Developing the Suez Canal: Egypt's future

Ahmed El-Sayed Al-Naggar , Monday 25 Aug 2014

Ahmed El-Sayed El-Naggar explains how the new Suez Canal project could have a transformative impact on the Egyptian economy

The great projects that make Egypt proud include the High Dam, the greatest twentieth century infrastructure project in the world. It is a shield protecting Egypt from the ravages of destructive annual flooding and killer droughts. The dam gave Egypt a central reservoir of water at Lake Nasser and allowed it to add two million feddans of new agricultural land, and electric energy that enabled the country to expand industrially and remove rural areas from centuries of darkness.

The Suez Canal is also a jewel in Egypt’s crown which transformed the country to become the passageway for one tenth of world trade with continuous revenues at hardly any cost, and relocated a large portion of the population outside the densely populated valley and Delta.

The new Suez Canal Project is a giant engine for the Egyptian economy that could give it a strong thrust to end recession and its inability to take off for many years. The infrastructure of the project, namely the digging of a new canal and six tunnels that will link the east and west banks of the canal – including two railway tunnels – will create a large number of jobs that will improve unemployment figures.

Meanwhile, industrial and service projects that will be established will create many more job opportunities because of the size of these projects and their need for labour. The new canal is not a complete canal parallel to the Suez Canal, but an entirely new link that will be dry drilled for 35km, five times the length of the current canal. It will be deepened to allow big freight ships to sail through the Canal in both directions, allowing ships coming from the north and south to cross simultaneously without stopping instead of the current wait that can reach up to eight hours.

This non-stop navigation will cut down the voyage through the canal to eleven hours instead of nearly 20 hours, and will naturally expand the number of vessels passing through the canal. Some 18,000 ships sail through the canal every year, a figure that could double after the new project increases the number of giant cargo vessels passing through, raises revenues and the canal’s share of world trade.

The overall cost of the project is LE67 billion and the mechanism for funding will decide whether the project will revive the spirit of 1956, when the late leader Gamal Abdel-Nasser nationalised the Suez Canal and took it back from the claws of global capitalism that had usurped it through conspiracy, fraud and aggression. Or, whether the overall sentiment will be similar to when the canal was being dug by foreign funds that landed Egypt in the trap of foreign debt that concluded with criminal British colonial occupation of Egypt. Therefore, it is important from the start to ensure that funding for constructing the canal is 100 percent Egyptian, while Arab and foreign capital would later finance industrial and service projects. The old canal and the new project must remain entirely Egyptian.

The president has reiterated the Egyptian identity of the canal and reliance on public shares as a main mechanism for funding, and on national banks and government funding. This spotlights the great difference between the new project that holds great hope for Egypt, and the project of the removed president that would have catastrophically resulted in truncating the Suez Canal region from Egypt for the benefit of global capitalism and sacks of money from Qatar and the International Organisation of the Muslim Brotherhood (IOMB).

Al-Ahram, the largest Egyptian and Arabic newspaper, pillar of media and journalism in Egypt and voice of the nation and state, will voluntarily promote the sale of public shares to build this giant national project that is a main gateway for Egypt’s economic boom to summon all the savings capacity of the great people of Egypt, at home and abroad, to build the future, destiny and path for their country with the money, brains and achievements of its people. This is how great nations build their glory.

The genius of location and economic value

The Suez Canal region is uniquely located because it is a meeting point for continents, markets, and global trade routes. However, Egypt did not utilise this to its full capacity because the area was the cauldron of military operations for many years, rendering any project there at the time a mere bargaining chip for the enemy. This potential remained untapped because of unique circumstances and not neglect. Once a political settlement was reached 35 years ago, developing the region and expanding its economic use became possible, and there have been many studies to this purpose.

The region remains unique because it is a strategic area, in the narrow military definition, and an area of potential operations. Even if Egypt’s eastern flank is quiet for now, we cannot anticipate the actions of hostile countries that were born via theft and continuous aggression.

This unique circumstance places restrictions on the nationalities of investors and types of investment and infrastructure in the region. The location of the Suez Canal makes the cost of transportation and security low for major world markets. Existing free trade zones between Egypt and Europe, the Arab World, East and South Africa exempt commodities produced there – with the required percentage of Egyptian components – from tariffs when they are sent to these markets. This allows it to attract industrial investments from export countries of this type of investment, especially faraway places such as Japan, China, Korea, and the Americas, to take advantage of low wages in Egypt and its proximity to the European market – the largest in the world.

