Since 2004, the Government of Egypt has been focusing on implementing an ambitious economic reform programme, improving the investment environment, buttressing growth rates and providing further work opportunities. There is for instance an ambitious national road network (freeways and regional roads), thorough updating of rail networks, flourishing mass transit especially in provinces other than Cairo and Alexandria, huge investments in seaports and efforts to enable a wider role for river transport in enhancing inland waterway transport. Experts confirm that the Egyptian economy is strong and enjoys a hybrid of stable and balanced commitments with different countries. Speaking to reporters earlier this year at the set up of a new Egyptian-Japanese University, temporarily located at Borg El-Arab, Alexandria, the Japanese Ambassador to Egypt HE Mr Kaoru Ishikawa expressed Japan’s profound trust in the Egyptian market performance. He said that amid the global crisis, Egypt’s economy was growing generally even though national banks never took part in the speculations. In 2008, the trade balance between the two countries reached USD 3.7 billion – USD 2 billion accounts for Egyptian exports (mostly natural gas and oil products), whereas the remaining USD 1.7 billion represents imports from Japan (mainly cars). The trading volume reflects a 68 percent increase compared to 2007. From July 2007 to June 2008, Japanese investments in Egypt hit USD 45 million, far from the desired level, considering the potential of both states. However, positive relations have been developed between the Japanese side and the Egyptian ministries of Agriculture and Environment for the optimal use of natural resources. The Water Users Societies Project is now operative in several governorates and is proving successful in achieving optimal utilisation of The River Nile Water. In fact, relations with countries such as Japan help greatly in achieving the government’s investment objectives. Today, infrastructure and small-to-medium size projects are high on the agenda, as the government tends to apply more resourceful and multi-faceted development schemes. Funding sources at money exchange markets are also versatile. Investments are conducted through Egyptian enterprises (70 percent of exchange volume) with the remaining 30 percent being 50-50 between Arab and western countries. Other factors which contribute to establishing the base for a well-informed investment environment include effective infrastructure of roads, electricity, communications, ports and airports. The skilled labour force available at competitive costs, the political stability and the global trade agreements with different countries add considerably to the attractive mix. Still, other factors include diverse energy sources at competitive prices and the huge domestic market that serves as a gateway for several international markets in the Gulf Area, Europe and Northern Africa.
Maritime transport
The role played by maritime transport in enhancing the national economy is quite tangible. Several aspects are greatly influenced by sea transport such as crossing trade and the increase in sea trade movement over the past five years (at best-in-decades rates). This spurs the government to adopt a clear-cut port development strategy. The key objectives include:
Reducing exports costs
Enhancing private investments
Alleviating national economy burdens (less dependence on government subsidies)
Activating trade movement
Maximising state revenues
Relying on self-finance philosophy
Improving management techniques
Allowing shipping companies more access to ports
The last objective is particularly significant because anticipated growth rates for Egypt ports are actually higher than other Mediterranean ports. With almost more than L.E.18 billion investments, cargo handling is expected to witness a 63 percent increase over the next few years. Container handling flourished from 2.9 million TEU in 2004 to 5.1million TEU in 2008 and the target figure for 2010 is 8 million TEU.
Implementation clues
Generally, the Egyptian economy is recovering with mounting confidence in the economic performance, better competitiveness and efficient investments. Egypt has managed to weather the impacts of the global financial crisis thanks to the meticulous monetary measures taken. This led to keeping the growth trend and investment flow on while curbing the Public Deficit. In the wake of the crisis, economic weight centres began to tilt eastward, thus heralding a new era of oriental financial gravity. With the emergence of Shanghai and Mumbai as attractive global financial economic centres, it is becoming increasingly vital to employ investments in infrastructure necessary to accommodate oriental trade movement expected to converge from/to countries such as China, India, Malaysia and the Gulf States. Consequently, and according to the 5-year development plan (7/2008-11/2012 – 4th year stage), private investments need encouragement to increase their share in overall investments to L.E.163 billion, a 64 percent from overall investments. Proving effective, we find the tax reform scheme, which resulted in a 50 percent reduction in income tax rate. Customs reform that enforced a number of measures and reductions is an equally effective tool. The Government worked hard to activate a Government-Owned Assets Managing Programme and rehabilitate the financial sector. Enlarging the spectrum of the Free Trade Agreements Egypt is joining and the structuring of new frameworks for government-private sector partnership are key investment methods. We cannot ignore the role played by the government to offer low-priced plots of land for interested investors and the continuous endeavor to seek better settlement of disputes arising from investment contracts.
Economic growth rates
Economic development officials declared last March that for fiscal year 2010/2011 average per capita income should rise from 15.4 thousand per annum (current figure) to 17.4 thousand. It is also expected that growth rate will reach 5.2% by the end of this fiscal year ending June 30th and that a further increase of 5.8% and 6.5% will be achieved in the following two years respectively. The third quarter of the current fiscal year experienced a growth rate of 5.1%. Experts believe the forecasted economic growth rate is quite reasonably achievable but slightly ambitious considering the challenges of the economic reform plan the government of Egypt is facing in light of imminent parliament and presidential elections. Regarding the growth rate for different economic sectors in 2010/2011, statistics have shown that construction was first with 13.2% against 12.8% this year, followed by communications with 12%. Processing industries together with transport and communications featured prominently to lead other sectors towards national economic growth. However, the government intends to hold a budget deficit for the next fiscal year at 7.9%, reduce unemployment rate to 9% and provide some 700,000 jobs. Throughout 2010/2011, Egypt will be focusing on how to bring growth rates back to their high levels before the global financial crisis so that better social indicators and higher per capita living standard can be attained. It is worth noting that aggregate investments planned for 2010/2011 are nearly L.E.256 billion (19 percent higher than previous fiscal year) and the target for 2011/2012 is L.E.327 billion.
