The new Egyp­tian era

Financial Mirror (Cyprus) - - FRONT PAGE -

Egypt signed con­tracts this week­end with six in­ter­na­tional firms to re­con­struct and ex­pand the Suez Canal. This is cer­tainly wel­come news for the coun­try; it is the lat­est in­di­ca­tor that North Africa’s largest econ­omy is re­bound­ing and gain­ing strength after years of po­lit­i­cal tur­moil.

Fol­low­ing the oust­ing of for­mer Egyp­tian Pres­i­dent, Hosni Mubarak, in 2011, the in­sta­bil­ity on the ground was par­al­leled by vo­latil­ity in the fi­nan­cial mar­kets. Egypt’s credit rat­ing was down­graded on mul­ti­ple oc­ca­sions. Only by late 2013 did rat­ings fi­nally started to im­prove, a trend which, to the re­lief of the coun­try’s cit­i­zens, has been so­lid­i­fied through­out 2014. Just last week, Chris­tine La­garde, the man­ag­ing di­rec­tor of the IMF, praised Egypt for mak­ing a se­ries of eco­nomic re­forms this year, in­clud­ing new taxes for af­flu­ent cit­i­zens and a par­tial lifting of en­ergy sub­si­dies. Then this week Pres­i­dent Ab­del Fatah al-Sisi an­nounced the Suez project, with the con­fi­dent as­ser­tion that “Egyp­tians will ex­pe­ri­ence a new eco­nomic era.”

The 145-year old Suez Canal is the fastest gate­way for ships from Europe to Asia and one of the most im­por­tant trade routes in the world. The new project, pro­posed by Pres­i­dent him­self, will see the cre­ation of a par­al­lel chan­nel to in­crease the ca­pac­ity for ves­sels trav­el­ling be­tween the Red Sea and the Mediter­ranean. So cen­tral is this project to Sisi’s vi­sion for Egypt’s fu­ture, that he has al­lo­cated $8.2 bln to it, and pushed for its com­ple­tion in just one year in­stead of the orig­i­nally sched­uled three. No time to waste, work is ex­pected to start this week.

The long-term goal is that by 2023, the new canal will more than dou­ble rev­enues from $5 bln to $13.5 bln. In ad­di­tion, the 29,000 square miles around the area will be de­vel­oped into an in­dus­trial and lo­gis­tics zone to at­tract more ships and gen­er­ate fur­ther in­come. This project alone could help to sig­nif­i­cantly re­verse the de­cline in tourism and for­eign in­vest­ment that Egypt has suf­fered since the 2011 po­lit­i­cal up­ris­ing.

Ac­cord­ing to the Com­mer­cial In­ter­na­tional Bank, Egypt’s largest pub­licly traded company, syn­di­cated lend­ing has risen 61% in the first three quarters to $2.9 bln, and it is pre­pared for a con­tin­ued surge in lend­ing as the gov­ern­ment in­vests bil­lions in the canal. It es­ti­mates that the mar­ket will grow a fur­ther 25% in 2015, with ben­e­fits to be en­joyed both by cor­po­rate firms and con­sumers. It comes as lit­tle sur­prise that shares in the bank are al­ready up 41% this year.

In­ter­est­ingly, the firms con­tracted to work on the Canal in­clude one from the UAE and one from the US, along­side four Euro­pean com­pa­nies. The very boost that Egypt will re­ceive eco­nom­i­cally from the con­struc­tion will be en­hanced by its new po­lit­i­cal po­si­tion­ing as an in­creas­ingly mod­ern and Western-friendly Arab na­tion. For this coun­try at least, it seems that the Arab Spring is fi­nally be­gin­ning to pay off.

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