CAIRO: Suez Canal revenues fell 20 percent to $332.4 million in January, compared to $414.2 million in the same month last year, according to government figures released Sunday. Revenues were also down from $391.8 million in December. The number of vessels using the waterway was 1,313 in January, down from 1,690 in January 2008 and from 1,560 in December, based on state figures, reportedly a five-year low. Investment bank EFG-Hermes expects Suez Canal revenues to slip 10 percent in the current fiscal year and 25 percent in the next, compared to revenues in fiscal year 2007/08, on the back of a global economic recession and slow trade. "Worldwide, economies are faltering, and [subsequently] trade movement is slowing down, said Mohamed Abu Basha, an economist at Cairo-based investment bank EFG-Hermes, highlighting reasons of the ongoing slump in the canal's revenues. "Shipping costs are also receding worldwide, which have made it cheaper for vessels to sail around the Cape of Good Hope instead of the Suez Canal because its transit tolls are not that cheap, he added. The canal is an important source of foreign currency for Egypt, along with tourism, oil and gas exports and work remittances from Egyptians living abroad. "Revenues from the Suez Canal are one of the largest contributors to economic growth in Egypt. They constitute around 7 percent of GDP, said Samir Radwan, economist and board member of General Authority for Free Zones and Investment (GAFI). When the economy grew to 7.2 percent in the 2007/08 fiscal year, 0.7 percentage points of that came from the waterway, Abu Basha pointed out. "A major reason for contraction in growth rates in the second quarter of the current fiscal year was because of a slowdown in Suez Canal revenues. Egyptian economists have been watching Suez Canal revenues closely to see any effects from piracy off the Somali coast and the recession in major economies, which is expected to reduce the volume of trade between Asia and Europe. The government said last Tuesday growth of Suez Canal revenues fell sharply to 1.4 percent in the second quarter of the current 2008/09 fiscal year from 22 percent in the same period a year earlier. "Any drop in the canal's revenues negatively impacts economic growth, state revenues, and in turn budget deficit because the canal is a main contributor to the state budget, Abu Basha said. Egypt's economy grew at an annual 4.1 percent rate in the second quarter of the 2008/09 fiscal year, compared to 7.7 percent in the same period a year earlier. Finance Minister Youssef Boutros-Ghali said last week the country was facing the threat of a serious contraction because of the global financial crisis, which has started to hit tourism, investment and the Suez Canal revenues. Prime Minister Ahmed Nazif said in December that the Egyptian government had set its target for economic growth at 5.5 percent for the two years starting July 2008. "Global economic growth rates are retreating, from 4.6 percent in 2007 to 3.5 percent in 2008. And now forecasts say rate will plummet to below one percent in 2009, Radwan explained. "Most of the developed economies are recording negative growth rates, which reflect on global trade movement and in turn on Suez Canal revenues. A worldwide drop in demand for goods slashed global trade movement as the economic crisis intensified. Income from the Suez Canal has been hit by the slowdown in world trade, with declines in traffic of 30 percent on some routes, Egypt's trade minister said late last month. Abu Basha pointed out that one of the main reasons behind declines in traffic was a slow down in Asia's trade movement, particularly South Korea's. "We have found a high correlation between South Korean exports and revenues of Suez Canal on a monthly basis.. South Korea is the world's largest exporter, and its exports slid 33 percent year-on-year in January, he clarified. On Monday, South Korea reported a trade deficit of $3.36 billion, bigger than a provisional $2.97 billion shortfall reported earlier. "Suez Canal revenues boomed [last year] largely because trade between Europe and Asia was very high. Lots of vessels passed through the canal as a result. Now, all that is not happening, Abu Basha added. "Traffic through the canal will probably remain slow for a year or a year and a half until the global economy recovers again and demand for goods picks up again. Both Abu Basha and Radwan said that piracy off the Somalia coast could have also dealt a blow to revenues of the Suez Canal. "Piracy could have made some negative impact but it's not a major one because Suez Canal is not the only route having piracy incidents, said Abu Basha. "Lowering transit fees is an option they could be thinking about.because it has now become cheaper to sail through the Cape of Good Hope, he added. The Suez Canal Authority said in early January it would leave unchanged its transit tolls for 2009 despite its expectations that the global financial crisis will reduce traffic. Asked if the authority would consider reviewing tolls if the financial crisis deepened, Authority Chairman Ahmed Fadel said: All options are open. The waterway earned a record $5.4 billion in 2008, up 16.7 percent from 2007. On average each year the authority hikes tolls by 3 percent. However, last April rates were doubled to 7 percent. According to the authority's figures revealed in January, traffic and cargo have fallen in the last three months of 2008 as a result of the financial crisis. The economic slowdown has also pushed shipping rates down to around $18,000 a day from $163,000 before the crisis. If the (crisis) continues at its current rate, the number of ships and cargo going through the canal is expected to drop by 7 percent in 2009, Fadel said in January. The revenue in December was 6.7 percent down compared with the previous month, he added, which suggests it was 8.1 percent down compared with December 2007.
