World Economy

Can Egypt build a new capital in the desert?

Capital City Partners

The debut last weekend of a showcase of Egypt's economic might was dominated with optimistic attempts to fuel private sector investments, but the bravest and most audacious of them was a plan for a new administrative capital to the east of Cairo.

The project hopes to house five million inhabitants in a 700 square kilometer plot of land between the current capital and the Suez Canal. The entire project would be 12 times the area of Manhattan, seven times larger than Paris, and four times that of Washington DC, according to the press releases.

Mostafa Madbouly, Egypt's minister of housing and urban development stayed late into the evening on Friday to detail the plans at the Egypt Economic Development Conference in Sharm el-Sheikh. He was adamant that it must be a model 21st century city for the region.

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"It will include neighborhoods for all groups of Egyptian society and be a critical center for new employment. It will be truly diverse, catering to all groups of Egyptian society, allowing Egypt to enter new era," he said.

The first phase of construction would cost $45 billion and would take 7 years. Reports from Reuters, who quoted Mohamed Alabbar, the United Arab Emirates real estate tycoon, said it could total $300 billion for completion.

Capital City Partners

A model of the as-yet-unnamed city formed the focal piece in the reception hall at the event and had its being touted as a sustainable "smart city." The literature given to the media contained details of the "exceptional quality of life" it will provide. As well as a government administrative district the new city will have compact pedestrianized urban neighborhoods, lush gardens, shaded walkways and a center for business. The project will be developed by the United Arab Emirates'-based Capital City Partners Limited, a private fund of global investors.

Economist Mohamed El Dahshan, who lives in Cairo and is a non-resident fellow at the Tahrir Institute for Middle East Policy, called it a "pie-in-the-sky" project.

"We'll be left with a cluster of skyscrapers in the desert, a testimony to grandiose government plans that lead nowhere. I'd love to be proven wrong," he told CNBC via email. Speaking of the current capital, he said it was "going anywhere" with nearly 20 million inhabitants which is steadily increasing.

"I would have clearly preferred to see the government invest that money, at least in part, in rehabilitating the capital's decaying infrastructure and endeavor to make it a more livable city," he added.

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The plans show that there will be a variety of shops, cafes, schools, religious establishments and public parks for residents, workers and visitors alike, the promotional text said. 40,000 hotel rooms are expected to be built, 21 residential districts, 1,250 religious buildings and 700 kindergarten schools. Importantly, over 1.5 million jobs are expected to be generated once complete and is projected to contribute to nearly 5 percent of Cairo's gross domestic product.

"It certainly is ambitious," Sven Richter, the managing director and head of frontier markets at Renaissance Asset Managers told CBC via email. "But there are a number of these type of developments around the world and over time most become successful."

Egypt plans for the future

One such grand city project was a new business and financial center built from scratch in London's Canary Wharf. The project faced several false starts, local opposition and a property slump but its fortunes have turned round and has drastically altered London's skyline. Other analysts have drawn comparisons with plans for Abuja Centenary City in Nigeria which has finally been sparked into life last December with a new hotel complex, according to local media.

Egypt's project will have a "kick start," according to Richter, because of the idea to move the government offices there. It could also provide a couple of decades of infrastructure spending underpin to the Egyptian economy, he said.

"I think the development is well positioned and with government moving people and offices there will have a kick start, it can provide a couple of decades of infrastructure spending underpin to the Egyptian economy. The difficult part is going to be the funding as it's a huge project, but this will be a multi-year project and is in line with Egypt's growth prospects. I think that the project will be a success but I am not sure when they will be able to start," Richter added.

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Zeynep Kosereisoglu, a Middle East and North Africa analyst at the Frontier Strategy Group, noted that it was important that the new development was to be funded by private investors - mainly from the Gulf - rather than a state budget.

"(This) would partially insulate the project from potential delays and other the vulnerabilities related to Egypt's high budget deficit and public debt," she told CNBC via email.

"We will be watching whether enough funding can be attracted to sustain the project and how shifts in the external environment (such as a change in global oil prices and security situation in Egypt) impact the expected timeline for completing it."