After three years of political instability, the election in May of former military chief Abdel Fattah al-Sisi as president offers the prospect of a more settled political scene in Egypt. But the challenge facing Al-Sisi is immense. The economy is in desperate need of attention, with restoring growth, cutting unemployment and reducing government debt just some of the pressing issues that must be addressed.

Huge potential

The new president responded with a series of announcements that have placed the development of social and transport infrastructure firmly at the heart of his programme to move the country forwards.

With a population of more than 80 million and a backlog of un-awarded projects approaching $150bn, the Egyptian infrastructure market has considerable potential. For this to be fulfilled though, investor confidence will have to return and Cairo will have to tap private, multilateral and bilateral sources of funding.

Upgrading Egypt’s transport sector offers major opportunities for infrastructure contractors, suppliers and financiers. Planned major projects include the further development of Cairo’s metro system, the modernisation and expansion of the country’s rail network and, the biggest project of all, the proposal to expand and develop the Suez Canal as well as the land around the waterway over the coming two decades.

As a vital artery for about 20 per cent of the world’s sea container trade, the Suez Canal is an important source of income for the state budget, providing about 10 per cent of total revenue in taxes and dividends. The waterway’s toll revenues of about $5bn a year make up a similar proportion of Egypt’s total current account earnings.

Al-Sisi is seeking to accelerate the development of the waterway through two megaprojects. The first is the Suez Canal Development Project, a long-planned initiative by the Suez Canal Authority (SCA) to develop a masterplan for a logistics hub on 76,000 square kilometres of land along a 160km corridor.

In mid-August, Lebanon-based Dar Al-Handasah Consultants (Shair and Partners) was awarded the contract to develop the masterplan and provide ongoing consultancy services. The scope of the project includes the economic development strategy for the Suez Canal area and an integrated masterplan, including infrastructure for the six major ports on the canal.

The new scheme is based to a large extent on studies prepared by DHV Consultants of the Netherlands in 2008, but each of the governments that have assumed office since the overthrow of the Mubarak regime in 2011 has claimed the plan as its own. The main elements include further expansion of capacity at East Port Said, the creation of a technology investment zone on the canal’s east bank and an extension of the industrial zone along the west bank of the waterway from Suez City.

In the meantime, the government is preparing draft legislation setting out the conditions that apply to investors in the scheme. The masterplan is to be completed in six months, and will be presented at a conference targeting prospective investors. The SCA envisages infrastructure work starting in early 2015.

Second waterway

Al-Sisi has also announced plans for an $8.5bn project to construct a 34km waterway parallel to the existing canal to allow more ships to pass through, reducing waiting times and increasing revenues from the canal. Currently, ships travelling from the north have to berth for several hours to wait for convoys of vessels from the south to pass.

Al-Sisi has made the project a flagship of his first few months in office and wants Egyptian construction companies to be involved. He called for the scheme, initially expected to take three years, to be completed within a year. Excavation started in early August, when 3,000 trucks and loaders and 7,500 workers began work at the site.

The project crossed a major landmark in mid-September, when a public bond issue raised $8.5bn in eight days. The financing was secured by selling non-tradable, five-year investment certificates to Egyptian buyers. Returns on the certificates will be paid from Suez Canal revenue, which is forecast by the government to grow to $13bn over the next four years, following the expansion.

While the first goal has been reached purely though domestic funding, some analysts say Egypt may, at some point, have to look at international sources of finance.

The new government in Cairo has resulted in a return to favour of public-private partnerships (PPPs). Finance Minister Hany Kadry Dimian was involved in setting up the PPP unit within the ministry in the late 2000s, and the government has announced plans to relaunch several private infrastructure projects that had stalled since he left the ministry in early 2013.

These include an industrial port on the Red Sea, south of Safaga, to export phosphates and handle imports of grain and livestock.

The Red Sea Ports Authority also wants to convert El-Tor seaport on the east side of the Suez into a cargo port. Until recently, the port had been used by a petroleum company under a 10-year leasing contract.

The Alexandria Port Authority, meanwhile, has issued a tender for a project to design, build and manage the third container terminal at Alexandria port for a concession period of 30 years.

Egypt is also investing in its rail infrastructure, with the extension of the Cairo Metro a priority. Capacity constraints are forcing the expansion of the region’s oldest metro system, with its current usage rate of 3 million passengers a day expected to grow to 5 million by 2020.

Work was recently completed on phase two of Line 3, and contractors are now preparing to submit bids for the third phase. Phase 4 of Line 3 is still in the design phase. Three future lines are also planned for the metro. In 2012, Japan International Cooperation Agency signed a $334.8m overseas development agreement loan for Line 4.

Cairo also has plans to upgrade its airport infrastructure and, in July, awarded US-based Hill International a 15-month, $1.9m project management contract for the $500m Terminal 2 building at Cairo International airport.

The renovation involves upgrading the existing passenger terminal to more than double its capacity to 7.5 million passengers a year. The scheme includes building a new departure hall and airside pier, as well as the construction of larger gates to accommodate Airbus A380 aircraft.

Egypt’s biggest infrastructure priority, however, is the development of housing stock. With the population expanding by 1.7 per cent a year, and 31 per cent of its people aged under 15, the country needs a large volume of affordable housing. The government has embarked upon a huge home-building programme, which has seen it enter into a series of strategic agreements with consultants and contractors to develop and deliver new masterplans for housing developments.

Arabtec deal

The most spectacular of these was agreed in early March, when UAE-based Arabtec Holding signed a memorandum of understanding with Egypt’s Ministry of Defence to develop and construct 1 million affordable housing units in 13 locations. The first lot of houses is due to be delivered in 2017, with completion of the entire project slated for 2020.

Expected to create more than 1 million jobs, the project is the biggest of its kind in the region, with an estimated overall development value of £E280bn ($40bn). One of the challenges facing the project is land allocation; it has yet to be announced where the land will come from for the project, and whether the scheme will remain with the Ministry of Defence, or if the Ministry of Housing will have a role in the initiative.

As former housing minister, Egypt’s Prime Minister Ibrahim Mahlab understands the necessity for speed in addressing the housing challenge. In February, he included the need to develop real estate finance among his priorities.

Cairo intends to lever private sector finance models to fund much of its housing programme, using variants of PPP structures with local and foreign banks participating. Arabtec says these institutions will provide a range of affordable financing solutions that will appeal to a cross-section of the Egyptian population and include long-term repayment of up to 20 years.