The presence of large volumes of mineral ores and quarries in Egypt that are enough for trade, and their proximity to key centres of these natural resources in Africa and the Gulf region – the world’s main oil reserve – makes it attractive for a variety of industrial investments.

The ideal location for storage and operation as a centre for transit trade bordering major markets can also raise the Suez Canal’s share of world trade from the current ten percent. With more than 18,000 vessels passing through the canal annually, this figure is expected to double after the new project is completed, and enables the Suez region to be a fuel and supply port for these vessels. There is also the potential of building maintenance and repair basins, and later on ship construction factories.

The crew of vessels, some one million every year, can also be a new source of revenue if short site-seeing and shopping tours in Egypt are arranged for these crews. The opportunities and outlook of possible development of the Suez Canal region are different from actual possible development for the time being. We must primarily rely on the state of Egypt for development, as well as Egyptian private sector firms of all sizes, in this strategic region (according to the narrow military definition).

One should perhaps revisit the project of the removed president to realise the great differences between the two projects.

Morsi’s project to carve out the Canal region

According to the plan of removed president Mohamed Morsi, the president alone had absolute power over the Suez Canal region without input from any other authority. According to the draft law on developing the Suez Canal region, the president decided the geographic borders of the region (Article 1a); he chose the chairman and board of the region’s development authority; board members and chairman would swear an oath in front of the president (Article 8); the president could remove the chairman or any board member at his own discretion without restrictions (Article 7); the president could decide the bylaws of the authority (Article 2); decide the procedures and dates when the responsibilities and duties of the ministries and governorates are transferred to the authority.

The president could also call the regional development authority to meet and head the meeting himself if he is present. Since absolute power corrupts absolutely, the absolute powers that this draft law gave the president would have opened the gates of hell because of abuse of power, corruption and favouritism when planting his political allies irrespective of their competence. The General Authority for the Development of the Suez Canal Region (GADSCR), according to the draft law, had the mandate of all ministers and heads of public authorities, and local governors must partner with the authority in applying this law (Article 6).

According to Article 20, the authority would outline the general policies of developing the region, and necessary plans, programmes and projects and refer these decisions to the president for a final say. The authority could also ratify domestic and international agreements it is party to, and decide the conditions and criteria of urban planning, construction, utilities and environment to boost its competitiveness. This is an unrestricted right that threatens environmental abuses under the pretext of cutting costs to guarantee competitiveness.

The Authority could also decide the conditions and criteria for licensing, suspending or banning projects or activities in the region without constraint by conditions, criteria or other laws. The authority could decide its own systems for construction, ports administration, work structure and insurance without being bound by other laws.

The draft law also gave the authority the right to issue decrees dividing land, licensing construction and management of public utilities, infrastructure, companies, schools, academies, nurseries, hospitals, learning, research, medical and culture centres, clubs, and other cultural, educational, medical and social activities inside the region.

This article gave GADSCR the right to essentially become a state within a state. In light of the political turmoil stirred by Morsi’s “constitutional” declarations, the only investors interested in Egypt were none other than a party that supports him ideologically, namely the Muslim Brotherhood, its political party, and the Gulf emirate that supported Brotherhood rule in Egypt.

The president would have chosen a board from his party and group, as was his habit when choosing public officials. The board would have the power to decide everything in the region, while the role of all institutions that are elected by the community, such as local governments and representatives, would be sidelined. They would become citizens who are not represented at the regional administration chosen exclusively by the president.

The draft law described funds for GADSCR as private funds (Article 10), but Article 26 stated that GADSCR funds are public funds when applying the penal code, which is an illogical contradiction. The board of GADSCR was not bound by government systems and circumstances, and had the power to decide the organisational structure and regulations of the authority’s operations to employ the best domestic and international talents (Article 9). This article allows GADSCR’s board to decide its own wage system and inflate salaries for the senior board, which would deplete revenues.

GADSCR would also have property rights to all the land owned by the state within the region that the president has decided, except for land owned by the ministries of defence and interior, and needed by the Suez Canal Authority. This stipulation completes the condition of special statehood for GADSCR, especially since it has the right to strip private ownership for the sake of public benefit (Article 14). The Authority is exempt from tariff laws and bylaws when importing any tasks or equipment, and also exempt from sales tax (Article 16). Its net revenue is also tax exempt (Article 25), which robs the state and community of their right to capital projects in the area.

