It took just eight days in September to raise $8.5bn from the Egyptian people through investment certificates to fund the planned

expansion of the Suez Canal.

The speed at which such a large sum of money was raised is a testament to the interest and seemingly popular excitement the project has generated in the North African country.

The ambitious plan to widen and deepen the canal aims to turn around Egypt’s beleaguered fortunes, generating new jobs, boosting the economy and encouraging investment in other infrastructure projects.

New era

“We are heading for a new era that depends on honesty, honour and wise leadership, as well as the Egyptian people’s strength and endurance to build modern Egypt, which enjoys safety, security and prosperity,” said Suez Canal Authority (SCA) chairman General Mohab Mamesh at the inauguration of the scheme.

In addition to the plans to expand the canal, a long-awaited separate scheme to develop economic and industrial zones alongside the waterway has also been given a kick-start, with a masterplan nowbeing developed.

Hazem Galal, partner and global leader for cities and local government sector at UK consultancy PwC, based in Dubai, says the two projects are “about as transformational as it gets”.

“It represents an opportunity to reposition Egypt economically and to also unite its people around a national project,” he adds.

Expansion project

The canal expansion will see the construction of a 35-kilometre-long channel running parallel to an existingsection of the canal. It will also involve the deepening of the waterway to allow the passage of far larger vessels. 

When it is complete, ships will be able to travel uninterrupted from north to south. Currently,vessels travelling in that direction must berth for several hours to wait for the south-north convoy to pass.

The improvements are expected to boost the number of vessels travelling through the waterway and increase itsrevenue. Early estimates suggest capacity could almost double from 49 ships per day to 97.

The SCA aims to nearly triple annual revenues from $5.5bn to $13bn over the next four years.

Digging work has already begun, under the supervision of the army, and President Abdul Fattah al-Sisi has said the excavating work must be completed within the next year, with the entire project envisaged to take five years.

Local and regional construction companies are winning contracts to carry out digging for specific portions of the canal. For example, Ascom Geology and Mining, an entity owned by Egyptian investment company Qalaa Holdings, is excavating dry sand on a 1km section.

Several contractors have recently submitted bids for dredging works and are awaiting news of a contract award.

Investment certificates

The government managed to raise the required funds from both citizens and companies by issuing five-year investment certificates bearing an interest rate of 12 per cent, an attractive return that also helped ensure the popularity of the fund-raising exercise.

The certificates pay out dividends on a quarterly basis and came in denominations of £E10($1.40), £E100, and £E1000.

A significant chunk of the $8.5bn was sourced from outside the banking sector and post office, coming “literally from under the mattresses”, as one analyst put it.

According to the central bank, 82 per cent of the certificates were bought by Egyptian citizens, with a further 18 per cent purchased by institutions and companies.

National duty

Egyptians flocked to buy investment certificate, attracted by the high yield, but also drawn by a sense of national duty. The canal has been seen as a symbol of Egyptian nationalism ever since President Gamel Abdul Nasser reclaimed the waterway from the British in 1956.

The Suez Canal is a major pillar in Egypt’s economy, providing a source of foreign currency that is urgently needed now, given recent slumps in tourism and foreign investment since the ousting of President Hosni Mubarak in 2011.

“We have been longing for that type of national project that would really make a big impact,” says Galal.

In 2013, the canal accounted for about 9 per cent of general government revenue. Yet,traffic has been slowing, with the number of vessels dropping by 4 per cent in 2013 to 16,596 ships. Revenues also fell marginally last year.

The pattern of international trade is changing, with south-south trade flows between Asia, Africa and the Americas becoming more dominant than the historic East-West flows. The Suez Canal faces the risk of becoming less relevant for shipping companies.

Furthermore, some firms have decided that,depending on the speed of their ships,it is sometimes more economically efficient to transit via the Cape of Good Hope than the canal.

Underinvestment in the Suez region in recent years has also played a role in diminishing the appeal of the route. A 2013 report from the Washington-based World Bank found that the canal was producing “meagre returns”.

“It is a now-or-never moment,” says Galal, referring to the expansion.

 “We are seeing a lot of other potential alternative [routes] being studied or assessed. If this is not done now, and at the scale that is envisioned, it will be absolutely a missed opportunity and it will be too late to reassert Egypt’s position as a primary artery of international trade in the world.”

Suez development

As well as the expansion scheme, plans to develop the Suez Canal Regional Development Project have been revived. This scheme will see the construction of industrial and logistical zones along the waterway.

This “economic corridor” was first discussed during the regime of Mubarak, who was ousted from power in 2011. It was raised again by his successor, Mohamed Mursi, who was also removed from power in July last year.

Continued political uncertainty and a lack of funding were the key factors that ensured these plans were never fully developed. Yet, under current president and former army chief Al-Sisi, the plans seem to be finally getting off the ground.

