Al-Ahram Weekly Online   6 - 12 January 2005
Issue No. 724
Published in Cairo by AL-AHRAM established in 1875

Radical overhaul

The special economic zone in the northwestern Gulf of Suez has been anything but... special that is, reports Wael Gamal

Click to view caption
Al-Sukhna port, one of the economic zones currently running 16 projects

The Suez Special Economic Zone, launched seven years ago, covers 232 square kms. With planned total investments of LE150 billion the zone was promoted as the cornerstone of export- led growth and was intended to attract export- oriented industries and multinational corporations.

The project had all the elements of success. Raw materials suitable for the production of iron and steel, fertilisers and building materials were abundant. The port of Al-Sukhna was close by. It attracted the support of names in the Egyptian business community, including Naguib Sawiris, Ahmed Ezz and Mohamed Farid Khamis. Yet the project appears to have been stillborn.

It wasn't until June 2002 that the law of economic zones of a special nature was issued. Currently only 16 projects operate in the zone, accounting for investments of LE10 billion.

"It cannot be called special," says Minister of Investments Mahmoud Mohieddin, who inherited the troubled project. "All the projects there existed before the special zone law. Any comparison with special zones in other countries exposes the limits of the project. A special zone is not only a law and an authority. It is much more."

Mohieddin has focussed much attention on the project since coming to office, viewing it as a microcosm of the economic dilemmas the government must face. Now he is solely for the project following the prime minister's delegation of authorities.

Mohieddin, who visited the area for the second time last week to attend his first board meeting of the Special Economic Zone Authority, believes the zone was founded at a time when investment was insufficiently prioritised. "Many obstacles were still in the way, including taxes and customs. Now this has changed."

A steering committee headed by Mohieddin and including the governorate and General Authority for Investment (GAFI) has been formed to oversee development of the project. But though the state claims it now has the upper hand in developing the area, especially the port, private investors voice many complaints.

"The port is not serving the whole zone. It is better for us to use Damietta port instead of Al- Sukhna where we have to pay transit fees for the Suez Canal. There is also a lack of housing for workers, who have to commute, which means higher transport costs. Water and electricity supplies are erratic and we had to establish our own sanitation and industrial waste networks," says Mohamed Abul-Enin, CEO of Cleopatra group which has established four factories in the economic zone, investing more than LE600 million and exporting 55 per cent of production.

Ironically, given the project's marked failure to live up to promises, there is too little land available to allocate to investors. It has already been allocated, mostly to those who cannot, or who do not want to, make use of it. Mohieddin recently announced that he had succeeded in convincing some investors to return land, though this is only one aspect of a land dilemma compounded by the fact that the law doesn't allow for land ownership in the area while real estate guarantees are still crucial for accessing credit.

Mohieddin has a programme of action. "What we need is a high quality infrastructure. The port has to be part of an integrated master plan. All projects within the port have to be related to port activities. We hope to unveil a master plan in eight weeks, to be executed by a private-public partnership developing company. We must also begin a promotional campaign. That such basic measures have yet to be implemented impacted negatively on levels of investment."

Privatisation will also play a part in government plans for the zone, with the government's 46 per cent stake in the Egyptian Fertiliser Company (EFC) up for sale. The company is expected to attract widespread interest from investors.

"Proceeds from the sale of the government's stake will be invested in new projects," says Adel El-Mouzi, chairman of the Holding Company for Chemical Industries.

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