Can Egypt’s port projects save its economy?

Residents in El Arish fighting expulsion 

The residents of Al-Arish, a town in Egypt, are expressing their anger and frustration as security forces demolish their homes to make way for a new port in the Suez Canal. Despite the residents’ attempts to save their homes, the heavy presence of security forces has prevented any successful resistance.

Videos shared online by activists depict the distress of men, women, and children as they protest against the destruction of their homes in the Al-Mina district of the city. One man’s voice can be heard, emphasizing the sacrifices made by the residents to provide shelter for themselves, and condemning those responsible for destroying homes in the North Sinai city as “oppressors.” He claims that the expansion is being carried out at the expense of the impoverished population.

According to the Sinai Foundation for Human Rights NGO, Egyptian security forces initiated the campaign to demolish homes in Arish in March of this year, disregarding the protests of residents. Ahmed Salem, the director of the NGO, stated that the ongoing home demolitions have affected at least 20,000 people. Many residents who relinquished their homes complained about inadequate compensation despite promises, while others faced the risk of homelessness due to insufficient funds to secure alternative housing.

In some cases, residents were coerced by security forces to give up ownership of their homes, and several houses were destroyed even before any compensation was offered, leaving many without shelter. In 2021, Egyptian Presidential Decree number 465 mandated the relocation of residents in Al-Arish’s port area. The decree stated that all the surrounding land required for development work, totaling an area of 541.82 acres, would be reallocated for the benefit of the armed forces.

Recently, the residents of Al-Arish released a statement declaring their refusal to leave their homes due to the failure to provide them with alternative housing, inadequate compensation, and the lack of credibility of the governor in communicating information to the officials. They appealed to President Abdel Fattah el-Sisi to intervene and halt the evictions and destruction of their homes.

Attempts to stop the home demolitions have been met with violent repression by security forces, according to Al-Araby Al-Jadeed, the Arabic-language site of The New Arab. Al-Arish, being the only port in North Sinai overlooking the Mediterranean Sea, is undergoing this development plan supervised by the Armed Forces’ Engineering Authority. The plan aims to extend the quay to 1.5 kilometers and deepen the port to 14 meters, allowing the entry of ships with loads of up to 40,000 tons.

The development and expansion of the port are part of a broader strategy to boost Egypt’s struggling economy by privatizing ports in and around the Suez Canal.

Egypt’s large-scale port projects

Hutchison Ports recently made a substantial investment in Egypt’s major ports, Ain Sokhna and Alexandria, signaling their commitment to the Egyptian and African markets. The total investment for these projects amounts to approximately $700 million, adding to Hutchison Ports’ overall investment in Egypt, which now exceeds $1.5 billion.

The investment entails the development of a state-of-the-art container terminal in Ain Sokhna Port, with a capacity of 1.7 million TEUs (twenty-foot equivalent units). Equipped with advanced technology and equipment, this terminal aims to provide efficient and reliable services to customers.

Furthermore, Hutchison Ports will invest in the establishment of B100, a new container terminal in the Port of Alexandria. This terminal will serve as a gateway to the Egyptian market, facilitating trade and commerce.

During the signing ceremony for the concessions, which took place in the presence of distinguished guests such as His Excellency Mostafa Madbouly, the Prime Minister of Egypt, and His Excellency Kamel Al Wazir, the Minister of Transport, Mr. Eric Ip, Group Managing Director of Hutchison Ports, expressed his delight in announcing the investments in Sokhna and B100. He emphasized the company’s dedication to Egypt and the broader African market, highlighting how these investments would enhance their ability to deliver high-quality services to customers and contribute to the local economy’s growth and development.

The new container terminal in Sokhna, strategically located on the Red Sea, will significantly boost Egypt’s maritime trade by providing direct access to major shipping routes.

Conversely, the B100 container terminal will establish a new entry point to the Port of Alexandria, one of the largest ports in the Mediterranean and a crucial trade hub connecting Europe, Asia, and Africa.

Can these projects save Egypt’s struggling economy?

Egypt’s economy has faced significant challenges in the past year, including a devaluation of the Egyptian pound, a shortage of foreign currency, and soaring inflation. Some of these issues can be traced back to long-standing problems such as failed industrial development and export policies that have resulted in a persistent trade deficit.

Several factors have hindered investment and competition in Egypt, including an over-valued currency, weak property rights and institutions, and excessive state and military control. Although subsidies have been reduced, they have historically placed a strain on the budget. Foreign investment outside of the oil and gas sector has been insufficient, making remittances, Suez Canal transit fees, and tourism crucial sources of revenue.

President Abdel Fattah al-Sisi often attributes the country’s economic struggles to the aftermath of the 2011 uprising and rapid population growth, which the World Bank estimated at 1.7% annually in 2021. Authorities have also cited external shocks like the COVID-19 pandemic and the war in Ukraine as contributing factors. However, analysts point out policy missteps, including costly efforts to defend the Egyptian pound, reliance on volatile foreign portfolio investments, and a failure to implement structural reforms.

While the overall economy and most private sector companies have suffered, some Egyptian enterprises, both old and new, large and small, have managed to find opportunities and adapt to the changing circumstances. Many have focused on exports, tapping into growing markets in the region and beyond, such as agricultural producers, herbal and horticulture businesses, manufacturers of building materials, garments, and light manufactured goods, as well as providers of technological solutions.

These successful companies share common characteristics, which reflect the challenges posed by the current economic crisis. They rely mainly on local inputs to avoid import constraints, avoid competition from state-owned enterprises, keep overhead costs in check, and maintain a low profile. Looking ahead, service companies, technology providers, consultants, and data processors aim to increase their returns by offering back office services to neighboring economies, taking advantage of the opportunities created by currency devaluation. However, for Egypt to overcome its economic hardship, it needs to transform these successful businesses into the majority.

On May 16, the government announced a package of investment-friendly measures to boost private sector investment by reducing bureaucratic hurdles, ensuring fair competition with the state, and providing clarity on taxation. While these measures are welcomed, their true effectiveness will depend on the implementation of a comprehensive economic reform program. To regain the confidence of both international and local investors, as well as rating agencies, Egypt needs to adopt, declare, and follow through with a comprehensive reform agenda. The current port project investments, while beneficial to Egypt’s budget, are not sufficient to turn the economy around. The country’s growing debt burden, rising interest rates, and weakening currency have increased the cost of servicing debt. Interest payments alone are projected to consume over 45% of total revenue in the current financial year.

Egypt faces a substantial external financing gap due to substantial principal and interest payments on foreign debt, including a significant repayment obligation to the IMF. Addressing these challenges will require a comprehensive economic overhaul that prioritizes favorable conditions for the private sector and a reduction in military intervention in the economy. However, achieving these goals will take time.