How can Egypt leverage its position on trade routes?

 

For Egypt, which is looking to integrate more fully into global value chains, the development of comprehensive transport infrastructure is vital to longterm growth. The government has made transport investment a priority – both in an effort to boost foreign trade, and to ameliorate the growing urban congestion and pollution arising from rapid population growth in major cities. Although the sector has felt the impact of the Covid-19 pandemic and the medium-term economic effects of the virus are yet unclear, the future of the transport industry is bright.

Structure & Oversight

The government institution tasked with overseeing the sector is the Ministry of Transport (MoT), which aims to make transportation an effective catalyst for national economic growth and promotes Egypt as a global centre for trade. The three strategic objectives within this goal are to develop an integrated, sustainable and safe transport system; enhance multimodality and logistics services; and promote private sector investment throughout the country.

Though the MoT oversees general policy, separate government entities act as operational bodies for each transport method, such as the General Authority for Roads, Bridges and Land Transport, which is tasked with the expansion and renovation of the country’s road network; the Maritime Transport Sector, which is in charge of sea traffic and commerce; and the Egyptian Railway Authority, which regulates the railway segment and Egyptian National Railways (ENR), the state firm that operates the country’s network. The entities not overseen by the MoT include the Suez Canal Authority – which reports directly to Prime Minister Mostafa Madbouly – and those pertaining to civil aviation, which are under the purview of the Ministry of Civil Aviation.

In the FY 2019/20 state budget approximately LE3.5bn ($215.7m) was allocated to transport, with LE1.9bn ($117.1m) specified for the transport authorities in Cairo and Alexandria, and LE1.6bn ($98.6m) allocated to subsidised student subscriptions. In terms of growth, Egypt’s transport sector has expanded steadily over recent years, growing at a rate of 3.2% in FY 2017/18 and 4.1% in FY 2018/2019. This figure is expected to rise to 7.5% by FY 2021/22. However, it lags behind the country’s total GDP growth, which was recorded at around 5.6% in FY 2018/19, up from 4.6% the previous three years.

According to the World Bank, this robust overall economic growth was sustained throughout the second half of 2019, but in May 2020 the Institute of International Finance revised its forecast for Egypt’s GDP growth for FY 2019/20 from 5.4% to 2.7%, citing economic headwinds resulting from the global Covid-19 pandemic. Notwithstanding this setback, the disparity between the transport sector’s rate of growth and that of overall GDP highlights the economy’s structural need for greater investment in transport infrastructure across all segments.

Roads & Bridges

Use of cars remains highly prevalent in Egypt, with some 10.7m registered vehicles in the country as of 2018 – up from 5.6m in 2010. As the population grows and the use of cars rises with it, the need for a more comprehensive road network is becoming increasingly clear. The government is cognisant of this need, and invested heavily in road infrastructure from 2010 to 2020. For example, the National Roads Project – announced in 2014 – outlined 3200 km of roads to be built at a cost of LE36bn ($2.2bn), and led to Egypt rising in the World Economic Forum’s road quality index from 118th to 75th globally between 2014 and 2018.

According to latest figures available from the Central Agency for Public Mobilisation and Statistics, as of 2018 Egypt had 179,900 km of paved roads, 1.7% more than in the previous year. Given that around 94% of Egypt’s cargo moves by road, substantial improvement to motorway infrastructure is likely to create long-term benefits for the country’s economic development (see analysis).

Rail

Egypt’s rail system is one of the most developed on the African continent and throughout the Arab world. The 9570-km network is operated by ENR, which runs both freight and passenger services.

In 2019 the MoT initiated 12 projects to add 424 km of railway track to the network. The first of these projects will connect the Sixth of October City dry port with seaports and the Suez Canal Economic Zone (SCZ one), as well as forming a link to the existing Abu Tartur-Saqqara line. The expansion will be carried out in conjunction with the private sector, following a legislative amendment which boosted private sector investment in the railway network in May 2018. Around 1.4m passengers per day – or 500m annually – travel on the 705-station network using intercity and suburban services. In a broader effort to modernise the network – as well as boost efficiency and safety – in mid-2018 ENR penned the largest deal in its history: a €1bn agreement to purchase 1300 new passenger coaches from the Transmashholding-Hungary Consortium.

