Egypt's construction sector offers rewards but risks also high

Many mega projects involving UAE firms have been announced but have failed to get off the ground

Egypt is in talks with Chinese contractors to build a new light rail system to accompany its busy metro. Heba Elkholy / AP Photo

The "substantial scale" of Egypt's construction market and its robust growth outlook offers major investment opportunities for contractors and investors looking to get involved in the market, but it carries more risk than many of its neighbours, according to BMI Research.

Egypt has announced several mega projects over the past few years, but few have gotten off the ground.

For instance, the US$45 billion New Capital Cairo project announced at the Egypt The Future conference in 2015 has become bogged down. It was initially due to be developed by Emaar Properties but talks between the parties reportedly stalled over financing. Egypt’s government subsequently signed a deal with Chinese developer China Fortune Land Development (CFLD) and China State Construction Engineering Company (CSCEC) to move the project forwards last September, with CSCEC providing an initial $3bn loan to help build government facilities at the site.

Reuters reported in February that the Chinese firms had pulled out of the project, but a source told The National that negotiation between the parties were still ongoing. CFLD has also been looking to recruit staff in Egypt.

David Lee, an infrastructure analyst, said a lack of financing had been the cause of a number of the proposed mega projects stalling, as well as "an opaque and cumbersome bureaucratic framework".

Furthermore, the sheer scale and complexity of many of the proposed projects will present immense design, construction and financial difficulties, making it unlikely that they move forward, he said.

Arabtec had also signed a deal in 2014 that it said was worth $40bn, to build up to one million homes in Egypt by 2020, but its deal also failed to progress, with the UAE contractor arguing that the government had dramatically reduced the scope of the project.

Mr Lee said that “extensive government control of and intervention in the Egyptian economy leaves the delivery of projects exposed to abrupt policy changes, and fails to align with the long-term clarity required by international investors looking to commit capital over a multiyear time horizon".

Moreover, despite the success Egypt has enjoyed with economic reform — ratings agency Moody’s last week said the reforms are “showing positive results” — Mr Lee said he does not envisage the risk environment improving at any time soon.

“We do not see the country’s leadership as having the requisite political will to radically overhaul its governance structure and root out deep-seated corruption and inefficiency,” he said.

“With the Egyptian army possessing pervasive and wide-ranging interests throughout the country’s economy and the military regime firmly entrenched in power, we view serious reform as unlikely.”

Yet Chinese firms appear to have more patience in the market. Last week, China’s state news agency Xinhua reported that Egypt’s president Abdel Fattah El Sisi met a coalition of Chinese firms including the China Railway Group and AVIC International to agree a deal to build a new light rail system in Cairo.

The Economic and Commercial Counsellor’s office at the Chinese embassy in Cairo told the agency an initial agreement for the project had been reached, but that “more time and further negotiations” were needed before a final deal is reached.