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Egypt on the Lookout for Investors

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Political turmoil has taken a toll on Egypt’s economy over the last few years. The 2011 revolution and its aftermath, changes in leaders and continuing violence and demonstrations have all affected everything from tourism to outside investment, not to mention boosting unemployment and creating a challenging economic environment for the country’s people.

But change is afoot, with ambitious plans not just for political and economic reform but also for a new Suez Canal—and development in the area that, it’s hoped, will transform it into a regional, if not a global, center for logistics.enlarge

The country’s current president, Abdel Fattah al-Sisi, has come in for criticism that he is perpetuating the atmosphere of authoritarianism that existed under the regime of Hosni Mubarak, who was ousted in 2011. However, others say that Sisi must act forcefully to restore a climate in which business can flourish. While it remains to be seen whether security forces in the country help or hinder his efforts to assist the economy, plans are afoot to revitalize business—and to woo foreign investors back.

Cairo has announced its intention to terminate fuel subsidies within the next five years so that money can instead be used to increase spending on education and healthcare. A value-added tax is also planned for this year, as well as the issue of a $1.5 billion international bond announced by finance minister Hany Kadry Dimian.

Dimian also predicted that the economy would continue to grow, reaching 5–5.5% during the fiscal year ending in June 2016, after growth of more than 4% for the current fiscal year. While the economy has been suffering, of late there have been signs of improvement: its benchmark EGX 30 stock index has gained close to 40% over the past year, and in December Fitch Ratings upgraded the country’s credit rating from B- to B.

But Cairo isn’t out of the woods yet. Egypt has been partly dependent on financial support from its neighbors, including Saudi Arabia and the UAE, with the advent of low oil prices. And while ambitious, the twin projects of the Suez Canal Area Development and the Second Suez Canal offer more long-term payoffs than immediate ones.

While Egypt says the second canal will be completed later this year, some experts aren’t so sure, thinking that a five-year timeline is more realistic. Still others have voiced concerns that the more than $8 billion the second canal will cost could better have been spent on infrastructure improvements.

Then there are the revenue projections—another area over which experts disagree. The new canal is said by the Suez Canal Authority to provide double the capacity of the single canal, even allowing two-way traffic along part of the route, while widening and deepening the existing canal is intended to add the ability to provide passage for “superships.” Officials are saying that in less than 10 years the project will nearly triple the income of the single canal, from $5.3 billion in 2014 to $13.2 billion in 2023.

The logistics and shipping corridor that will be built alongside the two waterways is another factor expected to provide growth. Infrastructure, maritime and tourism companies have already declared their willingness to invest in the cities that surround the canal, and the hope is that this regional revitalization will account for new jobs in the hundreds of thousands.

A conference scheduled for the end of February in Kuwait is set to discuss and present investment opportunities in Egypt, which will host an economic summit in March. At the March summit, Minister of Investment Ashraf Salman and Minister for International Cooperation Naglaa Al-Ahwany are expected to present prospective investors with opportunities totaling $10–12 billion across a range of sectors for some 20 major projects.

Interestingly, it appears that the Egyptian people are as eager for the new canal as their government. Approximately 85% of the $8.5 billion to finance the new Suez Canal came from individuals, not institutions. Even more impressive, it took just a week to bring in the funding. Perhaps they will regard the development of the canal corridor with similar enthusiasm.