Watertight? Doubts over Egypt’s shipbuilding expansion plans

As it has been for thousands of years, much of the world's goods are still moved between nations aboard ships, so maritime freight remains vital to global trade, making an enhanced presence in shipbuilding and repair potentially lucrative. It could also protect Egypt from international trade wars or economic disputes.

China's construction of ports from the South China Sea to the Arabian Gulf and West Africa has raised concern in the United States, with shipping possibly involved in any big power dispute. Bringing shipbuilding back to Egypt could reduce disruption.

Cairo's call comes as shipbuilding experiences a period of rapid growth. A recent report from Market Reports World puts the industry's compound annual growth rate of 5.45% until 2028, when it will be worth a staggering $229bn.

The industry remains a significant part of Egypt's national economy, generating revenue from domestic routes via the Nile River, as well as supplying the local and global markets via its seaports. But domestic industrial expansion will not be straightforward.

Assessing feasibility

Raw material input in shipbuilding is huge and potentially complex, so localisation will depend on wider global supply chains. For now, more than 80% of the components used in shipbuilding are sourced from abroad.

Tensions in the Red Sea caused by attacks from Yemen's Houthi militia mean that maritime traffic to Egypt via this route has reduced significantly in recent months. In addition, Cairo faces higher borrowing costs to fund the expansion.

The International Monetary Fund, which recently joined a concerted international effort to keep the country afloat financially, grants money conditionally, and has already said that Egypt must reduce state involvement in the private sector.

Read more: Egyptians cautiously hopeful following IMF deal

Dr Amr Al-Samdouni, from the international transport and logistics division at the Federation of Chambers of Commerce and Industry, said Egypt had to "exercise caution regarding the viability of this industry as it can't afford to engage in it".

He welcomed the development of several Egyptian seaports, with plans to boost returns by linking them with land-based logistics via a modernised transport network, but outlined some of the challenges to expanding the country's shipbuilding capabilities.

"The most important of these is the multiplicity of authorities responsible, the lack of interest from Egyptian and foreign investors for injecting money into this sector, and the lack of trained labour on modern technology in shipbuilding.

"At the same time, the shipbuilding workshops in Egypt are not equipped for modern shipbuilding due to poor capabilities."

Laying the foundations

Egypt's Deputy Prime Minister and Transport and Industry Minister Lt. Gen. Kamel Al-Wazir confirmed that there were directives from President Abdel Fattah Al-Sisi to localise heavy industries in Egypt, the most important being shipbuilding and repair.

The policy intends to restore the strength of the Egyptian commercial fleet to make the country a global centre for trade and logistics, capable of transporting more of its own exports by sea, while taking advantage of Egypt's strategic location on the Red Sea and the Mediterranean Sea.

Egypt wants to expand the size of the fleet in affiliated shipping companies to 31 by 2030, including the National Navigation Company, Arab Bridge Maritime, Cairo Ferries, and Egyptian Tanker Company.

That would create a capacity to transport 20 million tonnes annually, taking exports and passengers between Egypt and the ports of the world. There is also a plan to manufacture commercial ships with companies like Dae Sun of South Korea.

The development of Port Tawfiq and the Suez Shipyard—a dock that will one day produce vessels—is also underway, in partnership with the Suez Canal Authority, while a steel plate factory in Egypt is also planned, to reduce imports.

Al-Samdouni said simplifying industry regulation would help boost development and investment. Procedures for issuing navigation licenses for ships built by Egyptian companies should be eased, as should ways to let foreign ships enter Egypt for repairs.

He recommended setting up a registry for specialist small vessels and coastal craft, and boosting the auxiliary industries associated with shipbuilding and repair.

Industry requirements

The Ministry of Transport is helping to upgrade workshops for manufacturing ship parts, with the equipment necessary for docks to receive vessels of various lengths and loads.

Egypt's reputation in shipbuilding is not lost on Dr Mona Noureddine, a professor of Maritime Transport Geography at Al-Azhar University, and member of the Board of Directors of the Arab Scientific Society for Transport.

Speaking to Al Majalla, she said Egypt was "one of the leading countries in shipbuilding, with its shipyards spread on the Mediterranean Sea in Alexandria, on the Red Sea in Suez, and in Qift on the Nile River".

She said it was "necessary to pay attention to this important industry" which consists of three axes: ships, ports, and shipping lines. "As for Egyptian seaports, the infrastructure has been fully updated, considering the increase in the lengths of the quays in the ports," she said.

