CAIRO -- A project by Chinese state companies to help build a new capital for Egypt is back on track after running aground earlier in a dispute over contract terms.
The Egyptian investment and housing ministries have begun talks to finalize an agreement with Shanghai-listed developer China Fortune Land Development under which the company is to invest up to $20 billion to build an upmarket residential district, an industrial zone, schools, a university and recreational centers in the new capital, along with supporting infrastructure, according to a statement issued by the investment ministry on May 15. Officials estimate the final agreement could be reached by year-end, with construction beginning the following month.
China Fortune and fellow state company China State Construction Engineering signed preliminary agreements with Egyptian authorities in early 2016 to develop parts of the as-yet unnamed city about 60km east of Cairo. Egypt had previously sought to develop the project with Dubai real estate company Emaar Properties.
In a ceremony in Beijing overseen by Chinese President Xi Jinping and Egyptian counterpart Abdel Fattah el-Sisi, the project's lead advocate, China State Construction pledged to invest $2.7 billion to build the government offices for the new capital during the first three-year phase of the project. China Fortune's portion was designated to be the second of the three phases.
However, the agreements with China Fortune and China State Construction foundered in December and February respectively as the Chinese and Egyptian sides disagreed over deal terms. The Egyptian Housing Ministry also disagreed with China State Construction's plans to sub-contract work to local companies.
Egyptian officials moved to reopen talks with China Fortune while visiting Beijing for the official Belt and Road Forum on May 14-15, with Investment Minister Sahar Nasr paying a visit to the developer's offices. "The new metropolis will significantly help Egypt's economic and urban development, improve government services to citizens and lure foreign investment into the North African country," she said then. Four local construction companies meanwhile have taken up China State Construction's role.
"The establishment of this new industrial city in Egypt is undoubtedly an important step in the global deployment of China Fortune's new industrial cities," Zhao Hongjing, head of the company's international unit, said in October. The company is developing similar projects for China's own planned new central government district in Xiongan as well as other locations in China, Indonesia, Vietnam and India. The Egypt project would be its first in Africa.
Though China Fortune issued announcements about the Egyptian project last year, it has offered no direct comment regarding its revival. Its shares nonetheless rose 4% the day following the Egyptian government's announcement but the gains were short-lived. Details on the financing of China Fortune's portion of the project have not been disclosed. Hisham Sheta, chairman of Income, an Egyptian development company involved in the project, said however at a conference in October that China Fortune would be bringing in co-investors from China and other countries.
Egypt is an important link in the Belt and Road Initiative under which China is upgrading land and sea transport links with Europe.
In a scenario that would be familiar to Chinese observers of Xiongan, Egyptian developers have been buying up land around the new capital district. "The new capital city may cause a real estate bubble," said Ahmed El Sayed El Naggar, former chairman of a state-owned newspaper, during a television interview, calling the project as "illogical."
Some critics say the estimated 500 billion Egyptian pound ($27.7 billion) funding to build the new capital would have been better spent on developing industrial zones around the country to create jobs as the national unemployment rate is currently around 12%.
Officials expect the new capital's population to reach 5 million. Egyptian officials plan to move all government offices and foreign embassies to the new city to escape the congestion of Cairo, where the population is nonetheless forecast to reach 40 million by 2035 from 18 million now. Cairo has been Egypt's capital for about a millennium.
The projections suggest the new capital "may not ease Cairo's overpopulation as planned by the government," said Kareem Ibrahim, a consultant with urban development company Takween Integrated Community Development. "The whole planning system should be overhauled in existing cities. Centralization has been a chronic problem. No matter how many new cities we have, nothing would change unless the traditional rules for urban planning are removed."
Additional reporting by Nikkei staff writerKazumi Sakurada in Hong Kong.