Five years after the New Suez Canal still no benefits

Only $1.3 billion is the additional output of the new Suez Canal, five years after the opening of a bypass, which sparked widespread controversy and cost Egypt about $8 billion. These figures were revealed by Osama Rabei, head of the Egyptian Suez Canal Authority, when he said that the authority’s revenues increased by 4.7 per cent in the first five years of establishing a new sub-channel, to reach $27.2 billion, compared to $25.9 billion in the previous five years.

Egypt inaugurated the New Suez Canal in August 2015, within the framework of plans to revive the country’s economy and restore Egypt’s position as an important centre for trade. However, some analysts questioned the possibility of achieving the ambitious revenue targets, in light of the volume of transport and commerce between East and West. According to official statements, the authorities had previously expected that the channel would increase the canal’s income for the first two years after its operation, to reach $8 billion, and then rise by 2023 to $13.4 billion. Indeed, the former head of the Canal Authority, Lieutenant General Mohab Mamish, promised that the project would achieve revenues of $100 billion annually. Meanwhile, experts warned of the futility of expanding the canal, due to the weak global trade movement, and the impact of hasty drilling on foreign monetary reserves.

In terms of numbers, the new bypass did not achieve its economic viability. In the fiscal year ending (2019-2020), the revenues of the Suez Canal reached $5.7 billion, while in (2018-2019) they were about $5.9 billion. The 2017-2018 revenues were $5.6 billion. In 2014 (before the new bypass), the canal’s revenues reached about $5.5 billion, and in the year of expansion (2015), this decreased to $5.1 billion, then $5 billion in 2016, and then rose again in 2018 to reach $5.6 billion. During the past years, the Canal Authority has been forced to reduce ship traffic fees, and even made offers to international shipping companies to pay ship traffic fees for several years at once, in exchange for significant discounts, in an attempt to raise the canal’s revenues. With weak revenues, the government resorted to declaring the channel’s income in local currency (EGP) instead of US dollars, in an attempt to increase the announced numbers.

According to the economist Mohamed Saad, for the canal’s revenues to rise to $13.4 billion by 2023 (according to official forecasts), international trade must increase annually by nine per cent. Saad said that the government’s expectations regarding international trade was based on “fake assumptions,” noting that the global trade rate under the current conditions would not exceed three or four per cent annually at the most. According to the lost opportunity cost calculations, the new bypass led to losses related to the overall Egyptian economy and the losses associated with individuals who rushed to purchase investment certificates for the channel to take advantage of the high interest rate at the time.

The state’s collection of EGP 64 billion from citizens during nearly eight days in September 2014, led to large withdrawals of deposits from banks. The massive withdrawal movements affected liquidity, and the volume of deposits in banks that were not covered by the decision to issue certificates, including only four permitted banks. The state budget did not benefit from the new bypass, which did not achieve a significant increase in revenues equivalent to what the state paid, and what it would pay to diploma holders. Apart from the lack of economic viability and the heavy losses incurred by the canal, there was a political dimension in establishing the new bypass, according to statements by Abdel Fattah al-Sisi.

Al-Sisi said in a television interview on a local channel in June 2016, in response to a question about the new bypass: “It aims to stabilise the state and raise the morale of the people, and this is one of the main reasons to accelerate the opening of the project.” He confessed that there was a non-economic reason for the new bypass: to “prove that Egyptians have a high ability to achieve big projects in a short time.” And when the new bypass was opened in August 2015, the American newspaper the Washington Post published a remarkable headline: “Egypt’s gift to the world … Nobody needs it,” asking whether the world needs this project.

At the time, there was no government feasibility study for the project, but rather it was the result of an order issued by al-Sisi. Meanwhile, observers said that the main reason that prompted the regime to implement the new bypass was al-Sisi’s insistence on linking his name to any big national project.