Posted: April 1, 2015 |  AUTHOR: KEN FOX | CONTACT ME

 

Egypt, the second largest country in Africa (after Nigeria) has been plagued by protests, terror (against Coptic Christians), destruction, corruption, false leadership and civil unrest. These dimensions along with fear on the streets of Egypt, and changing government leadership destroyed their tourist industry and has prevented foreign direct investment. However, the current military leadership headed by President Abdel Fattah Al Sisi wants to stabilize the economy, create jobs, change the country’s image and bring back economic growth.

Three recent and concurrent efforts synergistically represent hope for the country:

1. The military’s complete control of government.

2. The recent, March 2015 economic conference to showcase Egypt

3. The planned expansion of the Suez Canal

Military

Instead of a dictator to keep a populace in line, the military has now taken that  role. After replacing the former president and leader, Mohammed Morsi, and outlawing the Muslim brotherhood, President Al Sisi and his army mean business. The military leadership has created a strategy to engage global leaders and entities to believe in Egypt’s potential, provide loans, make investments in the country and show support.

Conference

President Al Sisi hosted an Egypt Economic Development Conference March 13-15, 2015 in Sharm El-Sheikh (Egypt). He invited 110 Kings and global leaders to attend this conference. Additionally, more than 3,000 invitations were sent to investors and public figures. The hope was to attract billions in foreign investment over the next four years, which will help the country get back on a path of economic growth.

Al Sisi noted at the conference that Egypt has a workforce of 30 million people. His government is aiming to create 6% economic growth over the next five years and reduce unemployment from 13.4%  to 10%.

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The conference gained support for Egypt’s future growth as evidenced by:

  • Saudi Crown Prince Muqrin bin Abdulaziz pledge of $4 billion in aid and investment to support the Egyptian economy.
  • Kuwait’s emir, Sabah Ahmad al-Sabah, and the leaders of Dubai, Sheikh Mohammed bin Rashid al-Makhtoum each made a pledge the same amount as Saudi Arabia.
  • U.S. Secretary of State John Kerry pledge of American support for Egypt’s plan to rebuild its economy.

Concurrently, the Egyptian government is reforming investment laws in an attempt to improve transparency and dramatically reduce Egypt’s notorious red tape, hoping to attract foreign investment. Additional global companies have answered the call, committing to invest in the country, including:

1. PEPSICO will invest $500 million this year to expand its production capabilities in Egypt..

2. GE (General Electric) will invest $200 million in a new multi-modal manufacturing and training center in Egypt. The center will focus on various industries, including: power generation, renewable energy, water, oil and gas, aviation and rail transportation. This facility is expected to create about 500 jobs over the next 3-5 years.

    GE’s Healthcare division also signed a partnership agreement with the Egyptian Ministry of Health and Planning to boost the country’s healthcare technology management system, which includes education and training. Additionally, GE will work with the Egyptian government and the World Health Organization (WHO) to create a “Biomed Center of Excellence.” Eventually, the Center would be operated by the Ministry of Health in cooperation with GE and the WHO. 

3. Germany’s Siemens will invest a total of $10.5 billion in energy related projects including building 4,400 megawatt power plants, factories for manufacturing wind farm components, including rotor blades. These combined projects will create an estimated 1,000 jobs.

4. Italy’s Eni also offered an investment of $5 billion to develop oil and natural gas resources.

Japan is the biggest Asian investor in Egypt. Prime Minister Shenzo Abe pledged his country’s full support, with his view of Egypt “as the key to peace and stability in the Middle East.” He felt stronger economic cooperation is possible through Japanese corporations working on Egyptian projects, like the new Suez Canal.

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Suez Canal Expansion

In North America, news of the Panama Canal overshadows news of the Suez Canal expansion. It is the first major expansion in the Suez Canal’s 145 year history. The Suez Canal expansion includes a new 45 mile long canal which will run parallel to the current waterway. When completed it will increase the capacity to 97 passing ships a day by 2023, up from 49 currently.

The cost of the new canal is estimated to be $4 billion U.S. dollars, and take about 5 years to complete. However, President Sisi is pressing to move faster.  The Suez Canal, which connects the Mediterranean with the Red Sea, can typically accommodate one way traffic–either ships heading north or south because it is too narrow at some points for vessels to cross both ways. The new canal will allow two way traffic and reduce ship waiting time from 11 hours to 3 hours.