"It was necessary to set an urgent strategic plan to move towards shipbuilding through our existing shipyards, updating and strengthening them in-line with the major maritime countries, modernising the maritime fleet—including container ships, oil tankers, service vessels, general cargo vessels, and liquefied gas tankers—in-line with the nature of exports and imports, and also focusing on the construction of roll-on/roll-off ships that have proven their efficiency on short sea shipping routes such as the Egypt-Italy line."

She urged a step-by-step approach to developing the industry, saying Egypt should move "towards the construction of container ships gradually".

This, she said, should go "from owning feeder ships to large and economically-sized ships, given that they require huge capital to enhance Egypt's foreign trade transported on national ships, and breaking into the global markets for Egyptian-made containers, whether from iron or aluminium, thereby increasing the value of goods transported inside Egyptian containers instead of renting them from foreign shipping lines".

This could pave the way to "purely Egyptian or joint shipping lines, directing capital and investments towards this important industry to complete the Egyptian maritime transport system and achieve leadership and competitiveness", she added.

Needing time and money

The minister's optimism may be misplaced, say some. Dr Ahmed al-Shami, a maritime transport consultant, an expert in transport economics, and one of the participants in developing the Ministry of Transport's strategy, warned that it could take more than 25 years for Egypt to become a top shipbuilder.

"The industry isn't a priority because most components will be imported from abroad at a time when the country needs to rationalise dollar spending," al-Shami said.

Shipbuilding is a labour-intensive, heavy industry with low energy demand, but in Egypt the workforce knowledge and expertise have gradually been lost over the last 30 years, al-Shami added.

While there are shipyards in Alexandria and the Suez Canal, and some private shipyards, they only build small vessels.

China is the world's biggest shipbuilder, followed by South Korea. Al-Shami said that when these countries build a large ship with a 500,000-tonne capacity, whether in a wet or dry dock, it takes less than a year. In Egypt, it would take up to 15 years.

"Despite it being a very important industry, its cost is extremely high, and the profit margin is low, no more than 6%. However, competition can exist with partners, whether from South Korea, China, Italy, or Australia."

Entering an oligopoly

Dr Mohamed Mahmoud, an expert in international maritime transport, said that shipbuilding could generate foreign currency revenue and create jobs for Egypt "if the necessary conditions for its success are met".

On the contrary, he warned that it could become "a heavy burden on the national economy and lead to adverse results because it requires large capital in foreign currency, which is scarce".

The price of a new container ship is at least $200m, and he said the industry "is subject to rapid technological development, necessitating continuous development with the associated financial burdens."

Shipbuilding was "an oligopoly market and, at best, a monopolistic competition market," he said, asking whether the demand was there to justify the production of enough ships to achieve economies of scale.

He added that domestic ship design would need to be built up, and until then, buying ship designs would be "extremely costly". This would therefore reduce competitiveness.

Successfully growing Egypt's shipbuilding industry would require supportive financial, monetary, and trade policies, he said, but pointed to a lack of studies to assess the feasibility of—and requirements for—doing so.  

Working in partnership

With major questions over financing, analysts said Egypt needed to involve the private sector in its shipbuilding expansion programme and invite direct investment from abroad, notably from Arab neighbours.

"The commercial maritime fleet still contributes very modestly to transporting Egypt's foreign trade, due to the technical obsolescence of its ships or the high average age of them, the limited number of ships, and the modest cargo capacities," said Mahmoud.

"Egyptian commercial fleet's ships, according to age and tonnage distribution, is around 44 ships. Turkey has 1,500 ships, Greece 1,200, Panama 8,000, and Liberia 4,000."

Shipbuilding engineer Dr Hamdi Barghouth said the idea of localising the shipbuilding industry was "strange" because shipbuilding "has existed in Egypt since the time of the Pharaohs, but it needs development".

He said: "It's necessary for a maritime country like Egypt, which currently doesn't have a good maritime transport fleet, despite the presence of old Egyptian shipyards in Port Said, Ismailia, Suez, and Alexandria for building large cargo ships, particularly container ships with medium capacities.

"There's an abundance of labour, shipyards, designers, and engineers, but the raw materials and capital required for this aren't fully available, and the demand in the local and global markets for an Egyptian product of this kind is uncertain, so decision-makers in this regard need a plan that covers that."