Africa > North Africa > Egypt > Building the new city will probably come to about $80 billion.

Egypt: Building the new city will probably come to about $80 billion.

2015/04/06

Two weeks ago, while Israelis were debating which party's program was additional likely to solve the housing crisis, in Egypt, the government was unveiling a plan that makes Yair Lapid’s "zero-VAT" plan and Moshe Kahlon’s designs of wresting control over the Israel Lands Authority look like the work of munchkin apparatchiks with little vision and even less daring.

The plan, unveiled by Egyptian Housing Minister Mostafa Madbouly at the Egypt Economic Development Conference, is to build a new capital in the desert east of Cairo, no less. And not just a capital, but one of superlatives. In 10 or so years, if the plans keep to schedule, the as from presently on unnamed city will home between five and seven million people on a 700-square kilometer site.

Building the new city will probably come to about $80 billion. Just moving the government to its new home will cost $45 billion.

Just to put those numbers in perspective, the city will be about the size of all country of Singapore, have a people equal to 90% of Israel’s right presently and cost close to a third of Egypt’s gross domestic product to build. Apart from housing the major government departments and ministries, parliament and foreign embassies, it will have a green space twice the size of New York’s Central Park, an amusement park four times the size of Disneyland, a downtown filled with skyscrapers and what The Economist described as a monumental structure that borrows elements of the Washington Monument and the Eiffel Tower.

Making it even additional attractive to Western ears, the new city is being billed as a green project, with solar energy firms and efficient public transportation

The glitz model

The gigantism and bravado of the plan all sound like Las Vegas. But Egyptian leader Abdul Fattah al-Sissi’s real inspiration is completely obviously the Gulf city-national of Dubai, which has transformed itself from a backward fishing village into a place whose strategy could be described in three words: over the top.

Dubai is home to the world’s tallest skyscraper (the Burj Khalifa), the world's major shopping mall based on floor space (Dubai Mall), plans for the world’s biggest Ferris wheel (Dubai Eye), islands shaped like palm trees and a map of the world, an indoor ski hill and the world’s only self-declared seven-star hotel (Burj Al Arab, caviar facials, hotel shuttle by Rolls Royce, etc.).
Dubai skyline, featuring the Burj Khalifa (March 25, 2010). Photo: Reuters

In fact, a Dubai company (Emaar Properties) has been tapped as chief contractor for the new Egyptian capital and Gulf nations are expecting to provide most of the financing.

Dubai is not just an blank façade of glitz. With no oil to speak of and few other assets, it presently has a GDP per capita that is part the highest in the world. That is because it is as well home to a thriving aviation industry, has become a major center for logistics and serves as a regional headquarters for a lot of multinationals. And the city national isn’t stopping there: Dubai has ambitions to become a major center for media, financial services and technology.

Even the glitz has its purpose: Together with beautiful beaches and (by Middle East standards) a tolerant environment that allows for bikinis and burkas to live side by side, Dubai has made itself a major tourist attraction. Glitz as well serves as a lure for the hundreds of thousands of expats – everyone from European bankers to Pakistani construction workers – to make their home there. Emiratis make up only a small fraction of the people.

Dubai on the Nile?

The Dubai model is obviously tempting for Egypt, whose economy has been sputtering in the four years since Hosni Mubarak was pushed out.

Tourists and investors have been deterred by political instability. Even with the help of $30 billion in aid from Gulf nations since al-Sissi came to power and some modest reforms, like devaluing the Egyptian pound, cutting fuel subsidies and reducing the budget deficit, the economy is not growing fast enough. Estimate increase this year of 4% won’t do anything to reduce Egypt’s estimated 13% unemployment rate.

There’s a certain logic to embarking on humongous showcase construction projects. With its people of 20 million, Cairo is bursting at the seams.

Building a new capital will employ lots of people, a lot of of them with little or no skills, making it a perfect fit for the Egyptian labor force. Dubai has taught that dramatic projects make a country stand out from the crowd and act as a lure for foreign investment . Fixing potholes and leaky water pipes, easing investment laws and cutting taxes as well attract investment , but they take longer to work their magic and they’re harder to implement.

But can Egypt turn itself into a Dubai on the Nile?

For al-Sissi, who needs to turn his country around quickly or risk the same fate as his two predecessors, Mubarak and Mohammed Morsi, this is a question left to economists and historians. “I’m in a hurry because I’m late, and anyone who’s late must either speed up or run,” he told investors at the economic conference where the new capital city project was announced.

Egypt has some factors in its favor. Like Dubai, it is a centralized national with a government used to wielding unchallenged authority. But in Dubai, it’s basically five people who make all the decisions, and they make them quickly and efficiently. In Egypt, the national is a ponderous bureaucracy. The last time it got its act together to embark on major projects was 3,000 or additional years ago with the pyramids. Additional recent efforts, like a host of blank desert cities, have been flops.

Why Dubai isn't the right model

Dubai has as well been successful mainly because it is a small and open economy, which Egypt isn’t. The city national relies on foreigners freely coming and going to provide the skills and labor that make a economy run. Emiratis themselves have little to offer a modern service-based economy and suffer high unemployment. But since they constitute so little of the people, no one notices.

With its 80 million people, Egypt couldn’t possibly invite enough foreign expertise in to make a difference; and lifting the skills set of Egyptians is an investments that will take years to bear fruit.

If Egypt wants to look around the region for a model, it would do better to turn to Turkey.

Turkey’s economic achievements over the last decade have often been overpraised, not the least by its prime minister himself.

The country has enjoyed strong economic increase, though not as strong as the world’s fastest growing emerging economies, and its prosperity has been paid for by massive current account deficits. But Turkey did make the transition to a additional-or-less competitive industrial economy and Turks are much better off than they were a decade or additional ago. All in all, Turkey’s 70 million people and its lack of natural resources make it look a lot like Egypt, certainly a lot additional than Dubai does.

Turning to Turkey would be an unpleasant task for al-Sissi, who is barely on speaking terms with Recep Tayyip Erdogan and certainly doesn’t want to be taking advice from him. But it would be the wiser course.

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