Egypt’s New Suez Canal Project Unearths More Than Just Dirt

suez-bridge

Egyptian President Abdel Fattah al-Sisi’s government is counting on a new multi-billion dollar Suez Canal project to help overcome what has been described as Egypt’s worst economic crisis since the 1930s, with high unemployment — 13.4 percent — and 45 percent of the population living below the international poverty line of $2 per day. Yet, what’s more important than the new Suez Canal’s objective to stimulate the economy and create jobs is who made it financially possible to carry out such an ambitious project and what that could mean for Egypt.

In eight days, Egyptians invested 64 billion EGP (about $9 billion) in the new Suez Canal project — and 82 percent of that investment came from individuals versus just 18 percent from institutions. The influx of investments introduced 27 billion EGP (about $3.8 billion) into the banking system, which is especially notable given that only one in ten Egyptians has a bank account. The overwhelming turnout of individual, cash-heavy investors from an underbanked population points to Egypt’s strong cash economy, which in turn begs the questions: how much more money is hiding under mattresses and why have these assets remained unused?

The informal economy in Egypt, according to Hernando de Soto’s five-year study, has an estimated value of $350 billion, employs 8.2 million Egyptians, and comprises 82 percent of businesses and 92 percent of property in the country. Informal entrepreneurs and workers face high legal barriers to entry into the formal economy and, in effect, lack the opportunities and legal protections granted to formal businesses. For instance, de Soto found that registering a single-person business requires 189 days and 86 steps (including 57 documents with the same information to six agencies) and costs 8,362 EGP (about $1,169).

Legal barriers inhibit the growth potential of not only Egypt’s young entrepreneurs, aspiring small- and medium-sized businesspeople, and five million street vendors, but also the country’s economy as a whole. The informal economy’s estimated value of $350 billion is six times more than all the foreign direct investments in Egypt since the end of Napoleon’s conquest in 1801—and, yes, that includes foreign investments in the first Suez Canal and the Aswan High Dam.

At an economic forum in February 2015, Egypt will showcase 40 projects, ranging from infrastructure to energy and amounting to billions of dollars; both Prime Minister Ibrahim Mehleb and Investment Minister Ashraf Salman, during the Reuters Middle East Investment Summit in late October, stressed Egypt’s goal of financing these major projects through international investment. However, the unused assets found in Egypt’s informal economy, as de Soto wrote in The Wall Street Journal, “is a startling reminder that no amount of money Western nations or investors transfer to these countries can ever come close to the economic potential locked up in the entrepreneurial aspirations of their people.”

More inclusive, realistic economic policies would enable informal entrepreneurs and workers to enter the formal economy, to enjoy financial opportunities and legal safeguards denied them in their present status, to leverage their assets for further growth, and to create sustainable jobs for their communities. As a result of economically empowering this vital population through the rule of law, Egypt would move towards bolstering its economy not from external resources, but from its own people — the people who have the most to gain from a healthy economy.

AnnaMaria E. Shaker is a Program Assistant for the Middle East & North Africa at CIPE.

Published Date: November 04, 2014