The World is Not Enough: Egypt's New Suez Canal Conjoins Chinese Silk Road

Egypt officially opened its “New Suez Canal,” on Thursday. This project, conjoined with China's Belt and Road initiatives, will serve as strong incentive for China-Egypt cooperation and benefit the whole region and the world.

While the Egyptian flagship project helps rekindle the nation's economy, the two countries' all-around strategic cooperation will also improve regional security, peace, stability and development as well as global trade prosperity.

The Silk Road Economic Belt and the 21st-Century Maritime Silk Road, known as the Belt and Road initiatives, proposed by Chinese President Xi Jinping, aim to revive the ancient trade routes between Asia and Europe. The network spans over 60 countries and regions, with a total population of 4.4 billion.

“Egypt can play a main role in China's Belt and Road initiatives due to its strategic geographic location,” said Han Bing, minister counselor for economic affairs with the Chinese embassy in Cairo, reports Xinhua.

Han said that port cooperation should be a priority for China and Egypt as the two sides collaborate in pushing forward the Belt and Road as well as the Suez Canal economic corridor initiatives. Both the harbors at the ends of the Suez Canal have a great influence over the Middle East, Africa and the entire planet in terms of geopolitics and global trade.

Egypt plans to open six new ports and more industrial parks alongside the canal, and launch in the nearby areas projects like a new industrial city, which is capable of hosting hundreds of factories.

“The new Suez Canal area will give the Chinese side more opportunities to invest in Egypt and other countries,” Egypt's former ambassador to China Mahmoud Allam told Xinhua in a recent interview.

Egyptian officials also proclaimed that the new waterway will help increase the canal's annual ship traffic revenues from USD 5.3 billion in 2015 to more than 13 billion and even up to 15 billion by 2023, attracting huge foreign investments and creating thousands of job opportunities.

Analysts believe that the canal is only the beginning, and expect more such development projects in the Suez Canal corridor, which are expected to attract investments worth billions of dollars and produce more jobs.

http://sputniknews.com/business/20150807/1025506576.html

Or not ....

A bigger, better Suez Canal
But is it necessary?
Aug 8th 2015 | CAIRO | From the print edition

AS A feat of brawn it is impressive. In just one year, a third of the time engineers wanted, Egypt has shifted enough sand to allow more and bigger ships to pass more swiftly through a crucial artery of global trade. As a political stunt it is big, too. Since coming to power in July 2013 President Abdel-Fattah al-Sisi has offered an unspoken bargain: in exchange for shrinking political freedoms he would bring stability and progress. Small wonder his government declared a holiday for the lavish opening on August 6th of the New Suez Canal, as it dubs its project; to bolster pride in the achievement, its religious-affairs ministry instructed mosque sermons to cite the Prophet Muhammad’s digging of a trench to defend Medina from attackers.

In economic terms, however, the expansion of the Suez Canal is a questionable endeavour at a time when the government is struggling to provide adequate services to its citizens. True, the channel is a significant source of revenue. Last year it pumped $5.5 billion into an economy weakened by years of turmoil. But both this sum and the number of ships transiting the canal have been flat since 2008.

Egyptian officials claim that the $8.2 billion project, which expands capacity to 97 ships per day, will more than double annual revenues to some $13.5 billion by 2023. That, however, would require yearly growth of some 10%, a rosy projection given that in the entire period from 2000 to 2013 world seaborne shipping grew by just 37%, according to UNCTAD. A recent forecast from the IMF suggests that in the decade up to 2016 the annual rate of growth for global merchandise trade will have averaged 3.4%.

Before its expansion the Suez Canal was operating below its capacity of 78 vessels a day. It could already handle all ships except the very biggest oil tankers. By the estimate of one Egyptian economist, the maximum growth of revenue that the new dredging now allows from the passage of slightly bigger oil tankers amounts to just $200m a year. Boosters say more ships will flock to the canal because new bypasses permit faster two-way traffic. Economists counter that for ships that already save as much as ten days at sea by using Suez instead of sailing around Africa, a few hours less transit time through the canal will make little difference.

