Egypt Freight Transport Report Q3 2009

In June the government said that the Suez Canal registered a 13% year-on-year (y-o-y) decline in transits to 1,482 in April 2009. Transits slumped 17.5% y-o-y to 5,506 for January-April 2009. It posted a 22.7% y-o-y plunge in revenues to US$346.9mn in April, while the canal's revenue figures were US$1.3bn in January-April, down nearly 22.4% y-o-y. The news was likely to worry the Egyptian government, as the Suez Canal is the third largest generator of foreign currency in the country after tourism and remittances sent home by Egyptians abroad. Further losses are expected and the authorities have been forced to downgrade their forecast of a 3.5% decline in revenues for 2009. According to the Suez Canal Authority (SCA), the decline is due the economic crisis rather than piracy in the Gulf of Aden. The SCA was expecting the fall in revenues for 2009 to be around 20%. In 2008, revenues from the canal reached a record US$5.4bn, with the highest ever monthly figure of US$504mn generated in August 2008. Since then, the global economic crisis has severely affected freight transport as global industrial demand plummets. In Q109, container ship volumes were about 15-30% lower than in Q108. The SCA maintains that the Suez Canal is actually a safer route than the longer trip around the Cape of Good Hope, where there is far less protection. An example cited is Saudi supertanker Sirius Star, which was hijacked by pirates in Kenya in November 2008. The ship was on its way to the US via the tip of Africa. As a result of the negative forecasts, the SCA will not be raising canal transit fees.

In our latest Egypt Freight Transport Report, BMI concludes that total freight traffic, measured in million tonnes-km (mntkm) will rise by an annual average of 3.9% in the 2009-2013 forecast period, a little ahead of Egypt's general rate of economic growth. Various factors support this prediction. Egypt is taking a hit from the global slowdown, but GDP growth over the next five years will show some resilience at an average of 3.8% per annum. This compares with 5.9% over the preceding five years. Going forward, the poor state of the country's transport infrastructure will remain an important factor, and we doubt whether the investment flows hoped for by the transport ministry will materialise. Overall, BMI is forecasting no more than moderate growth in domestic freight transport sectors between 2009 and 2013. While the government has said it wants to improve all aspects of the transport infrastructure, these plans are long term and the benefits are unlikely to make a major difference to the freight transport industry until beyond the forecast period. The industry will have to continue to use the existing facilities for several years.

Egypt scores 58.6 out of 100 in our freight ratings. The country's strong points are economic risk and the competitive environment, at least with reference to its peers. Areas for improvement include infrastructure, freight growth, transport intensity (a measure of the dynamism of foreign trade) and the regulatory environment. The total value of transport and communications GDP will rise to US$27.3bn in nominal terms by 2013, representing 9.9% of Egypt's GDP. The transport and communications sector employed 1.28mn people, or 6.4% of the labour force, in 2008. We see this rising to 1.39mn people by 2013, although it will remain stable as a proportion of the workforce at 6.4%.