Contracts were also awarded to Spain’s high-speed train manufacturer Talgo and France’s multinational electrical systems provider Thales. The former provided six intercity trains that can travel at up to 160 km per hour (km/h) to run from Alexandria to Aswan via Cairo, due for delivery by 2021/22, and the latter filled contracts to upgrade signalling on the northsouth line. Daily capacity between Alexandria and Cairo – Egypt’s busiest route – will be boosted from 224 to 320 trains per day, and maximum speed will increase from 140 km/h to 160 km/h.

Freight traffic is also important to the country’s railways, with ENR transporting some 6m tonnes of goods per year. The government aims to increase this to 25m tonnes by 2022 – roughly equivalent to 5% of Egypt’s total freight pre-Covid-19 – as part of a wider move to shift freight transport to rail and river. ENR, looking to increase its market share of freight handling, is targeting mining products (5.6m tonnes), agriculture products (4.5m tonnes), construction materials and industrial products (4.3m tonnes each), and petroleum products (2.3m tonnes).

A key function of the railway will be to support the wheat supply chain by transporting imported wheat to silos across the country. In April 2020 Kamel Al Wazir, minister of transport, announced the creation of a new public freight transport company to manage rail freight movement. The company will initially manage transport by rail and trucks before expanding into maritime and inland operations.

Metro

The first metro system in Africa and the Arab World was built in Cairo, with the first line opening in 1987. As of 2019 the system had 110.3 km of track. Following the opening of Line 3, which will extend to Cairo International Airport and is slated for completion in 2022, an estimated 3.5m passengers will use the metro every day. Line 3 will extend to Cairo International Airport. In 2019 construction began on Line 4, which will span 17 stations and connect Giza, Cairo and New Cairo upon its completion in 2024. As of mid-2020 lines 5 and 6 were also in the pipeline.

Overcrowding on Cairo’s metro is a persistent concern; therefore, the frequency of the network’s rail services was increased during the Covid-19 pandemic to allow passengers more space, with trains running every three minutes instead of every four.

Monorail

In mid-2019 a monorail project was announced for Cairo, though the official completion date has yet to be set. The £2bn endeavour will be undertaken by Egypt’s Orascom Construction and Canada’s Bombardier Transportation. In May 2020 the foundation stone was laid in the New Administrative Capital – 45 km east of Cairo – for a 54-km line that will run to East Cairo. A second 42-km line is also in the pipeline to run between Sixth of October City and Giza. Upon completion, the two lines will have the capacity to transport 45,000 passengers per hour in each direction. As part of an agreement with the National Authority for Tunnels in Cairo, the consortium will operate and maintain the lines for 30 years after they are built.

Air

In recent years Egypt’s air transport segment has experienced healthy growth in freight and passenger numbers, resulting from its beneficial geographic location connecting Europe, Africa and the Middle East, as well as a growing population and increase in tourist numbers. In 2018 Cairo International Airport saw 17.5m passengers. It is Africa’s second-busiest airport after OR Tambo International Airport in Johannesburg. Cairo International Airport has undergone a number of terminal expansions, including the extensive Terminal 2 project, which increased the airport’s annual handling capacity from 18m to 26m passengers in 2015.

In response to the global spread of Covid-19, in March 2020 the Egyptian government called for an immediate stop to all international passenger flights. The long-term effect this will have on the country’s civil aviation industry has yet to be determined; however, outbound international and cargo flights were exempt from the ban, which allowed for the evacuation of foreign nationals and the continued operation of logistics supply chains for essential goods (see analysis). In May 2020 the national passenger airline, EgyptAir, was granted LE2bn ($123.3m) from the Treasury in the form of a subordinated loan to help offset the impact of the pandemic. Meanwhile, EgyptAir Cargo saw increased volumes in the first half of 2020, and used its parent company’s passenger aircraft to import medical supplies from China.

