The new Egyptian era
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.