Sunday,23 September, 2018
Current issue | Issue 1292, (21 - 27 April 2016)
Sunday,23 September, 2018
Issue 1292, (21 - 27 April 2016)

Ahram Weekly

Sinai’s economy: Timely questions

Funds may be available for infrastructure development in Sinai, but the real question is how to make the peninsula self-sustaining, writes Ahmed Shams

Al-Ahram Weekly

The recently signed Sinai agreements between the governments of the Arab Republic of Egypt and Kingdom Saudi Arabia put the kingdom at the investment forefront in the peninsula for the first time in history.

Among the agreements are the newly announced King Salman Sinai Development Programme of LE3 billion for the Gulf of Suez Road, LE2.1 billion for the University of Al-Tor in South Sinai, and LE0.9 billion for population centres. These new development prospects might lead to a strategic game-changer, from international funding organisations to regional ones, over the next five to ten years.

The agreement on the delimitation of the maritime boundaries in the Gulf of Aqaba on 8 April is an entry point for new cross-border cooperation in the peninsula, marked by the construction of the Bridge of Tiran Island between both countries. The delimitation and bridge argument is not the focus here, despite its high geopolitical and socio-economic impact.

Sinai’s economy has always been discussed in terms of infrastructure costs and natural resources reserves, rather than answering fundamental production: market and return on investment questions. In the words of a noted USAID study, “Expenditures to achieve these and other objectives are not recommended as investments that will give Egypt the highest possible financial returns during this century, but rather as reasonable expenditures in light of Egypt’s national goals, including social and strategic considerations along with those that are purely economic.”

It continued, “[T]hough a total outlay of approximately LE11,300 million is foreseen (starting at under LE100 million per year, but rising to over LE900 million in the final two years of the century) ... by the late 1990s the programme would be ‘self-financing’ under the assumptions of this analysis” (Sinai Planning Studies by USAID, 1979-1985, “An Economic Development and Investment Plan 1983 to 2000”, where the value of the pound against the dollar ranged between LE1 and LE4 during the same period).

Timely questions: There are two very crucial elements in the USAID’s investment plan in relation to the old-new “Sinai Development Programme”. First, the initial plan would have taken up to 15 years to be “self-financing”. Second, it would have achieved national strategic goals rather than purely economic ones.

In other words, the USAID’s investment plan had justified the lesser focus on high return on investments. Tourism and oil industries are among the exceptions to provide relatively definite answers to service and production capacity, market share and returns prior to 2011, but in terms of contribution to Egypt’s GDP, instead of the local or regional economy, to achieve the ultimate “self-financing” goal.

The following infrastructure funds by the South Sinai Regional Development Programme (SSRDP) in 2006-2010, and now the King Salman Sinai Development Programme, highlight how questionable the “self-financing” status is. Ultimately, “self-financing” is a question of how successive governments in Cairo balance Sinai’s budget.

Only an economically feasible investment plan in terms of production, market and return on investment would provide a definite answer, whether the new LE6 billion fund and/or other future ones would be temporary rescue plans, or a founding investment for a future self-financed development programme. This is a timely question on generating and reinvesting returns in Sinai.

Development prospects: The Sinai Development Authority (SDA) announced a total development budget of LE557 million (initially planned were annual expenditures of more than LE900 million by 2000) for Sinai Peninsula and Suez Canal governorates during 2015-2016 fiscal year, part of LE5.1 billion being available from other external sources. Typically, current funds pour into infrastructure projects, where the future challenge is compromised to attract investors in order to achieve “self-financing” status.

The state still needs to define the extent of its role in the complex geopolitical and economic context of the Sinai Peninsula, whether as an infrastructure provider, a producer and/or a subsidiser, in addition to being the regulator through the central government or an unlikely decentralised governance structure. It might sound like a basic argument, but some SDA projects do not have clear production, market and return on investment status.

For example, the newly constructed inland agriculture and fish farms are founded and owned by SDA. Bedouin farmers from the nearby localities work as wage labourers and the subsidised production is supplied to local Sinai markets at a reduced cost. The same projects could be privately owned by locals (even if the land would remain state-owned for geopolitical reasons), in addition to being organised under agriculture cooperatives for uniform mass production and higher competitive advantage.

Meanwhile, the state would gradually de-subsidise remote farms/projects under a multilevel state/stakeholder “self-financing” disengagement plan. The implementation of similar transformations has been a challenge across Egypt for decades.

The Sinai Peninsula, represented in the SDA, is still recovering USAID’s LE11.3 billion “Economic Development and Investment Plan 1983 to 2000”, through the new LE6 billion fund, where the government invested an approximate sum of LE8 billion between 1985 and 2015.

While state investment in infrastructure projects is more intensive than ever before, the answers to the transformation of natural resources into production, markets and return on investment still lie ahead, along with Sinai’s investment laws and regulations.

The writer teaches at Durham University and is founder of Sinai Peninsula Research (SPR).

add comment

  • follow us on