How Egypt is boosting private sector investment in infrastructure

 

In recent years infrastructure and real estate development have been important growth drivers for the construction industry, and the government has highlighted the need for private investment to take on a larger role in the sector. Indeed, much of the growth in construction activity has been accelerated by the private sector, as a result of the government’s economic and structural reforms designed to improve the business environment. The private sector is set to play an even more vital role in the sector as the economic effects of the Covid-19 pandemic in early 2020 are likely to reduce the government’s capacity to fund large-scale projects in the short term.

“There are sufficient projects in the pipeline for the construction sector to continue driving economic growth in the medium term,” Mohamed Ibrahim Mahlab, CEO of Rowad Modern Engineers, told OBG. “However, for this growth to continue at a sustained rate, it is important for the private sector to keep investing in and generating new projects.”

Infrastructure Development

In FY 2018/19 private sector investment accounted for 90.3% of the construction and building sector’s contribution to GDP at current prices, with a total value of LE289.7bn ($17.9bn), up from LE232.3bn ($14.3bn) the previous year. In comparison, public funding represented around LE31.1bn ($1.9bn), up from LE24.8bn ($1.5bn) in 2017/18.

According to the “Global Infrastructure Outlook” published by the Global Infrastructure Hub, Egypt’s infrastructure will require $675.4bn in investment between 2016 and 2040. Over this period the report predicts that the Egyptian government will be able to provide up to $445bn, resulting in a significant funding gap. Transport and water infrastructure, two of the most critical areas, are expected to require $180bn and $45bn in investment, respectively.

Recognising that the country’s long-term economic development strategy will require substantial infrastructure investment in the near term, the government is increasingly encouraging the participation of the private sector. In late 2019 President Abdel Fattah El Sisi announced that the government would be willing to forge partnerships with the private sector in all national projects.

PPP Projects

The government has also continued to promote the public-private partnership (PPP) model. In 2006 the PPP Central Unit was established at the Ministry of Finance. The agency aims to foster cooperation with the private sector to provide funding for infrastructure projects, reduce the government’s need for sovereign lending and ease the burden on the state budget.

Egypt’s first PPP project, the New Cairo Wastewater Treatment Plant, was awarded to a joint venture of Orascom Construction and water management company Aqualia in 2009. In the years since, the government has used PPPs to drive the development of private sector schools through an initiative launched in 2016. The authorities aim to construct 1000 schools using this model by 2030 (see Education chapter). Under first phase of the programme, in 2019 the government signed a PPP agreement to build and operate 24 schools with a total of 910 classrooms, at an expected cost of LE650m ($40.1m).

In the real estate sector, meanwhile, the New Urban Communities Authority, a government body affiliated with the Ministry of Housing, Utilities and Urban Communities, started offering land for co-development under revenue-sharing agreements with private developers or PPPs. The first PPP phase, launched in 2015, involved agreements to develop five plots of land with a total area of 2034 ha, while the second phase, which was signed in 2018, saw the allocation of six plots covering 959 ha. For the third phase, which had yet to be launched as of June 2020, the government plans to offer 20 plots in nine new cities, covering a total area of 4047 ha.

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The Report: Egypt 2020

Construction & Real Estate chapter from The Report: Egypt 2020

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