Egypt remains politically and economically unsettled and this is likely to affect the water sector in various ways - on the one hand funds are limited, however on the other there is a great deal of public pressure on the government to ensure the provision of basic affordable amenities like drinking water.
Further pressures stem from the continuing international debate over Ethiopia's damn project which would threaten Egypt's Nile resources. BMI is confident that the short-term future of the water market remains secure and lucrative - yet the long-term future of the nation remains precarious, and increasingly dependent on fickle foreign investment and resources.
The government faces a looming threat in the Ethiopian Renaissance Dam project, and if completed, Egypt will suffer serious cuts in water resources (18 billion cubic meters annually). Regardless of the outcome of this specific project it is clear that Egypt faces future battles over these resources. The economic development and increased resource needs of many of the African nations along the Nile means that Egypt will need to plan for a potential future where their Nile share is significantly reduced. The government recognizes the threat of this future and has a stated focus on improving water conservation and efficiency projects in the water market.
The political and economic situation remains precarious within the nation. This quarter has seen a cut in Egypt's credit rating to "CCC" and a reduction in economic forecasts by nearly 1.5% to just 2% annual GDP growth. The political unrest continues to strain the nation as the public suffers severe shortages in fuel, civil unrest and agricultural challenges. In order to retain the balance, the government will have to ensure the continuation of subsidies for key goods and resources including food, fuel, and water, and its ability to do so in the current economic situation will hinge on foreign investment and aid.
The government is still some way from introducing much needed new tariffs, which remains a highly sensitive issue for an administration that is wary of imposing a greater financial burden on the public. In light of the need to placate public opinion - with many agitated by rising prices - there may well be moves over the forecast period to lighten the pricing burden on consumers of water. No explicit moves to reduce water prices have been announced, but BMI anticipates little appetite among policy makers to raise water usage prices.
The Egyptian government's focus on public-private partnerships (PPPs) had been heavily balanced toward water infrastructure and substantial potential is still there if the government decides to throw its support behind PPPs. The country's first ever PPP was awarded in May 2009 for the New Cairo Wastewater Treatment plant. The Abu Rawash wastewater project and the 6th October City wastewater treatment plant are the next projects in the pipeline, both of which are being tendered under 20-year concessions. In Q2 2013 the PPP Central Unit announced it aims to launch eight to 10 privately financed water projects this year, with larger ones to follow in 2014. When coupled with increased foreign investment this creates an optimistic future for private suppliers in the market.
Evidence of this can be seen in the interest of Saudi businessmen to invest in Egypt's electricity and water infrastructure. This does not come as a surprised as Saudi Arabia is Egypt's biggest regional trading partner and it is also the main Arab investor in the country (according to the Egypt State Information Service). Historically, the two countries have held a strong relationship enjoyed a distinguished status in the Arab world. Egypt and Saudi Arabia often adopt similar positions with regards to international affairs and they both have a Sunni majority population.
- The Assiut Barrage irrigation project will receive US$65.5mn.
- The OFID also announced that it will fund two irrigation projects worth US$65mn and French Development Agency (AFD) granted a US$75mn loan agreement for drinking water and sanitation projects in southern Egypt.
- The Egyptian government announced a further US$35mn grant for agricultural clearing along key water sources.
- An injection of funds came in Q3 2013 with the announcement that the OPEC (Organization of Petroleum Exporting Countries) Fund for International Development (OFID) will finance two irrigation and wastewater projects in Egypt worth US$65mn.
- The first project has been allocated US$35mn and will focus on the irrigation of various agricultural lands and the remaining funds while supporting a second project including unspecified irrigation projects as well as wastewater pumping stations in in Beheira, Kafr al Sheikh, Daqahliya and Sharqiya governorates.