All eyes are on Egypt for the opening of what has been dubbed the “New Suez Canal.” Critics have already suggested the plan seems a tad ambitious and overwhelming, but the government still has development plans for the wider canal area, which will likely be marked with more celebratory fanfare in the years to come.
To find out what’s planned when Thursday’s festivities are over, Mada Masr spoke with Hani Sarie-Eldin, founder and managing partner of Sarie-Eldin & Partners, a law firm that is part of the alliance establishing a general plan for the Suez Canal Axis Development project.
Over the past year, the main focus has been on the work done to extend the Suez Canal, by dry digging a new 35-kilometer channel, along with deepening the existing channel by 37 kilometers to allow for two-way traffic and ease the current shipping bottlenecks. According to government estimates, this will translate into an increase in annual revenues to US$13.5 billion from a current $5.3 billion. There has been a lot of scepticism over these figures, however, from local and international analysts and experts.
The broader plan is an even more ambitious undertaking: Turning the Suez Canal area into an industrial trade hub that, when complete, is planned to constitute “30 percent of the economic [activity] of Egypt,” according to Sarie-Eldin.
This economic zone will span 450 square kilometres and has been outfitted with its own regulatory framework. President Abdel Fattah al-Sisi recently approved amendments to an already existing law, deeming the area an “economic zone of a special nature” that will be overseen by an independent “single-window” authority modelled after one-stop shops.
The authority will comprise of representatives from different ministries and related governmental entities facilitating the many bureaucratic processes of doing business. Covering everything from licensing to incorporation, access to land and other aspects of establishing a business, the authority aims to cut through the tightly woven webs of red tape that have long been criticized for hindering the process of doing business in Egypt.
While executive regulation of the law has not yet been finalized, with sparse details available, Sarie-Eldin says the law will apply a simplified framework for customs and taxes, along with some tax exemptions and other incentives, including a dispute settlement framework.
Mada Masr: Can you tell us about the bigger plans for the Suez Canal Zone, beyond Thursday’s canal opening, in terms of scale, size and investment opportunities?
Sarie-Eldin: We all want to celebrate the opening of the new canal, and this will be a first step. The real goal is to develop the area on all levels, to create a holistic life on this piece of Egyptian land, to develop the whole area by tapping into its industrial potential and creating new opportunities for foreign and local investors. There are plans in place and feasibility studies have been conducted to divide the area economically, to make logistical services available for the maritime industry, for transiting ships, for shipping and loading, containers, and later on, progressing to land transportation that can take cargo back to the sea again through other ports.
There will also be development in terms of the reassembling of products and processing of raw materials between both ports or in Sinai. Then we can re-export these products without customs or fees and take them to the local market. This model is similar to Dubai’s Jebel Ali or processes in Indonesia. Access to the large African consumer market [from Egypt] is also very attractive to investors.
There are also other services that can be provided. Plans for fish farming and export are already in place, and are being developed for agriculture.
MM: What happens after the August 6 celebrations?
SE: Egypt is entering a new phase of development and it needs a government with a vision, one that is competent and able to actually implement it, not just put ideas together. It needs a government that can open up channels of communication locally and internationally and build trust with local political forces. This is very important, in order to regain political and social stability, because foreign investors will not come if there is domestic turbulence. Foreign investment, as you know, is cowardly and will not materialize until there is political, social and economic stability.
There must be consensus around building trust between the government and political forces and this has to happen in a serious way by following through with parliamentary elections that take place on time. There is no set date yet but there have been talks that parliament should convene before the end of the year. This has been a long time coming and will improve Egypt’s image internationally.
Social stability can only come about as a result of social justice. The government needs to invest more in prioritizing health and education, as well as focusing on marginalized communities, so that the benefits of this development can reach the people who need it most. Achieving a level of social peace will project positive signs that Egypt is taking serious steps toward social justice.
MM: The law setting the regulatory framework for the economic zone has been approved, tell us about what this will mean.
The regulatory framework needs clarification. There were some setbacks after the EEDC [March economic summit in Sharm el-Sheikh], because the investment law was so delayed in being passed. There are several versions circulating of the executive regulations, and calls for its amendment, even though it was just passed. This paints a picture of chaos and confusion.
Similarly, the special [economic] zones law still needs more clarity and executive regulations that have consensus, and it needs to be adopted specifically for the Suez Canal zone. There are security concerns, legislative concerns, and foreign investors have had bad experiences previously. All of these issues need resolution, especially when it comes to implementing the new economic zone law and its executive regulations.
If there is even one minor problem in implementing this law, this will set a very dangerous precedent and make investors wary. One misstep could spell the end for the whole area, and we cannot allow for that, considering how much hope is built on this.
MM: What is the makeup of the single-window authority? What are the benefits that it will offer to investors?
SE: The independent authority is meant to avoid all the bureaucratic obstacles that investors currently face. It will be made up of representatives from different ministries, including the defense ministry, as well as other entities. To make this work, the authority needs a clear goal and a degree of harmony.
It is vital to select the right people for these roles, and the government has to be very careful in doing so and must chose wisely. They cannot hesitate when it comes to giving the necessary approvals for licensing, as this is a special zone with a special nature, and there have been a lot of debates over what kind of ownership rights to grant.
MM: How will taxes and customs applied in the economic zone be different?
SE: There will be a package of incentives, not just when it comes to taxes and customs. The area will be similar to a free economic zone, or at least part of it will be. There will be tax exemptions for several years, because what’s more important is creating job opportunities. These projects can generate millions in revenues and this is more important than tax revenues — it’s more important to create jobs and diversify investments in the area.
The authority will have the right to establish companies and own them wholly or in part with the private sector. What this will mean, what activities these companies will carry out, and how it will deal with other companies in the area, will be left up to the Suez Canal Authority — the law allows for this by creating malleability for the authority. It can partner with the private sector, or establish companies for maintenance and infrastructure in the area, or to manufacture certain products.
Since there will be large-scale investments and factories, there will be a need for construction materials, for example. So in this case, the authority can establish a company to manufacture these materials to cater to the needs of the area. It will be free to decide what’s necessary and needed away from the regular routine that governmental entities have to follow.
MM: There are issues being addressed with this law and authority that are faced by businessmen operating all over Egypt. Will this model be extended to address the bureaucratic problems in other areas as well?
SE: I’m not for this. This type of model and law should be limited to economic zones with a special nature. If we allow for this to be replicated everywhere, then we will turn the country into communities with conflicting regulations. What we need to do is strengthen and purify the current laws and put in place mechanisms to resolve conflicts with investors, as well as apply an investment law that has more flexibility in dealing with investors. But to replicate this model will create chaos.
MM: There is scepticism around the numbers presented regarding how much Suez Canal revenues will increase. What is your take on this?
SE: This is not a vital issue, because the new canal’s purpose is not only to increase revenues, there are a lot of other factors that have to do with national security, development, creating new areas of investment, job opportunities, and so on.
In the short term, yes it will increase revenue and cut transit time, but the numbers are not important. Revenues will naturally increase, but to what degree is more of a bet on the conditions of the global economy and trade.
Will it be attractive to global trade, since it is a shorter and more secure route? There are positive predictions but we’ll have to wait and see.
It is also a bet on global economic growth. If there is 5 percent growth, this will spur global trade, which will naturally increase the number of ships passing through the canal. Cutting the time it takes for transit is positive and will raise revenues, but more important are the mid- and long-term goals.