Analysis of Egypt’s New Administrative Capital
Analysis of Egypt’s New Administrative Capital
Egypt is building a new capital city from scratch, with a massive $58 billion bill. It is a bold and ambitious project aimed at addressing the congestion and overpopulation of Cairo. Spanning over 700 square kilometers, this planned city is designed to become the new hub of government, business, and innovation.
Context
The New Administrative Capital, situated 45 kilometers east of Cairo, is part of Egypt's plan to revitalize the nation's infrastructure and stimulate economic growth. It was announced in 2015 by the Egyptian Housing Minister at the Egypt Economic Development Conference.
The project aims to alleviate the chronic congestion of Cairo, which has grown exponentially over the past few decades, straining its infrastructure and services. Currently, 22 million people live in Cairo, a density of just under 20,000 people per square kilometer.
Key Highlights
Several features make up the new city, including:
Planned capacity for 6 million residents.
Largest defense headquarters in the world.
Second largest stadium in Africa.
Tallest skyscraper in Africa.
Largest mosque in Africa.
The new capital is also set to host 21 residential districts, a green central park twice the size of New York’s, a major 2,000 educational institutions, over 600 healthcare facilities, a technology hub, and a theme park four times the size of Disneyland. It will feature advanced technological infrastructure and sustainable urban planning.
Current Progress
As of the start of 2024, over 100,000 housing units have been completed and around 1,200 families have relocated. As of May 2023, 14 ministries and other government entities have fully relocated to the new capital, including the cabinet, house of representatives, and senate. Once fully operational, it will be home to 50,000 government employees.
To transport people from and to the New Capital, a light electric train has been constructed and began initial operations in July 2022, and an elevated monorail is set to follow.
Financing Arrangements
The New Administrative Capital is split into multiple phases estimated to cost a total of $58 billion. The first phase will cost around $10.6 billion and the second $6.4 billion.
Initially, a businessman from the United Arab Emirates was to finance the project in full by creating an investment fund, but such plans fell through in 2015. Next, China was expected to support the project, but an agreement was reached to only build the Central Business District.
As for the rest of the project, the government set up the Administrative Capital Urban Development Company (ACUD) in April 2016, which is 51% owned by the Ministry of Defense via land contribution and 49% by the Ministry of Housing via a $2.2 billion capital injection. This company is responsible for overseeing the construction and development.
Challenges
Despite the grand vision of the project and the various benefits it can bring to Egypt, there are several challenges that must be considered to ensure long-term sustainability.
Affordability Concerns
First, there are affordability concerns among the public. Housing units start at $80,000, whereas average household income is only under $1,500. With the goal of 10,000 families settling by the end of 2024, there needs to be a clear path towards creating affordable housing to make the city accessible to the public and to succeed at relocating residents from the crowded old city to the new one to accommodate the country’s growing population.
Economic Strains
Moreover, the project is placing a significant strain on Egypt’s economy, which is already struggling with high debt and a weakening currency. With their debts being in foreign currency, the country is struggling with a dollar shortage, making it more difficult to pay them down. Debt-to-GDP stood at 96.4%, according to the International Monetary Fund (IMF), which also increased Egypt’s bailout loan from $3 billion to $8 billion in March 2024 (Chart 1).
Chart 1 | Egypt Gross Debt-to-GDP
Additionally, the country’s headline inflation rate was 32.5% as of April 2024, with essential fruits and vegetables standing at 41.8% (Chart 2). Taking on more debt for the new capital will exacerbate these issues, especially when interest payments exceeded 45% of government revenue in financial year 2023.
Chart 2 | Egypt Headline Inflation Rate
Resource Scarcity
Egypt is facing a shortage of essential resources, especially water. There is an annual water deficit of around 7 billion cubic meters, and the country may run out by 2025. As many as 60% of Egypt's 106 million citizens are estimated to be below or close to the poverty line, which could harm food security and displace people.
Adding to concerns is the Grand Ethiopian Renaissance Dam (GERD), constructed on the area from which 85% of the Nile River’s water flows. Egypt worries that the dam will reduce water levels, affecting residents who rely on it for agriculture and maintaining households, and impacting the Aswan High Dam, the country’s hydroelectric power plant.
Conclusion
Egypt's New Administrative Capital holds the potential to reshape the nation's economic and administrative landscape by alleviating Cairo's congestion and stimulating growth. However, the project faces challenges, including financing, sustainability, inclusivity, and execution. Addressing these issues is crucial for realizing the project's goals and establishing a model for future urban development in Egypt and beyond.