The Suez Canal earns Egypt about $5.4 billion a year and is a vital source of income for the country. The canal and its expansion is being operated by the Egyptian Army. President Sisi claims this is for security reasons. 

The canal expansion is part of an $8.4 billion plan to upgrade the Suez Canal. Egypt has wanted to develop 47,000 square miles around the 101 mile Suez Canal into an international industrial and logistics hub to attract more ships and generate income, but has faced numerous obstacles to do so. There has also been discussions about widening the original canal.

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Other

The above commitments by the Sisi government, including progress on the canal, have generated favorable praise from the IMF and Egyptian capital markets. As an indication, several more Egyptian companies have listed on the Egyptian stock market or Egyptian Exchange (EGX). These companies include Oracsom Construction Industries NV, Palm Hills (a real estate company), Qalla Holdings and Arab Dairy Product Company (ADPC). The first Exchange Traded Fund (ETF) also began trading in January 2015.   

The World Bank has also gained confidence in Egypt. It forecasts Egypt’s economy to grow by 2.9% in the FY 2014-2015. The latest World Bank’s Global Economic Projects Report states: “Egypt has started to reform energy subsidiaries by raising electricity and fuel prices, which together with revenue measures should lower the fiscal deficit from 14% of GDP in the fiscal year ending June 2013, to 11% of GDP in two years.” The World Bank report adds, “the high interest in buying investment certificates for the Suez Canal project was part of the reason why Egypt witnessed stabilization in 2014.”

Commentary

Egypt’s’ efforts from the March 2015 Economic Conference to secure foreign investment and generate confidence in the current leadership is encouraging. Results from the conference generated support from world leaders and institutions such as the World Bank and IMF, as well as foreign investments by companies. However, some  experts view Egypt’s current government’s status as fragile, with more improvements needed. President Al Sisi needs to maintain control of his population and religious segments, offering the hope of increased employment, educational opportunities and transparency by the government. 

Three big Gulf Arab allies, Kuwait, Saudi Arabia and the UAE have supported Sisi’s government and helped to maintain a level of stability. They offered a combined total of $23 billion in oil shipments, cash grants and central bank deposits. However, Egypt needs more stability by showing a safe nation and a willing and able workforce. This will help to win back a decimated tourist industry and continue to attract foreign direct investment.

Sisi has to concurrently implement positive government reforms and efforts to create jobs, while continuing to suppress radical Islam. Like India, red tape in Egypt needs to be significantly reduced to create efficient ways for businesses to start and operate efficiently.

Egypt’s progress reflects the forceful hand of the army, whose loyalty to President Al Sisi is key to continuing progress in the country. His strategy for economic revitalization can work if his efforts are implemented without distraction from radical or other groups who want to undermine his regime.

Resources:

1. Egypt Sees Rising Economic Confidence: World Bank, Daily News-Egypt, January 17, 2015.

2. 2015 Proves Promising for Capital Market, Daily News-Egypt, March 14, 2015.

3. Kerry Pledges U.S. Support for Rebuilding Egyptian Economy, Voice of America, March 13, 2015.

4. Suez Canal Set for First Major Expansion, The Wall Street Journal. August 8, 2014.

5. The Great Egyptian Dream: An Update on the Suez Canal Expansion, Atlas Professional Blog, February 9, 2015.

6. Update 3-Egypt Plans to Dig New Suez Canal Costing $4 billion, Reuters, August 5, 2014.

7. IMF Offers Support to Egypt’s Economic Policies, www.eveningsun.com, February 11, 2015.

8. PEPSICO to Invest $500 Million in Egypt, This year, Reuters, March 14, 2015.

9. GE to Invest US$200 Million in New Multi-Modal Manufacturing and Training Facility in Egypt, Reuters, March 13, 2015.

10. Siemens to Invest Billions in Egypt, Break Bulk Events & Media, March 16, 2015

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©2017, The Global Galaxy blog is produced by The Soundings Group, LLC, Charleston, South Carolina, USA, www.thesoundingsgroup.com. The company is an international business consulting firm, specializing in new market assessments, market entry strategies and marketing guidance. The scope of Global Galaxy is to cover timely international trends, issues and business building ideas. Its purpose is to educate, inform and stimulate thinking for business opportunity analyses.

 

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