The recently completed development of the Suez Canal exemplifies the government’s approach to infrastructure development. The project is intended to facilitate long-term economic growth and stimulate short-term growth by putting more Egyptians to work, while significantly expanding the country’s infrastructure. The canal was expanded in just one year instead of the planned three, as were ancillary projects, such as the industrial zones that are being developed in conjunction with the new canal.

Bigger & Deeper

The renovated Suez Canal features enhanced capacity for two-way traffic, making the trip itself faster as well as reducing waiting times. The existing canal was 163-km long and the new expansion has resulted in a new canal running parallel to a 35-km section of the older canal, allowing for increased two-way traffic. Beyond the 35-km segment, additional dredging has provided access for larger ships, in line with the maritime industry’s trend toward bigger vessels. Drafts were expanded from 11.6 metres to 20.1 metres, so the canal can now accommodate 92% of all existing vessels, according to the Suez Canal Authority (SCA). Overall, these improvements, which utilised 80% of overall global dredging capacity, involved 72 km of new and existing waterways.

The important new project also included the digging of a new channel to the Suez Canal Container Terminal at East Port Said, near the canal’s northern entry point in the Mediterranean Sea. The existing channel intersected with the canal entry point, and now the container terminal can be accessed at any time, rather than only in an eight-hour window during which canal traffic is not passing through.


The impact has been immediate, with wait times significantly reduced, according to the SCA. Passage is still arranged by convoy — one per day in each direction. However, the convoys can now be longer, at 50 ships, and passage through the 192 km route take less time, having dropped from 18 hours to 12-13 hours. The canal is also now better organised to handle problems. In February, for example, when a Panama-flagged bulk-goods vessel lost control and ran aground, convoys were delayed but not completely stopped. Although the canal now has the capacity to handle increased traffic, it is unclear whether trade volumes will generate enough demand for long-haul shipping to justify the project’s investment assumptions. Official estimates predict an increase in revenue to $13.2bn by the end of 2023 thanks to the new infrastructure, up from $5.3bn in 2015. This indicates a significant rise in daily passages, from the current level of 50 ships up to 97. The canal is one of Egypt’s three main sources of foreign currency, along with tourism and petroleum exports.

Recent earnings reports from the canal have been mixed in the first few quarters since the project was completed. According to an analysis from the credit ratings agency Moody’s, revenue is correlated to global trade, and the state’s projections require 10% growth in import-export activity annually from 2016 to 2023. The Moody’s report expressed scepticism that this level of growth was possible over the long term, citing an average expansion rate of 3% in recent years. Revenue reached $462m in August 2015, the month in which the new canal was opened, and slumped to $449m in October. From March 2015 to February 2016 revenue fell from $401.4m to $396.4m. However, first quarter data from 2016 showed growth, with the number of passages rising 2.7%, from 4067 to 4178, and revenue up 0.6%, from $876.7m to $882.4m.


The SCA has been using targeted discounts to attract new business in 2016. From March to June, container ships from New York heading to South-east Asian ports received a 30% discount on the toll, which varies according to several factors, including the ship’s size. From June to September 2016, vessels from US ports on its east coast were granted a 65% reduction. Fees are a concern given challenging times in the industry, with overcapacity combining with subdued global economic growth resulting in lower freight rates. “We take the slower way around if there’s not a rush,” Nabil Samy, managing director of Maersk Egypt, the canal’s biggest user, told OBG.

An additional issue for the Suez Canal development is the timing of the project, especially with the Panama Canal also in expansion mode, Samy added. In addition to the question of timing, there is a concern about whether the economic assumptions behind the project are overly optimistic. However, the future of the project will also largely be determined by a companion effort to further expand free zones nearby, in an attempt to develop industrial clusters at a geographically strategic location. “Egypt would have needed to do this eventually, because the real competition is Panama and not the southern route,’’ Samy told OBG. “But the free zone is a very important part of the plan.”

Free Zone

Among the key intended benefits of the new canal infrastructure are the positive externalities it is expected to have on the industrial, trade and logistics activities in the area. This is encapsulated by the Suez Canal Economic Zone (SCEZ), which was created by presidential decree in August 2015, three days after the inauguration event for the new canal.

The SCEZ set aside a 461-sq-km area on both sides of the canal, with six ports included within it. The government has already set out specific focus areas for each of the ports, and zoned land by basic categories including agriculture, logistics, light or heavy industry, renewable energy and tourism. Activity is expected to be clustered largely in three critical areas: Port Said, Ismailia and Ain Sokhna.

Port Said is at the northern mouth of the Suez Canal, and the plan envisions export-oriented light industry here as well as logistics. The government views this area as suitable for the development of agri-business, textiles, automotive assembly and pharmaceuticals. Heading south along the canal, Ismailia is found roughly at the mid-point, and hosts the SCA.

Multiple Zones

Though called a zone itself, the zone is better understood as an area with multiple free zones operating under the same carved-out legal environment. A handful of memoranda of understanding have been signed with prospective zone participants as of early 2016, from countries including Russia, Spain and Japan. One cluster of investments has already been completed: the zone signed a contract with China’s Tianjin Economic Technological Development Area (TEDA) to establish new ventures. Egypt has been in discussions with TEDA since at least 2010, with the idea that the company could replicate its Chinese zone-development model in Egypt.

During a visit to Egypt in January 2016 Chinese President Xi Jinping said 32 Chinese companies had opened their doors in the Suez zone, representing an investment of more than $400m. Xi said the totals would rise to 100 entities and an investment of $2.5bn.