According to Article 27, companies established in the region would also enjoy a ten-year tax holiday for industrial and trade activities, and any further expansion enjoys another five years. It was also exempt for three year of fees pertaining to stamp duty, notary, registering founding contracts and loan contracts. This was a disgraceful return to tax exemptions. These companies would have also enjoyed permanent tariff exemptions for all their imports, which mean the region would have become a gateway for importing and smuggling to the rest of the country. This would eliminate a main share for the state in collecting tariffs on imports.

The draft legislation also stipulated that existing companies in the region are bound by the laws and regulations applied there from the date they start activities (Article 29, Clause 5), which means that any new president or parliament cannot issue new laws or decrees for this region. Thus, the draft law created a state within a state, and a private emirate for the president alone.

Sukuk (Islamic bonds) were invented as a mechanism for raising funds to enable the Brotherhood and the Gulf emirate that sponsored its plot in Egypt, and even world capitalism to actually own the project if the bonds expire and Egypt is unable to pay back their cost.

The new project protects the Canal from international threats

The new project truly protects the Suez Canal from regional and international threats. The stature of the Suez Canal was indeed under threat if Egypt did not improve its handling of the canal, and develop its potential to serve the quantity, quality and cost of global traffic. There were threats from exporters, one Zionist and another Russian. The Zionist threat to the Canal came from plans to link the Zionist port of Eilat, in the Egyptian occupied town of Om Al-Rashrash on the Gulf of Aqaba, with the port of Ashdod on the Mediterranean. Such a project is very possible, but the astronomical cost would take that canal out of the competition with the Suez Canal. Militarily, Israel would not be able to tolerate the water barrier this canal creates separating the Gaza Strip and part of the Naqab Desert from the rest of occupied Palestine. The route would also be constantly at the mercy of the ongoing conflict in occupied Palestine. Egypt’s new project would prevent the Zionist entity from constructing this canal.

The more serious threat is the land “canal” between Eilat and Ashdod based on Eilat receiving vessels arriving from Asia, East and South Africa, unloading the containers and transporting them by land (railroad or trailer trucks) to Ashdod Port where they are loaded onto other vessels to their final destination, and vice versa from Ashdod to Eilat.

This land channel is currently operating in silence and on a limited scale, but any advances in transportation between the ports of Eilat and Ashdod, especially railways, could be critical for the Suez Canal. There was no other way to confront these threats except by developing the Suez Canal, its services and competitiveness, which is what the new Suez Canal project proposes.

There is also a proposed canal to link Eilat with the Dead Sea, and from there to the Mediterranean, but this channel is too costly and technically complicated because of great differences between water levels. It would require locks to raise and lower vessels which raises the cost and price of passage too much for vessels, and cannot compete with the Suez Canal. It also creates water barriers that divide the length and width of occupied Palestine, which is unacceptable for the Zionist entity.

Far away in the northeast of the world, there are threats from plans to link East Asia with Europe through a railroad that crosses Russia, which would transport goods between the two ends. However, there are many obstacles on the way because trade between South Korea and Europe would pass through North Korea which would control this trade, something South Korea would never accept. It would also hurt Korea’s shipping industry.

Meanwhile, the greater part of Chinese exports leave from ports on the East and South China seas, and it would be easier to go directly to their usual route through the Suez Canal.

There is another obstacle, which is that the railroad would pass through bitter cold regions during brutal Russian winters, which raises the cost of maintenance year round. The greatest obstacle, however, is for European countries to place their foreign trade with East Asia – which is gradually becoming the heart of the world’s economy – under the mercy of Russia.

Possible development projects in the Canal region

There are a large number of project that could be the main pillars for development in the Suez Canal region, whether they are linked to the Suez Canal itself or the natural resources available in surrounding governorates. These development projects can be as follows:

a-Develop, expand and establish ports to receive and store goods north of the Suez Canal (Port Said, East of Tafria, Damietta, and Arish Port under construction), and to the south of the Canal (Ain Shokhna, Safaga and Al-Adbiya). Contracts with major international companies that monopolise the greater part of world trade traffic, such as Maersk, can sign up beforehand to use or rent storage sites at these ports which would thus become major ports of transit trade. These ports would provide a real opportunity for the state and businessmen to establish and develop an entirely new role for Egypt in global transit trade, whether by themselves or in partnership with Arab and foreign investors.

b-Constructing railroads west of the Suez Canal connecting Red Sea ports south of the Canal with Mediterranean ports north of the Suez Canal, to directly transport back and forth vessels between them without going through the Suez Canal. In other words, increasing the capacity for global trade transit through Egypt which is manifold in the capacity of the Suez Canal itself. Egypt would collect royalties for transporting goods across this land “canal”. This would also develop the region surrounding the railway tracks and take advantage of materials and industrial and tourism potential surrounding it.

c-More than 18,000 vessels pass through the Suez Canal and this figure is predicted to multiply once the new project begins operations. This large number of vessels requires maintenance and repair which means building dry basins for working on these ships. Even building ships from scratch with technical assistance from specialised companies in this field in German, Holland, Russia, South Korea, China, the US and other countries. This would be a great source of income and a new branch of transit industry to diversify and develop the economy, increase revenues, improve living standards and create jobs.