In line with Egypt Vision 2030, which aims to revitalize the country’s tourism industry, Egypt opened a new international airport named the Sphinx International Airport, which allows easy access to the Great Pyramids of Giza and Cairo’s new Grand Egyptian Museum. The airport received its first international flight from Jordan in January 2020. The following month the Ministry of Civil Aviation announced plans to construct a second terminal building – however, these plans may be delayed given the ongoing economic impact of Covid-19.

A number of security improvements have also been made to Egypt’s airports over recent years. After a Russian airliner departing Sharm El Sheikh crashed in 2015, authorities ramped up security across all airports, spending around $76m between 2016 and 2018. In December 2019 tourist charter flights resumed between Sharm El Sheikh and the UK – one of Egypt’s largest source markets – after a four-year hiatus. The flights ran in January and February 2020 as well, but were halted in March due to international travel restrictions.

Ride-Hailing

In 2014 ride-hailing service Uber arrived in Cairo and quickly spread to other large cities including Alexandria, Hurghada and Mansoura. By end-2019 the company had 90,000 active drivers in Egypt, which is now its largest Middle East market and one of the top 10 globally. In March 2019 Uber acquired regional rival Careem for $3.1bn. Though a wholly owned subsidiary of Uber, Careem continues to operate as an independent brand. Meanwhile, a number of start-ups have recently appeared, challenging Uber’s control of the market.

Similar models focused on collective transport have also been seen. Cairo-based start-up Swvl, founded in 2017, runs buses along pre-selected routes and can be accessed via an app. In a move that was widely seen as a response to Swvl, in 2018 Uber and Careem began their own collective ride-sharing services. In early 2020 Swvl expanded into Kenya, Pakistan and South-east Asia.

Although increasingly popular, regulatory disagreements and legal grey areas can be challenges for ride-hailing firms. In September 2019 Prime Minister Madbouly approved the Ride-Hailing Apps Act, which outlined regulations governing licensing, taxes, social insurance and vehicle registration. The law also focused on compliance and aims to ensure that drivers have all of their documents and social insurance payments in order.

After several years of strong growth, the demand disruption from the Covid-19 pandemic caused some short-term challenges for the segment, with mobility substantially affected in the first half of 2020. As such, in May of that year Uber laid off around 40% of its office-based staff in Egypt. Careem shut down its bus service the same month, citing an 80% drop in business during the pandemic.

As part of a wider initiative to encourage public transport use, in March 2020 the MoT put forward plans to introduce Bus Rapid Transit (BRT) on Cairo’s main ring road. The electric BRT vehicles will operate in separate designated lanes and serve stations at regular intervals along their routes. As of June 2020 work was under way on the project. The BRT will serve parts of Cairo, Giza and Qaliubiya, and all three local governorates are involved in the development process being overseen by the MOT.

Cycling

Although cars have been the mainstay of transport in Egypt for much of the 20th century and up until 2020, a notable increase in cycling was witnessed following the onset of Covid-19, when city streets were quiet due to partial lockdown measures put in place to contain the virus.

The UN Development Programme (UNDP) predicts an overall rise in cycling, particularly among young people. In 2018 the UNDP partnered with the Ministry of Environment to develop a series of bike-sharing projects to provide green alternatives for trips around Cairo. These projects – initially aimed at university students – are expected to encourage more people to travel sustainably.

Suez Canal

Egypt’s geographic location is beneficial for many areas of its economy, particularly inter-regional trade. The key enabler of this is the Suez Canal, which is one of the world’s busiest shipping lanes, seeing around 20% of all container ships pass through its waters. In 2015 an $8.2bn expansion began at the Suez Canal called the New Suez Canal. The project focused on deepening main waterways and constructing a 35-km parallel channel, with the objectives of increasing capacity from 49 ships per day in 2015 to 97 ships per day by 2023; making shipping times roughly 50% faster; and growing annual revenue from $8.5bn to $13.2bn.

