14 August 2015
The successful completion of the New Suez Canal has prompted economists to call for the similarly aggressive tackling of other economic problems, writes Niveen Wahish

The government can now happily cross the New Suez Canal off its to-do list. Experts agree that the new canal alone will not create a breakthrough in the country's economic performance in the short term, but with the development of the Suez Canal Corridor and improved global growth badly needed hard currency revenues could increase.

Harshjit Oza, assistant director at Naeem Brokerage, says the New Suez Canal has created an international footprint for Egypt and a positive vibe for the country and the economy.

"It is not going to change things significantly in the short term, given the slowdown in global economic trade, but certainly it will benefit Egypt in the long run when the recovery happens," Oza said, adding that the New Canal would benefit the Canal cities of Suez, Ismailia and Port Said as the Suez Canal Area Development Project rolls out.

Some officials have announced that the canal is already seeing more traffic with 63 vessels crossing on the second day following the inauguration. But Ahmed Kamali, an associate professor of economics at the American University in Cairo, says not too much should be read into individual numbers.

Canal traffic is better examined on an annual basis, he said, pointing out that the canal had been closed for the opening ceremony which could explain the higher traffic just a few days later.

The new canal was one of several major projects the government had pledged to undertake throughout the year to boost economic performance. Among them was the Egypt Economic Development Conference (EEDC) in Sharm El-Sheikh in March, an event that raked in $12 billion in aid money and deals valued at $60 billion together with tens of billions in memoranda of understanding.

The minister of investment has been reported as saying that 50 to 60 per cent of the pledged investments have come through. However, one economist who preferred to remain anonymous lamented that the majority of these were in risk-free sectors such as energy and real estate and not enough were in job-creating sectors such as industry.

He says the economy has shown growth, but that this has not been strong enough. Ministry of Finance data from July shows GDP growth reaching about 4.7 per cent during the first nine months of fiscal year 2014/2015, compared to 1.6 per cent during the same period the previous year.

A project to build a new administrative capital for Egypt, also launched during the EEDC, is also work in progress. Due to differences on the sources of financing, the original investor, Capital City Partners (CCP), will no longer be executing the project.

The project was set to cost some $45 billion over a five-to-seven-year period, and the Engineering Authority of the Armed Forces will now be overseeing the execution of the project by Egyptian companies. The Al-Mal newspaper has reported that a consortium called Urban Development +5 has won the bid to execute the project.

Kamel Al-Wazir, chief of staff at of the Engineering Authority, has told the TV channel Al-Hayat that financing will "not be a problem" and that the project will be executed gradually, with housing units sold first to finance other parts of the new city.

But the economist spoken to by Al-Ahram Weekly would have preferred the government to hold off on this enormous project and to focus on "more pressing needs" throughout the country.

Even so, the government, with the help of the Armed Forces, appears to be working on more than one front with equal zeal. Al-Wazir said that the Engineering Authority had begun the "thousand steps" which President Abdel-Fattah Al-Sisi referred to in his speech during the inauguration of the new canal.

The president had said that the new canal was "the first of a thousand steps" that the country must take. Al-Wazir said steps were being taken to upgrade the Ain Al-Sokhna port on the Red Sea, nearby Galala City, Dabaa on the northern cost and the new Rafah City in northern Sinai.

Work is also set to begin on the second phase of the national road network designed to extend new roads and improve the infrastructure needed to move people and goods and attract investments.

Infrastructure is one area where Kamali said more attention was needed, not only for roads but also for water, sanitation and electricity. "Infrastructure has been neglected for years and it is necessary for development," he commented.

A project to build one million low-income housing units is also underway, with mid-August being the deadline for applications for some 30,000 units in nine different cities. "The government needs to move faster on this and at the same pace as it did with the Suez Canal," the economist spoken to by the Weekly said, stressing that housing was something that was necessary for more inclusiveness given that many new residential areas are expensive and unaffordable to many.

Kamali wants not just inclusiveness but also social protection for those likely to be affected by government reforms, especially reforms that involve energy subsidy cuts. "Any hike in energy prices affects the prices of everything else," he said.

He has reservations about the government's mega-projects because of the pressures they put on the country's budget at a time when it is already suffering from a deficit. The government is targeting an 8.9 per cent budget deficit in the current fiscal year, and the budget deficit was almost 11 per cent last year.

Kamali wants to see more reforms directed to the fundamentals of the economy, not just new legislation. Stronger government institutions are necessary, he said, in order to be able to take decisions and execute them properly. Education is another area that must be tackled aggressively to provide the needed skills for the job market.

Legislative reform to overcome the slow litigation process is another area that is necessary if Egypt wants to attract investments, Kamali said, adding that political stability has encouraged investors, but they have not come back in full force.

"An overall vision for the Egyptian economy is still lacking," he says, in addition to consistency in implementing reforms.

The other economist adds that what could be making investors more risk-sensitive are external factors, be they the low oil prices which are keeping Gulf investors wary of taking risks, or the economic situation in Europe.

More investment is needed in job-creating sectors such as manufacturing and services, and investors may be holding back from these sectors because of the continued lack of clarity on the investment climate as well as labour issues where the laws are strict.

"Many foreign investors are interested in buying Egyptian companies but worry about restructuring because of the labour laws," he said.

© Al Ahram Weekly 2015