hardhat
Wednesday, 28 April 2021

What is earmarked for Egypt’s infrastructure projects in FY2021-2022, and how will it be spent?

We have a breakdown of the government’s public investment plans for Egypt’s infrastructure projects in FY2021-2022: A few days ago, Planning Minister Hala El Said laid out the government’s sustainable development plan for FY2021-2022 in an address to the House of Representatives, as Cabinet presented its draft budget for the upcoming fiscal year. In terms of overall size, the budget passed the EGP 1.25 tn mark — a 51% y-o-y increase from last year’s budget of EGP 826.8 bn. Three-quarters of overall spending (or EGP 933 bn) is earmarked for public investment, which the government hopes will help spur a gradual economic recovery that will begin in 1H2021-2022, before picking up steam in the back half of the fiscal year.

So, where is all this money going? The coming fiscal year marks the last year of the ministry’s medium-term sustainable development plan. Priority will be given to funding existing projects, which are expected to be completed during FY2021-2022, especially in the healthcare sector (as one would expect from spending priorities in a pandemic). But the major spending areas will be “commodity sectors,” which encompass agriculture, industry, energy, and construction, and together account for 38% (around EGP 475 bn) of the investments. Transport alone remains the single-largest recipient of infrastructure investment, followed by construction and energy. We look at the item-by-item breakdown of the government’s infrastructure investment plans, and explain the context that went into the choices in priority.

But first, a snapshot of the (global and domestic) economic backdrop against which these investment plans were drawn up: Global GDP contracted by 4% in 2020, while Egypt’s GDP grew 3.6% in FY2019-2020, according to El Said. Globally, some 114 mn people lost their jobs last year, raising global unemployment rates to 12.6%. Here at home, unemployment dropped to 7.2% in 2Q2020-2021. The government also earmarked EGP 100 bn for a stimulus package designed to curb the negative impact of covid, which was largely invested in ensuring food security, supporting manufacturers, and bolstering healthcare.

Considering the huge toll the pandemic took on the global economy, it’s no surprise that healthcare investments will increase a whopping 205%, coming in at EGP 47.5 bn for FY2021-2022. The investment strategy will prioritize getting 23 hospitals — which are 70% complete at this point — up and running, increasing the number of ICU beds nationwide by 55% to 8.1k and the number of incubators by 10% to 5.3k. With an eye to make Egypt self-sufficient in plasma derivative, the government is planning to build 20 plasma collection centers, 14 of which will be completed in FY2021-2022. EGP 1 bn will be dedicated to enhancing the capacity of hospitals, including 23 chest hospitals and 42 fever hospitals — both of which are critical in absorbing covid-19 patients.

There’s ongoing investment in infrastructure for the universal healthcare scheme, including developing 38 hospitals and 30 primary care units in eight governorates. And other development plans include overhauls at “model hospitals” and digitizing some 115 university hospitals.

Pandemic aside, prioritizing healthcare infrastructure investments also makes sense because the vaccination program is expected to be a major driver of Egypt’s economic recovery next fiscal year. The government is targeting GDP growth of 5.4% in FY2021-2020 (to bring total GDP to EGP 7.1 tn), up from the 2.8% expected for the current fiscal year. In addition to the vaccine rollout, GDP growth is expected to be buoyed by the second phase of the economic and social reform program (which we recap in the news well, above), supporting monetary and fiscal policies to push production forward, focusing on spending in education, and continuing national megaprojects.

Priority area #2: Transport. The budget for the transport sector is penciled in at EGP 245 bn, which covers roads, bridges, and river ports, as well as projects under the National Authority for Tunnels. This category does not include the traditional railway. In the transport sector, some of the major projects include developing 106 km of the dreaded Ring Road, as well as the EGP 1.1 bn development of 350 km of highways (Fayoum-Wahat, Assiut-Sohag-Red Sea, and Suez-Geneifa-Ismailia), and building three new axes — King Salman, Autostrad Fardous, and Matrouh-Siwa — spanning a combined 324 km, at an expected cost of EGP 2.9 bn. Then there’s another EGP 1.5 bn earmarked for 15 alternative bridges for ferries on waterways.