Investment projects
Early this year, President Mubarak gave the green light to feasibility studies on the construction of a tunnel to link the two sides of the Suez Canal in Port Said at a cost of USD 1 billion. In the same context, the Egyptian president agreed to a request by Chambers of Commerce Federation President to increase East Port Said port space to 57sqkm (current space is 35sqkm) and establish an independent authority to start relevant development schemes. In collaboration with Arab Academy’s Maritime Research & Consultations Center (MRC
C), French consulting firm Arcadis will prepare tender documents pertinent to the dredging of a new by-passage for the Suez Canal adjacent to Port Said East Port on the Mediterranean. The new passage dredging works should be completed during the first half of the current year at an estimated cost of L.E. 450 million. The lateral canal is 9km long and will be dredged up to 18.5m under sea level. The two projects fall within the range of Port Said East Port (PSEP) development scheme with a view to turn the port into a key regional hub for transit trade. Today, East Port Said port, a uniquely positioned port, is one of the four largest Mediterranean ports. Very shortly and as anticipated, it will move upward to second place regionally with a 101 percent growth rate in container handling. Additionally, PSEP serves the largest hinterland in Africa and the Middle East. Coming atop of world ports in terms of growth rates, ports revenues scored 144 percent increase in two years. Today, the port is capable of attracting non-governmental investments worth L.E.5.5 billion.
Logistic investments
Transport officials view the logistic activity as a ripe area for development. In Port Said, efforts are being made to complete East Port Said Port industrial area by the end of this year. In addition, 150 investors are bidding to execute the first stage project. The petroleum jetty and liquefied bulk terminal are planned for construction on an area of 500,000sqm, costing an estimated USD 500 million. A thousand investors have submitted requests to start several projects in the recently expanded industrial area south Port Said.
Alexandria Ports
Alexandria and Dekheila ports handle 60 percent of Egypt’s foreign trade. Together they achieved a massive customs yield amounting to L.E.10.5 billion. In 2008, port revenues reached L.E.600 million, a hundred million pounds more than the previous year. There are also plans to increase capacity in Dekheila from 26m tonnes to 40m tonnes per annum. In 2011, a new container berth project will be launched at an investment cost of USD 300 million. Furthermore, a multi-purpose basin project will be put out to tender soon.
DIPCO debts restructuring
The International Company for Ports and Warehousing (KGL) launched 159 million new shares for private subscription in a bid to leverage company capital by Dinar 15 million to finance its DIPCO project in Damietta Port and restructure some debts. KGL Chairman Fadel El-Baghly told reporters in a press conference that the move, which will serve in lifting available capital from Dinar 12 million to 27, coincides with positive expectations that port works will grow as regional and global trade exchange starts to rebound. In another development, DIPCO acquired the remaining area dedicated for its project in Damietta Port. Air Defense Forces evacuated the site, and handed it over to DIPCO as per the concession agreement signed with Damietta Port Authority (DPA) in 2005. The Company is seeking possible ways to obtain a USD 480 million worth aggregate loan. In addition, it is doing its utmost to overcome problems and compensate project delay in light of the global financial situation. Commercial operations of the first phase of the project could start in the 4th quarter of 2010 with the arrival of Super Post Panamax container cranes and handling 2/3 of the overall project capacity. At completion of the second construction phase, the anticipated annual container throughput could reach 4 million TEU. DIPCO shareholders negotiated new easier funding terms with the lending banks. The project was supposed to start operations by the end of 2010.Classified as a powerful addition to the existing container terminal, the new project is planned to comprise 2.3km long berths. As agreed with DIPCO the terminal was awarded a concession for 40 years [+/- 5 years] based on the achieved annual container throughput.
ITAL MID initiative
Earlier this year, Italian shipping line “Messina” expressed willingness to arrange a line service between Damietta and Italian ports. Further discussions with the Italian side resulted in a co-operation agreement whereby the Italian logistics company “Logica” will prepare a master plan for the creation of a dedicated logistic site in Damietta Port based on the model implemented by Messina in Italian ports.
Private investments in river transport
The Egyptian Transport Ministry is investigating a number of procedures to encourage more active participation by the private sector in river transport services. The aim is to invigorate private services for river transport within 5 years from 2 percent up to 10 percent totaling 40 million tonnes. The government has so far spent L.E.800 million to improve infrastructure projects and rehabilitate river navigation. Now dredging works are completed and navigational aids provided for the river passages Cairo-Aswan, Damietta and Alexandria. In addition, a number of locks were added to complete the river transport system. Thus, the shipping network is ready to carry goods directly from Damietta and Alexandria to Upper Egypt as a prelude to implement the entire Nile logistic chain down to the rest of Africa.