Egypt: general economic developments
Published 1 September 2014
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0.1 This publication was archived on 5 August 2016. This article is no longer current.
0.2 Summary
Egyptian-Saudi engineering consultancy Dar Al Handassah wins bid to design the master plan of for huge industrial and logistics hub around Suez Canal, while work expanding and deepening the waterway continues. Unemployment stable in second quarter of year, but youth unemployment remains critically high. President Al-Sisi approves amendments to the long-suspended property tax law, including exempting all military-owned property from tax. Cairo and other parts of the country experience fewer power cuts as more gas is pumped into power plants and maintenance programmes progress.
0.3 Detail
Suez Canal Industrial Hub Project
The Egyptian-Saudi Arabian arms of engineering services firm Dar Al-Handassah Sha’ir and Partners have won the bid to design the master plan of a multibillion dollar project to develop a huge industrial and logistics hub around the Suez Canal. As previously reported, thirteen consortia submitted bids for the development of 76,000 square kilometres around the canal.
Work is in progress on another project to create a new 72 kilometre canal parallel to the Suez Canal (involving the digging of 35 kilometres and the expansion and deepening of another 37 kilometres). The digging and construction of the canal is supervised by the military with about 50 private and public companies now participating in the work.
Project Funding
To help raise the LE60 billion ($8.4bn) needed to finance the digging of the canal and associated infrastructure, the government has decided to issue 5-year investment certificates to Egyptian nationals and corporates to finance the project. The certificates will pay 12% interest rate, the highest on the market. The government is also considering issuing dollar-denominated certificates at an interest of 3%. Yields will be paid from the canal’s annual revenue, which the government expects to rise to $13 billion within the coming four years from current receipts of about $5.5 billion.
Employment
The government expects the Suez Canal project to create over one million jobs. Egypt’s jobless stood at 3.7 million in June; the majority being youth. Unemployment was almost unchanged in the second quarter of 2014 at 13.3% compared with 13.4% in the previous three months (and 9% in 2010). Over 70% of the unemployed were aged between 15 and 29 years and over 28% hold university degrees. According to the national statistics office, about 28% of Egyptian youth live in poverty, while 24% are near poor. Taxation Changes and Revenue Generation.
The government has taken another step to reform the tax system and generate revenues to fill the budget gap. President Al-Sisi approved amendments to the long-suspended property tax law, which was issued in 2008. Private homes with an annual rental value exceeding LE24,000 ($3,356) as well as properties used for industrial, administrative, or commercial purposes with an annual rental value exceeding LE1,200 ($168) will be subject to a 10% tax of the rental value. Units owned by educational institutions, hospitals, orphanages, trade unions, political parties, and civil society are exempt from tax as long as they are not used for other purposes. Military property including bases but also clubs, tourist resorts, hotels, factories, hospitals and warehouses – are also tax exempt.
The Finance Minister will develop – within three months from the ratification of the amendments – criteria for the valuation of industrial, tourism and petroleum facilities, as well as airports, ports, mines, quarries, and other similar facilities of special nature. Properties subject to taxation will be re-valued every 5 years but the increase in rental value will be capped at 30% for residential properties and by 45% for non-residential units. The Ministry of Finance estimates the proceeds of the property tax at LE3 billion ($420m) in the first year.
Power Cuts and the Grid
Cairo saw fewer power cuts in late August compared with the mid month period when electricity consumption hit unprecedented levels, with some neighbourhoods of Cairo seeing more than five blackouts a day, lasting one hour each. Part of this has been achieved by the authorities cutting supplies of natural gas to energy intensive industries to redirect it to power plants. The impact on companies is unclear. Egypt expects to bring back 4,160MW of power capacity to the national grid by October as it completes the maintenance of some power plants and increases the supply of natural gas for power generation.
Plans for Energy Imports
The Petroleum Minister says that negotiations to lease a regasification plant are underway and if this can be secured and operationalised, the first LNG shipment would be expected in December. An initial agreement has been reached with Russia and Algeria for the import of 10-12 LNG cargoes.
Egypt is also planning to launch a tender to buy 500 mcf a day of gas over the coming 4-5 years and the government is in discussion with UAE and Saudi Arabia to secure supplies of petroleum products next year.
0.4 Disclaimer
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