Connectivity Index (LCI), where it holds 16th position. LCI is a proxy of accessibility to global trade.

According to Sharaf, these indicators showed that the country’s problems were linked “to our procedures and not to our physical infrastructure” and that the country needed to do more to make the most of its position.

Sharaf said that seaborne trade constituted 80 to 90 per cent of global trade volumes and 70 to 80 per cent of global trade value. Logistics cost 20 to 45 per cent of income. “Egypt should change from facilitating traffic to facilitating trade, because the added value that you can get is much higher,” he said.

Qenawi also warned that international shipping lines were now in the process of redrawing their routes, and that if Egypt did not respond quickly it might get left by the wayside. Alternatives to the Suez Canal were becoming realities, she said. One of these was the Eilat Railway, which Israel has announced will connect Israel’s Mediterranean and Red Sea coasts, offering a new Asia-Europe trade route to compete with the Suez Canal. The railway will enable cargo boats to dock at Eilat, bypassing the Suez Canal, with cargo then travelling by high-speed train to the port of Ashdod or Haifa overlooking the Mediterranean.

Although a railway may not seem to have the capacity to compete with the Suez Canal, Qenawi said that the Israelis were very efficient, which could enable them to attract some traffic away from the Suez Canal. Another alternative, she said, was the Panama Canal, which could become more attractive because of the melting of the ice in the northern hemisphere.

MORE THAN JUST LOGISTICS: The project should also be about more than logistics, according to Qenawi. Logistics were a means towards growing the economy, she said, but they should not be considered as an end in themselves. Studies had shown that 40 per cent of the targeted $100 billion annual income would come from the industrialisation of the area.

Hendi said the government understood the need for this, adding that “this is a project that is primarily industrial, not trade focussed.”

Qenawi said that the aim of the project was for Egypt to play a major role in the global trade system in supply chain management. “The multiplier effect is not only in trade, but industry as well, however, because industry is at the heart of economic growth. Instead of exporting sand, we can produce silica for electronics,” she said, adding that this was also a labour-intensive industry. Instead of just exporting raw materials, the country should also aim to manufacture semi-finished products, she said.

Egypt should focus on labour-intensive industries, Qenawi argued, where it had a comparative advantage, such as goods and agricultural processing, silica and microchips, ship-making and renewable energy. “To attract investment in these areas, incentives such as tax exemptions no longer do the trick because most companies pay the taxes in their homelands,” she added.

Political stability, security, a secure legal framework and non-contradictory laws were also important, she said, along with an efficient legal system. “The current squabbling with the judiciary, for example, will not attract investors. If these factors are not put in place, the investors will not come,” she concluded.

Mega plans for Suez