Egypt, pharaonic challenges for the ascendant President: the New Suez Canal project

Although el-Sisi can take some credits for the last measures adopted in relation to energy prices, Egyptian economy is still far from recovery. A large budget shortfall and a deep imbalance in the balance of payments are the two financial deficits which are damaging the country’s economic structure, together with the high rate of unemployment and the low levels of growth. Besides, political institutions remain too weak, incapable of serving the general public and mining international confidence in the country[1].

It is in this scenario that the Suez Canal project emerges as the panacea against all the country’s problems, from joblessness to the lack of Foreign Direct Investments (FDI). The Suez Canal has always been symbolically and economically relevant to Egypt. Opened in 1869 after ten years of construction, it has remained under colonial control until 1956 when the Egyptian President Gamal Abdel Nasser managed to take possession of it. From that time onwards, it has been a source of national pride.

Why is the Canal so important? Apart from its historical relevance, the Canal is essential for international trade since it allows the navigation between Europe and Asia without circumnavigating Africa, thereby reducing the travel distance between the old continent and India. The problem is that Suez Canal only provides a one-way traffic and for this reason ships take about 18 hours to pass through it. The new project announced by el-Sisi consists in adding an extra lane, 72 km long, which will increase the number of ships using the canal and, consequently, raise the annual revenues for Egypt. Concerning the timing of construction, last August al el-Sisi said that the project has to be finished within a year (not three as previously foreseen), which is an extremely short deadline for a work of this magnitude.

The new Egyptian leader has also charged the army with the supervision of the project, a decision probably influenced by the critical situation in the Sinai Peninsula where the jihadists’ growing presence could threaten the run of the project. Furthermore, this choice could have been determined by the long-lasting relationship between the former field marshal and the military.

Despite the great enthusiasm showed for the initiative, the idea of doubling the Suez Canal does not sound new to the Egyptians. In fact, it has to be remembered that a similar project was already proposed during the Mubarak administration, although el-Sisi’s actual version of the plan seems more convincing.

Publicly praised as a “work for and of Egyptian People”, this project, aimed at building a new prosperous and united nation, has effectively involved only Egyptian companies and has been financed by Egyptian funds. “We want all Egyptians to hold a share in this project”, said el-Sisi in a speech to the nation last August[2]. Four banks (National Bank of Egypt, Banque Misr, Banque du Caire, and Suez Canal Bank) issued five-year investment certificates with a 12 % interest rate and will pay dividends in Egyptian pounds (1 US dollar = 7.1500 Egyptian pounds)[3] but, at the same time, the banks also issued certificates in US dollars with a 5.3 % interest rate. According to the Governor of the Central Bank of Egypt (CBE), Hisham Ramez, the percentage of citizens who bought Suez Canal investment certificates during the first days was impressive, reaching about 90%. However, during the final stages, the percentage settled at 82% for people and 18% for institutions and companies[4]. Surprisingly, these high percentages allowed Egypt to raise just in eight days the goal of $ 8.5bln, the amount it needed to fund the project.

What are the important project’s effects on the Egyptian economy? Officials have said that once its cost has been regained, hopefully the new development would provide a lasting economic stability to the country boosting the annual revenues to $ 13.5bln by 2023[5] from $ 5bln every year. Canal revenues are of vital importance, since they represent the main source of foreign currency of Egypt, whose economy has come to a standstill after the uprising against Hosni Mubarak in 2011 (tourism and FDI, extremely valuable assets for Egypt, have significantly declined).

Once the construction will be complete, the Canal could attract foreign investors, not only from the Gulf countries but also from the Asiatic giants as China, who are the most interested in increasing their traffics to the West. Furthermore, after el-Sisi’s visit to Russia, Moscow seems ready to make a financial loan to Egypt and to invest in the creation of an industrial area in the sector of oil and gas close to the Canal.

However, not all that glitters is gold. As “The Guardian” has pointed out, 1500 homes have been destroyed in the villages of Abtal and Qantara[6] and 5000 are under threat to make a way for the bypass. The inhabitants, evicted without compensation, are ignored by soldiers who claim that they had no right to live in that territory that technically has always belonged to the army.
Besides, according to some experts, the construction of the proposed bypass requires an environmental, economic and an engineering study which has not been done and which should take minimum 1 year.

Among these controversies, el-Sisi believes in the revolutionary importance of the “New Suez Canal”, as the first step towards Egypt economic well-being.

Claudia Conticello

Master’s degree in International Relations (LUISS “Guido Carli”)