A reality check on the New Suez Canal
Egypt has been bombarded with a constant stream of messages this week about the miracles the New Suez Canal will bring. Not all of these messages hold up to scrutiny.
Myth: The new extension will allow two-way traffic along the canal.
Reality: This is sort of true — 60 percent true, to be more precise. The canal is around 193 km long, and 80.5 of those kilometers already allowed two-way traffic. With the new channel, that figure will increase to 115.5 km.
As this diagram from the Suez Canal Authority shows, the extension will get rid of one of the canal’s bottlenecks by adding a second lane on the stretch from the Ballah bypass (an existing two-lane stretch) to the Bitter Lakes (also an existing two-lane stretch). The red arrow (added by Mada Masr) indicates the 35-km-long new channel. The rest of the pink line shows the 37 km where existing shipping lanes have been dredged to allow larger ships to pass through.
Both of these changes will make things easier for shipping companies. Having a longer passing lane means that more ships can travel in each convoy and will make it easier to time north and southbound convoys. However, it won’t eliminate the need for convoys, nor will it make possible unrestricted, free-flowing traffic through the canal.
Myth: The new canal is an achievement on par with the opening of the original canal. Or, as Suez Canal Authority head Mohab Mamish recently phrased it, “equivalent to the passing of the nation from darkness to light.”
Reality: The canal expansion is undoubtedly a significant public works achievement. But to say it "changes the map of the world" — as one billboard in New York City apparently boasts — seems like a bit of a stretch.
To put it in perspective: The original canal cut transit distance between Europe and Asia by 8,900 km (43 percent of the total distance), and shortened the trip from London to the Arabian Gulf from 24 days to 14 days. The recent work on the canal will not reduce travel distance. According to the Canal Authority, the new channel will reduce waiting time from 8-11 hours to 3 hours. For southbound ships, it will shorten the transit time from 18 hours to 11 hours (other sources put the average transit time, pre-extension, at 14 hours).
In shipping, time is money, so any time savings is great for shipping companies. But it won’t represent a major change to global commerce in the way the original canal did.
It’s also worth noting that this is not the first time the canal has been expanded. Three small bypasses were completed in 1955, making a total of 27.7 km of two-lane stretches.
Two more bypasses were completed in 1980, adding a second lane to a total of 53.8 km. The longest of these was the 40.1 km Port Said bypass. The Associated Press has archival footage of the 1980 opening ceremony: a ribbon was cut and some balloons and doves were released. A nice enough party, but not really the “dazzling” spectacle promised for later this week.
Myth: The new canal will more than double the revenue Egypt collects.
Reality: Since the announcement of the canal project, officials have claimed it will increase canal revenue to US$13.5 billion per year by 2023, compared to just under US$5.5 billion in 2014.
Economists and shipping experts have been dubious since the beginning, because the government can’t really demonstrate how shaving a few hours off canal transit time will have such a dramatic effect on global trading patterns.
“The government’s projections appear to be based on implausibly optimistic assumptions about world trade,” economics research firm Capital Economics said in an analysis released Monday. This is basically economist code for “these numbers are totally baseless and unrealistic.”
Capital Economics calculates that global trade would have to rise by 9 percent a year for the government to see that kind of an increase in canal traffic and revenue. Currently, global trade is growing by around 3 percent a year. During the economic boom of the early 2000s, it grew by around 7.5 percent per year. Reaching and sustaining 9 percent global growth by 2023 seems “unlikely to say the least,” the firm notes.
Myth: The new canal was financed entirely through the patriotism of ordinary Egyptian people.
Reality: The government raised LE64 billion by selling Suez Canal bonds, which sold out in within two weeks. About 88 percent of that came from private citizens. Along with the prospect of 12 percent interest, patriotism was most likely a motivating factor for many of those who bought the bonds.
However, that amount wasn’t actually enough to build the canal. The government has since had to take out two additional loans from local banks, borrowing at least another US$850 million.
There's nothing wrong with a party, and Egypt could do with something to celebrate at the moment — but some perspective doesn't hurt. While the canal looks like it will bring some benefits to the economy, it will not likely be the quick-fix for the country that some are promising.