Patrick Werr: Egypt capitalises on Suez Canal with special zone

SOKHNA PORT, EGYPT // With little fanfare, Egypt has been positioning itself to become a world-class producer of fibreglass. This has been achieved through a new model for attracting business that holds tremendous promise for the country’s future.

China’s Jushi Group, the world’s biggest fibreglass maker, broke ground in April 2012 on a plant just outside Sokhna Port, 120 kilometres east of Cairo. It was Jushi’s first large-scale plant outside China.

A first phase, which came on stream in April 2014, has an annual capacity of 80,000 tonnes a year, as does a second phase, which came on stream last year. A third phase now under construction will add yet another 40,000 tonnes when finished towards the end of this year. With a capacity of 200,000 tonnes a year, it will become the third-largest fibreglass plant in the world, according to company officials.

The factory has about 1,500 employees, all but about 50 of whom are Egyptian.

Egypt has finally begun exploiting a major money spinner that it had neglected for more than half a century. The Suez Canal sits astride the world’s busiest trade route, with about 10 per cent of all the world’s seaborne cargo containers passing through. These ships carry goods worth perhaps US$2 trillion a year, mainly between Asia and Europe.

The Jushi plant is a welcome development, since the real money to be made from the Suez Canal is not from transit fees, but from a wide range of land-based services for transiting ships.

At some point Egypt should even consider eliminating transit tolls altogether to encourage vessels to use the facilities it has on offer. Fees from the canal now earn the country about $5 billion a year, whereas logistics and industry on its banks could potentially bring in tens of billions.

The Jushi Group chose Egypt partly because the location, with superb access to world markets, makes it easy to deliver its product. It plans to export most of its fibreglass to Europe, the Middle East and Turkey, but will sell some into the domestic Egyptian market as well. Jushi is also taking advantage of Egypt’s abundant natural resources. It gets the bulk of its raw materials – kaolin, silica sands, limestone dolomite and gypsum – from Egypt.

The government has talked about turning the canal zone into a transit, logistics and industrial hub for years, but until recently had done little about it. It built a port east of Port Said at the northern end of the canal in the 1990s and the much more successful Sokhna Port, which has now become the main port for Cairo, at the southern end.

In 2015, the government declared five non-contiguous areas along the canal, mainly around Port Said, Ismailia and Suez, as a special economic zone to be administered outside the normal bureaucracy. Six ports are included in the zone, and companies working within will pay no import or export duties but will pay regular Egyptian income taxes. Combined, the five areas spread over 461 square kilometres, which is nearly two-thirds the size of Singapore.

The zone’s chairman, Ahmed Darwish, appointed by the president Abdel Fattah El Sisi in November 2015, says he aims to attract about five anchor industries over the next two years to create business clusters around the ports. One of these will be a pharmaceuticals zone to be set up near Sokhna Port. Others might include beverages or automobile components. The government will provide electricity from the national grid, but water will have to be provided from desalination plants and not the Nile.

Mr Darwish says he aims to position the Suez Canal as one of the world’s seven top economic zones by 2035. Meanwhile the government has been upgrading the infrastructure at East Port Said before launching a major new marketing campaign.

The fibreglass plant operates inside a 7 square km trade zone for Chinese companies named Teda. The plant is wholly owned by the Jushi Group, which is based just outside Shanghai and trades on the Shanghai Stock Exchange. It plans to invest a total of $520 million in the Egypt plant.

The Russians are also coming, to their own zone at the northern end of the waterway.

After years of inactivity, the government is actively working to attract international companies to set up shop in one of the world’s most strategic business locations. It’s a welcome move that should have been done years ago.

Patrick Werr has worked as a financial writer in Egypt for 26 years.

Follow The National's Business section on Twitter