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June 2020

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Egypt’s Economic Transformation

ADG Egypt Series Part 1: Logistics, Manufacturing, Agriculture and Healthcare

Written by Josh Kemp, Dina Assar and Shams Elkodama
June 2020

After several years of instability in Egypt which has brought difficulties for its economy, the country is experiencing a resounding recovery. It has become one of the fastest-growing economies in the region, as the IMF reported that GDP increased from 5.3% in 2018 to 5.6% in 2019. Projections for the 2020-21 fiscal year also remain strong, despite recent events.

Indeed, given the slowdown in the region’s mainstay economies such as the UAE and Saudi Arabia, it is inevitable that Egypt will resume its place as one of the leading economies in the MENA region. The country can maintain that trajectory by strengthening its long-held competitive advantages – its strategic location and intersection with the Middle East, Africa and beyond. Further, revitalising and expanding its infrastructure, including by drawing in more private investment, will play a pivotal part in reshaping its economic progress.

In this first instalment of our multi-part series on Egypt’s growth and opportunities, we take a look at various projects and initiatives across the logistics, manufacturing, healthcare and agriculture sectors, which are tipped to drive Egypt’s growth towards 2030 and will be of interest to investors and practitioners.

1. Suez Canal Economic Zone (SC Zone)

Launched in 2015, the SC Zone was established as part of Egypt’s sustainable development strategy, Vision 2030.

The SC Zone consists of six ports and four industrial zones scattered along the waterway, through which passes almost 10% of world trade, or 18,000 ships a year.

These infrastructure upgrades are aimed towards attracting foreign investment, especially to the country’s fast-growing manufacturing industry, and to transform the Canal area to a global hub for logistics, maritime services, information technology and power industries. The Government has also spoken of its intentions to create an investment arm to channel funds to projects along the Suez Canal, engaging in partnerships with developers, lending and investment banks.

The overall infrastructure project includes a new city (New Ismailia City); an industrial zone; seven new tunnels, improving the existing port infrastructure; and a new canal parallel to the Suez Canal.

The main projects in the SC Zone are at various stages of completion. For example, those recently completed include:

• The two tunnels in Ismailia, which were completed in May 2019.
• Five out of the seven tunnels have been completed, as of 25 April 2020. Most recently, 22 April 2020 marked the opening of the Martyr Ahmed Hamdy Tunnel 2, the two-way tunnel in Suez.
• The Port Said tunnel, completed in November 2019, shortening travel time across the Suez Canal. A trip which previously would have taken days, now takes between 10 to 20 mins.

Some of the zone’s ongoing major projects include:

i. Ports, Transport and Logistics

• Upgrading ports at Adabeya, West Port Said, al-Tor and al-Arish to meet the expected increase in volumes.
• The remaining tunnels to connect the Sinai Peninsula to the Egyptian homeland.
• A new container terminal in Abu Qir port by China’s port operator, Hutchinson Ports.
• DP World’s US$520million container port and container yard Basin 2 is expected to become operational in Q2 2020. The project will nearly double the capacity of the port to 1.75million TEUs per year.
• Construction of Egypt’s first RoRo terminal at East Port Said, by a consortium led by Japan’s Toyota Group. The project scope includes a 600-metre quay and a new 21.2-hectare terminal.
• A US$7billion Russian industrial zone of 5.25m square metres in the SC Zone. The project will be completed in three phases and is expected to be fully operational by 2031.

ii. Power and Water

• Several additional water desalination and electricity-generating plants, to be carried out to 2025.

iii. Tahrir Petrochemical Complex (TPC)

The TPC is a circa US$10 billion project for the construction of a 1.5 million tonne-per-year (t/y) ethylene cracker and a polyethylene facility with a capacity of about 1.4 million t/y, as well as other major petrochemical products. Once completed, it will be the largest naphtha cracker plant in the world, with access to key markets such as Sub-Saharan Africa, Asia and Europe.

Despite several delays, the contracts were signed in June 2019 for the project management consultancy (PMC) and engineering, procurement, and construction (EPC). While financial close is understood to be yet to occur, project site preparations and dredging are underway, and recent reports suggest that construction will commence by the end of 2020.

2. The Golden Triangle

The Golden Triangle project (located in the area between Qena, Safaga and Qusair) is critical for the country’s economic recovery. The project aims to establish a new industrial city through assembling a global mining, commercial, agricultural, touristic, industrial, and basic infrastructure zone.

The area is the richest in Egypt in terms of minerals – such as iron, copper, gold, silver, granite, and phosphates – and boasts 75% of the country’s mineral resources. It will offer opportunities to exploit phosphate for fertilisers, raw materials for cement produced from schist and limestone, gold ore and the production of petrol from oil shale.

65% of the project will be composed of modern industrial zones, whilst 35% will be residential, commercial, and touristic. The project will be completed in five-year phases and will be funded by international financial institutions and donors.

In January 2020, Egypt also announced its plan to construct a multipurpose plant in Safaga Port to receive general cargo ships and containers. The sea port of Safaga is considered the most important port for the African continent on the western coast of the Red Sea, and is located on the sea route of the Road and Belt Initiative that extends through the South China Sea, the Indian Ocean and the Bab Al-Mandab strait to the Suez Canal. This is in addition to its connection to a local road network that reaches Sudan through Hadraba land port.

