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Egypt’s Second Suez Canal Project: Implications For Global Maritime Trade – Analysis

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During the recent visit of the Egypt’s President Sisi to China, both sides agreed to work together on the Silk Road Economic Belt and Maritime Silk Road projects. It was also emphasised that Egypt would actively welcome Chinese investment for its US $4 billion New Suez Canal project that will run parallel to the existing canal in linking the Mediterranean and Red Seas. The new canal is a natural fit for China’s Maritime Silk Road vision, with the planned route already moving through the Suez Canal to reach Europe. So far, China has invested US $1.5 billion in the Suez Canal development zone, which is expected to become the largest service centre for Chinese businesses based anywhere outside of China.

The significance of the Chinese investments lies in the fact that the existing Suez Canal, is the shortest & busiest maritime route between Europe and Asia. Currently, 8-10 per cent of global sea trade in value passes through the Suez Canal, and earns Egypt annual revenues of about US $5 billion are in the form of transit fees (US $150-US $200/container). According to a report released by the International Energy Agency (IEA), merchant shipping from Asia taking the route around the Cape of Good Hope would add 15 days of transit to Europe and 8-10 days to the United States. Hence, the potential for developing maritime services to generate additional revenue is substantial.

The number of commercial ships that pass through the Suez Canal has increased steadily even during the recent political instability in the region (e.g., from 8,012 in January-June 2013 to 8,160 in January-June 2014). The drop in oil prices (which make the short cut offered by the Suez Canal all the more attractive), the volume of traffic is expected to increase substantially. However, ‘Port Said East’ is unlikely to be able to handle increasing volumes, and transit waiting times are likely to grow—hence the importance of developing the Suez Canal area.

The new canal is part of the Suez Canal Development mega project, which includes the development of several seaports in the three governorates bordering the canal – Suez, Ismailia and Port Said – in addition to a seaport in the South Sinai city of Nuweiba and the development of Sharm Al-Sheikh airport. A number of large-scale projects are also planned including a “Technology Valley” in Ismailia which will host several technology projects along with a new industrial zone west of the Gulf of Suez.

The initial cost of project infrastructure will be about US $20 billion; other estimates run as high as US $100 billion. At least a dozen countries, including the United States, China, Norway, India, Russia, and Holland, have expressed an interest in investing in the project. The Gulf such as Saudi Arabia, Kuwait and the United Arab Emirates are also in the fray. The first investor meet to concretise the sector participation is to be held in around March 2015.

The significance of Suez route lies in its close proximity to global oil producer’s hub i.e. Middle East. Europe which is heavily dependent on Russian energy supplies will see the development of Second Suez Canal Project as a viable alternative to reduce its dependence on Russia, as well as increase its maritime trade with China and other Asian countries. China’s trade relations with Africa has grown at 10 per cent per annum, which makes this project also important to their trading interests in the region. However, in short term due to near stagflation like scenario in the European Union the feasibility of the Project might appear questionable, but in the longer run, the construction of this Project will play an important factor to Europe’s economic rejuvenation, by providing enhanced connectivity to energy resources and manufacturing hubs of Asia. An increase in the Suez capacity would mean more goods can travel at a faster speed to markets in Europe and also the trans-Atlantic North Americas.

The Suez Canal has been an important part of the global maritime commerce and Egyptian economy since its completion almost a century and half ago. The leadership of Egypt wants the project to be a symbol of Egypt’s national honour. If properly enlarged and upgraded, it can turn the region into a global port, and be an engine for development and growth in Egypt for the 21st century. But the mega project must be carefully planned and properly managed and lessons must be learned from similar attempts in other countries; otherwise, the project also risks draining valuable resources.

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