One clear plus for the debt-strapped Egyptian government is that the project is domestically financed: thousands of Egyptians last year snapped up nearly $9 billion in special investment certificates paying 12% interest. The downside for punters is that they are in local currency, in a country where inflation is currently running at over 10%. But there may be another long-term plus. Egypt’s government plans to turn the whole canal zone into a giant logistical, ship-servicing and manufacturing hub. If that ambition comes true, mosque-goers will truly take heart from the government’s scripted sermon which divines “useful lessons from the Prophet’s example of innovative leadership, among them the unity and continuity of command, mutual love between the commander and his soldiers, and wariness of naysayers.”

From the print edition: Middle East and Africa

http://www.economist.com/node/21660555/print

A Visit To The New Suez Canal: National Pride Or A Gift To The World?

It’s hot here–very, very hot. I am in the Suez with temperatures of 104F. I find myself sitting in the press tent at the Grand Opening of the New Suez Canal with one hundred reporters from around the world. Restricted to the tent, we cannot leave due to security.

August is hot in Egypt, but it is not your average hot August day here. Even the reporters from Jordan and Bahrain are commenting on the sweltering heat in the Middle East this year. Held hostage in this stifling press room, we are miserable, watching the ceremony on a large screen far away from the actual event. The English translation is bad. (I would have gotten the same amount of value watching the ceremony from the comfort of my hotel room.)

It is the kind of day where sweat pools on your forehead and drips uncontrollably down your shirt. There are no towels or napkins to wipe my brow. The flies are also intense. Posting this story, I have to swat the black swarms as I type. I am making a mistake every other word. So bear with me as I share my insights on the Grand Opening of the New Suez Canal. It is fascinating to me to see the pomp and circumstance play out on the screen for the world, and personally experience the tough situation for the world press covering the event.

The Journey

The ride from Cairo to the Suez Canal was long with many, many security procedures. Searched at every checkpoint, the trip took five hours from Cairo to the Suez. We were packed like sardines in a crowded bus with no toilet facilities. On the journey, armored guards accompanied us (think tanks and machine guns) on each side of the vehicle.

The buses were marked ”Press” and crowds cheered and waved Egyptian flags on our journey. Signs hung from the apartments and the night skies were ablaze with lights. No doubt about it. The Suez opening was a big event in Egypt. Billboard signs of President el-Sisi and Admiral Mameesh lined the roadway. The day was declared a national holiday. (Since the Egyptian work week is Sunday through Thursday, getting a Thursday off made for a long welcome weekend for Egyptian residents.) Saying that Egypt was in a Celebratory mood about the Egyptian canal is an understatement. The ceremony for the opening was equal to Olympic quality with singers, beautiful aeronautics, and elaborate entrances of the heads of state from the neighboring countries.

Sitting in the United States, and avidly following the evolution of supply chain and global trade, I did not realize that the goal to complete the Suez expansion within one year, not the originally stated plan of three years, was a nationalist symbol for the new regime. Instead, I viewed it as a long-term infrastructure project. I was wrong. The government positioning is that the canal represents the new and prosperous Egypt. As I settled into my hotel on arrival, this was very clear. So I found myself, as part of a press corp, a pawn in the government’s efforts to spin a grand story.

I will post this story after I arrive in the United States. I am not sure that it is really a grand story and Egypt is not kind to press at the moment. (The opening of the New Suez canal would have been a great time for el-Sisi to signal freedom of speech and pardon the three Al-Jazeera journalists.)

The ceremony was a celebration of Egypt’s greatness. It was Egypt talking about Egypt for the sake of Egypt. While el-Sisi promises that the canal is a symbol of global expansion and is a gift from Egypt to the world, I see it as a nationalistic symbol of the revolutionary regime. While the government has made great promises of an increase from $5.3 billion to $13.2 billion in annual revenues from Suez Canal traffic to the Egyptian citizens that raised $8.5 billion in six days in bonds to fund the effort, let’s examine the facts. I don’t see that this infrastructure project will lead to this level of short-term gain:

SUEZ, EGYPT – AUGUST 06: Planes fly over during the opening ceremony of the new Suez Canal expansion including a new 35km (22 mile) channel on August 6, 2015 in Suez, Egypt. The new channel of the Suez Canal was finished in a year at a cost of 8 billion USD and is designed to increase the speed and capacity of ships. The new branch is being celebrated as a major nationalist project. (Photo by David Degner/Getty Images).

