Direct investment funds currently target Suez Canal projects

Infrastructure and feeding industries, logistics services, technological application are among most prominent anticipated projects

Direct investment funds and companies are currently directed towards Suez Canal development projects that include a variety of logistics projects.
These logistics projects include container manufacturing, repair centres and depots handling, storage, ship service supplies. They also include the development and expansion of the east ports of Port Said, El Arish and Al-Tor.
According to experts in direct investment, the funds will bargain on the feeding industries of heavy industries, such as automotive assembly and infrastructure networks, as they will be highly in demand. Their other advantage is their close proximity to industrial areas on one side and the ports from another, which gives flexibility in the process of import and export.
"Projects of supplying ships, storing containers, feeding industries, and heavy industries, especially iron and fertilisers, constitute an attractive opportunity to private equity funds. However, the strategy of the funds that will lean towards the Suez Canal region will be based on the establishment of new projects, which they will keep for a long period of no less than seven years, contrary to other strategies of acquiring existing companies," said Maryan Ghaly, Managing Director of the department of direct investment funds at Sphinx Cooperation.
According to Ghaly, whose company invests in the "Suez Canal Containers" in east Port Said, the average size of capital pumped by the funds will be between $30m and $40m.
In a study prepared by the Cairo Center for Economic Studies (ECES), the Suez Canal Development Axis is expected to attract investments of approximately $100bn. Investment funds will not be the only source of funding for these projects, as there will be contracts with foreign investors and other investment funds because of the huge size of these projects.
The other reason for the contracts is that investment managers realise the size of risk that surrounds any new project. She explained that including investors will help limit these risks as much as possible.
According to Ghaly, the main risks lie in the infrastructure, such as power plants, water systems and highways to ensure the flexibility of the transfer of equipment and raw materials. She noted that the element of infrastructure is one of the main problems facing the work of east Port Said.
According to previous press statements from Minister of Investment Ashraf Salman in early March, prior to the Economic Summit in Sharm El-Sheikh, the Suez Canal area will witness the establishment of a major global economic zone along the canal. This zone will represent between 30% -35% of the new economy of the country.
According to the Investment Manager of Cartel Capital for Direct Investments, Ayman Abu Hend, the Suez Canal projects will not appeal to direct investments. He explained that the canal needs "Green Field" projects, which are characterised by a higher risk, especially because the area is new and its infrastructure is not yet clear. He added that direct investment strategy depends on the exit of the projects after a usual period of no more than five years.
In Abu Hend's opinion, the projects that suit direct investment would be the infrastructure projects, such as power plants and road networks, because the long-term schedule for these projects offsets their risks.
According to the investment manager, the big banking interest expected for the Suez Canal projects will reduce the dependence of both local and foreign investors upon direct investment funds as a source of funding.
According to the ECES, the project includes several projects for infrastructure, represented in the development of the Suez, Ismailia and Port Said roads connected to Cairo. In addition, three tunnels are being established in Ismailia to connect the two banks of the canal, and three tunnels south of Port Said beneath the Suez Canal for a bridge between both the western and eastern sectors of the canal region with a railroad tunnel, as well as a new water stream from Ismailia canal to the purification plant East of the canal in order to support new development zones.
The project includes the establishment of two compounds for mechanical and electrical industries in the industrial zone in the northwest of the Suez Gulf and east of Port Said, in addition to a mining industries complex and construction materials in North Sinai, and the industrial zone in Abo Radees.
"The region will provide an environment that attracts capital risk funds, where major projects that the region will witness, starting from logistics services and infrastructure to mining, heavy, car parts collection and ship building industries, will provide jobs for intermediate industries, especially technological applications that are characterised by high risks," said Wael Amin, a partner in Sawari Ventures.
Traditional investments will focus on well known projects that are characterised by a history of marketing operations and profit, like heavy industries. However, entrepreneurship projects, specifically in the technological field, will not find capital risk funds as a source of financing, according to Amin.
Among the applications that may be presented are the technological systems used within tire manufacturing operations in light of the project's inclusion of the establishment of a complex for car parts collection. The applications are characterised by rapid growth rates, as they are connected to the expected demand rate on the products of these new projects, added Amin.
Amin explained that the cost of technological application investments will be infinitesimal, ranging from EGP 200,000 to EGP 450,000 that represent seed capital which will be used in the preparation of feasibility and marketing studies, followed by an investment worth EGP 1m to EGP 1.5m injected during the stage of the application's sales growth.