Can Sisi turn around Egypt's economy with mega projects?

CAIRO – As cars line up along the congested roads linking Cairo’s wealthy neighbourhoods in the northeast with its pulsating commercial heart,  giant posters of Egyptian President Abdel Fattah el Sisi are no longer the only one to loom above the  passers-by. For several months, glossy advertisements for big-buck infrastructure projects have come to dominate the streets.  

“Forget the numbers,” said Khaled al Husseini, a spokesman for the company that is building the alternative capital.  “They’re not important and not fixed. We have a dream, and we’re building our dreams now.” 

The statement is a typical reflection of how government officials view these projects which analysts see as a waste of money as most of them are economically unfeasible. 

Like many Egyptian rulers before him, Sisi is trying to raise his political stock by announcing a  vast number of extraordinary, and just as unrealisable, mega-projects. 

Amongst “the 11,000 national projects” Sisi likes bragging about, especially on Twitter, his poster works are the new Suez Channel and the surrounding tax-free economic zone, only lately sidelined by the grandness of the new administrative capital. 

The government defends its large infrastructure projects with its own reasoning. 

 “When the president took over, the country was falling apart, and the private sector wasn’t interested in investing in it, therefore he had to launch a Marshall Plan," Minister of Investment Sahar Nasr told TRT World.

"Moreover, in order to create jobs for the youth, he decided to focus on construction, the sector with the largest multiplier effect worldwide."

But the jobs these projects create don't last for long while they burden the government with debt, which it then struggles to pay off. 

Egypt expert Robert Springborg argues that “investing so much in the construction sector, on the one hand, generates only short-term jobs and, on the other hand, absorbs a third of the national budget.”

“I find [it] appalling the number of mega-projects the government has launched since 2014,” said David Sims, who has been working as an urban planner in Egypt for many years. 

“We asked the government to complete some unfinished projects in the informal areas of Cairo, where most of the Cairenes live and where there is a widespread lack of services, but they ignored us. They don’t care about their own people; they just want to make money.”

There are mega-projects for each and every sector – from farming to fishing, transport and housing, as well as solar and nuclear energy – but if many exist only on paper, “some are sexier than others,” said Sims, who is also author of the book Egypt's Desert Dreams: Development of Disaster. 

“When it comes to attracting foreign capital, the new cities are the sexiest of all.” 

On the scale of grandiosity, the New Administrative Capital launched in May 2015 and set to open in mid-2019 stands out. It spans 700 sq km and should host in between five and seven million people within high-rises and residential buildings. 

So far, 30,000 flats have been completed. The yet-to-be-named  city would include 1,250 mosques and churches, 2,000 schools, over 600 hospitals and 40,000 hotel rooms, as well as an amusement park four times the size of Disneyland and a central green area twice the size of New York’s Central Park. 

The hub of the project comprises a diplomatic quarter with 30 ministerial buildings, which are scheduled to relocate there by June 2019, and 110 foreign embassies. As for the latter, no one has yet publicly accepted.

“I call this the great economic geographic remapping of Egypt,” said Nasr. “For the first time, we are dealing with an integrated development solution where, together with the industrial and investment zone, there’s a whole society and full services that provide people with entertainment, as well as schools, health facilities and housing.”

To the ever-growing Egyptian population the government presented this project as a chance to live in a dream place, not too far away from the ultra-congested Egyptian cities. 

At the same time, though, it overlooked important details, such as only the affluent members of society would be able to afford the high-cost housing projects, turning the city into a lucrative but empty building project, like a dozen or so half-empty Egyptian towns that have been planned since the 70s. 

“Between one-third and one-half of the built environment budget ($1.6 billion) serves New Cities, where only about two percent of the population live,” Yahia Shawkat, urban policies mapper, pointed out. 

Despite the government’s insistence, the Egyptian people are far from being the main target of its construction initiatives.

The New Capital, like other empty new cities such as New Sohag, New Assiut, New Aswan and New Thebe, lies on “a tremendous speculative investment scheme,” wrote Sims. 

“The main financial model depends upon a continued scramble for land on the part of private developers.” 

Even if the supply exceeds the demand by large, the machine must keep running. While private real estate companies buy land plots to develop, well-off Egyptians, who mainly live and work abroad, offer down payments to purchase housing units at a low price. And when the market proves advantageous, they sell them to new customers.

 “While most of these people won’t ever move into their new homes,” said Sims, “private developers expand their promises by adding more appealing billboards, and the authorities (ACUD is 51 percent owned by the army and 49 percent by the Authority of the New Urban Communities (NUCA)) make money from the land sale.” 

No one knows how long it will take before this property bubble will burst.

“We need the mega-projects to reposition Egypt within the investment map and reboot the economy,” said Minister Nasr to TRT World. “Take the new parallel channel and the economic zone around Suez.” 

