 | Many world leaders were out in force August 6 to commemorate the completion of Egypt's 21st century mega-project, the upgrading of the Suez Canal.
Adding to the festive atmosphere beyond Ismailia, where the new channel was officially declared open, the Egyptian government declared the day a national holiday.
French President François Hollande was in attendance, as was Russian Prime Minister Dmitri Medvedev, Jordan's King Abdullah II, the king of Bahrain Hamad bin Isa Al Khalifa, Palestinian President Mahmoud Abbas and Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah, Emir of Kuwait. The U.S. was represented by House of Representatives member Darrell Issa, a Republican from California, alongside U.S. Ambassador to Egypt Robert Beecroft.
Since its inauguration in 1869, the Suez Canal has been an essential component of international maritime trade, allowing shippers on Europe-Asia voyages to shave more than 5,000 miles off the voyage around Africa.
After tourism, the Suez Canal is the second major contributor to the Egyptian economy. In 2014 the Suez Canal generated $5.3 billion in revenue from tolls; over the past decade, according to the Egyptian Central Agency of Public Mobilization and Statistics (CAPMAS), Suez Canal transit fees have contributed $47 billion to the Egyptian economy.
In 2014 16,700 ships transited the Canal, while over the past decade 182,300 vessels sailed through Egypt's channel.
Since the project was first announced a year ago, the Egyptian government made upgrading the Suez Canal a high priority, despite the immense $8.4 billion cost. Despite a projected three year timeline for the canal upgrade, the new channel was ready in just over a year. The 45-mile long bypass channel parallels the current canal and is intended to accommodate rising traffic, allowing ships to travel simultaneously in both directions instead of convoying one way at a time, cutting canal entry wait times down to as little as three hours.
The new bypass waterway overall will reduce canal transit times from 20 to 11 hours. According to projections by the Suez Canal Authority, daily transits will rise from their current level of 49 ships to 97 merchantmen by 2023. The Suez Canal Authority further estimates that the upgrades will increase Suez Canal annual revenues from their current level of $5.3 billion to $13.226 billion in 2023, a 259 percent increase.
In August 2014, construction began to expand and widen the Ballah Bypass. Funding for the $8.5 billion upgrade was arranged by issuing interest-bearing investment certificates exclusively to Egyptian entities and individuals, and the target amount was collected over only six working days. The government financed the entire $8 billion project by selling bonds to everyday Egyptians at a 12 percent interest rate, a rate two percent above what investors would receive by just using an Egyptian savings account. The fact that the Egyptian investors were willing and eager to accept such a small risk premium on their investment showed great confidence in the project and, by extension, the current regime that undertook it.
Suez Canal traffic has been down markedly for the past year, but began to recover in June. June's 509 container ships brought the January-June canal traffic to 2,961 ships, 1.5 percent lower than the first half of 2013 and 6.9 percent lower than the first half of 2012. June was the first month to show year-over-year positive growth since August 2011.
Analysts expect to see higher traffic totals for the Suez Canal this year, particularly because of diversions from shippers fearing delays at the Panama Canal, which is in the latter stages of adding a third set of locks to handle much larger container and other types of vessels.
The number of ships traversing the canal still remains below peak levels that were hit in the years before the 2008 financial crisis. Europe, the main destination for many of the goods passing through the Suez, has struggled economically during that time for the last seven years, reducing demand for certain types of finished goods, accordingly producing a decrease in ship movements through the canal. In addition, demand for oil and refined products, including gasoline and diesel, which represented around a fifth of the total tonnage of goods that passed through the canal in 2014, is in decline throughout Europe and North America. This structural change in demand will eventually lead to a significant drop in oil tanker movements as Middle Eastern oil, once destined for the West through the Suez Canal, will increasingly divert eastwards to markets in South and East Asia, including India, China, Japan and South Korea.
In the wake of this year's signing of annual trans-Pacific import contracts, for the first time a greater percentage of the all-water eastbound shipments from Asia to North America will move via the Suez than the Panama Canal. The Panama Canal has not released monthly container traffic data in a year. Driving the revenue and tonnage through the Suez Canal will be the Asia-Europe trade, more so than the size or depth of the upgraded canal.
As for the canal, developers are not only aiming to increase the number of ships crossing through it, their objective is also to transform the surrounding area into a huge industrial zone for ships that also offer important navigation services for both the Mediterranean and the Red Sea.
During the second stage of development of the region surrounding the Suez Canal, which has already begun, 10 million dunams (2.5 million acres) of land will be developed, with industrial centers rising all along the canal with attendant new housing. Federation of the Egyptian Chambers of Commerce (FEDCOC) head Ahmed El-Wakil announced on Sunday that over the next three months Egypt will promote investment in the Suez Canal Zone in Abu Dhabi, Beirut, Moscow, Barcelona, Marseille, Hamburg, Milan and Lisbon by participating in various business conferences. Encouraging investments, the Suez Canal project will be considered an Economic Zone of a Special Nature (SEZONE), with reduced tax rates for investors; a legal framework for the second stage of the canal's development is currently being drawn up.
The Egyptian people with their savings have shown their belief in the viability of the Suez Canal upgrade project. While future projections of rising use will only be evident with the passage of time, what is certain at this stage is the Egyptian government's initiative will produce increased economic opportunities from China to Europe. | | |