New Egyptian plans for desert capital city

In mid-March 2015 Mostafa Madbouly, Egypt’s Minister of Housing, Utilities and Urban Development (MHUUD), announced a plan to build a new capital city to replace the country’s current capital, Cairo. The project, which was introduced at an investment conference in the Red Sea resort town Sharm El Sheikh, is expected to be immense. The government estimates that initial work will cost upwards of $45bn and take 5-7 years to complete. This will result in a built-up area of 105 sq km, which represents only a fraction of what will eventually be a 700-sq-km project located in the desert to the east of Cairo. “We are talking about a world capital,” Madbouly told media at the launch event. Assuming the government’s plans move forward as expected, the new city, which had yet to be named as of late 2015, will eventually house around 5m people, though this figure is expected to rise substantially as additional work is carried out over the following 40-year period. The construction of roads, power stations and other basic infrastructure is due to begin in January 2016.

New Build

The objective of the new project is to effectively replace Cairo – which is beset with a litany of challenges, including overcrowding, high levels of pollution and a housing shortage – with a new, environmentally friendly, comprehensively planned administrative agglomeration. Government entities – including the Egyptian parliament, ministries, various state authorities, foreign embassies and publicly held companies – will serve as the initial inhabitants of the new city. The first phase of the project also includes plans to build a variety of commercial buildings, 15,000 housing units, more than 1000 schools and universities and hundreds of health care facilities. A planned new airport is set to cover more area than London’s Heathrow Airport, which is among the largest in the world. In July 2015 the government adopted a new budget for fiscal year 2015-16, part of which included the allocation of LE5bn ($681.5m) to the New Urban Communities Authority (NUCA) – a government entity charged with developing Egypt’s various new cities – to begin work on the project.

Historical Context

More than 95% of Egypt’s total population of 90m live on less than 5% of the country’s total land area. The bulk of the country’s residents are clustered primarily in the Nile Delta region, and specifically in Cairo and its environs. Rapid population growth and rural-urban flight since the 1950s have turned Cairo – Egypt’s capital for the past 1000 years – into one of the largest cities on the African continent. The pace of expansion has strained the city’s various infrastructures. More than half of Cairo’s residents – an estimated 11m Egyptians – currently live in illegally built informal structures on the city’s outskirts. Despite less than 15% of the total population owning an automobile, traffic congestion and the attendant air and noise pollution remain a growing concern. Moreover, challenges such as a large youth population, high unemployment and other related urban issues are a continual challenge for the state.

By building a new capital, the government aims to bypass these issues entirely. The new city is the latest – and one of the most ambitious – in a long line of greenfield urban development projects carried out in Egypt over the past half century. Indeed, the initiative is the 23rd formal new town to be launched by the government in the past three decades, though the trend can be traced back further still, to the nation’s post-independence years, when Gamal Abdel Nasser’s government established a number of industrial zones and other related urban developments in a handful of previously untouched areas. From around 3.5m residents in the 1960s, Cairo’s population has swelled to around 18m officially counted residents today, making the city larger than the total population of Jordan, Lebanon and Libya put together.

Precedents

In 1979 Anwar El Sadat, Egypt’s third president, established 6th of October City, a new 400-sq-km urban development located some 32 km to the south-west of downtown Cairo. Since then the development, which was built near an industrial zone with the same name, has attracted a considerable number of ex-Cairo residents, who have been drawn by a slew of new residential and commercial developments. According to the government, an estimated 1.5m people currently live in 6th of October, though the state hopes to eventually attract 6m in total.

More recently, in 2000 the government began work on New Cairo, a 70,000-acre project located to the south-east of downtown Cairo. Designed to house a total of around 5m inhabitants, as of late 2015 the government reported the development’s population at around 1.3m. As Cairo’s overall population continues to grow – by 2030 the capital area is expected to be home to more than 30m people, according to government forecasts – a steadily growing number are expected to move to 6th of October, New Cairo and the as-yet-unnamed new capital city. The long-term potential for building activity in these new areas bodes well for Egypt’s construction industry.

Negotiations Under Way

At the time the new city was first announced, in March 2015, it was set to be built by the MHUUD in conjunction with Capital City Partners, a development fund led by Mohamed Alabbar, the UAE real estate developer responsible for Dubai’s Burj Khalifa, the tallest building in the world. After a series of talks with the UAE, the Egyptian government had secured an ownership stake in the project of 24%, up from 20% earlier in the year. Under the original development deal, Capital City Partners was responsible for developing most of the project infrastructure – including electricity sub-stations and gas pipelines – plus the bulk of the housing and other building requirements. According to Minister Madbouly, however, the firm had agreed to hire Egyptian labourers to complete work on the project, which was expected to generate more than 1m jobs.

In June 2015, however, Egypt’s government announced that the UAE developer had pulled out of the project, citing financing issues, and that Egypt had subsequently cancelled the memorandum of understanding (MoU) with Capital City Partners. Nonetheless, the government announced that the project would move forward as expected, so long as financing could be secured. Subsequently, while on a state visit to China in September 2015, Egypt’s President Abdel Fattah Al Sisi signed an MoU with the government-owned construction giant the China State Construction Engineering Corporation (CSCEC) to develop part of the new capital city. As of time of publication the government had yet to announced how, if at all, the change of developer might impact the design or scale of the project itself, other than to confirm that the project would proceed as originally planned. In November 2015 Wafaa Bakry, a spokesperson at the MHUUD, was asked by media representatives if the project would actually be built. She responded, “Absolutely. One-hundred percent. The president has announced it, so it will happen.”

Meeting Deadlines

Nonetheless, given Egypt’s history of satellite city construction and the challenging real estate financing situation throughout the Middle East at the moment (see Real Estate overview), some local contractors and other market observers have expressed skepticism about the new capital city project, despite the government’s repeated assurances. The government’s MoU with the CSCEC – the latter of which has a considerable amount of experience carrying out massive construction projects in Africa and the Middle East – was widely understood to be a signal of the state’s seriousness in regard to the new project.

More broadly, President Sisi’s government has successfully managed the completion of large construction efforts in the past, which does bode well for the current initiative. Most recently, in August 2015 Egypt completed an $8bn expansion of the Suez Canal after just a year of work, in what was widely regarded as a major technical and planning achievement. The project, which was supervised by the Egyptian army, was carried out by 400 private companies and a work force of 25,000, a majority of whom were Egyptian labourers. The substantial initiative required the extraction of more than 260m tonnes of sand from a new 35-km channel, plus the widening and deepening of 37 km of the canal’s original channel. The project was financed in large part by the sale of sovereign bonds, the majority of which were sold to private citizens, who are set to benefit from an interest rate of 12%.