Egypt’s new Suez Canal can boost India’s trade

suezEgypt’s plan to build a new $4 billion  canal parallel to the 145-year-old Suez Canal can impact India as over 90 per cent of the country’s cargo passes through the iconic waterway.  The 163-kilometre long Suez Canal, which links the Mediterranean Sea with the Red Sea, acts as a maritime bridge between Europe and Asia. Officially opened in 1869 with connectivity between Europe and India in mind, today the Canal accounts for around 90% of India’s external trade by maritime route. Any major development relating to the canal has, therefore, a significant impact on India’s global trade.

On August 5, Egypt’s President Abdel-Fattah al-Sisi, the former military chief who overthrew an elected Muslim Brotherhood government in 2013, announced an ambitious programme to dig a new 72-km canal parallel to the Suez Canal. This decision has been mooted as a step to revert Egypt’s faltering economy on track. Alongside this project, there is a separate plan to establish a trade and industrial hub on the banks of the existing canal.

Egypt has been in political turmoil since the 2011 popular uprising which forced Hosni Mubarak out of power. The country’s fragile economy has taken a major hit after the inflow of tourists dropped abysmally.

The new Egyptian leadership is optimistic that the new canal could enhance trade and generate revenue of over $100 billion and provide one million new jobs to Egyptians.

Sisi, who wants to consolidate his power, is fully aware of the political, economic and symbolic importance of the Suez Canal. Estimated to cost around $4 billion, this project would involve no foreign funding.

On August 19, Egyptian-Bahraini Dar Al-Handassa consortium bagged the contract for carrying out the landscape of the Suez Canal Development Project.

According to some experts, Sisi is reinforcing the Egyptian military’s hold on the economy. The president wants the project to be a symbol of Egypt’s national honour. The symbolism of the Suez Canal is hard to miss in the context of how Sisi evoked the spirit of Egypt’s much beloved leader General Gamal Abdel Nasser and the war to liberate the canal in 1956, to validate his plans for the expansion of the canal.

“The project will be finished in one year,” said a beaming Sisi at the recent opening ceremony of the Suez Canal project. This announcement surprised most since its original estimated time for completion had already been reduced from five to three years.

The second canal will allow two-way traffic for just under half of the canal’s stretch of 101 miles, and cut wait times for the sailing vessels. It would also increase the traffic from 49 to 97 ships a day. More traffic means more income for Cairo. Currently, the canal generates annual revenue worth $5 billion.  According to Reuters, a standard container ship bringing consumer goods through the canal pays around $1 million in tolls for a return passage through the canal.

Suez Canal authorities report that 38,717 tonnes of cargo with destination to South Asia, and 106,064 tonnes of cargo to Southeast Asia passed the canal in 2013. While 37,183 tons of cargo originated in South Asia, 135,796 tonnes of cargo from Southeast Asia made it through.

The importance of the canal for trade in India was made clear after Egypt announced a plan to hike toll fee by 3-5 percent in 2013. However, traders in India were worried that this move would significantly hurt their business. Some even considered taking the longer route to Europe and North America through South Africa’s Cape of Good Hope.

With over 90% of all trade taking pace through the Suez Canal, this waterway is of critical importance to India.

Further, consequent to the sharp decline over the past one year in incidents of piracy on high seas in the Arabian Sea and off the African coast by Somalians, the development of Suez Canal would augur well for India.

The decision to expand the canal will chime in with India’s Prime Minister Narendra Modi’s desire to see India develop as a maritime economy. Increased traffic at the Suez Canal means more goods can travel at a faster speed to markets in Europe and also the trans-Atlantic Americas.

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