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Suez Canal gears up to tap more trade, reach growth targets,N pay debt

Aug.21--AUGUST 6 marked the opening of the Suez Canal's new US$7.5 billion 21-mile-long shipping channel running parallel to the existing channel, to enable two-way traffic for the first time and to larger containerships, as well as reduce transit times.

Yet the canal's expansion only represents a halfway point for Egypt's plans to improve supporting infrastructure, with further developments including a network of road tunnels under the canal linking Sinai with the rest of Egypt.

Over the past 20 years the pattern of trade has shifted to transport exports from China, and with this development the importance of the Canal has risen.

Nowadays it complements the Port of Jebel Ali in Dubai, UAE, as the pieces of infrastructure that shape the non-hydrocarbon economy of the Middle East and beyond, says a commentary from the UK's Transport Intelligence.

The expansion project, however, has come at a high price given that the Suez Canal Authority financed it with a domestic bond issue, with the coupon on the five-year bonds paying 12 per cent.

Some scepticism has been expressed about the commercial logic of an investment of such magnitude, justified by the Suez Canal Authority's business model which aims to triple the existing revenues of US$5 billion over the next eight years.

If the Egyptians are to realise their growth ambitions they will need containerised shipment volumes and other key commodities, such as liquefied natural gas exported to Europe, to grow somewhat faster, after shipping volumes shrank during the political instability of 2013 and 2014, as well as during the recession of 2012, with the bounce-back only emerging at the end of last year.

It is worth noting that the Egyptians financed this project domestically at a time when the world is awash with cash looking for a home in infrastructure projects.

Located on one of the major merchant shipping routes of global trade, Egypt has the opportunity to tap into supply chains that offer real economic opportunities.

With a relatively young and impoverished population it could offer the sorts of manufacturing and assembly capabilities that have underpinned much of the growth seen in China since the 1970s, but is now slowing while labour costs are rising,N making countries such as Vietnam and Myanmar prospective manufacturing hubs in Asia.