For a country with a population of more than 80 million, Egypt has woefully poor infrastructure. What it does have is ageing, damaged and straining to cope with demand.

Billions of dollars of investment is needed to improve Egypt’s infrastructure, but the country lacks the resources to fund it alone. The previous government, under Hosni Mubarak, drew up an ambitious public-private-partnership (PPP) programme aimed at bringing private capital into its transport, utility and social infrastructure sectors. The PPP Central Unit was formed in 2006 to oversee the projects.

But the PPP schemes can only proceed if developers and lenders remain comfortable with the country’s risk profile and the initiatives are not priced beyond an acceptable level to the government. The overthrow of Mubarak’s regime has caused foreign investors to view the country more cautiously and has cast doubt over Egypt’s PPP plans.

Under strain

The government has long struggled to meet the needs of its rapidly expanding population. Cairo’s roads are packed with cars almost 24 hours a day, leading to the phrase, ‘every hour is rush hour’. Where three lanes exist, the traffic creates five lanes, with cars inching towards their destination and belching out fumes along the way.

“[Egypt must] accept the reality that its state coffers are empty and it needs the private sector to finance projects”

Regional developer

Healthcare is equally inadequate. Cairo is home to the largest hospital in the Middle East and North Africa region, the Kasr-el-Aini Medical School of Cairo University. According to the head physician, Motaz Abou el-Azm, the facility treats some 22,000 cases a month and 6,000 patients can be handled at any one time. Despite its size, the public hospital is inundated with cases and straining to meet demand.

“I tell my students that they will not get better practice anywhere else - there are so many cases,” says El-Azm. “We have significant wear and tear and we don’t have enough funding.”

A junior doctor on one of the intensive care units agrees: “The greatest problem we face is overcrowding. We make an assessment on a patient - we decide whether we think they will recover or die by a certain point. We then call the next person on the list and arrange for them to fill that vacancy. There are usually about 20 people waiting for intensive care beds at any one time.”

The hospital has experienced higher patient volumes than normal this year as a result of the revolution. “We still have not recovered from the 25 January problem,” says El-Azm. “But we have managed to swallow the brunt of it. It was disastrous. We are not used to seeing these kinds of casualties. [Normally] there are injuries from weapons such as sticks … More than one gunshot wound a week is highly unusual.”

Egypt suffers from similar problems in its utilities sector. Insufficient power generation capacity and gas shortages have resulted in summer power blackouts of increasing severity.

As a country with vast infrastructure needs, but without the wealth to fund it, the private sector has a crucial role to play. “[Egypt must] accept the reality that its state coffers are empty and it does need the private sector to finance projects,” says a regional developer. “The reality is the Egyptian government cannot afford to marshal billions and billion of dollars directly.”

Crippling inertia

To attract the private sector, says a source close to the government, “you have to trigger the appetite.” Yet without a permanent government in place, Egypt is experiencing an inertia problem. The interim government is not in a position to make long-term commitments. It is also generally fearful of taking decisions now that public figures are being held to account.

This has been most evident with the Abu Rawash wastewater PPP project. The PPP Central Unit has concluded the prequalification process, but no government official wants to sign the list off. Until this happens, the request for proposals cannot be issued.

Furthermore, the instability and uncertainty brought about by the revolution have affected the country’s creditworthiness. “Currently, the rating is quite low so project pricing will be very high,” says a source close to the government.

In February, ratings agency Standard & Poor’s downgraded long-term foreign currency debt to ‘BB’, two levels below investment grade, from ‘BB+’. It also cut long-term and short-term local-currency bond ratings to ‘BB+’ and ‘B’ respectively.

As a result, the PPP Central Unit has advised the interim government to postpone bid deadlines for planned projects. “If we tender now, [the bidders] will ask for political risk assurance, but the cost of this will be very high,” says the government source. “Developers are saying that they want foreign exchange risk, government guarantees, etc. If I were in their shoes, I would be asking for the same. Therefore, it is prudent on the side of the government to wait.”

Pressing issues

However, PPP projects may not progress even when there is an elected government in place. When the new president and cabinet take office, they will face many pressing issues, including repairing the economy, restoring order, completing the restructuring of the constitution and pacifying the newly mobilised and politicised masses.

“For [now], [PPPs] are not the priority. But this will need to change if Egypt is to develop its infrastructure”

Cairo-based researcher

“For the time being, [PPPs] are not the priority,” says a Cairo-based researcher. “But this will need to change if Egypt is to develop its infrastructure.” Others say infrastructure development should be high on the agenda. “It is one of the first things the new government should focus on,” says a local economist. “It will create jobs, build infrastructure and the government will not have to pay immediately.”

Most planned PPP projects have been significantly delayed or put on hold. However, the government source expects the Alexandria hospital scheme to move ahead. “The Alexandria hospital deal will most probably close by the end of July because they have already spent the money on the bid,” he says. “There has been no renegotiation of the terms. Why would they spend an extra $2-3m on the bid now?”

Nevertheless, a Cairo-based banker is sceptical that the selected developer would be able to secure bank backing once commercial close is reached and so project agreements will likely be signed after the summer, “I don’t think it will be possible to close the hospital deal by July.”

While new PPP contracts are not being awarded, engineering, procurement and construction contracts signed before the revolution are by and large unaffected. Contractors appear to be confident that they will be paid.

However, there has been some disruption to infrastructure works. During the popular uprisings, looting was a major issue and the previous regime imposed a curfew that forced labourers to return home earlier than usual.

Furthermore, the revolution has brought to the fore grievances over pay and working conditions that have long simmered below the surface. Previously apolitical workers have acquired a taste for industrial action on the back of the success of the revolution. Many employers - both public and private - have been forced to increase wages.

Long wait

Egypt has a huge and growing population and pressure on infrastructure will only increase. Among the myriad reasons for demonstrators taking to the streets to call for the president to stand down was the lack of progress in improving the country’s dilapidated infrastructure.

But until a new parliament, president and constitution are in place, it is unlikely that Egypt’s infrastructure projects will be perceived as bankable again. It will be a long time before people in Cairo see the improvements they have been calling for.