The Suez Canal Authority, popular as the SCA, has revealed its plans to introduce a sovereign wealth fund to safeguard the canal from unforeseen fluctuations and unprecedented crises in worldwide commerce like those resulting from COVID-19, SCA officers have mentioned. The authority channels the revenue derived from the canal with transit charges to the Egyptian Ministry of Finance at each month-end. An SCA official has confessed that it had begun setting apart the revenues to build the sovereign wealth fund.
On 15 December this year, Ibrahim Beshara who heads the SCA’s monetary administration mentioned to the Committee on Budget and Planning that the fund was proposed by the country’s political management as its long-term initiative for the Suez Canal. The Egyptian Ministry of Justice has accredited the invoice framed by the SCA to create the fund.
The new invoice is likely to be up for debate at the House of Deputies when the Cabinet shares its approval. Deep down the potential fund are some pressing problems faced by the canal, the shortest route connecting Asia and Europe, confronted during the earlier interval.
The masterminds behind the new fund are also getting ready for hardships that may come up. The positive impact of the measures has manifested in terms of canal revenues.
The revenue of the Suez Canal from the beginning of this year up to the first half of this month was $6 billion. This is about 13% greater than the revenues fetched by the Suez Canal during the same period in 2020. The SCA estimates that the revenue will rise by 11% in 2022’s first half. The International Monetary Fund estimates the revenues to touch $7.6 billion in FY year 2024-25.
Abdel Fattah al-Sisi, the Egyptian President, and his administration planned and invested some billions of dollars over the past six years to boost revenues and enhance its edge against other alternative routes.
Efforts included digging a parallel channel to permit two-way traffic. This happened for the first time ever since the canal has been operating since 1869. Besides, the SCA is also working on deepening and widening certain sections in the canal’s southern part to facilitate the smooth passing of giant container ships.
The idea to widen as well as deepen the canal hit after a huge container vessel accidentally blocked it for a week, delaying maritime trade and also costing the canal’s authority millions of dollars. The blockage of the canal earlier this year taught operators that emergencies may massively cost the canal.
The Suez Canal is critically important for the country as it is a key source of income. It matters to the world, as it is also at the heart of international maritime trade. Almost 12% of the world’s trade passes via the canal to the Red Sea from the Mediterranean Sea and vice versa.
The critical Egyptian waterway receives nearly 30% of the world’s containers from production points globally. However, the canal has been facing threats in recent times, including due to the emergence of possible alternative channels.
Some of the challenges include regional projects that could bypass the Suez Canal, lowering the amount of trade that happens via it.
This best explains the enthusiasm and the eagerness of the government to build a new fund. Beshara has also reportedly talked about the money being kept aside from canal revenues and classified as emergency funds till their new sovereign wealth fund starts operating officially. The upcoming fund, as economists suggest, will help the SCA cope with challenges experienced on this crucial waterway.
These issues also include upgrading the waterway in such a manner that it is prepared to deal with upcoming generations of oil tankers, container vessels, and LNG tankers.
In 2014, Sisi turned to members of the public with the hope of funding the digging of a parallel channel to the Suez Canal. Local financial lenders, including banks, had to offer about 15% to 16% as interest rates to those offering money for the investment certificates. It was again an unprecedented incident in the banking history of Egypt.