“This time, it has commitment from the government; it is not just about fancy drawings being rendered, but it is about how to enable it,” says Yehia Zaki, director of operations for Egypt at Lebanon’s Dar al-Handasah. “I believe the enablers and the environment are suitable to get this project kicked off.”

Dar al-Handasah won the consultancy contract, in conjunction with its Egypt arm, to oversee the development of a masterplan for the Suez Canal Regional Development Project in August, beating 14 other competing firms.

The contractor is currently one month into developing the masterplan and expects to complete it within the next five months.

The masterplan will see Dar al-Handasah develop a strategy for the area spanning from Port Said and Al-Arish in the North to Ain Sokhna and the Gulf of Suez in the south.

Integrated scheme

“Part of our assignment is to integrate what is existing with new projects and put them into an integrated scheme,” says Zaki. “They are not necessarily connected, but follow the same strategy and legislation.”

Other elements of the masterplan include assessing the infrastructure and energy requirements for the development project, such as a steady supply of electricity. The plan will also see Daral-Handasah develop business plans to attract investment,and assess the socio-economic benefits of the scheme, such as providing jobs and supporting the development of new urban areas where Egyptians can live and work.

Funding issues

A question mark still remains over how the development project will be funded, with the government unlikely to seek further funding from the Egyptian people due in part to the size and scope of the scheme.

Dar al-Handasah’s main objective is to develop a masterplan that will encourage investment inthe project, rather than to stipulate the exact nature of the required funding.

“It is a bit premature to decide where we are going, but I definitely think we will have a combination of financing models,” says Zaki.

He adds that the scope of Dar Al Handasah’s work remains at a regional level, but that the masterplan will pave the way to generating a number of sub-projects, and these schemes will source their own funding.

Market commentators speculate that the scheme might use project finance structures and public-private partnerships. “There is no other way,” says Wael Ziada, head of research at Egyptian investment bank EFG Hermes. “There will definitely be a need for a form of project financing.”

“What is necessary is restoring private sector investment,” says Steffen Dyck, Egypt analyst at the sovereign risk group of US ratings agency Moody’s Investors Service. “So we might see more public-private partnership structures being used.”

Attracting investors

But before funding structures are addressed, the right conditions to attract investors in the first place must be tackled. Since the revolutions in 2011 and 2013, Egypt has greatly relied on financial support from the Gulf region, as other international investors rapidly retreated from the political uncertainty the region was experiencing.

However, the Suez development project is piquing the interest of a far wider range of investors. “From what I have seen in the last month, the whole world is curious to see what is happening,” says Zaki.

“I am not saying everyone is lining up to come and invest, but a lot are asking what is happening and want to be kept informed.”

The interest in the canal reflects wider improvements in investor sentiment towards Egypt under Al-Sisi’s rule. As well as the growing interest in the canal, there are other signs Egypt’s fortunes are changing under Al-Sisi’s rule.

“Foreign investors have largely remained on the sidelines to this point, but we could be reaching a key trigger point once the country moves past parliamentary elections, and thanks to improved relations with the [Washington-based] IMF,” says Bryan Plamondon, analyst at US risk consultancy firm IHS.

Negotiations between the IMF and Egypt about a possible $4.8bn loan broke down during Mursi’s rule.

Improving finances

Today’s Al-Sisi regime has seen Egypt’s current account deficit shrink to $2.4bn for the fiscal year 2013/14 from the $6.4bn recorded the preceding year. Foreign direct investment (FDI) has begun to increase slowly, with Cairo securing FDI flows of $6bn in  2013/14.

The country is also planning an investment conference in February next year and has asked the IMF for an economic assessment in an effort to improve the country’s image. The IMF has not issued a so-called Article IV for Egypt since 2010.

Repaying debt

Earlier this month, Cairo further bolstered its international reputation by repaying $1.5bn of debt to foreign oil companies operating in the country. The government has come to an agreement with foreign oil firms to pay off all outstanding arrears by 2017.

“We are seeing a big change on the economic front,” says Walid Cherif, managing director at Gulf Credit Partners, the regional fund of UAE-based asset manager Gulf Capital. Last month, his fund invested $25m in Egypt-based oil services company Amak Petroleum.

“We have been monitoring the situation in Egypt, but have been reluctant to do anything for the past three years,” he says. “But that has changed recently; we are seeing more stability and reforms are being taken seriously.”

Gulf Credit Partners is currently considering other potential investments in Egypt, eyeing opportunities in the non-bank financial sector, particularly in the area of consumer finance, as well as in the agri-business sector.

With investor enthusiasm gaining momentum, other infrastructure projects in Egypt, within sectors such as energy and housing, could take major steps forward.

“The mood is right, but execution is going to be very important,” says Galal. “These megaprojects need to have critical timelines.”

Egypt, and indeed the world, will be closely watching the Suez Canal to see if the current excitement can translate into projects that work, get completed and support the country’s much-needed economic recovery.