In 2015, Sisi unveiled the new Suez Canal amid much fanfare. But three years later, the numbers show that the dividends haven’t matched the hype, and the income from the canal remains stagnant.

“We can’t do much about it. The shipment fees depend on the global economy and in fact, when the worldwide machine slows down, the shipments decrease too,” said Minister Nasr. 

According to Egypt expert Robert Springborg, “The low revenues of the Canal can’t be attributed to the global recession but rather to less episodic factors.” 

For instance, there is the substantial reduction in the traffic of oil tankers from the Gulf through the Mediterranean Sea to North America due to the boom in America’s shale oil production.

The New Suez Canal also faces competition from expansion of the Panama Canal, opening of new shipping routes like the passage through the Arctic and China’s ambitious One Belt, One Road project. 

“I’m just saying that Instead of $8 billion for a channel that didn’t bring any significant gains, they could have invested a similar amount in a host of small and medium enterprises and have much more dramatic impact on employment and output,”says  Springborg. “Infrastructure in the absence of the soft tissue – like healthcare, education and training – that connects sectors of the economy will only have a limited beneficial impact.”

Finally, out of all Sisi’s mega-projects the Sinai project raises more doubts and curiosity than others because the area is ravaged by militancy and the government’s devastating military response. 

Interestingly, Sinai featured in the Saudi Crown Prince Mohammed bin Salman's visit to Egypt in early March, which translated into an agreement to invest $10 billion in the Sinai, as an extension of Saudi's $500 billion NEOM megacity project, which has been envisioned as a constellation of hi-tech cities with robotic and other technological features, where touristic facilities will be built from the Red Sea, Gulf of Aqaba to Gulf of Suez coasts. 

Whilst the Egyptian government praises the army for having almost entirely uprooted the militancy and their sleeper cells from the north of the peninsula, journalists and humanitarian workers have been denied access into the area, making it hard to verify things first-hand. 

Mohannad Sabry, a respected Sinai researcher and insider, told TRT World, “Sinai is facing a crisis of massive proportions, where over 100,000 people have been displaced and even the gas stations stopped working.” Sabry doesn’t believe NEOM will ever be realised. For him, it's hard to imagine that such an ambitious project could take off in a politically volatile region like Sinai. Plus he's had a bad experience witnessing previous mega-projects; most of them were abandoned mid way, leaving hollow structures behind. 

In 1997, the Egyptian government launched the North Sinai Development Project with much fanfare, but in the next few years the construction slowed down and finally stopped in 2006. 

It's a mix of lack of trust and insurgency that casts a shadow on the new Saudi-backed initiative in the region. Last December, when the Ministers of Interior and Defence visited the area, they were targeted by missiles. 

With Saudi Arabia pumping in big dollar money, if the Sinai project really succeeds, Sabry thinks the poor will still remain poor and “Saudis will decide everything, and Egypt won’t get anything other than money.” 

But Nasr, the Minister of Investment, says the government has done all the homework to ensure the projects come to fruition. 

“In Sinai, I have personally gone through deep consultations with the Bedouins and the families who lost their relatives in the terrorist attacks,” she said. "Together, we set a master plan, of which they were very happy." 

Sabry is scornful of such assertions, however. 

“Bedouins, who lost their land because of the government, should get excited about a Saudi project?” Sabry said, mockingly. “They, who are getting massacred by their old military friends, would welcome a project that only benefits the Saudis, the Egyptian government and the army? This is ridiculous.”

Grappling with a budget deficit of 10.9 percent of the GDP, in 2016 Egypt was forced to turn to the International Monetary Fund for a $12 billion loan. 

Last April, an assessment published by the IMF itself showed how Egypt’s economy was, in fact, slowly turning around, as it started to both lure foreign investment and accelerate growth but had done little or nothing to improve the life of ordinary Egyptians. 

Today, whilst youth unemployment and inflation are still at concerning levels, the price the Egyptian government is paying to balance the IMF loan with its frenzy to kick off ever new mega-projects is to implement different austerity measures and slash subsidies. 

The latest was the fuel price increase that pushed up prices of petrol and public transport by as much as 50 percent, angering many  people. 

While Egypt’s president keeps launching these giant works as they were “a panacea for all ills,” using Sims’ description, his real goal is to attract foreign investments and distribute its patronage to the military and the private developers. 

Meanwhile, the people are tired and, as they lift their gaze from the stinky congested roads of the capital and, alongside Sisi’s pleased face, glimpse at new bright advertising billboards on the walls of their dirty stripped buildings, they hardly believe in that dream. 

“As long as it concerns the people’s good, these are mega-failures, not mega-projects,” Sabry said.