Egypt has been drawing up plans for an endless stream of new luxury housing projects in the deserts around Cairo, blooming with artificial lakes, golf courses, swimming pools and fountains.
Has anyone been contemplating where and how all these developments will get their water?
Palm Hills, Egypt’s second-largest listed real estate developer, said in March that it was pressing ahead with its 10,000-feddan (4,200 hectare), 150 billion Egyptian pound (Dh72bn) October Oasis project at Sixth of October City north-west of Cairo, with 100,000 homes to be built in its first phase.
Palm Hills boasts that 70 per cent of its Sixth of October projects are allocated for “luscious greenery and multifaceted creative landscapes”.
Rooya Group has brought in the Iraqi-British architect Zaha Hadid to build the commercial centre at its 6 billion Egyptian pound Stone Park development, which is to include 1,430 homes on 190 hectares in New Cairo. New Giza is building on 630 hectares in Sixth of October.
On Tuesday, the government signed an agreement with Arabia Group, which will invest 35bn pounds to develop 234 hectares in Sixth of October.
Westown, Eastown, Madinaty, Al Rehab, Allegria and Uptown – the list of high-end developments expanding across the desert seems to go on forever.
And the giant of them all is the new US$300bn Cairo Capital, which is to occupy 700 square kilometres east of Cairo and house 5 million people, surrounded by “lush gardens”.
Golf courses have been popping up all around Cairo. A single 18-hole golf course can easily slurp up 5,000 cubic metres of water a day. And the water loss from swimming pools because of evaporation is enormous in the desert’s arid climate.
Egypt is the gift of the Nile, but the river is pretty well tapped out. Not much of it reaches the Mediterranean anymore. If you take more water out of it somewhere, that means you have to take less out somewhere else.
That would include water for the 4 million feddans of land that the government last year said it was planning to reclaim from the desert for agriculture.
Supplying water to cities along the Nile is easy. But once you are out in the desert there is a high lift that has to be taken into consideration. The water has to be pumped up from the Nile, which is very expensive.
Sixth of October is about 150 metres above sea level, New Cairo about 200 to 300 metres and the new Cairo Capital about 300 metres.
"There has been little accounting for how much it costs to get water to the new towns," said David Sims, an economist and urban planner. His book, Egypt's Desert Dreams: Development or Disaster?, was published this year.
The government has been having a hard time delivering water to developments already in place. The districts in and around New Cairo have had regular water cuts in the decade or so since people began living there, particularly in the peak summer months, forcing residents to arrange for deliveries by water tankers.
Various plans have been put forth to add to Egypt’s water supply, including desalination, tapping aquifers and even diverting water from the Congo River into the Nile upstream.
The most practical solution is to make better use of the water already being taken out of the Nile. This means charging residents a price that reflects the cost of providing it. This would encourage people to fix their leaky pipes, consume less at home and decrease the size of their gardens.
It might also put pressure on the government to improve its water management of agricultural and residential use.
The idea of the government diverting resources to ensure water deliveries to luxury gated communities to subsidise the tiny portion of society living there seems outrageous.
If the government starts charging more for water, that means the cost of living in the new cities will increase a little bit, decreasing the pool of people who can afford to live there just a little bit as well. The government is also committed to raising diesel and petrol prices, making the vehicle-based lifestyle of the new cities less attractive.
This may mean that the vast plans for desert cities may have to be curtailed.
Many of the new cities are finding it difficult to attract residents. Based on data from the 2006 census, between 60 and 70 per cent of their units were unoccupied, said Mr Sims. “There are more housing units than people living there.”
The government has indeed been trying to increase water prices in some new cities. It has been installing water meters in some areas and is gradually increasing prices. It recently raised the price of water to commercial users in Sheikh Zayed City to 4.25 Egyptian pounds per cubic metre from about 3.20 pounds, said a manager.
At such prices, desalination begins to look attractive. The cost of desalinating seawater has fallen to between $0.50 and $1 per cubic metre worldwide and looks set to get even cheaper. It is now the main source of water for tourist villages along the Red Sea. Still, the cost of pumping it uphill could keep it prohibitively expensive for the areas around Cairo.
Patrick Werr has worked as a financial writer in Egypt for 25 years.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”