Canal-side developments offering potential construction projects in Egypt

In August 2015 Egypt opened the new Suez Canal axis to much fanfare. An Egyptian project that was managed, financed and executed entirely by Egyptians in record time elicited extensive media coverage. This is understandable given that the project had become a symbol of political and economic rebirth, but also, just as importantly, given that it constituted a remarkable feat of construction.

Initial Plan

The original Suez Canal opened in 1869 as a groundbreaking addition to global shipping routes and construction took 10 years to complete. The new 72-km expansion, however, was only a year in the making. The $8.2bn project – mainly funded through five-year investment certificates sold to ordinary Egyptians – had originally been scheduled to take three years, with some sceptics believing it would actually take as many as five years to complete. The opening in August, therefore, came as a welcome and satisfying surprise. The early completion of the project was, in part, due to a call by President Abdel Fattah El Sisi for the new canal to be ready within 12 months – a significant challenge for any contractor given the scale of the project.

Team Work

Overseen and organised by the Egyptian Army Engineers Corp, the project comprised the digging of a new 72-km channel, and the construction of six underwater tunnels connecting Port Said and the Ismailia regions. The creation of the new waterway, which will allow ships to pass through the canal in both directions, thereby significantly reducing travel times and increasing the overall capacity of the infrastructure, was itself a large undertaking. Indeed, many of the world’s leading dredging companies, including the National Marine Dredging Company from the UAE, Boskalis and Van Oord from the Netherlands, and Jan De Nul of Belgium, were enlisted under the title of the Challenge Consortium, to undertake the digging and dredging of the new canal axis on a contract worth $1.5bn.

Record Time

The consortium had to dig a 35-km waterway to a depth of 24 metres. To achieve this on schedule, the participating construction firms far exceeded industry norms for performance. Yasser Zaghloul, CEO of the National Marine Dredging Company and chairman of the Challenge Consortium, told the regional press, “To realise this formidable task in record time, we deployed 26 dredgers and 40 additional equipment – an unprecedented number to have been deployed in a single project within a tight schedule of less than 12 months.” The short deadline required an average dredging rate of 1.5m cu metres per day, well above industry norms. The consortium comfortably broke the dredging record of 8m cu metres per month and had dredged more than 200m cubic metres of sand in total by the time the project was completed.

Follow-Up

While August 6, the inauguration of the expansion, marked an important milestone, it did not signal the end of large-scale projects for the construction sector, although some industry players have described a downturn in the sector in the wake of the Suez project. As Mahmoud Bdeir, president of SIPES, told OBG, “There has been a general slowdown in the construction sector as a result of all of the money that was sucked out of the markets by the Suez Canal bond, leaving little room for additional investments by both companies and individuals.” The government, however, has plans for the Suez Canal Area Development Project, a mega-development involving the construction of a 76,000-sq-km industrial and logistics corridor along the banks of the canal, which may help to dispel any feelings of sector deceleration.

The initiative involves expanding ports, building industrial zones and creating the new urban centres of East Port Said, Bardawil City and New Ismailia City on the canal’s eastern bank, and New Suez City on the western bank. These four urban developments alone will have the capacity to house 860,000 residents, which provides a sense of the scale of these overall construction plans.

According to the General Authority for the Suez Canal Economic Zone, the Ain Sokhna Suez area will comprise one of the largest industrial and port complexes in the world upon completion, and the infrastructure, in terms of electricity and water supply for the development around the Suez Canal area, will alone cost an estimated $15bn.

Future Impact

The canal, which is almost 150 years old, will continue to be a source of construction contracts for some time to come. While some of the plans may be modified or delayed, the industry can expect a raft of future projects given the central importance of the canal and the industrial corridor to the country’s economic development plans. Against this backdrop, the expansion is likely to be more significant in terms of further bolstering Egypt’s status as a trade and logistics centre.

In March 2015, the government unveiled a new strategy to capitalise on added benefits of the expanded canal, identifying several strategic objectives, including better domestic connectivity and increased inter-modality, as well as infrastructure upgrades with private sector participation. Priority has been given to transport infrastructure improvements in particular, ranging from roads and railways to dry ports and container terminals. While roads account for 97% of freight transport in the country, according to the Ministry of Transportation, Egypt is looking to expand rail capacity both for cargo and passenger traffic, with $6.4bn worth of planned rail and dry port projects in the works.

Increased Trade

Maritime upgrades also top the agenda, with the pipeline of port development projects reaching a combined $1.9bn, including new general cargo and container terminals in East Port Said ($990m), general cargo terminals in Damietta ($150m) and Safaga ($250m), and a universal port project in Ain Sokhna ($500m), to include terminals for liquid bulk, general cargo, dry port and containers. These projects go hand-in-hand with efforts to develop manufacturing activity and industrial zones around the Suez Canal, which could create the necessary added value to justify higher transit fees.

While 8-10% of global sea trade passes through the Suez Canal, transit fees average between $150 and $200 per container, compared to $2000-$3000 in European ports, due to a lack of associated services, according to the International Quality and Productivity Centre, an industry-focused research and events company. The large-scale Suez Canal Zone development project, which is targeting $68bn-$100bn in investments through to 2023, aims to promote the development of related service industries in cities near the Suez Canal and also plans to create a technology valley centred in Ismaili.