The transport budget also covers the electric rail, monorail, and metro projects under the National Authority for Tunnels’ purview, which is getting EGP 113 bn. These include the high-speed electric rail Orascom Construction, Arab Contractors, and Siemens are working on, as well as the monorail, which will connect 6th of October City to Giza and Nasr City to the new administrative capital. These projects are particularly important as the new administrative capital will be inaugurated in June and ministries are set to move their offices to the city, meaning the government must provide transport options to and from the new capital. Then there’s the Cairo Metro Line 3, and Phase 1 of Line 4, both of which are slated for completion in FY2021-2022.

Priority #3: Railways. The National Railway Authority is getting EGP 27 bn in state investments to work on railway projects, including developing 1.1k level crossings and signal systems, and complete the Qanater Khairiya bridge of 490 m. Earlier this week, Transport Minister Kamel El Wazir came under fire in parliament as he was questioned about several deadly train accidents in the past month. The ministry will start working on 27 new projects in July that will cost the government some EGP 132 bn, El Wazir said. This is part of a 10-year, EGP 225 bn plan to upgrade the country’s rail network that is due to finish in 2024.

Priority #4: Education, which is looking at a EGP 56 bn investment plan to set up 93 new schools in underserved areas and 3.1k mobile classrooms. As the pandemic pushed the Education Ministry and Higher Education Ministry to administer major exams online, it makes sense that EGP 1 bn is going towards providing 600k tablets for school students and digitizing 154 examination centers in universities. The government is also planning to complete the construction of three public universities, and build two new ones across governorates, in addition to setting up 12 new non-profit private universities and operating nine digital universities.

Priority #5- Water. As negotiations over the Grand Ethiopian Renaissance Dam continue to hit a wall and we face the threat of Egypt’s water supply being negatively affected, water projects are getting a 67% y-o-y bump in investments to reach EGP 21 bn. These projects — including extending the existing water network and expanding its capacity — should cover the potable water needs of about 99% of the population, El Said said. Meanwhile, on the agriculture side of the water equation, the water resources and irrigation budget is set at EGP 21 bn. The projects under this category aim to increase our produce output and efficiency by developing irrigation systems, introducing water-saving techniques and developing canals.

ALSO COVERED in the government’s infrastructure development plans:

  • The energy sector is getting EGP 43 bn, with a special focus on renewables, and priority going to underserved areas such as North Sinai. The investments will also increase airports’ energy capacity, and set up an energy producing water station project in Suez, among others.
  • Sewage is getting EGP 1.5 bn of investments for 36 new projects to increase the network’s capacity and coverage;
  • ICT is allotted EGP 18.6 bn to digitize government documents, set up e-visas, and provide digital ins. for foreigners in Egypt;
  • Social housing is getting EGP 50 bn, which will cover building 390k homes and developing 3.9k feddans in unplanned / informal settlements;
  • The Suez Canal Zone will see new tunnels built under the canal, while the government plans to expand logistical centers at the Suez Canal Economic Zone;
  • Two dry ports — 10th of Ramadan and 6th of October — which should be completed next fiscal year. Eleven others should be following later on;
  • The manufacturing sector is also included in the budget, but the exact amount of funding and the specific projects were not specified. The strategy broadly plans to focus on deepening local production of intermediate inputs, and linking up with global supply chains.

Your top infrastructure stories for the week:

  • OC is having a good quarter: Orascom Construction added USD 650 mn in new awards to its backlog during the first quarter of 2021, 85% of which are awards for projects in Egypt.
  • New sewage treatment plants: Construction is underway on 151 sewage treatment plants worth EGP 31.6 bn, with a total capacity of 5 mn cubic meters per day, Housing Minister Assem El Gazzar said in a statement, with plans to complete another 14 desalination plants worth EGP 9.7 bn by June.
  • Dakahlia power grid upgrades: State-owned Egyptian Electricity Transmission Company and Hitachi ABB Power Grids signed a contract worth EGP 1.14 bn for a new control center for the high-voltage power grid in Dakahlia’s Talkha, the Electricity Ministry said in a statement.
  • Railway overhaul: The government is considering establishing three JVs with foriegn firms as part of its plans to involve the private sector in the management of Egypt’s state-owned railway.

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