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Financial crisis may end boom for Suez Canal

(Agencies)
Updated: 2008-10-20 15:59

ISMAILIA, Egypt -- Winding through this small Egyptian town like an artery, pumping cash into its hospitals and schools and beyond into the wider economy, the Suez Canal has flourished as a shipping shortcut.

People look at the AKER H6-E offshore oil rig being towed through the Suez Canal, in Ismailia city this May 8, 2008 file photo. [Agencies]

Now the faltering global economy, coupled with a rise in piracy to the canal's south, looks set to end the high times for the waterway and the town Egyptians call its bride.

The canal, versions of which were first built by pharaohs more than three millennia ago, has helped the world's most populous Arab country to its fastest growth in decades, contributing 3.3 percent of gross domestic product in the 2007/2008 fiscal year.

A near "perfect storm" of world trends has lifted revenue from the 190-km (110-mile) waterway to record levels: a surge in global trade powered by China and India, higher global shipping costs, capacity problems with the Panama Canal and higher oil prices forcing shippers to take shorter routes.

Those factors made it possible to hike canal transit fees from April by an average 7.1 percent while August revenues hit another monthly record of $504.5 million.

Samah Afafa Yousof, a lawyer at one of the canal's subsidiaries and a member of Ismailia's council, said her annual salary had tripled to about 1,500 Egyptian pounds ($270) as the fortunes of the canal have risen.

"This is the best age for the canal, in all its history," said Yousof, 28, whose father recently won an award for 25 years of service to the canal.

But some are predicting tougher times ahead.

Cairo-based investment bank EFG-Hermes says the canal may earn a record $6.1 billion this fiscal year, up about 18 percent from the fiscal year that ended in June.

But it sees revenue growth slowing to 10 percent in the 2009/2010 fiscal year, with declining European demand presenting a significant downside risk.

"The big boom in world trade and the rise in oil led to a big rise in our daily operations," Suez Canal Authority Chairman Ahmed Fadel said in July. "(But) we are a part of the global economic situation, and we expect any decline in growth to have an effect on sea trade."

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