Full steam ahead for Egypt's ports programme: Egypt has already started to see the benefits of its ambitious ports programme but, say the experts, these vast schemes are set to revolutionise the country's trade with the rest of the world.

INFRASTRUCTURAL INVESTMENT IS often regarded as a necessary prerequisite for attracting foreign investment, yet Egypt is managing to achieve both at the same time through its huge port projects.

In the tradition of its vast schemes to create agricultural lands and towns on previously arid land, the country is managing to develop combined port and industrial complexes that create employment and attract trade. At the same time, massive investment in the Egyptian port sector is turning the country into a major centre for international shipping and trade. Egypt has long promoted itself as a trade nexus at the crossroads of Africa, Asia and Europe. The construction of the Suez Canal certainly cemented the country's position as a shipping nation and continues to provide useful income, but the government is determined to make the most of the sea lanes that pass through the country by establishing new ports at either end of the Suez Canal.

The fact that around 96% of the Egyptian population lives on 4% of the land along the Nile Valley and the Mediterranean coast around Alexandria is often quoted but the lack of breathing space in these densely populated areas was a major motivation behind the port initiative.

Sokhna port is being developed to the east of Cairo at the core of the 9,000 hectare Suez Special Economic Zone (SSEZ). SSEZ has been divided into four areas, each of which is provided with an excellent road, rail and electricity infrastructure where investors will benefit from a 10-year tax holiday. Consortia of foreign and Egyptian companies have secured deals to develop each of the four areas.

Tenants that have already been signed up, including sugar refiners Tate & Lyle and Magnesium International, will invest $2-3bn between them, while SSEZ is confident other manufacturing and industrial enterprises will soon be joining them.

Located at the southern end of the Suez Canal, Sokhna has been designed to promote trade with rest of the Middle East, plus India, China and other countries in South and East Asia. It is being developed by the Sokhna Port Development Company (SPDC), which holds a 25-year contract to build and manage the port. SPDC is owned by AIG and ECHCO, a joint venture between OCI and the chief executive of SPDC, Mr Al Sharif.

The port became partly operational in 2002 with the completion of a basin around the $500m first phase, but capacity is being increased and new facilities will be added over the next two decades. The second and third basins, plus the dry bulk, container and general cargo terminals are expected to be completed by around 2010. A fourth basin could be developed if demand grows as rapidly as anticipated. Sokhna is already handling more container cargo than expected and SPDC predicts freight turnover will reach 4m TEU containers, 30m tonnes of liquid bulk cargo, 10m tonnes of agri-bulk, 10m tonnes of other dry bulk cargo and lm tonnes of general cargo by 2020, equivalent to 90m tonnes of total freight.

An SPDC spokesperson confirmed that phase one has been successfully completed, which in turn has attracted a host of investors eager to use the port as their operational hub for Europe, the Middle East and Asia. Development will continue beyond 2020, based on the original master plan. In the wider region, Sokhna enjoys a perfect location in one of the busiest trade lanes in the world; it is capable of handling almost any kind of cargo and offering most of the ancillary services that relate to the shipping industry, the spokesperson added.

Funding for the first phase was jointly provided by the Egyptian government and SPDC, while the International Finance Corporation provided a $20m loan. The director of the IFC's infrastructure department, Francisco Tourreilles, commented: "This project will have a significant development impact for Egypt, not only through the provision of efficient port services, but also by transforming Egypt's port sector through the introduction of private competition."

Apart from the opportunity to provide custom-built industrial zones, other advantages of developing a port from scratch have included the installation of fully automated documentation systems, including customs clearance, without the difficulties inherent in switching over from an older system.

The second new Egyptian port project, the Suez Canal Container Terminal (SCCT) at Port Said East, is located at the other end of the Suez Canal and complements the Sokhna venture by promoting trade with Europe and North Africa. As with Sokhna, it is being created at the heart of a greenfield industrial zone, the Gulf of Suez project. A massive area of 150sq km around the port has been dedicated to industrial and export orientated development.

SCCT is being developed by a consortium of ECT International, Maersk Sealand and a number of Egyptian public and private investors under a 30-year contract. The first part of the container port was opened at the end of 2004; its four deepwater berths will be able to handle 1.7m TEU containers a year. A new railway will enable the containers to be transported around the country, while improvements to rail links with the rest of the Middle East and Africa could boost the importance of both SCCT and Sokhna.

The Egyptian government hopes both new ports can become major hubs for international trade. SPDC chief executive Mr Al Sharif explained the concept: "Ports have developed into logistical trade centres offering all types of cargo services. In the future, the transport of semi-finished and finished goods will increase and ports will become physical, administrative and management centres." The new ports were borne out of the lack of port capacity during the mid-1990s. Yet in addition to encouraging the public-private initiatives at Port Said East and Sokhna, new investment has also been made in the existing ports in the country. Alexandria, Damietta, Port Said, Safaga and Suez are all benefiting from new facilities, modernisation and additional capacity.

The development of ports is in line with Egypt's economic policy. In common with most other developing nations, the government signed up to a series of IMF reform programmes during the 1990s, in an effort to transfer large slices of the economy to private sector management. However, Cairo has recently become a lot more selective in its attitude to privatisation, treating each case on its merits, rather than adopting a dogmatic approach. Some state-owned companies originally listed for privatisation have been restructured and are performing more efficiently, with the result that the government is re-considering its sell-off plans.

In addition, Cairo has opted for a combination of public and private investment and control in several sectors. Port sector policy seems to be following this trend and the new port projects can certainly be regarded as public-private partnerships. Mainly state money has been used to provide the necessary infrastructure in the industrial zones, while most of the enterprises that have signed up as tenants are private sector concerns; port developments have been funded from a variety sources. Such a solution should ensure that both schemes benefit from private sector enterprise and efficiency, while enabling the government to retain a strategic overview.