Analysis

Egypt’s New Suez Canal: What are the benefits?

Big Project ME examines the impact the New Suez Canal will have on the region

PHOTO: Ships will now be able to travel in both directions along all 72km of the expanded route. Credit:

On August 6, 2015, Egyptian President Abdel Fattah al-Sisi oversaw the launch of the New Suez Canal, an $8 billion project that is expected to bring renewed economic growth to the North African country after years of damaging political instability.

Completed within just a year instead of the three years originally envisaged, the Suez extension was hailed by al-Sisi as a major national accomplishment on a par with the Aswan Dam and the nationalisation of the original Suez Canal in 1956.

The project includes a 35km parallel waterway flanking the 145-year-old canal, which has long been the shortest sea link between Asia and Europe. In addition, 37km of the existing canal was deepened and widened, reducing transit times by seven hours for southbound ships, while larger vessels will have an easier passage. Ships will now be able to travel in both directions along all 72km of the expanded route.

More than 43,000 people worked on the project, according to the Suez Canal Authority. Dredging operations were carried out by a four-member joint venture called Challenge Consortium, consisting of UAE-based National Marine Dredging Company (NMDC), Boskalis and Van Oord from the Netherlands, and Jan de Nul from Belgium. Dredging operations alone cost $1.5 billion, was shared equally between the partners.

While the builders of the New Suez Canal project have received justified praise for its engineering feats, the main purpose of the canal is to generate trade and revenue for the Egyptian economy. The Suez Canal Authority expects revenues of $13.23 billion annually by 2023. In comparison, 2014 saw $5.3 billion in revenue.

Dr Theodore Karasik, a UAE-based geopolitical analyst, tells Big Project ME that he expects the New Suez Canal system to achieve its aim of helping the Egyptian economy, as the new system allows more ships to go through the canal, as maritime shipping grows over the next few years. The number of vessels passing through the canal daily is expected to rise to 97 from the current 49, the Suez Canal Authority estimates.

“I think that this figure [$13.23 billion] is realistic, given all the projections for the growth of shipping over the course of time. But I also think that the figure may be slightly inaccurate and could actually be higher, based on the shipping to and from Iran and Europe, because by then the Iranian market will be opening and functioning in a robust manner,” Dr Karasik predicts.

“The lifting of sanctions for Iran is going to go slowly, but people are already lining up to get into Iran across a number of different sectors. [The New Suez Canal] is going to be very valuable for not only Iran, but also for investors who haven’t had access to the Iranian market for more than 40 years.”

The GCC will benefit from the canal project in several ways. First of all, Karasik highlights the amount of investment from the GCC, particularly the UAE, in the New Suez Canal system. This has created housing, jobs and other opportunities to help the Egyptian people and stimulate the local economy.

However, other experts are less confident about the positive impact of the New Suez Canal project, disputing the official numbers released by the Egyptian government. Ahmed Kamaly, an economist with the American University of Cairo, tells Reuters that the projections are “wishful thinking”, suggesting that sluggish world trade will make it difficult for the project to deliver immediately on its promise. “There was no viability study done, or known of, to assess the viability of the project,” he says.

The Reuters report adds that for the project to reach revenue targets, world trade will have to grow by 9% annually until 2023, quoting William Jackson of Capital Economics, far exceeding the 3% average over the last four years.

In fact, since 2011, Suez Canal revenue growth has failed to even keep pace with the growth in world trade, Jackson says, highlighting figures show global trade volume rising by an average of 2.9% from 2011 to 2014. Suez Canal revenue rose by just 2% during the same period.

Despite these pessimistic predictions, the region shows considerable optimism about the New Suez Canal project. With the Middle East undergoing a period of intense economic development, governments are investing heavily in infrastructure that will improve transport and trade links, both domestically and internationally.

The launch of the canal means ports along the GCC coast are likely to benefit from increased maritime traffic. This in turn means the likes of Saudi Arabia, Oman and Qatar will be spending heavily to develop their port infrastructure capabilities.

A report by IQPC entitled ‘State of the Market: Port Projects and Expansion in the Middle East’ finds that four mega-port projects in the Middle East will underline the importance of the region for the future of maritime commerce.

The Sohar Port and Freezone in Oman will expand total capacity to 6 million TEU per annum, up from 800,000 TEU per annum. With $15 billion invested to date, the deep-sea port and free zone is one of the fastest growing in the world, thanks to its location and interconnectivity with the sultanate’s road, air and rail infrastructure.

The Hamad Greenfield Port project is the second highlighted mega-project in the report. Currently under construction, total capacity is expected to be 6 million TEU per annum. The $7.4 billion project will cover an area of 26.5km and feature three container terminals, a naval base for the Qatari Navy and visiting naval vessels from around the world.

Dubai will develop Container Terminal 3 at Jebel Ali Port, expanding capacity from 15 million TEU to 19 million TEU a year. The project is expected to be completed in late 2015 and has an investment of $850 million.

Finally, Saudi Arabia’s Saudi Global Ports (SGP) Container Terminal at Dammam King Abdul Aziz Port opened in April 2015. Its current capacity is 5 million TEU per annum, but with development still ongoing, the $500 million project is expected to have a total capacity of 6.8 million TEU per annum.

“The GCC benefits because of the enhanced trade route but also because the trade route attracts more [maritime] security, particularly in the Mediterranean but also in the Red Sea and the Gulf of Aden,” says Dr Karasik.

“With the Saudi-led operations in Yemen, it’s going to be very important to keep this sea lane open. A final reason for the GCC is how the GCC will be using new port facilities that are popping up in Kenya and in Somalia in the future, and this will become part of the international maritime trade.”

Stats

35km: Length of the parallel waterway flanking the existing canal
37km: Length of the existing canal that was deepened and widened
72km: Total length of the expanded route
$1.5bn: Cost of dredging operations
$8bn: Total cost of the New Suez Canal Project
97: Predicted number of ships that can pass per day through the new canal
49: Current number of ships that can pass per day through the canal
$13.23bn: Projected annual revenue by 2023 for the New Suez Canal
$5.3bn: Revenue generated by Suez Canal Authority in 2014

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