1) A Big Bet. Trade Is Shifting with a Downward Trend. The design basis of the Suez Canal is to almost double the number of ships that can pass through the canal. However, with slowing growth and the shifts in China, the opportunity today is less about the movement of goods to and from China. North American companies are reshoring and near-shoring. As a result, South America and Latin America are playing a more dominant role, and they do not need to access the Suez Canal. To fund the canal, revenue would need to increase 9% a year which William Jackson, senior emerging markets economist at the London-based Capital Economics group, believes to be unlikely.

2) Changing Supply Chain Dynamics Make It Worse. Demand globally is down, and the molecules and inputs of the supply chain are changing. 3D printing and robotics will be a major force in redefining the automotive and electronics industry. This redefinition of global manufacturing will not require ocean transport.

3) Bucking the Trend. Faster Ships in the Suez Fly in the Face of the Current Trends in the Industry. Today there is more shipping capacity than demand. To cut costs, the current trend in ocean freight is slow steaming. Through slower transit (traveling at 18 knots), shipping companies can improve fuel consumption by 59%. This adds 4-7 days to a trans-Pacific voyage. For a large container ship like the Emma Maersk, slow steaming saves 4,000 metric tons of fuel on a Europe-to-Singapore voyage. This translates to a savings of $2-$5 million per trip depending on the price of oil.

The second trend is larger ships. The Suez project speeds transit time, but with a current depth that will accommodate 66 feet of draught, the New Suez Canal will not be able to handle the super tanker or a fully-loaded Triple-E ocean freight vessel. Why is this important? Larger ships are dominating the industry at a rapid rate. A fully loaded ship requires more draught, or depth, than a partially loaded vessel. Shipping vessels continue to evolve with shipping being more complicated as larger and larger ships are added to fleets. The average container ship increased in size from 5,000 containers in 1998 to 18,000 per ship today. So, even though the rate through the canal can increase from 49 to 97 a day, with more containers on ships in a declining market, this is probably not the reality.

Which leads to the economics of what is charged also being of issue. There will be fewer ships; and even though the canal charges based on tonnage per trip, supply chain leaders fear that the prices per trip will be too high. Prices increased by 5% in 2013 despite international pushback.

4) Making Egypt a More Desirable Place for Commerce. Will Investment Follow? Manufacturing companies are looking for safe locations with a skilled workforce. The building of the Suez is not the magic bullet. As I stared out the window of my bus on the ride to the Suez, and saw the end of the barrel of a machine gun, I did not feel safe. While the speech by the Egyptian president had many words around safe, words do not make a safe environment for commerce. People do not want to live in fear. A more tolerant attitude to the press would be a good symbol for a “new Egypt.” El-Sisi remarked in his speech, “…terrorist groups are trying to harm Egypt and Egypt’s fight against terrorism is ongoing…” Commerce and industrial investment will not succeed in a military state.

Investment also requires a skilled workforce. Currently in Egypt, there are two Universities teaching supply chain management (The American University in Cairo and The Arab Institute for Trade and Commodities Exchange), and finding local talent for companies like P&G, locating in Giza in 2004, was problematic. The good news was that P&G, unlike other global multinationals, provides extensive training for employees. On the night before the opening of the Canal, I had dinner with a number of students. They expressed their frustration.

5) Egypt Cannot Succeed in This Project Talking to Egypt. The presentation at the opening session was all about the benefits of the New Suez Canal for Egypt. However, Egypt talking to Egypt will not drive success. The global multinational needs consistency in government, trade regulations, and supportive government relations. This infrastructure within the fabric of government will take far longer than the year to build the New Suez Canal.

So, is the canal a symbol of a new Egypt? Yes. However, a more important question is unanswered. It is: “Is this an Egypt where the world wants to invest?”

Is this canal a gift to the world? Again, I say “Yes.” However, there are many unanswered questions. Sometimes, the gift in the box when it is unwrapped is not what the receiver needs. In this case, it must be regifted. Despite all the pomp and circumstance, waves and smiles, this, I believe, is the story of the New Suez Canal.

Egyptian President Abdel Fattah el-Sisi waves as he arrives for the opening ceremony of a new waterway at the Suez Canal on August 6, 2015, in the port city of Ismailiya. Sisi staged a lavish ceremony to unveil a ‘new’ Suez Canal, seeking to boost the country’s economy and international standing by expanding the vital waterway.

This article is available online at: http://onforb.es/1eYSUXO