Egypt's $58 Billion Desert Megacity
Egypt's $58 Billion Desert Megacity
Blog Article
Egypt's $58 Billion Desert Megacity
Sitting over 20 miles east of the current capital in Cairo, Egypt is building a new administrative capital from the ground up. The nearly $58 billion plan includes a miles-long central park, a main business district with a Chinese-built tower, and massive new headquarters for the Egyptian Ministry of Defense, known as the Octagon.
But some say, "It's a city for six million people, and I don't think there are six million people that can actually afford this city."
The New Capital That Could Change Everything
After borrowing tens of billions of dollars, Egypt is facing an economic crisis. And given the country's historic role as a mediator between Israel and US-designated terrorist group, Hamas, governments from around the world are looking to Egypt. With some having floated the idea of financial aid in return for accepting Palestinian refugees.
Here's what this new desert city reveals about Egypt's plans for the future and the debt it's racking up to get there.
The Central Goal Behind Egypt's Administrative Capital
The central goal behind this administrative capital is shifting the government's power away from the country's current capital, where ancient buildings are crumbling, traffic is congested, and residents are densely packed.
"95% of the population, which is over a hundred million, live in this very narrow valley," explains one analyst. Within that area, there's a significant wealth gap. And in turn, a history of revolt against the government.
Political Motivations and Strategic Planning
In 2011, protests erupted in Cairo's Tahrir Square. A revolution soon followed that led to the downfall of Egypt's then-president, and its current one. President Abdel Fattah el-Sisi is a former general who came to power in a military coup two years later.
Sisi officially announced the project in 2015, under the objective that this will decongest Cairo and produce new working opportunities. But political analysts say, "Going to the desert allows him to create this distance between him and the urban centers so that in case there is a revolt somewhere, he can repress it without it being effective in blocking him."
Military Control and Financial Structure
And despite Sisi's continued insistence that the Egyptian state won't pay a penny for the new capital, a project on Middle East Democracy Report says that most of what has been spent so far has come from public funds.
After a partnership with the United Arab Emirates fell through over financial disagreements, Egypt's military stepped in to help finance the new administrative capital. Now, behind this project, is a company owned 51% by Egypt's military, known as the Administrative Capital for Urban Development, or ACUD.
The Military's Growing Influence
"The military, especially since 2013, has penetrated the state and the political system," say political analysts. This involvement allows the military to benefit financially from the proceeds of land sales, as well as cuts from the contracts.
And when the military took over the project, a new design was drawn up that separated the government from business and residential areas, making it far less pedestrian-friendly. A noteworthy change, given that only about a quarter of Cairo residents have cars, the highest percentage in Egypt. But still comparably low to neighboring states.
The Mounting Financial Challenges
Budget Explosion and Economic Reality
In 2015, Egyptian state media reported that the new capital will cost a total of $45 billion. But reports today say the cost of phase one is more to the tune of $58 billion. And experts say that the costs for the new capital are constantly changing.
"There was a logic that we can just continue to borrow. Of course, that came crashing down when the Russians invaded Ukraine," explain economists. Because it had sourced the majority of its wheat imports from Russia and Ukraine, Egypt was hit especially hard by the war.
The war in Ukraine has pushed up the price of building by about 10 to 15%, impacting the capital. And this isn't Sisi's first big budget endeavor. In 2015, he ordered an $8.5 billion expansion of the Suez Canal.
The Suez Canal Disappointment
The 120-mile canal accounts for some 12% of global trade, but a revenue boom hasn't materialized as the government imagined. The canal's all-time high revenue of $9.4 billion is still $3.6 billion away from the government's projection for this year.
The Affordability Crisis for Egyptian Citizens
All of this points to a central problem. Economists say Egypt can't afford this new capital. And the majority of its residents can't either.
For Sisi's capital plan to pay off, it needs millions of people to actually move there. But over the past year, amid double-digit inflation, the Egyptian currency has depreciated by about 50%.
