Many opinions have been voiced recently regarding the Suez Canal expansion project (also known as the ‘New Suez Canal’), warranting a closer look at the project’s expected economic impact and how it is projected to boost Egypt’s economic recovery. At the outset, it is important to lay out some factual information about the project. Completed in only twelve months rather than the projected three years, the project is expected to allow two-way traffic for double the number of ships, including ships of a larger load. The Egyptian government has stated that it will increase Suez Canal revenues from $5.3 billion to $13.8 billion by 2023 (Reuters). It is also expected that the 35 kilometers of new channels and 37 kilometers of deeper waterways will reduce navigation time for ships from 18 to 11 hours. In fact, British Minister of Defense Michael Fallon wrote in an editorial that “the new canal is more than just an enormous engineering feat, it is a vital artery of world trade”. Also, the UK Chamber of Shipping has stated that the new Suez Canal extension “will be a gamechanger for the future of global trade”.
This post will discuss the projected economic impact of the Suez Canal project and its political significance, highlighting its positive aspects. It will conclude with a few remarks in response to some claims put forward in the international media regarding the project.
Naturally, no man-made project in the world can guarantee the undivided support of all experts and thinkers. Since the 1970’s experts have noted that Egypt’s economy is heavily dependent on exogenous sources of income, including Suez Canal earnings. Obviously, these are vulnerable to external shocks that are beyond the control of the state. For this reason, some experts have questioned the new Canal’s ability to achieve projected earnings, given declining levels of world trade. However, does this concern justify not expanding or developing this vital strategic asset? Does it mean that the Suez Canal expansion project is economically unfeasible, futile or unnecessary?
A wealth of prominent expert opinion rejects this completely. For example, Fortune magazine has stated in an article that “it would be foolish to believe that global trade will stay flat forever or that the economies of Europe and North Africa will contract indefinitely. Global trade continues to grow at an average rate of around 3% per year, and that will eventually translate into greater ship volumes through the canal”. In fact, shipping experts have predicted that the volume of trade transported by sea will double in the next two decades.
In addition, shorter transit times will attract more ships to transit the Suez Canal, which will undoubtedly increase Canal revenues. “The new capacity will mean ships can move through the Canal when they need to without delay – making trade more efficient and allowing for further economic growth” (UK Chamber of Shipping). According to an article published by the Journal of Commerce, shortening transit and waiting times will also result in fuel savings and environmental benefits through cutting down on greenhouse gas emissions.
In addition, increased foreign currency reserves are absolutely vital for Egypt’s economic future. Even if the Canal achieves only half the projected revenue, Egypt needs “about $6-7 billion a year in external financing to sustain its level of imports and meet its debt obligations” (Atlantic Council). Increased revenues from the new Suez Canal project will “significantly add much needed foreign currency to the Central Bank of Egypt. The fact that the Egyptian government managed to raise the $8.2 billion investment in the Suez Canal project from entirely domestic sources in Egyptian pounds greatly helps in this regard, since all the debt repayments will be in local currency” (Atlantic Council). In fact, the innovative way in which the project was financed in record time and at only 2% above the bank interest rate for ordinary savings accounts has been hailed as a show of “great confidence” in Egypt’s economic roadmap.
Critics of the Suez Canal expansion project have overlooked the crucial role of infrastructure investment in both the short and long-terms. It is widely recognised that infrastructure investment provides short-term demand stimulus for an economy, creates jobs and spurs long-term economic growth and development. In fact, the short-term benefits of the Suez Canal project are already evident; the African Development Bank has reported that the project was a principal factor behind the improvement in Egypt’s economic outlook in the fiscal year 2014/2015 and the increase in GDP growth rate from 2.2% to 4.3%.
The project’s potential long-term impact on the economy is also multifaceted. The government has announced plans to establish an international industrial and logistics hub over 500 square kilometers near the Suez Canal. The project “envisions logistics, shipping and industrial development at three primary nodes along the canal — Ismailia, Ain Sokhna-Suez and Port Said” (Journal of Commerce). One of the potential economic activities in the zone is transshipment to other countries in the Middle East as well as the Black Sea. The Suez Economic Zone (SEZ) is expected to create jobs and eventually make up about a third of the Egyptian economy. China and Russia have both already expressed their interest in investing in the SEZ, indicating that this series of Egyptian mega-projects is not simply a “grand gesture” but rather embodies tangible and concrete steps, which if implemented, are calculated to make a real impact on the lives and well being of Egyptian citizens.
Similarly important is the new Suez Canal project’s political significance. The high-level attendance and notable international support for the project do not only indicate confidence in Egypt, but also support for Egypt’s important role in the global and regional fight against terror. As the respected weekly French magazine Le Point pointed out, Egypt is the only Arab country in its sub-region that has been spared complete chaos. “It is the last coherent bastion of the historic Arab World, the only real Arab power remaining between the Nile and Euphrates after Syria and Iraq imploded” and the only Arab power capable of containing Daesh.
One of the most disturbing analyses of the Suez Canal expansion project was the inaccurate diatribe by Sarah Carr in her article in Foreign Policy magazine, entitled “President Sisi’s Canal Extravaganza”. The article not only denounced the project without any in-depth analysis of its potential economic impact, but also ridiculed how the Egyptian people chose to express their excitement and joy with what has been described by some experts as an “astonishing” achievement.
Carr’s article is based on a lengthy and cynical description of events beginning with the initial planning of the project up until its inauguration, including a sarcastic account of the inauguration ceremony itself. It devotes only one mere paragraph to the economic feasibility and impact of the project, arguing that the evidence in this regard is inconclusive. Perhaps most disturbing about Carr’s article is the sarcasm and derision with which she describes the project’s inauguration ceremony and the way in which Egyptians chose to express themselves on that day.
As many newspapers reported, the Egyptian people rejoiced in the way they know best; by singing, dancing, chanting, and other simple yet festive and artistic ways of showing their excitement. They displayed the Egyptian flag as a sign of pride, inspiring one commentator to describe the scene in the following words: “the city was painted in Egypt’s national colors of red, white, and black”. On the other hand, Carr’s cynical observation was that “Egyptian flags sprouted everywhere like a nationalist fungus.” While the French Le Figaro described the ceremony as “a way to celebrate the ‘recovered grandeur’ of the land of the Pharoahs”, Carr’s article embodied a cynical attempt to ridicule and inferiorize the day’s festivities. These are but minor examples betraying Carr’s contempt for Egyptian culture and how the Egyptian people choose to express themselves. In the words of an Economics Professor at the American University in Cairo, which were tweeted by the US Embassy in Egypt, “our culture can be very sentimental and this was the first time Egyptians have been so galvanised”.
Carr’s sarcasm and air of moral and cultural superiority is disappointing; it smacks of racism and contempt for the Egyptian people’s chosen form of cultural expression. It comes across as an attempt to disparage the Egyptian people because they refuse to conform to her own standards of cultural progress. Such analyses, which offer nothing in the way of constructive engagement, feedback or tangible suggestions is not what Egypt, or in fact the whole developing world, needs right now.
What Egypt needs now more than anything is some optimism that is grounded in sound, objective, fact-based scholarly analysis. No one seeks or expects complete consensus on the way forward, but what is definitely expected is professionalism, objectivity and some measure of respect. Egyptians are finally excited to be moving towards their long sought-after economic recovery. In late 2014, “both Moody’s and Fitch Ratings upgraded Egypt’s outlook to ‘Stable’.” The road to recovery is long and fraught with difficulties, so it is time to give Egyptians the benefit of the doubt and the true support they need for a more prosperous future.