Egypt’s Fate Rides High On The New Suez Canal

Published on 06 Aug, 2015

Egypt - Market Research

Egypt’s new dual Suez Canal is finally here for all to see. What the country has achieved in a short span of just a year is truly exemplary. Defying the most optimistic estimates of a three-year time frame, the Egyptian President dictated a year-long time frame and one year it is!

On July 25th 2015, Egypt conducted the first trial run for its new Suez Canal, amid heavy security, with three container ships navigating the channel. Built under the Egyptian army's supervision, the new canal is hailed as the world’s fastest waterway allowing two-way passage of vessels.

The dual canal, which opens for commercial operations today, symbolizes a new dawn for the economically ravaged country that has seen extreme political and militant insurgency following the collapse of the Hosni Mubarak government in 2011.

The original Suez Canal, too narrow to allow for a two-way traffic, forced the ships to transit in convoys on fixed time. According to the Suez Canal Authority (SCA), the new waterway is slated to reduce the southbound transit time to 11 hours from 18 hours at present. Further, the waterway would have the capability to handle the passage of nearly 97 ships per day by 2023 from the current capacity of 50 ships per day.

However, achieving this impressive feat was not an easy task. The construction of the waterway required 35 kilometres of dry digging up to a depth of 24 metres to step up the permissible draught to 66 feet, and widening and deepening the existing western bypasses up to 35 kilometres. The volume of dry excavation works amounted to 250 million cubic meters and required the support of 80 contractors plus six dredging companies along with the SCA dredgers.

The project received swift funding in September 2014 when the Egyptians lapped up the government’s five-year canal investment certificates bearing an interest rate of 12% to raise US$8.17 billion within eight days. This was, after all going to be an emblem of Egyptian pride, much beyond its economic capabilities.

Yet, this great work of art and technology has attracted its fair share of criticism for being too extravagant for a country that desperately needs investments to kick-start economic growth to pre-2009 levels. A recent Bloomberg article suggests that the Suez Canal expansion was not really required as the current maritime traffic on the canal is 20% less than the 2008 levels.

To argue in the favour of the expansion, the geographical and economic importance of the Suez Canal to Egypt cannot be undermined. Built some 150 years ago, the Canal connected the Red Sea and the Mediterranean Sea to strike off some 7,000 kilometres of sea voyage for trading vessels between Europe and Southeast Asia. This longest canal with no locks and minimal difference in the sea level facilitates easy navigation and manages around 8% of the global sea trade. In 2014, the canal contributed around US$5 bn to Egypt’s national purse and is expected to fetch nearly US$13.2 billion annually by 2023, following the expansion.

An establishment of such national importance was also required to stave-off rising competition from the Panama Canal that regained 51% of the Far East to US East Coast route market share in July 2015, as per the Journal of Commerce. Panama’s much awaited expansion, likely to conclude by mid-2016, would enable it to accommodate larger ships travelling from Asia to US east coast.

The new Suez Canal project is not limited to the enhancement of the waterway alone, but extends to the more exhaustive Suez Canal Zone development project that entails the development of the entire region surrounding the Suez Canal. The strategic waterway would be converted to a comprehensive global business centre, which would provide maritime transport services and create over one million job opportunities over the next 15 years.

In 2014, the North Mediterranean, Western Europe and Black sea regions together formed nearly 57% of the total inbound and outbound region-wise cargo traffic. In addition, oil tankers remain the second most important cargo type to pass through the canal, with a contribution of around 22%, surpassed only by containerized cargo.

Although the SCA is optimistic about revenue and traffic in the coming years, a weak economy and poor demand could have an adverse impact on the future trade prospects through the Suez Canal. Any benefits that Egypt is banking on may be subject to the recovery of an uncertain European market as well as sliding oil prices.

Even so, Egyptian authorities expect the new industrial area and the waterway to contribute to nearly a third of the Egyptian economy in the coming years. To sum it up in the words of the SCA head, Admiral Mohab Mameesh, the project will prove to be a ‘rebirth for Egypt’.