Since coming to power, Egypt’s President Abdel Fattah el-Sisi has undertaken various mega infrastructure projects with dubious economic benefits. Despite a worsening debt crisis, these projects remain a government priority.
The debt crisis has grown with the percentage of the total debt of the GDP at 101 percent as of the end of 2018, and the cost of servicing the debt reaching 31 percent in the 2016-2017 budgets. One of the notable challenges of the debt crisis is the budgetary strain of meeting interest payments. This has prompted the government to plan debt restructuring, reliance on longer-term loans, and the issuance of Zero-Coupon bonds, which have no interest payments and are sold at a deep discount. Despite the strain on the budget, the push for mega-infrastructure projects remains.
These projects are touted as essential for the revival of the Egyptian economy, but more importantly serve two important functions. First, they provide the military with additional opportunities to increase its involvement in different aspects of the Egyptian economy. Sisi denied this in May 2019, stating that the role of the military in these projects is purely “supervisory.” However, recent reports have traced the growth of the military owned firms under President Sisi, particularly military-owned firms involved in mega-infrastructure projects. The most notable example is the military owned El Arish Cement Co, which has recently constructed Egypt’s largest cement factory, worth $1 billion. As of 2018, the factory’s capacity for cement production is at 79 million tons, which is much higher than market capacity, estimated at 52 million tons. The military had previously stated that these new constructions and new projects would increase the size of the market.
The growth of the military’s economic reach prompted the International Monetary Fund (IMF) to issue a warning in September 2017 that job creation and private sector development “might be hindered by involvement of entities under the Ministry of Defence.” Sisi himself had previously engouraged the military in November 2014 to deliver mega-infrastructure projects three to four times faster than the private sector—an indication of the intention to rely on the military to implement these projects—which increases its economic power.
Second, these projects serve as a tool of power projection and consolidation of support among regime supporters. The most notable example of this is the extension of the new Suez Canal, which was promoted as an essential alleviation of the economic crisis.In 2014, the head of the Suez Canal Agency, Ehad Memmish, claimed that the expected revenues are forecasted to reach $100 billion a year. To place this number in perspective, the total size of the Egyptian economy at the end of 2018 reached $249 billion, and the total revenue of the Suez Canal for the same year reached $5.7 billion.
The Suez Canal extension was mostly financed by the issuance of local bonds, in September 2014, with a 12 percent interest rate. A promotional campaign portraying economic participation as a patriotic duty accompanied this. The project did not deliver the expected benefits, with the revenues of the canal falling in the first few years. Prior to the extension, earnings were $5.5 billion in 2014. In 2015, the revenue declined to $5.1 billion, and $5 billion in 2016, bouncing back in 2018 to $5.5 billion. The project failed to generate enough revenue to meet the loan instalments forcing the Finance Ministry to repay $600 million, since the Suez Canal Agency did not have the necessary reserves. Still, president Sisi declared in a June 2016 television interview that the purpose of the $8 billion extension was to raise the morale of the people, rather than any tangible economic benefit. The project’s opening ceremony highlighted his efforts. It involved military helicopters and F-16 fighter jets flyovers, President Sisi in full military attire and the attendance of a number of heads of state. A spectacle aimed at displaying the power and grandeur of the regime.
Similar vanity projects include the Rod El Farag suspended bridge, which President Sisi opened opened on May 15, 2019. The Military’s Engineering Authority in Partnership with the Arab Contractors, a local construction company, built the bridge. A media campaign promoted the bridge as the largest suspended bridge in the world, as an accomplishment that is the “talk of the world”. The largest Mosque and Church in the country are another example and so is the new administrative capital, which Sisi inaugurated in January 2018. The opening of the church was hailed as “vital” for the Coptic community in Egypt. In addition, the mosque was named Al-Fattah Al-Aleem (Abdel Fattah the Wise), in a reference to the president. Similar plans include the tallest tower in Africa and the largest museum in the world dedicated to a single civilization, dubbed “The Grand Egyptian Museum.” The Museum cost $1 billion and is expected to open in 2020. Although some of these projects are likely to have some benefits, Egypt faces a number of pressing infrastructural needs, such as a revamp of the outdated and underserviced railroad systems, which carry an average of 1.4 million passengers daily. The most recent allocation for the railway was 300 million Egyptian pounds ($18 million), while the annual required investment is estimated to be 10 billion pounds ($602 million). In 2017 alone, the rails recorded 1,657 accidents, an increase of 33 percent in recent years.
The challenge these mega-infrastructure projects present is that they are often pursued in lieu of projects that would bring tangible economic improvements and raise the standard of living of the average Egyptian. Poverty rates have risen from 27.8 percent in 2017 to 30.2 percent in 2018. The increase in the average Egyptian’s economic hardship exacerbates the country’s ongoing economic and social crisis.