CAIRO: The 29 billion EGP ($4.09 billion) “new” Suez Canal project will be funded through an initial public offering, President Abdel Fatah al-Sisi announced at the inauguration of the Suez Canal Development Project on Aug. 5, which many experts expect will boost investment.
“Egyptians have reservations concerning foreign banks’ or investors’ participation in financing the projects… Egyptians alone will provide the needed funding for digging the new Suez Canal,” Sisi said in his speech at the inauguration ceremony.
The initial 29 billion EGP will be just for the cost of physically digging the new canal, and subsequent developments to the project are estimated to hover around an additional $4 billion.
Sisi called on the military’s engineering corps, which will directly supervise the project implementation along with 33 civil companies, to accomplish the project in one year rather than three years as scheduled.
Sisi added that the government refused any foreign participation in digging operations and stressed only national banks, companies and citizens would be allowed to finance it.
“Developing the Suez Canal area is a mega project that will lead development in the near future due to its ability to attract investments in various fields in addition its unique location linking trade between the East and West,” said EGX chairman Mohamed Omran to state-run Al-Ahram newspaper on Aug. 5.
The Egyptian Exchange (EGX) is prepared to provide the funding needed to implement the Suez Canal Development Project, he added.
Dr. Abdel Rahman Taha, a capital market expert, told The Cairo Post Sunday, “Offering this project for an IPO will bolster Egypt’s stock market to hit strong records.”
Taha said Stock market Law 92, issued in 1992, and its executive bylaws should be amended in order to issue this project an IPO, which would have to happen through a presidential decree.
“This step will promote the role of the stock market among the majority of Egyptians… I think children will recognize what the stock exchange actually means,” he said.
He also said he expected the market would achieve more and more progress as cash liquidity increases, and the Suez Canal stock could lead the market as long as the project brings in growing revenues.
“The most important thing in this offer is that it will pave the way for launching more IPOs and inaugurating several national projects,” Taha said.“Although Egyptians were shocked with the fuel price hike and subsidy cuts early in July, their confidence in the current administration will increase due to its commitment to creating new jobs to help people gain new money through such mega projects.”
Fuel prices in Egypt jumped between 40 to 78 percent for petrol, and 175 percent for natural gas overnight in early July, following a decision by Sisi to reduce subsidies.
Transportation fares also jumped between 25 to 50 percent following the fuel price hike, adding new burdens to Egyptians suffering from food prices, which spiked in late June ahead of Ramadan, the Muslim month of fasting.
The price hikes are hitting an Egyptian population that has yet to reverse a steady rise in unemployment. Around 13.3 percent of Egyptians were unemployed in the first quarter of 2014, according to the state-run statistics body CAPMAS, compared to a pre-2011 revolution rate of between 7 to 8 percent, and youth represent around 25 percent of the current jobless.
Monthly inflation in Egypt soared by 3.3 percent during July, up from 0.9 percent in June, to hit its highest rate since May 2008 at 4.7 percent, CAPMAS announced in its statistical bulletin for July issued Sunday.
The report attributed the hike to the increasing demand on goods and services that coincided with the Cabinet’s decision to increase fuel, electricity and tobacco prices.
Economists expect inflation rates to go higher as the cost of manufacturing, building materials and food products will increase along with higher fuel costs
“Reducing subsidies will result in price hikes, higher unemployment rates and other consequences of austerity measures,” wrote Hany Tawfik, head of the Egyptian Private Equity Association, on his Facebook page last month.
“Restricting the IPO to local citizens and banning foreign contributions could convey a negative sign to the international community that Sisi’s administration adopts a ‘closed door’ policy,” Tawfik told The Cairo Post Sunday.
Egypt’s economy has been hit by political upheaval and violence since the ouster of former president Hosni Mubarak in the wake of the January 25 Revolution against his regime. This unrest dramatically affected tourism revenues along with foreign direct investment (FDI), which represent two key sources of Egypt’s hard currency.
“President Sisi should have allowed foreign investment in such an offering under certain conditions, like setting a maximum limit for foreign investors’ ownership and excluding Israel,” added Tawfik, urging the president to reconsider his decision.
Tawfik added; “allowing foreign inventors and countries would provide more security to Sinai from terrorist attacks, and would help increase the FDI which Egypt has been calling for during the last few years.”
The international community will have to protect their investments and people in this area, he explained.