Egypt Freight Transport Report Q1 2008

Egypt continues to struggle with a very poor rail safety record. 2006 was a black year in that regard.

There was a serious accident in October 2006 (a train hit a minibus at a crossing 10km south of Cairo, killing seven people). This followed the major disaster on August 21, when one train ploughed into the back of another in Qalyoub, killing 56 people and injuring 150. The August accident was the worst on the country's antiquated rail system since 2002. The government sought to demonstrate that it was taking the problem seriously by sacking the head of the state rail authority and supporting an inquiry, which highlighted major human, technical and administrative failures. There have since been some advances in assessing an anti-collision device (ACD) produced by Indian rail suppliers. Since taking office in December 2005, Transportation Minister Mohammed Mansour has complained that the railway sector is facing problems and suffering from a lack of funding. The network carries around 1.2mn passengers a day, and Egyptian National Railways is subsidised by the central government by round US$243mn a year.

After the August 2006 accident, the government approved an immediate allocation of US$860mn to develop the rail infrastructure, plus another US$600mn in loans to the sector. In our latest Egypt Freight Transport Report, BMI concludes that rail freight traffic will rise by an annual average of 3.3% in the 2007-2011 forecast period, lagging behind the general rate of economic growth, which we project at 5.1%.

Various factors support this prediction. While the extra investment is long overdue to improve safety levels, we do not expect capital expenditure to be enough to transform the railways as a transport mode.

State-owned Egyptian National Railways needs major upgrade and modernisation work. Rail freight traffic growth will lag behind the average for the industry as a whole, which we put at 3.3% during the next five years. Rail freight growth will also be slower than road haulage at an annual average of 4.7%, maritime freight at an average of 6.5% and air cargo at an average of 7.2%.

BMI is forecasting moderate growth in domestic freight transport sectors between 2007 and 2011. This is partly because foreign carriers account for much of the expected growth in foreign trade. Moreover, while the government has declared its intentions to improve all aspects of the transport infrastructure, these plans are long-term and the benefits are unlikely to help the freight transport industry until beyond the forecast period. As a result, the industry will have to continue to make use of the existing facilities for several years.

Egypt scores a total of 35 (out of a theoretical maximum of 70) in our freight transport business environment ranking, which places it below the Africa and Middle East regional average of 40.07. The country's strong points are economic and political 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$14.3bn in nominal terms by 2011, representing 8.8% of Egypt's GDP. The transport and communications sector employed 1.22mn people, or 6.4% of the labour force, in 2007. We see the figure rising to 1.34mn people by 2011, although it will remain stable as a proportion of the total workforce at 6.4%.