Housing Costs vs. Reality
Parliament is now said to be moving into the new complex by the end of October. And other government buildings are also set to relocate. But employees don't expect to be able to afford apartments in the area, since the cost of an apartment starts at around $80,000.
In 2020, the average household income in an urban community was just over $2,600. "It's clearly a city for the rich, simply by finances," observers note.
Egypt's Geopolitical Position and Investment Opportunities
International Relations and Aid
Each year since 1979, the US has given Egypt about $1.3 billion in US military aid. But in September this year, the US said it plans to pull some $85 million of its conditional aid to the country over Egypt's failure to make progress on human rights.
Political analysts say some of this emphasis on human rights could take a backseat. Because right now Egypt is playing a unique role. The country is mediating conflicts between Israel and US-designated terrorist group, Hamas, while also helping squeeze Hamas out of the Gaza Strip with a blockade on goods and travel.
Egypt Citizenship by Investment Program
For investors considering Egypt as a strategic investment destination, the country offers a citizenship by investment program that provides multiple pathways to Egyptian nationality. The program includes options for real estate investment, business investment, bank deposits, and direct contributions to the state treasury.
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Financial Lifelines and Future Prospects
Seeking International Support
The country has sought financial lifelines from the UAE, Saudi Arabia, Kuwait, and Qatar, as well as from the D.C.-based International Monetary Fund. Now, officials say Gulf States, which had initially resisted providing cash to Egypt, have floated the idea of giving Egypt financial aid in return for accepting Palestinian refugees.
The IPO Plan
In the meantime, the company behind the new capital, the ACUD, is eyeing an IPO in the first half of 2024. But even with the potential for new financial support, experts are still concerned about the health of Egypt's economy with the completion of the capital still shrouded in doubt.
What's Next for Egypt's Desert Dream?
So for the project to be fully realized, it needs buy-in from more groups, including foreign embassies. The US embassy in Egypt did not respond to requests for comment, but several foreign diplomats have previously said their embassies would need to see that Egyptian government ministries locate there first.
But this pressure comes amid its economic challenges. All the while, Egypt is facing pressure to open its border and host refugees crossing to escape an Israeli bombing campaign and expected ground invasion.
Frequently Asked Questions
What is Egypt's new administrative capital?
Egypt's new administrative capital is a $58 billion megacity being built 20 miles east of Cairo. It includes government buildings, business districts, residential areas, and a miles-long central park designed to house six million people.
Why is Egypt building a new capital?
The official goal is to decongest Cairo, where 95% of Egypt's 100+ million population lives in a narrow valley. However, political analysts suggest it also allows the government to create distance from urban centers where protests typically occur.
How much does the new capital cost?
Originally estimated at $45 billion in 2015, current reports suggest phase one alone costs $58 billion, with costs constantly changing due to factors like the Ukraine war affecting building material prices.
Can ordinary Egyptians afford to live in the new capital?
Most cannot. Apartments start at around $80,000, while the average urban household income in 2020 was just over $2,600. Critics say "it's clearly a city for the rich, simply by finances."
Who is funding Egypt's new capital?
Despite President Sisi's claims that the Egyptian state won't pay, most funding has come from public funds. The military-owned Administrative Capital for Urban Development (ACUD) company controls 51% of the project.
What investment opportunities exist in Egypt?
Egypt offers a citizenship by investment program with multiple pathways including real estate investment (minimum $300,000), business investment ($350,000 plus $100,000 donation), bank deposits ($500,000), or direct contributions ($250,000) to obtain Egyptian citizenship.
How does the Ukraine war affect the project?
The war increased building costs by 10-15% and highlighted Egypt's economic vulnerabilities, as the country sourced most of its wheat imports from Russia and Ukraine.
When will government offices move to the new capital?
Parliament is expected to move by late October, with other government buildings following. However, many employees don't expect to afford living there, potentially creating long commutes from Cairo. Report this page