Egypt’s ports look to boost grey economy

Some of Egypt’s ports
Some of Egypt’s ports

Egypt’s box ports are currently weighing whether to expand their facilities in anticipation of the growth expected in the country’s economy.

According to Drewry Shipping Consultants, total port utilisation at Egypt’s five main ports stood at 65% last year, indicating that there is enough capacity to tide it over for a few more years.

Port Said East, Egypt’s main transhipment facility with a total capacity of about 4 million teu, reported a 65% utilisation rate last year, while Port Said West, with 33% utilisation, and Sokhna, at 62%, all have capacity that can be exploited.

However, two Egyptian ports, Alexandria and Damietta, are nearing the point where analysts would argue an expansion is necessary, with a total utilisation rate last year of 80% and 75%, respectively.

With a population of 97 million people, the International Monetary Fund (IMF) forecasts strong momentum for the Egyptian economy in the next five years, with real growth of 5.3% continuing to rise every year to 2023, when the IMF forecasts growth of 6%. The agency projects that Egypt’s unemployment rate will fall to 6.4% in 2023, down from 12.7% in 2016. In dollar terms, the IMF predicts that nominal GDP will increase 66% over the next five years, while the GDP per capita figure will increase 48%.

The question of whether Egypt needs to bring on additional container terminal capacity is slightly more complicated than when viewing the question in a developed-world setting.

“In my personal opinion, yes [it does need capacity]. I really think there is a growth story. There is congestion and a need for higher quality infrastructure,” Khaled Nagieb, chief executive officer (CEO) and president of Egyptian Ports Development Group, a private-sector company engaged in the development of domestic and international ports, told IHS Markit.

“To say that capacity utilisation stands at 65% in Egypt’s ports is to underestimate it. It could be a little higher. In Cairo and Alexandria, many people are moving up into the middle class. The iceberg is the gray economy. Egypt is exporting a lot of things. I think there is also a growth story that is hard to ignore. Look at the World Bank figures. They don’t capture the true size of Egypt’s gray economy.

“In terms of the forecast for growth and demand, and the plans for adding capacity, you need to have a transhipment conversation. That is very easy, and mainly involves Port Said and Sokhna. Port Said has added 5 km of quay wall, and there are ongoing negotiations with shipping lines, including CMA CGM. It is taking longer than it should, but it is going to happen,” Nagieb said.

“There is a transhipment challenge, but slowly and surely, the capacity will come online at Port Said. The capacity is there, and they have finished most of the construction. Someone could move in there pretty quickly,” he added.

According to Shailesh Garg, general manager of India at Drewry Shipping Consultants, “The main question for Egypt is whether the country has enough capacity for gateway cargo. If you look at ports like Alexandria, they are already inundated. There are certain ports that are congested, and the lines have to come into these locations, which are hotspots. Egypt needs to look at its main gateways. The Egyptians understand they need capacity at certain ports, but because of changing policies, things have been very volatile in the country.”

In addition to Port Said, Damietta is likely to prove a focus for the addition of transhipment capacity. “The new terminal in Damietta could be a good story for growth. The port [authority] is going ahead and building the infrastructure themselves. They will do the channel and berth dredging, and then the port will issue a tender for an international operator,” Nagieb said.

A Damietta-based official told IHS Markit that total capacity at the second Damietta terminal was likely to be 4 million teu, with a draught of 17 m, and a yard size of 700,000 m2.

Garg said Port Said was also trying to develop a second terminal, but new funding had not yet come in. “The project has been delayed as investors are very cautious considering the volatile political scenario and uncertain policy framework,” he said.

Sokhna has also currently added capacity, as its close proximity to the Suez Canal means it foresees a future growth in demand as trade patterns shift.

Ajay Singh, CEO of DP World Sokhna, told IHS Markit, “With the current change in dynamics, there is a greater demand for capacity. Therefore, [we] want to create more capacity for such demand. We are currently increasing the box capacity by developing Basin 2 to handle 1.75 million teu.”

In terms of policy and changes at the top level, he said little had happened over the last five years on expansion of industrial zones around the Suez Canal, which was expanded in 2015.

“Studies say people are not sure [whether to invest]. On the economic zone on the Suez Canal, [there has been little activity]. On paper, it could be one of the key drivers for port volume, generating a good deal of traffic, with the idea of leveraging cargo to the east and west from Egypt. They wanted to promote the location’s development, but nothing much has happened,” Garg said.

He said the Chinese were significant investors in a new industrial city, the Suez Canal Economic Zone, at Sokhna. “It is now in the process of developing a second phase and more Chinese companies are coming in. For China, Egypt offers access to landlocked African countries, as well as the rest of world and the Middle East in some ways,” he said.

“As far as gateway cargo is concerned, for China, Egypt is a major market. Alexandria and Sokhna are major gateways, while, for the rest, Port Said East is a transhipment hub. The rest depends on how you develop free zones and economic zones at Port Said, Sokhna, and Suez. If that happens, the ports will be there. Egypt could be quite big.”

Slow reaction times, bribery, and corruption have long plagued shipping activity on the Suez Canal. “The customs are extremely inefficient, and undermine Egypt’s status as a regional hub to an extent. There is reform in some of these areas too. Customs reform is not an easy thing to do. Is it on the to-do list? Sure it is,” said Nagieb.

“As a pure internal market, Egypt needs to import a lot of goods, such as car spare parts, which is mostly a gray business. You can imagine the growth in the number of cars in Egypt. Put all that together, [along with the] hinterland, Alexandria, and housing projects, and you see the result. IKEA is jam-packed on the weekend.

“The macro picture on that is that Egypt missed the boat on transhipment, but in the end, it’s an attractive location, and at some point, the tariff issue will be resolved,” he told IHS Markit.