The Suez Canal is Egypt's most strategic national asset. The waterway provides a critical short passage for maritime trade between Europe and Asia, linking the Northern Atlantic with the broader Indo-Pacific Basin. Before the completion of the canal, maritime trade from Northern Europe or the Mediterranean had to sail along virtually the entire coast of Africa before reaching the Arabian Peninsula or the Indian Ocean. The alternative was to risk costly and dangerous overland trade routes. The canal reduces transit times by weeks, slashing the associated fuel costs. Egypt's authority over the Suez, finalized after the withdrawal of British troops in 1956, affords Cairo control over one of the world's key shipping bottlenecks. Along with Egypt's traditional role as mediator in conflicts between Israel and the Palestinian territories (and its land border with both), Egypt has been able to exploit its role as owner of the canal and guarantor of its safety, gaining security assurances and military aid from foreign powers, particularly the United States.
The expansion of the Suez Canal aims to increase the flow of international trade through Egyptian-controlled waters, thereby increasing the transit point's strategic value. Cairo has not announced details of how it will achieve its goal of reducing shipping times, but the most likely course of action would be to add a lane through a canal bypass, reducing wait times by allowing northbound and southbound vessels to pass through the canal at the same time.
Egypt also plans to develop both banks of the canal, building advanced containerized cargo ports, storage facilities, manufacturing sites and special economic zones to encourage foreign investment. This would transform the canal from a transit route into a large-scale transshipment point, likely at the north end on the Mediterranean Sea. Any Red Sea-based hub would struggle to compete with planned port expansion and development in Oman, Iran and Pakistan, especially considering the differences in the flow of goods and the flow of oil between Western and Eastern markets.
The project's digging phase began Aug. 5, with several domestic companies each in charge of digging 2-kilometer (1.2 miles) sections of an approximately 35-kilometer canal segment, under the direction of the Egyptian military. The military, which is heavily invested in Egyptian manufacturing and heavy industry through a variety of channels, will take the lead in coordinating and managing the project. The Egyptian government announced that work on the project will be completed within a year at a cost of roughly $4 billion. Though domestic industry has been able to meet many of Egypt's industrial and construction needs in recent years, the country has not undertaken a large-scale project in decades. Without foreign technical assistance and funding, Cairo's one-year timeline is unlikely to be met. Given the rush to complete the project, originally slated to take three to five years, exact details are still emerging, prompting debate in parliament.
The canal project will provide short-term employment during the dredging, digging and construction phase. The special economic zones, manufacturing facilities and industrial zones along the expanded canal route will provide longer-term employment opportunities for Egypt's growing population, the largest in the Arab world.
Domestic and Regional Effects
The al-Sisi administration is marketing the canal project as a salve for Egypt's rising unemployment and a short-term boost to local industry. Cairo has been working to stem unemployment, which has been on the rise since the ousting of former President Hosni Mubarak in 2011. The government estimates unemployment for the first quarter of 2014 at 13.3 percent, up from 8.9 percent during the first quarter of 2010. Especially problematic for Cairo is that nearly 80 percent of unemployed Egyptians are under the age of 30. Given youth participation in the popular movements that removed both Mubarak and his successor, Morsi, al-Sisi and his military backers are keenly aware of the risks that a large, disenfranchised youth population can pose to social and political stability.
While al-Sisi plans to devote the government's energy and resources, along with the military's logistical capabilities, to opening the canal for trade in 2015, local concerns are likely to contribute to delays. Both banks of the mouth of the Suez at the Mediterranean are part of the Port Said industrial and residential communities. The eventual route of the canal expansion is likely to displace some of the businesses and homes in the communities that have sprung up along the canal, exacerbating tensions in these volatile areas.
Cairo's plans to develop transshipment, manufacturing and industrial zones along the canal are sure to raise the ire of its primary benefactors in the Gulf. Dubai is currently the premier transshipment hub in the Middle East and for much of the Indian Ocean Basin. The United Arab Emirates, along with Saudi Arabia and Kuwait, have replaced Qatar as Egypt's primary financial backer. Doha had originally planned to invest in many of the projects associated with the canal expansion and was rumored to be prepared to finance construction itself when then-President Mohammed Morsi expressed plans to expand the canal in 2012. Domestic concerns — including some within the military — about the idea of potential foreign ownership of the canal added to the growing criticisms that eventually resulted in the expulsion of the Muslim Brotherhood-backed Morsi. Abu Dhabi and Riyadh stepped in to replace Qatari funds meant to help Cairo manage its sizable food and energy imports, but there is less enthusiasm to subsidize Cairo's canal expansion and development. Egypt's plans could diminish the competitiveness of Gulf ports such as Dubai, the planned expansions in transshipment facilities in the Gulf at Fujairah and Salalah, and Saudi Arabia's rail and port projects at Jeddah.
Competitiveness in Global Shipping
Expediting transit times and increasing capacity will help the canal maintain its cost competitiveness, especially amid other global shipping projects, such as the Panama Canal expansion. The Panama Canal is set to compete for a much larger segment of ship traffic than before. This is the primary logistical concern driving the Suez expansion. Although Cairo has yet to release the finalized plans, the expansion appears to be meant to allow ships to pass one another in the canal. Ships must currently wait their turn to pass through the canal in one of three daily caravans, a situation that creates delays. There are bypasses along the length of the canal, but transit time is still approximately 12-16 hours. Transiting the Panama Canal takes only 8-10 hours despite the canal's lock system, although increasing congestion in the canal causes substantial delays.
Concerns about interruptions in the Panama Canal expansion benefited the Suez Canal in 2014: Egypt saw a slight increase in shipping volumes. The Suez Canal Authority is hoping that a fast completion of the canal project will not only help to lock in this increased traffic but also expand future volumes as the Suez works to trump competitors such as the Panama Canal.
Perhaps most important, the scale and speed at which al-Sisi is attempting to complete the project places the canal expansion on the level of the grand national projects spearheaded by Gamal Abdel Nasser, founder of the modern Egyptian republic. Cairo is trying to shift its focus from the political turmoil of recent years to what al-Sisi promises will be a resurgence in Egypt's role as a confident leader of the Arab world.