3. Damietta Logistics Project

In 2019, Egypt’s Damietta port signed an MoU with two European companies, Eurogate and Contship Italia, to develop the largest logistics system in the Middle East. The project scope includes a container terminal, a railway line, a dry port, and a cargo distribution area. The total investment is approximately US$825million for the first phase.

The project is expected to be completed by 2022, which will position Damietta port as a critical link for the Eastern Mediterranean region, open foreign markets via direct shipping, and attract foreign investment.

4. Manufacturing Hub

The manufacturing sector is at the forefront of the Egyptian government’s substantive plans for economic growth. The newly expanded Suez Canal and its proximity to Asian, African and European markets, and a number of free trade agreements and special economic zones are key elements which make Egypt a strong manufacturing destination.

The industry has been undergoing a period of growth guided by the Sustainable Development Strategy: Egypt Vision 2030, and the Industry and Trade Development Strategy 2016-2020. Both initiatives have set ambitious goals for the manufacturing sector, including increasing the percentage of GDP to 18%, increasing the manufacturing growth rate to 10%, and increasing high-technology exports as a percentage of Egyptian manufactured exports to 6% by 2030.

Egypt already has well-established manufacturing subsectors such as F&B, steel, pharmaceuticals, and automotive, and is well-positioned to become a premier destination for global manufacturing. Egypt’s strong economic growth (2019 being its highest) has been in part due to an unprecedented number of greenfield foreign investment projects in this sector.

Further, recent infrastructure projects aimed at improving and diversifying the energy supply in Egypt (e.g. Siemens’ megaproject connecting 14.4 GW to the Egyptian national grid and Benban Solar Park) will help significantly boost the manufacturing sector.

5. Agriculture

Agriculture remains an important sector of the Egyptian economy. It contributes nearly one-eighth of GDP, employs roughly one-fourth of the labour force, and provides the country with an important part of its foreign exchange.

Egypt’s investment in agricultural infrastructure will also assist domestically in navigating the Covid-19 crisis.

Noteworthy projects recently completed or currently being developed are:

i. The Mahsamma Agricultural Drainage Treatment Plant

A US$100million, recycling and reuse plant. This is the world’s largest agricultural drainage treatment plant (42,000 m2) and has a capacity of 1 million m3/day.

ii. Canal Sugar Project, Al Minya

Canal Sugar is an integrated Agro-industrial project with 70% Emirati investment and 30% held by Al Ahli Capital Holding. The project will incorporate reclamation and cultivation of 181,000 acres of land, making it the largest agricultural project in Egypt since 1952.

The facility will produce 400,000 tonnes of white sugar per year when it starts production in 2021 and will produce 900,000 tonnes of white sugar by 2023 once it reaches full capacity. The project will cost around US$1billion and intends to fill the domestic supply gap and render Egypt self-sufficient in sugar.

iii. Grains Terminal, Damietta

Canal Sugar, owned by Dubai-based Al Khaleej Sugar Refinery, announced in July 2019 the plan to build a pier and grains terminal in Egypt’s port city of Damietta at a cost of around US$200 million. The new terminal will have a discharge capacity of 3,000 tonnes of grains per hour and will increase Egypt’s grain export capacity.

iv. Development of Greenhouses

Egypt is currently implementing a national project to establish more than 10,000 greenhouses in an area of 100,000 hectares in Matrouh, Sharqiya, Ismailia, Fayoum, Beni Suef and Minya. It is the largest greenhouse project in the Middle East and aims to support 20 million Egyptians. The project is expected to be completed by 2021 and will provide more than 1.5 million tonnes of vegetables and fruits annually to meet the growing production-consumption gap.

6. Healthcare

With the population growing at a rate of 2.2% annually, Egypt will need to improve quantitatively and qualitatively in order to meet the growing demand for healthcare services.

The country recently laid down the foundation stone, with construction commencing on the Capital Med Healthcare City located in Badr City in Cairo. The project is being developed by Egyptians for Healthcare Service and will be the Middle East’s largest integrated private medical city.

The entire project consists of three phases, to be constructed over 7 to 10 years. The project includes a 350-bed state-of-the-art general hospital, clinics plaza, a hotel, and 11 specialised medical excellence centres. Once operational, the medical city is expected to create 10,000 to 30,000 jobs.

There is significant opportunity for foreign investment in the Egyptian healthcare sector. Key factors that make Egypt’s healthcare sector attractive are its growing (and aging) population, increasing insurance penetration, its regional reputation for medical tourism, and the shift towards encouraging private sector investment in healthcare.

Closing Comments

Egypt’s economy is among the most diverse in the MENA region. The country can continue to capitalise on strategic geographic location, low-cost and relatively qualified labour, high tourism potential, and an abundance of energy resources, to drive it forward through challenging times for world economies. The country has already adopted a variety of policies aimed in part at attracting foreign and domestic investments, such as the 2017 Investment Law and various free zone initiatives.

However, the country’s ability to exploit these advantages, and its economic prosperity will depend, in no small part, by its ability to execute key infrastructure projects.

The Energy and Transport sectors are poised for significant growth in the coming years. Our next instalment covers the plethora of planned and in-progress projects in these sectors.

If you are interested in learning more about Egypt’s economic transformation or require assistance with any related projects, please contact your relationship manager or contact Josh Kemp at jk@adglegal.com.

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