Over the past few weeks news has been rife of difficulties preventing the conclusion of contracts for the building of Egypt's new administrative capital. The points of contention between Capital City Partners (CCP), the investment fund developing the project, and the government include the sources of financing and the government's share of the project. It is said that the project developers want to depend on domestic banks for the bulk of the financing, something which the government strongly opposes. A memorandum of understanding for the establishment of a new administrative capital was signed during the Egypt Economic Development Conference (EEDC) that took place in Sharm El-Sheikh in March 2015. The project is expected to cost some $45 billion over a five to seven-year period. News reports say that CCP wanted a smaller share for the government in the project. According to the minister of housing in comments to the Al-Arabiya TV channel, the memorandum of understanding states that the government's share will be 24 per cent. Mohamed Alabbar, the founding partner of CCP, is also founder and chairman of Emaar Properties, a leading real estate developer. It is being said that the deadline for concluding the negotiations has been extended for a month, during which time officials from both sides will meet to try iron out their differences. As a backup plan, should negotiations fail, news reports say that the government will go on with the project by inviting other investors to bid for it. Views of the proposed project continue to vary. Sherif Al-Diwani, executive director of the Egyptian Centre for Economic Studies, is sceptical of the idea of a new “administrative capital,” as it is being dubbed. “It is far-fetched to think that government ministries will move,” he says, though he sees the new capital as a modern and organised extension of Greater Cairo. Al-Diwani said that getting a company like CCP to execute the project with its track record and the know-how of its managers could in itself guarantee the success of the project. If the project was implemented properly, it could diversify the real estate market and improve the supply of housing, retail and office space, he said, which in turn could open up opportunities for new economic activity and attract investment. Ahmed Yousri, a professor of urban planning at the Faculty of Urban and Regional Planning at Cairo University, said the project was a new business district intended to ease the pressure on Greater Cairo, rather than a new capital. However, the size of the project as announced at the Egypt Economic Development Conference was exaggerated and too costly, he said. From a planning perspective a new business district midway between Greater Cairo and the new Suez Canal Area Development Project (SCADP) was needed, but “whether it is a priority is debatable,” he added. The SCADP is a mega project designed to develop the Suez Canal area into a logistics and industrial zone. Yousri is also critical of the government's dependence on one company to carry out the project. “Glitches in the negotiations have brought the project to a halt. That would not have happened if more than one company were in charge,” he said. He would have preferred one company to draw up a master plan for the project and implementation to be carried out by others. Yousri sees the delay in concluding the contract as an opportunity to revisit the project in terms of size, needs and location. He believes that more time should have been given to studies, instead of which “we were taken by surprise when it was announced.” He pointed out that even the location was debatable, with some seeing the suggested site as leading to the creation of a “monster Cairo” rather than easing pressures on the capital. Finding sources for the financing of the project is a crucial issue in the negotiations, but Al-Diwani sees no problem in resorting to the domestic banks for credit lines. “What is the problem if the banks find it a lucrative investment,” he asked, adding that non-traditional thinking was nevertheless needed. “Find out what value added the investor will bring in return for domestic financing,” he advised. Mohamed Noureldin, economic research, agrees that banks can do it if they see the feasibility of the project, however he believes the advantage of foreign investors should lie in their ability to bring in new technology as well as their own financing from their own governments, banks and export finance institutions. “They should not depend on our already limited resources for financing,” he said adding that banks are already being criticised for preferring to lend to the government, “imagine what would happen if new foreign investors compete with local investors for those limited resources. ” While Egyptian banks have been renowned for their high liquidity, in recent years this may no longer be the case given the increasing appetite of the banks to invest in low-risk high-yielding treasury bills. A research note by Pharos Holding says that “from the end of 2010 until the end of 2014, the banks were almost fully geared to financing government requirements. The ratio of treasury bills and bonds to total assets at the commercial banks jumped from 34.4 per cent as of the end of 2010 to 45.9 per cent by the end of 2014.” The government has also been selling treasury bills to “plug the gap in domestic public finances,” says a March 2014 report by Bank Audi, adding that pre-uprising levels were less than 34 per cent of assets and pre-global crisis levels less than 20 per cent.
