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Freight infrastructure is key to Egypt’s economic growth prospects, according to new research Cairo, 12 October, 2009: Egypt’s positive economic growth of recent years could be maintained or even increased by up to two percentage points per year if initiatives are accelerated to enhance the infrastructure and capabilities for the transportation, storage and delivery of goods, according to research launched in Cairo today. “Connecting Egypt: Challenges and Opportunities in Freight Transportation and Logistics” was authored by independent growth consultant, Frost & Sullivan, and commissioned by APL and APL Logistics, the main businesses of global container shipping and logistics group, Neptune Orient Lines (NOL). The 108-page study states that Egypt is among the most developed economies in the Middle East and North Africa (MENA) region. In the three years prior to the global recession, the country averaged GDP growth of around 7 percent. Geographically, it is a gateway between the world’s major markets. It also controls the Suez Canal and thousands of kilometres of the Nile River. Egypt has vast untapped potential to produce, handle and transport goods domestically, regionally and internationally. Speaking at the launch of the research in Cairo, APL’s President, South Asia, Mr Goh Teik Poh, said: “Egypt has many natural attributes and a Government commitment to harnessing growth opportunities. By ensuring its freight capacity and capabilities keep pace with demand, it can take its place among the world’s elite trading nations.” Egypt’s positive momentum in recent years has been supported by far-reaching Government-led reforms aimed at making Egypt more trade and business friendly, the report states. This openness has seen Egypt rise up the rankings of, among others, the World Bank Doing Business Survey and World Economic Forum Global Enabling Trade Report. The same surveys highlight opportunities to drive improvement in Egypt’s infrastructure, which is a key focus area of “Connecting Egypt”. The study claims that freight infrastructure issues contribute to Egypt’s high logistics costs (the factors associated with the storage, transportation and delivery of goods). According to Frost & Sullivan estimates, Egypt’s logistics costs are around 20 percent of GDP, compared with the average of 10-12 percent for developed economies. The research points to “a compelling opportunity” to fast-track new and existing plans for the creation of a more modern and efficient freight transportation infrastructure in Egypt. “This would help reduce logistics costs and optimise inbound, outbound and domestic trade flows. It could help attract FDI and make Egypt an even more attractive manufacturing location, as well as an international hub for shipping and logistics. In fact, it could feasibly lead to Egypt capturing one or two additional percentage points of GDP growth,” Frost & Sullivan’s Mr VG Ramakrishnan said at the launch of “Connecting Egypt” in Cairo. To achieve this goal, it is essential to sustain a unified vision for Egypt’s freight transportation and logistics environment, which, according to the survey, would also likely deliver economic and social benefits for Egypt – including the creation of jobs for ordinary citizens. Responsibility for realising this vision should be shared between the public and private sectors, according to the research. The report notes the Egypt Government’s recognition of the importance of private and/or foreign investment in infrastructure. For example, Egypt’s Ministry of Transport established a unit to identify and implement transportation infrastructure projects – primarily in the passenger segment – based on the Public Private Partnership (PPP) model. However, the report suggests major opportunities will be derived from the extension of PPP to the freight sector. This is believed to be a Government priority. The Egyptian Government has already increased opportunities for the private sector involvement in the transformation of Egypt’s future freight transportation and logistics landscape. The report singles out mechanisms such as Build Operate Transfer (BOT) and Build Own Operate Transfer (BOOT), which have been successfully introduced in the ports sector. “Connecting Egypt” suggests the port sector development model could be successfully adapted to other critical modes such as road, rail and inland waterways. Key Findings Suez Canal revenues are under threat from the combined effects of the global economic crisis, fuel price volatility and piracy. If this income remains depressed critical expansion plans will be jeopardised and public debt could rise. Opportunities exist to examine flexible transit pricing as well as securing new revenue sources from the wider freight transportation and logistics environment, according to the report. Ports Egypt has the potential to take a place among the world’s leading containerised transhipment hubs – particularly for Europe. Of total container traffic of around 5.4 million TEU in 2008, more than 65 percent was transit cargo. Moreover, while the recession contributed to a 22.4 percent decrease in Egypt’s exports in 2008, transhipment traffic recorded double-digit growth. “Of all the MENA countries, Egypt has perhaps the best opportunity to challenge major existing transhipment hubs – particularly those serving Europe. But to reach its full potential, infrastructure development must keep pace with expected strong trade growth,” said Gene Seroka, APL’s Vice President, Middle East region. Inland Transportation Road Rail Egypt’s rail network is the world’s oldest system after Great Britain’s. It is Government-owned and operated by Egyptian National Railways (ENR). The passenger segment accounts for close to 90 percent of traffic. Rail usage for freight is much lower than in developed markets such as the US and Europe and also developing countries such as China and India. To tackle the relatively poor contribution of rail, the report suggests that new business models adopted successfully in other countries such as India should be reviewed. In this way, the operation of specific freight corridors and services could be privatised with the Government retaining overall ownership and receiving sizeable new revenues. The report does point out that the Government is implementing plans to enhance rail – with some focus on freight. Foreign and private sector involvement is also increasing. For example, APL launched a coordinated container rail freight service between Sokhna and Alexandria in 2009 in partnership with ENR. “Rail freight services of this kind provide importers and exporters with increased supply chain reliability and control. They will help international companies grow their business in Egypt, while helping take the country’s products to potentially lucrative international markets,” said Ted Muttiah, Managing Director of APL Egypt LLC. Inland waterways The Egyptian Government has ambitious plans to revive shipping on the Nile, which was widespread from the time of British rule until the 1970s. Plans include the development of infrastructure and navigational aids, dredging work and the development of professional cargo handling services. Logistics Komol Roongruangyot Head of Logistics for APL Logistics in the Middle East, said: “Logistics outsourcing in Egypt is still in its infancy but demand is rising from companies that either manufacture in the country or view it as a viable distribution hub for Africa and Europe. Investment and expertise can create connectivity between transportation modes, streamline operations, and create world-class logistics infrastructure to serve key industries such as textiles, automotive, FMCG, petroleum and consumer products.” The NOL Group began operating in Egypt through an agency arrangement in 1994. The Group established its own company, APL Egypt LLC, in 2008. Headquartered in Cairo, APL Egypt LLC provides container transportation and logistics services throughout Egypt, linking the country to major markets in Asia, the Middle East, Europe and North America. For a copy of the "Connecting Egypt" Executive Summary click here. Media Enquiries: Egypt About NOL About Frost & Sullivan |