Port Said, located between the Mediterranean Sea and the Suez Canal, serves as the canal’s main port and is operated by an Egyptian-international consortium led by the Netherland’s APM Terminals. In April 2020 the SCZ one and its Suez Canal Container Terminal (SCCT) announced a $50m investment as part of a broad-reaching plan to boost the competitiveness and capacity of East Port Said.

The SCCT, which opened in 2004, is part of the wider SCZone and East Port Said. The SCZ one is a 461-sq-km free zone which includes four ports, two development areas, and two integrated zones connecting the ports and development areas. With approximately 8% of the world’s total trade passing through the Suez Canal, the SCZ one aims to leverage Egypt’s geographic position along key trade routes to boost the industrial and logistics sectors, and provide international companies with a number of financial benefits for basing their activities in the zone.

Ports

Egypt has 48 commercial ports: 15 ports located along the Mediterranean coast and 33 on the Red Sea. Altogether, these ports handle approximately 14,000 vessels per year, carrying 160m tonnes of cargo in 7m twenty-foot equivalent units (TEUs). As trade has grown, so has the prominence of Egypt’s ports, which have undertaken a number of expansion projects over recent years.

Egypt’s DP World Sokhna, a subsidiary of Dubaibased port operator DP World, has invested $520m in its Basin 2 project, south of the Suez Canal on the Red Sea coast, which is set to open in the third quarter of 2020. The expansion will increase the port’s capacity by 750,000 TEUs to 1.75m TEUs annually The port also acts as a transit point for international goods destined for other ports in Egypt and Africa. According to DP World Sokhna, as of April 2020 the port was operating at maximum capacity in order to ensure an uninterrupted supply of essential goods to MENA’s largest consumer market.

Investment

Considering Egypt’s strong fundamentals, investment in infrastructure development is a logical policy measure taken by the government in terms of economic returns. Total investment in the transport sector grew from LE65.7bn ($4.1bn) in FY 2017/18 to LE77bn ($4.8bn) in FY 2018/19. The sector has also attracted a number of international players that see potential in the country’s ongoing infrastructure expansion. Egypt was one of the first African countries to join China’s Belt and Road Initiative, and in turn, China is one of the largest investors in the Suez Canal Corridor mega-project – as well as the SCZ one – capitalising on its strategic position along the canal. China’s AVIC International and the China Railway Group are also involved in building a light rail line in the New Administrative Capital.

In August 2019 the European Bank for Reconstruction and Development (EBRD), another of Egypt’s major investors, signed two grants with the MoT, totalling €1.5m. The funds will go towards the renovation of locomotives and further development of the railway network’s freight capacity. Cooperation with the EBRD stretches across the transport sector to encompass maritime and logistics infrastructure. The EBRD’s substantial investments in Egypt total €5.3bn and cover some 100 projects – focusing mainly on transportation, electricity, renewable energy, housing and sanitation.

In January 2020 the MoT announced plans to build Egypt’s first dry port to the west of Cairo, with another seven such ports in the pipeline over the coming years. The General Authority For Ports and Dry Land will work with a consortium of three private companies – Elsewedy Electric in Cairo, Alexandria-based 3a International and Germany’s DB Schenker – via a public-private partnership. The $176m project, slated for completion in 2022, will cover 420,000 sq metres and have the capacity to handle approximately 720,000 containers annually.

Outlook

Egypt’s transport and logistics ecosystem has been substantially impacted by the global Covid-19 pandemic, from the unprecedented closure of its airspace and halting of international flights, to increased pressure on its ports and logistics infrastructure in order to ensure uninterrupted provision of key goods like medical and agricultural supplies.

The likely downturn in economic activity following the pandemic will present challenges over the medium term, in Egypt as in most other countries around the world. However, long-term prospects for the sector remain positive. In spite of the prevailing headwinds, increased integration of regional trade and Egypt’s strategic position at the nexus of various regions and trade routes – combined with a steady demand for goods and transport services – will ensure the sector’s continued positive trajectory.

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The Report: Egypt 2020

Transport & Logistics chapter from The Report: Egypt 2020

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