When President Abdel Fattah al-Sisi announces a project, it’s usually of the mega scale variety. In March 2013, when he was still minister of defense, Sisi launched a mass housing scheme to build a million homes for low income Egyptians. In August, he declared that a new Suez Canal would be dredged in just one year.
The proposals have struck a chord with Egyptians eager for signs of progress and bold, national projects after years of economic stagnation. But the sheer scale and speed of these proposals could end up undermining their success, following a pattern set in place by past administrations.
When it was initially announced, Sisi said his million housing unit project would provide homes for low income Egyptians. In March, a memorandum of understanding was signed between Egypt’s Ministry of Defense and Arabtec, a construction firm whose parent company is 21 percent owned by Abu Dhabi’s state-owned Aabar Investments fund.
The Egyptian military was to donate 160 million square meters of land, mostly on the outskirts of Cairo, and finances for both construction and mortgages to come from “Egyptian and foreign banks.” The total value of the project was set at US$40 billion (around LE280 billion).
Although the military promoted the scheme as a low-income housing program, Arabtec’s press releases suggested the housing built would be for middle-income housing, an assessment analysts agreed with.
A simple calculation suggested that the housing created would likely be well out of the reach of most Egyptians — divide LE280 billion by 1 million units, subtract a percentage for utilities and infrastructure, and you’re looking at houses that cost around LE200,000.
Very little information has been released about the details of the scheme, and it is too early to tell whether the Arabtec project will face major delays, but it has already run into complications.
By early October, the financing terms had changed. Instead of the never-named foreign and Egyptian banks, Arabtec would be responsible for seeking its own funding, all of it from abroad.
Although the original announcements said the land would be provided to the developers free of charge, the government yet again changed its mind. Instead of donating the land, Egypt wanted to sell it to Arabtec, via the Ministry of Housing and the New Urban Communities Authority.
Arabtec doesn’t want to pay cash, explains Yahia Shawkat, an architect and housing researcher who runs the blog “Shadow Ministry of Housing.” Instead they will give up some of the completed housing units to the Ministry of Housing. Since doing so will inevitably cut into sales profits, Arabtec will likely try to squeeze more revenue out of the houses it sells.
“This will drive up prices, some say perhaps by 25 percent,” says Shawkat.
Reaching a deal with the government has required “intensive negotiations and meetings,” Arabtec officials said in a statement to the Dubai Financial Market. Although work was supposed to begin this quarter, as of November 11, the company could only say that it “hoped” to commence construction before the end of the year.
For observers of Egypt’s housing policy, news of delays came as no surprise. The Arabtec project is only the most recent in a string of government initiated mass housing schemes.
The most recent of these was a million unit housing project launched in 2011 under the auspices of the Supreme Council of the Armed Forces, which took charge of running the country after the January 25 uprising. The plan promised to deliver one million new homes in five years, but has so far fallen woefully short of target.
“They’ve kept pushing and postponing. They promised to deliver 50,000 units by June 2014. This was postponed to October. Then they said in October they would deliver 13,000 units, then the rest over the course of the fiscal year,” says Shawkat.
As of October, they’d only delivered 57 flats, he says, adding that he hasn’t seen any signs that anyone involved in the project has faced repercussions for the delay.
“They are not being apologetic about it. It’s just status quo. At the same time, there doesn’t seem to be any public outcry about the program being late,” he says.
Egyptians have simply become used to delays, and often put money into master plans of development projects years before the first brick is laid down. The Cairo governerate just handed over 1,000 flats, for which buyers put down money in 2008.
In the meantime, Shawkat says, housing authorities do not seem to have learned anything from the past, or taken the time to reassess whether promising to deliver massive numbers of homes in a short time is a smart strategy.
“They go towards headline projects and, at the end of the day, they are not really delivered on,” he says.
The bigger and better Suez Canal
The greatest of the government’s current headline projects is, without question, a massive plan to expand the Suez Canal.
In August, Sisi unveiled with great fanfare that a “new” Suez Canal would be built parallel to the old, allowing two-way traffic through the waterway by digging an additional 72 kilometers. Sisi also surprised the Suez Canal Authority by requesting that work be competed in one year, rather than three as originally planned.
