Egypt's authoritarian president is celebrating the completion of an $8 billion Suez Canal expansion that nobody asked for
Despite the festivities, and the speed at which the project was completed, many experts are questioning whether the $8 billion undertaking will really bring any of its promised economic benefits.And it might be politics, rather than economic necessity, that's driving the biggest expansion to the canal since its opening in 1869.
But an ISIS-affiliated jihadist insurgency in the Sinai and other frequent security incidents throughout the country undermine his major claim for leading the country. Sisi he might believe an impressive but possibly unnecessary infrastructure project is the surest way of securing his rule during an uncertain time.Amr Adly, a scholar with the Carnegie Middle East Center in Beirut, told Bloomberg that the expansion of the canal is being used as a tool to prop Sisi's regime.
"Al-Sisi is trying to gain legitimacy through his government's achievements," Adly told Bloomberg. "[The new canal] shows the government can deliver, it can commit to something and get it done."
"From a shipping industry point of view, this initiative to expand the Suez canal was a bit of a surprise," Ralph Leszczynski, the Singapore-based head of research at Genoese shipbroker Banchero Costa & Co, told Bloomberg. "There was no pressing need or requests for this as far as I'm aware."
The project may still have some economic benefit for Egypt. The Suez upgrade is partly aimed at keeping pace with another major canal: French newspaper Le Monde notes that expansion work on the Panama Canal is set to finish next year.
Egyptians also seem to be support the project, whatever its merits.
It only took 10 days for the state to raise over $8 billion to fund the canal upgrade. More than 80% of that total came from the Egyptian public's purchase of state-issued bonds.But it's still unclear whether the opening of the canal expansion will produce any actually economic benefits. The government certainly seems to think it will, since it expects canal revenues to more than double from the current annual $5.5 billion to $13 billion by 2023.
There would have to be a 9% increase in traffic for the canal to deliver on its economic benefits, but according to a report by Capital Economics, it's "unlikely" the canal will be able to deliver.There could always be a huge bump in global shipping that could radically increase canal traffic: According to the Suez Canal Authority, around 8% of the world's cargo currently passes through the canal.But such an increase doesn't appear to be imminent. And even then, greater infrastructure would need to be built around the canal to absorb additional shipping traffic.
"'Build it and they will come' is not enough," Simon Kitchen, a strategist with Cairo-Based investment bank EFG-Hermes told Bloomberg.
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