In building a new capital city, Egypt could end up in a Chinese debt trap

Egypt is building a new capital city in a desert plot 45 kilometres east of Cairo — currently a vast construction site sits there, but by 2020 it will resemble a sprawling megacity in the making. Situated between the Nile River and Suez Canal, it is being built to boost Egypt’s economy, curb congestion throughout the capital region and inject new development in the country, hopefully boosting the economy in the process.

Work is already far underway on the city, with government institutions set to move to the space by the end of 2018. More than 1.5 million new jobs will be created during the construction period and eventually, the unnamed city will house between 6.5-7 million people, boasts President Abdel-Fattah el-Siss.

The country’s economy has made a comeback since it received an IMF bailout in 2016, but since it cannot afford to fund the project itself, it is calling on foreign investment for the project and is selling land in the new area to developers in the interim. When completed, the new capital will be “owned” by the Administrative Capital for Urban Development — injected with $10.3 billion in funding — which itself is owned 51 percent indirectly by the Ministry of Housing and 49 percent by the army.

 

Being labelled as the first “smart city” in the country, it will feature sensors throughout to report smoke and fires to emergency services automatically, among other technological advancements.

Focus will initially be on building a business district, establishing a transit grid including roads, tunnels and bridges, an airport and light rail network, creating residential complexes and shopping centres. Transportation links will include an electric train line carrying up to 340,000 people a day linking with Cairo, with construction expected to be completed by 2020.

Much of the project is being funded by the Chinese, with one loan paying for 50-70 percent of the $45 billion USD rail project. Funding requirements stipulate that Chinese equipment must be purchased and interest rates are between 2-3 percent, with repayment beginning between late-2019 to early-2020 based on a 36-48 month grace period. The country is also financing development of more than a dozen skyscrapers, of which one will be the tallest on the continent, and is expected to provide 85 percent of the $3 billion needed for this portion of the project, according to a Bloomberg source.

Historical and predicted population of Cairo in millions

With a population of 22.8 million in 2017 and the city growing by hundreds of thousands per year, the new megapolis can’t come soon enough. Cairo ranks among the worst cities for congestion and by building a new network of roads and public transit from the ground up, Egypt can avoid the same mistakes it made the first time.

Boasting a green space bigger than Central Park in NYC, a new mega-mall, a science and technology campus and more, the area will be attractive to wealthy and upper-middle class residents looking for a break from the chaos of living in a major city — but will be unreachable by lower-class residents due to the high rent prices, alongside being hit with new taxes and the elimination of government subsidies on energy bills.

There’s mixed opinion about whether this endeavor is a good thing or not — the government is cutting off aid to the lower class while spending billions on a new city, after all — but the way in which it is funding this project is dangerous. Routinely China offers to fund large-scale projects in African and Asian countries, but by using opaque contracts, predatory loan schemes and relatively corrupt deals, it almost ensures that the countries will never be able to pay back the loans.

When countries default on their loans to China, there’s usually mixed reaction. Sometimes the loan is forgiven, such as the case with more than $2 billion that the country lended to African governments since 2000. Other times the country takes over territory or control of infrastructure as a form of repayment — countries are getting smarter and saying “no” to China, but not all can afford to.

By accepting billions of dollars in loans from China, Egypt is playing a tricky game — either they need to pay on time which, given the fact that the country just recovered from an economic crisis might be difficult, or risk paying the collateral.

📸: Wikimedia 📈: World Population Review