Another Suez canal will assist Egypt’s recovery

The benefits to Egypt and the region of a second route between Asia and Europe will be significant

Festivities during the inauguration ceremony of a new Suez Canal, called the Suez Canal Axis, in the port city of Ismailia, east of Cairo (AFP PHOTO/ HO)

One of the most easily parodied ideas of the British economist John Maynard Keynes was his suggestion that, in order to stimulate an economy, a government could pay people to dig ditches and fill them in again. The theory being that, simply by employing people and paying them wages, there would be more money to spend elsewhere, creating a knock-on effect.

In the Middle East today there are few economies in such dire need of stimulus as Egypt’s. And there are few ditches larger than the Suez Canal. The report, then, that Egypt plans to build a second Suez canal alongside the first would, at first glance, appear to be a classic case of Keynesian economics.

Certainly Egypt needs the stimulation; the economy has nose-dived during three years of an uncertain revolution. And a second Suez canal would have a positive effect far beyond the shores of Suez. The canal currently brings Egypt around Dh18billion a year in revenue – thus making the initial Dh15bn investment to build a second canal excellent value – but capacity is often stretched thin. Ships need to queue up and then travel in convoy because the canal is not wide enough to allow traffic to flow in both directions.

The Gulf has a particular interest in this. The canal is currently unable to handle the two largest classes of crude oil carriers, forcing shipments from the Gulf states to Europe or North America to go around the tip of South Africa – a detour that adds almost another 3,000km to the journey.

There are, however, ways to make the project even more beneficial to Egypt’s long-term future. Building the canal will put many people into work, something Egypt desperately needs. The canal is also – unlike Keynes’ ditches – productive and will generate rent for many years to come. But the rent is also the chief drawback with a second canal: once the initial building phase is over, most of those employed will once again be out of jobs, unless they can find work in other parts of the economy.

Better, then, for Egypt’s authorities to plan other elements, for example, factories and industrial zones, alongside the canal. Jebel Ali port in Dubai is an excellent example of this, tying the port into the infrastructure of the city. Not all who work on the canal will be able to be employed nearby, but, in the estimated five years it will take to complete, Egypt must aim to develop its economy sufficiently so that there are jobs elsewhere. That will ensure that the benefits of the canal continue to flow long after the ditches have been dug.