Developing the Suez Canal as the epicentre for storage and transit trade on the border of major world trade would require creating companies specialising in a variety of navigational and customs services.

d-Around one million crew members on 18,000 vessels pass through the Suez Canal every year, and when the new project is completed, this number will rocket to two million. If short, 24-48 hour tours are organised to visit sites in Cairo and Giza, or go shopping in major shopping malls in the Suez Canal region – to showcase the wide range of Egyptian-made products including souvenirs – this could add nearly two to three million tourist nights in Egypt.

It would require coordination with local and international tourism companies, as well as companies that own vessel passing through the Suez Canal by presenting tempting packages for this type of tourism and shopping in Egypt.

e-Using competition among world automobile companies to establish car manufacturing factories, and not just assembly lines. This would meet the large local demand, and also for export to areas where Egypt has free trade agreements such as Arab countries, the EU and East and South Africa.

f-There are great investment opportunities in transit industry based on quarry, mineral, oil and gas resources found in this area. These industries can focus on glass manufacturing from sand that is found in southwest Sinai, salt in North Sinai, Port Said, Suez and the Red Sea where there are great salt deposits, and potassium industries in the Red Sea governorate by relying on existing reserves in the region between Hurghada and Ras Ghareb.

There is also great potential for building factories for cement, ceramics and other material in central and North Sinai, where there is plenty of limestone used in the cement industry.

Granite ore industries can be developed in South Sinai where there are large reserves of granite in South and Southeast Sinai, and the manufacture of dolomite which is found in abundance in the governorates of South and North Sinai. Also, the production of manganese which components are found in Southwest Sinai, and the production of turquoise and semi-precious stones for jewellery and souvenirs that are found in North and South Sinai as well as the Red Sea. Also, the manufacture of black sand found in North Sinai and southern parts of the Red Sea governorate.

There is also great opportunity to develop phosphate fertilisers in the Red Sea governorate which is part of the great phosphate reserves extending along the Red Sea coast through the governorates of Sohag, Qena, Luxor, Aswan and New Valley to Egypt’s Western Desert until the border with Libya. There is also opportunity to develop the coal mining industry in North Sinai and gold and tin mining in the governorate of the Red Sea.

g-Constructing oil refineries to meet Egypt’s needs for oil products, either through using local raw materials or imports from oil-exporting Arab countries in the Gulf region.

h-Creating projects for the production of butane gas which Egypt imports, and production of urea fertiliser that is 65 percent natural gas.

i-Construction of solar and wind power generation projects in the governorates of the Red Sea, and North and South Sinai.

j-Fish farms in the sea off the shores of North Sinai, Port Said and the Red Sea since a large portion of global fish production takes place in such sea farms today, especially in China and East Asia. These fish farms would be linked to other projects in the fields of processing, preserving and canning fish. A key advantage of these projects is that they can be small co-ops that would attract new communities of fishermen and agriculture graduates to these sparsely populated areas on the Red Sea and North Sinai. This is a key factor in defending Sinai.

k-Planting nearly half a million feddans in central and North Sinai by distributing the land and granting ownership to native landless Sinai farmers, graduates of agriculture schools and colleges, and others from across the country. This would be granted to Egyptians whose parents are both Egyptian, which will also relocate a critical mass of the population that would also be a key component of defending Sinai in the future.

l-Projects for processing, packaging, preserving, canning and manufacturing vegetables and fruit and crops planted in the governorates of Ismailiya and Sharqiya, and Egypt in general. They would be produced by planting a new half a million feddans in central and North Sinai. Also, a project for the production of olive oil, pickles, fodder and coal from already existing olive crops in North Sinai.

In conclusion, one can say the new project can become a giant leap for Egypt’s economy and its regional and international role in transit industry and services. It would also contribute to a fundamental shift in the distribution of the population by relocating large segments of the population to the region of the Canal and Sinai. It would also assist in creating many job opportunities and lower unemployment rates that have become the most pressing and complicated economic, social and political problem today.

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