Expanding the Suez Canal: The Authoritarian's Task

Sinking cash into the cash cow: expanding the Suez Canal.

Authoritarian regimes are drawn to massive infrastructure projects like Americans are drawn to obesity-inducing lifestyles; this much is true. Their sheer scale flatters delusions of grandeur of their proponents. However, their size also tends to attract complaints about the scale of operations and the resulting ecological consequences. These being authoritarian regimes championing them, criticisms are casually brushed off. I suppose, then, that it was only a matter of time before the current Egyptian leadership decided on finally expanding the Suez Canal as a flagship project.

The expansion has been on the drawing board for a number of years. However, it's only now that the government-owned enterprise has decided to finally get it done. With few other sources of foreign-exchange earnings--tourism hasn't rebounded yet to pre-crisis levels despite some signs of recovery--this was perhaps inevitable.

Bulldozers push earth and dredgers spit mud round the clock at Egypt's Suez Canal in a race to quickly expand the strategic waterway for two-way traffic, a project trumpeted by President Abdel-Fattah el-Sissi to revive both the country's damaged economy and visions of nationalist glory.

While the government's goal of more than doubling annual canal revenues to some $13 billion in less than a decade appears overly ambitious, shippers and analysts say the reduction of waiting time to almost nothing will draw some vessels. Any major increase, however, depends on something unlikely to happen soon — a large jump in European demand fueling greater shipping from Asia.

There is a debate as to whether expanding the Suez Canal will result in more shipborne traffic going through it. One school of thought is that volume is ultimately dependent on the level of trade between the two continents it mostly links--Europe and Asia. Seen from this perspective, matters are not so optimistic with Europe's economy moribund and China's economy slowing down. Indeed, characterizing it as a vanity project is quite accurate:

"It all depends on the trade volume between East and West, not the capacity of the canal," said Xu Zhibin, managing director for the Egyptian affiliate of China's state-owned COSCO, one of the world's top container shippers. "Volume will rise if the European economy begins to boom ... As of now, I don't think that there will be an increase in volume."

The expansion's importance is more long term, as it will better position the canal to keep its prominence in the future. In the short term, it appears to be more of a prestige exercise to boost national pride after four years of demoralizing turmoil and to shore up the image of President el-Sissi as the savior of the nation [...] In a dramatic move after his election, he ordered that the Suez Canal expansion, envisaged as a three-year project, instead be completed in one year.

Another, more optimistic school of thought is that the volume of traffic passing through the expanded canal is not so much determined by Europe-Asia trade but by other microeconomic factors: the fees that will be charged for passage and the costs of fuel. Right now fuel is cheap and so many shipping lines are choosing to go around the Cape of Good Hope in circumnavigating the African continent. That is, the longer route (which requires more fuel) is offset by not having to pay the canal fee. That situation can readily change though depending on the course energy prices take:

The canal is also one of Egypt's biggest foreign currency earners, drawing in a record $5.5 billion in 2014. With the expansion, the canal authority projects it can double the number of ships transiting daily to 97 by 2023, boosting toll incomes to $13.2 billion that year. But hitting that target requires not just a jump in global economic growth. It depends on fuel prices and the canal's fee structure, all factors that shippers weigh to determine whether it's worth taking the canal or the long route around Africa...

"If petroleum and thus fuel prices increase, the canal becomes more attractive, but now they are decreasing, which means the opposite is true," said Xu, of COSCO, which on average sends a vessel a day through the canal. "If the tolls, which are based on the old oil prices of over $100 a barrel, increase, some shippers will want to travel via the Cape of Good Hope."

Naturally yould expect Egyptian authorities to be championing higher energy prices worldwide, but it's not something they can really influence. So it's all to play for whether this investment will pay off.

There are also ecological considerations to this expansion. Environmentalists are also wary of more invasive species being introduced to the Mediterranean: 

Because of the Suez and its expansion, the Mediterranean Sea’s problem with invasive species is becoming “worse than anywhere else on earth,” said Bella Galil, a senior scientist with Israel’s National Institute of Oceanography...

Dr. Galil said, “Marine invasions are forever,” because it is impossible to remove an invasive species from the sea after it has arrived. The sea and its complex food web, she added, are “teetering.”

Some invasive species hitch rides in the ballast water of ships, an issue that the International Maritime Organization is trying to address through new rules regarding the treatment of ballast water to remove stowaways. Others cling to ship hulls, but many creatures simply swim through the Suez Canal itself.