The project instantly captured the public’s imagination. In less than two weeks, LE64 worth of Suez Canal bonds sold out. Around 82 percent of the certificates were sold to ordinary citizens, says Mohammed Nader, chairman of Archer Consulting and a board member of the Egyptian Private Equity Association. Around LE27 billion of the money came from out of the banking sector completely.
Work has begun on the canal expansion, and given its high profile and popularity, it is unlikely to fade into obscurity. But its ambitious scale is already causing problems.
Experts have questioned the economic rationale for the project. Officials claim the expansion and development plans will increase canal revenues to $13.5 billion by 2023, compared to a record of $5.3 billion last year. But a wider canal won’t necessarily lead to higher traffic — shipping patterns are highly dependent on global trade trends.
Islam Mamdouh, an engineer with experience managing infrastructure projects throughout the Middle East, estimates that the changes in the canal will bring in an extra $200 million to $300 million per year.
“They are saying it will double the revenue. I don’t see how,” he says.
The project’s compressed timeline will also drive up construction costs, Mamdouh explains. The digging work required is extremely complicated, particularly because the military has pushed to have the new lane of canal be dug no further than 400 to 600 meters from the existing one.
Skeptics note that doing so will create a narrow island with long stretches of very desirable waterfront property. But keeping the waterways close together also makes it much easier for the military to secure the entire waterway.
At the same time, digging so close together means that water from the old canal will seep into the new one, which means contractors will have to do much of the work by dredging rather than simpler and cheaper dry digging.
“In an engineering sense, it’s much better to make it 10-15 kilometers from the old one,” says Mamdouh. With enough distance between channels, almost all of the new canal could be dug dry, saving time and money. “In too wet conditions it’s much more expensive than dry conditions,” he says.
Sisi originally promised that the work would be done by Egyptian companies and the Egyptian military. But wet dredging and a one-year time limit have made that impossible.
All the dredgers in Egypt together cannot shift more than about 250,000 cubic meters of earth per day, Mamdouh says. A three-year timetable would have stretched Egyptian companies to capacity; for them to do it in one year is impossible. With some 300 million cubic meters to dredge by the beginning of August, contractors will have to dredge around 1.3 million cubic meters per day.
As a result, Egypt has had to turn to foreign firms. It is paying over $2 billion to two foreign consortiums to assist with the dredging.
The first consortium, consisting of the National Marine Dredging Company of the United Arab Emirates, two Dutch firms — Royal Boskalis Westminster and Van Oord — and Belgian Jan de Nul group, was awarded a $1.5 billion contract to help dig a 50-kilometer long channel parallel to the original canal.
The second consortium, consisting of Dutch firm Dredging International and the US-based Great Lakes Dredge & Dock Company, will be paid $540 million to deepen and widen a 25-kilometer stretch of the western branch of the Suez Canal at the Great Bitter Lake, Deversoir Reach and Kabreet Reach.
The government is also reportedly in negotiations with German firm Herrenknecht AG to bore tunnels under the canal, another project initially pledged to the military.
With assistance from foreign firms, Egypt may have a chance of completing the canal on time, but it comes at the cost of taking billions in infrastructure contracts away from Egyptian companies.
Other projects, still comparatively low profile, might end up following a similar course.
In what urban planner David Sims, author of a forthcoming book on massive “national” projects in Egypt, describes as a fit of “developmental hubris,” Sisi has declared a string of such projects.
One of the first projects he presented after his election as president was a plan to reclaim four million feddans of land, a proposal that echoed Mubarak’s Toshka project, widely regarded as a colossal failure.
Egypt has also announced that it will transform the Mediterranean port of Damietta into a global hub for the grain trade. The LE15 billion project aims to build a processing center for wheat, soy, sugar, maize and other commodities, new piers to dock giant cargo ships, and to establish a regional mercantile exchange.
With a two-year timeline, the port is another project expected to achieve massive results in a very short time. “Here’s an idea: Why don’t you start small. Ever hear of a pilot?” asks Sims.
Along with additional projects to develop roads, bridges and other infrastructure, these projects have set the government with a seemingly impossible order. With a history of broken promises, a public with low expectations, and a media that does little to hold officials to account when projects don’t materialize, the current government has little precedent for success, but also little reason to fear consequences for failure.