Egypt Says ‘Show Me the Money!’ – The Daily Beast

04-12-2015

Original Post

CAIRO—Inside a cavernous auditorium in the resort town of Sharm el Sheikh, against a soundtrack of soaring orchestral music, footage of excavators and construction loomed on a giant screen . A montage of colorful high-resolution footage flashed pictures of computer servers designed to represent Egyptian technology. Long panning shots showing maps of Cairo and the Suez Canal as the music rose in tone. No patriotic subtleties were spared. Phrases like “highly efficient and streamlined procedures to ensure smooth business operations,” intoned in British-accented English, drifted over the heads of the audience.

There was no hint, then, in mid-March, of the war that would pull Egypt into combat in Yemen less than two weeks later, nor of the mounting threats from ISIS-linked militants elsewhere in the Sinai Peninsula. This conference was supposed to be all about hope and growth, peace and prosperity. And that is still the government line when it looks to the future. But pipe dreams are not going to save the Egyptian economy, and neither, it seems, will Saudi largesse as the two countries wade more deeply into the Yemen quagmire.

The video at Sharm el Sheikh was designed to teach the audience at the Egyptian Economic Development Conference about the government’s plan to develop the Suez Canal. “This audacious project is on schedule for completion,” said the voiceover, not stating when completion is actually scheduled. The final shot showed a silhouetted group of construction workers gathering to lift an Egyptian flag in a manner befitting a USSR-era propaganda film.

Outside on the conference center floor, a glittering purple model city with twinkling lights imitated dusk falling over a brand new metropolis, complete with tiny skyscrapers. Delegates were told that in five to seven years, the first district of its real-world twin will be completed.

The project is to become the largest purpose-built city in existence, and Egypt’s new administrative capital, although Egypt will only own 24 percent of the undertaking–by contributing land to the development. Private ownership of the remaining 76 percent will be agreed via the UAE-based private real estate firmCapital City Partners Limited. The model’s plinth in the corner of the marble-floored room sat surrounded by booths for banks and investment funds, tables groaning under the weight of financial portfolios and bowls of gourmet chocolates.

But the promises being made by the Egyptian government were huge, and potentially unwieldy. Numbers flew past the faces of attendees at breathtaking speed—$12.5 billion in grants from Saudi Arabia, Kuwait, Oman and the United Arab Emirates, or a $12 billion deal with British Petroleum.

President Sisi’s closing speech riffed on the idea that he bargained down every high profile international investor to carry out projects within a shorter timeframe and for less money, suggesting the world is beating a path to Egypt’s door and everybody wants in at once. Describing a conversation with General Electric, Sisi drew raucous laughs from the audience: “I said why not eight months, and he said yes it can be done in eight months. He said we won’t get any sleep, and I said it’s okay…!”

There may be a lot of sleeplessness in Egypt in the near future. As Sisi’s government partners with the Saudis in their military campaign in Yemen and perhaps elsewhere to help “the Arab nation confront various dangers” (from their perspective, Iran and ISIS), internally Sisi’s continued support rests on restarting the economy. But overall there is a startling lack of facts and figures around the new economic proposals, in particular how effective they can actually be.

“Do not think that Egypt needs less than 200 to 300 billion dollars to be rebuilt, so that the 90 million Egyptians can live, work and enjoy for real,” Sisi declared. A third of a trillion dollars is no small figure, and the Egyptian government is hoping to attract it with a new “one stop shop” investment law. The problem is that no details of the law have yet been released.

“Do not think that Egypt needs less than 200 to 300 billion dollars to be rebuilt.”

“Were there problems with the old law? Yes, of course—because if not, we wouldn’t be where we are,” explained Ahmed Marwan of the international investment firm Sigma Capital. “But on the other side, does it make sense to have a conference with the business community and the world looking on and have the Egyptian delegates not be aware of the law? If you ask me what I think, whether it’s a good law or a bad law, at least I could say ‘it’s a bad law and here’s the problem, etc.’ But this is a bigger problem, not knowing what’s in it.”

Egypt’s track record on effective foreign direct investment (FDI) is poor. A 2013report by the Egyptian Center for Economic and Social Rights indicated that “Egypt attracts investments that are not beneficial to its economy.” ECESR argued that rampant corruption results in losses of around $6 billion per year, combined with “Egypt’s failure to attract useful and genuine investment” to aid economic growth. Egypt, the organization says, “is also one of the top four countries facing international litigation from foreign investors.”

Sisi’s government is looking to attract foreign investment in parallel to the economic mega-projects of an expanded Suez Canal and the new administrative capital, both intended to relaunch Egypt’s economy. But the predictions on the economic benefits of both could also fall flat.

“Unless I’m mistaken we have very few figures about the project for the new Capital,” explains Mohammed el Dahshan, non-resident fellow at the Tahrir Institute for Middle East Policy. “The only ‘development’-related figure I can find in the project brochure is ‘potential for 500,000 to 1.5 million new jobs with no further details,” said el Dahshan. “Now it’s quite likely that those jobs would be in construction, and hence are jobs with little added value. Hardly what a country needs to reach the growth rates it is projecting.”

Ahmed Morsy, a former analyst with the Carnegie Endowment for International Peace and now a researcher at St. Andrews University, argues that this $66 billion could have been used to rejuvenate Cairo’s fragile infrastructure, a city currently home to 20 million. “One of the big questions for me is why not finish the metro lines that you need to minimize the pressure on the city,” says Morsy.

On Wednesday of this week, Sisi quietly announced that the Egyptian state will not allocate any funds to the project, which will now be funded entirely using FDI. Critics say this is a way for the government to distance itself from the project, perhaps before abandoning it entirely.

But the most high profile of the new projects surrounds the Suez Canal and has so far endured. This involves adding a new channel for 2-way traffic and developing the area around it in a project named the “SCZone.” The idea is to grow the revenue collected by the canal from $5 billion to $13 billion per year.

But while the potential may be there, experts are divided on whether this is the correct way to exploit it, especially given that the stated growth doesn’tmatch with projected international trade—and the government failed to carry out a feasibility study before beginning construction. Not to mention the possibilitythat if the crisis in Yemen is drawn out, Suez Canal revenues will decline.

In an interview with Egyptian State TV last September, Hazem Hosny of Cairo University argued that the “size of the Suez Canal and the income are not so easily connected, it depends on so many other factors.  If I make Suez 10 percent deeper, it doesn’t mean the fees on it grow 10 percent.”

El Dahshan argues that infrastructure mega-projects such as this one have the potential to grow economies by scale, “But these are rare cases and require particular conditions. How likely is this to happen with Egypt? We know that the new Canal lane will increase maritime traffic and toll revenue. But unless we’re talking very long term and using very generous projections, this figure appears wildly ambitious.”

In the end, the promise of economic growth is political, explains Morsy. “I think Sisi and his group really want growth and development, but by their own rules,” he says. “They know that it’s the only way to survive any dissent or uprisings.”

Meanwhile, the pressure to put bread on the table of hungry Egyptians is palpable for Sisi, in a country where almost 52 percent of its youth live on or near the poverty line. But a lack of accountability makes it impossible to judge the real successes of the government’s proposals, or to find ways to fix problems.

“The motto here is ‘I know what’s best for you. All you need to do is follow my lead,’” says Morsy. For now, the joyful reception among the Egyptian public that followed the conference in Sharm el Sheikh suggests this strategy is working. But these new economic projects have been sold to the Egyptian public as a magic pill that will relaunch their economy quickly, when this may not be the case. In the end, they could be as ephemeral as the twinkling lights of tiny skyscrapers in an imagined capital that may never be built.

Category: In the News

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