Egypt’s grand project

THE pharaohs of ancient Egypt occasionally moved their capitals, building grand new cities as monuments to their egos. So in pharaonic style, Egypt’s strongman, Abdel Fattah al-Sisi, has decided to build a grand new capital in the desert.

The “capital Cairo” plan is one of several mega-projects that Mr Sisi hopes will attract foreign investment, stimulate an economic recovery and re-establish pride in his country after years of upheaval that destroyed the economy. It is Keynesianism on steroids—funded mostly by rich Gulf states. But though some investors have welcomed the big plans, top-down schemes have failed Egypt before and may distract the government from the dull and difficult work of restructuring a sluggish economy and hidebound bureaucracy.

But the $45 billion project is also full of extravagant ideas, like a green space twice the size of Central Park in New York and an amusement park four times the size of Disneyland. The centre will feature soaring skyscrapers and a structure best described as the metallic offspring of the Eiffel Tower and Washington Monument. In many ways it will look like Dubai, which has more than ten times Egypt’s GDP per head. The project is led by Muhammad al-Abbar, the developer responsible for Dubai’s Burj Khalifa, the world’s tallest building.

There are signs that Mr Sisi is not learning from the mistakes of past leaders, who also relied on big projects to solve the country’s demographic and economic problems, with disastrous results. Egypt’s desert is dotted with quixotic cities established by presidential decree. The most notorious of these is Toshka, in the Western Desert, which Hosni Mubarak, the former president, hoped to make the centrepiece of a lush new valley using water pumped from Lake Nasser. Today it remains mostly desert, because of poor planning and inept leadership, but Mr Sisi wants to revive the project and pour money into other badly planned cities.

The army is setting the agenda in some cases. A deal between it and Arabtec, an Emirati building firm, to build 1m low-cost homes in Egypt has stalled due to a lack of funding that may also create problems for other projects (though it may restart soon). Egypt needs cheap housing, but building it is often unprofitable. The capital-city project is meant to provide 1m new homes, but it is not clear how much they will cost or who will pay to build them.

Some think Egypt should seek more modest goals. But fixing leaky pipes and potholes in old Cairo is not going to open wallets abroad, says Mohamed El-Komi of the American University of Cairo. In the optimistic view, investment will spur growth, increase tax revenue and enable the government to pay for better social services. Amr Adly of the Carnegie Middle East Centre, a think-tank, is not so sure. “We know that high growth can exist without development,” says Mr Adly, pointing to the late 2000s, when the economy boomed but public services stagnated. The government, he says, does not have a plan to spread the benefits of growth. Moreover, it is looking for inspiration in Dubai whereas India might be a more suitable model given Egypt’s size and poverty.

The biggest worry is that the mega-projects will distract the government from broader structural reforms. Mr Sisi has made progress in this area, cutting fuel subsidies, reducing the budget deficit and making investment easier. Much work remains. The bloated and inefficient bureaucracy makes life miserable for firms. It eats up a large portion of the budget, more of which should go to education, health and research. Egypt comes 119th in the World Economic Forum’s global-competitiveness index.

The structure of Egypt’s private sector also means that Mr Sisi’s mega-projects might not provide the best tonic. There might be many construction jobs for a time. But the main benefits will accrue to Egypt’s dominant big firms, and to the Gulf companies that follow their government’s investments. Most small and medium-sized enterprises will be left on the sidelines. Although they employ the biggest share of Egyptian workers, these businesses lack access to capital and receive little support from the government. Plans for a shiny new capital may win Mr Sisi headlines, but kick-starting these engines of growth would do more for his people.

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