By Michael Bates
Almost 4 years ago Egypt was in chaos: mass protests, riots, and eventually a full scale military coup, brought about one of the largest revolutions of the ‘Arab Spring.’ Three years on and the dust has begun to settle, with the country seemingly under the stable leadership of Abdel Fattah al-Sisi. Growth is stable, sitting at around 3.7 percent in Q2 of 2014, and the country has begun work on a series of new infrastructure projects designed to stimulate trade and foreign direct investment (FDI).
By far, the single largest project is the expansion of the Suez Canal. As one of the world’s most vital trade routes, the Canal (nationalised in 1956) currently brings in an estimated $5 billion per year in government tax revenues. However, since its initial construction in 1869, there have been no major expansions to the original canal. Indeed, currently, the Canal is only able to operate in one direction at a time, leading to average waiting times for ships of eleven hours.
Obviously an upgrade is needed for Egypt to benefit fully from this unique national asset. Estimates are that the project will increase revenues to $13.5 billion by 2019 – however, what is far more fascinating is the path taken by the Egyptian government, and indeed the military, in undertaking this huge expansion.
Firstly there is the method by which the project has been initially financed. With a total cost of $8 billion, many would expect that the country would look to a variety of sources for the investment, such as a mixture of government bonds, loans from private banks, or global organizations such as the World Bank. Yet Egypt has taken a more innovative approach, and instead looked to its own citizens to fund the entire project. Only those possessing Egyptian citizenship can buy the bonds, with prices ranging from 10EGP ($1.40) for students, to 1000EGP for Egyptian ex-pats. The bonds themselves offer a lucrative 12% yield, which may seem high on face value, but if the government were to look to foreign institutions for the funding, a rate of 12% to a country that has endured so much political upheaval in recent years may be a bit on the generous side.
It would be naïve to assume that this approach is based completely upon the financial benefits. The targeting of the student population is a deliberate move by the government to gain support amongst what is probably the most politically engaged group within the Egyptian population. Expansion of the Suez Canal is something that every Egyptian can be a part of, and thus all have a high vested interest in. Hence the success of this project could have a huge impact on the future support of the incumbent government, and indeed the political stability of Egypt as a whole.
The Egyptian government is aware of the project’s potential consequences – both positive and negative – and has taken every opportunity to ensure that the new Suez Canal is a success. The project is currently under budget, and al-Sisi has promised that the original three-year project will now take only one. This astonishing feat is almost certainly a direct result of the Egyptian military’s help. Almost all of the manpower for the project is being provided directly from the ranks of the national army, from the initial dredging and widening on the current canal, to a large portion of digging the new one. Furthermore, in true military fashion, Egyptian soldiers are reported to be working triple shifts in order to meet the ambitious deadlines set by the government.
While the military’s “free” labour has dramatically reduced the cost to the Egyptian government, it has also enhanced the sense of national unity around the new Suez Canal project. Overall, the project could have serious backlashes – or benefits. The Suez Canal is a great source of national pride for the people of Egypt, and with unprecedented levels of trade between the Far East and Europe, the importance of the Canal has never been higher. If this project fails, then at the very least one would expect to see a change of leadership at the next general election in 2018. However if this project succeeds to the extent that Egypt’s current government believes it can, then not only will Egypt’s trade and economic prospects flourish, but the new Canal may also help bring about solidarity and an era of political calm for a nation that has been painfully volatile in recent years.