Egypt has discovered a way to inflate currency cushion: widen Suez Canal

By:Souleymane Loum 

The revenues Egypt garners from the Suez Canal have declined since the beginning of Houthi hostilities in the Red Sea. However, anticipation increases for a time of peace, with Egypt already laying plans for a post-war era through a strategic and lucrative venture: the expansion of the Suez Canal. This project is anticipated to elevate maritime traffic and subsequently increase foreign currency inflows into President Abdel Fattah al-Sissi’s government.

The recent announcement of $8 billion in support from the IMF was a welcome development for Egypt, yet the nation prioritizes sustainable income over momentary financial aids that exacerbate its already significant debt burden. The Suez Canal extension, along with the privatization of numerous state-owned enterprises and other financial reforms, is seen as a cornerstone in strengthening Egypt’s fiscal stability.

The last expansion in 2015 successfully doubled the canal’s capacity, facilitating the passage of around a hundred ships daily. With ambitions set high once again, the current feasibility study spearheaded by ACE Moharram-Bakhoum and Dar Al-Handasah concentrates on minimizing vessel transit times and alleviating potential bottlenecks in this vital maritime corridor.

The Suez Canal Authority (SCA) showed that the ongoing feasibility study, evaluating potential collaborations, has its preliminary findings already been presented to President al-Sissi, with the final proposal pending his approval. This initiative follows the 2021 strategic direction taken by the canal authority in the aftermath of the Ever Given incident, seeking to convert certain single-lane stretches—50 kilometres in the northern part and 30 kilometres in the southern—into dual-lane sections, according to SCA President Osama Rabie.

Amidst this backdrop, Egypt is navigating the current downturn in canal usage, a result of the Houthi attacks that led many ships to opt for the longer route around the Cape of Good Hope starting from November 2023. The challenge now lies in reinstating the confidence of shipping companies, amidst ongoing concerns over maritime security.

This dip in canal traffic has significant financial implications for Egypt, with Bloomberg Intelligence estimating a loss of about $700 million since the initiation of the Houthi assaults.