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PLODDING WITHOUT PROGRESS

By GEOFFREY CRAIG AND KARIM EL-SENUSSI
ADDITIONAL REPORTING BY FREDERIK RICHTER

Despite plentiful natural resources, ambitious irrigation projects and explosive tourism growth, Sinai has made remarkably little progress in the two decades that have passed since the end of Israeli occupation.

Traveling north along the Mediterranean coast of North Sinai governorate, a pitted road bisects numerous shanty towns before reaching blocks of crumbling public housing units in Al Arish, the governorate’s capital. At midday, the city’s streets are quiet. Shopkeepers sip tea, Bedouin women chat on their way home from the market and donkeys bray in the distance.

The slow pace may be a welcome relief from the bustle and sprawl of Cairo, but it underscores an unpleasant truth. Apart from a thin frosting of tourist resorts along its southern and eastern coasts, the Sinai peninsula is conspicuously undeveloped.

That’s not to say it lacks resources. The peninsula has marketable natural beauty, valuable rock and mineral deposits, and an ideal environment for growing semi-arid crops such as olives and medicinal herbs. Yet attempts to convert these resources into sustainable business projects have stumbled for several reasons, namely Sinai’s isolation, sparse population, lack of infrastructure and security constraints.

“Sinai is a great piece of land,” says Normand St. Pierre, head of the Cairo office of the Multinational Force & Observers (MFO), a US-led peacekeeping force that operates in Sinai. “The core is spectacular... the sand dunes, mountains, flora and fauna – it really is unequalled beauty. But you need to have security and stability in order to develop.”

While investors have been slow to fully exploit Sinai’s natural resources and economic potential, the peninsula’s strategic value has long been apparent to military leaders. The pharaohs used it as a land-bridge for campaigns to the Levant and built a string of fortresses to keep out invading armies and marauding tribes. Over the ages, many conquerors have passed through the land, including Alexander the Great, on his way to conquer Egypt, and local hero Saladdin, heading in the opposite direction.

“The recent wars that were fought in Sinai haven’t really been fought over Sinai,” argues St. Pierre. “It’s a strategic piece of land because it is a transit point to, say, the Suez Canal, for example. But it’s [particularly] important, because you have Israel and the Palestinians next door.”

Green pasture or white elephant?

For generations, Sinai’s vast tracts of undeveloped land have captivated political leaders itching for space to build new communities to help redistribute Egypt’s burgeoning population. In the last 25 years, the country’s population has more than doubled, but growth has been limited to a thin strip of land along the the River Nile. Around 99 percent of Egyptians live on just 5 percent of the country’s total land mass. Sinai, with just 380,000 residents, has over 6 percent of the country’s land mass.

In the early 1990s, government planners earmarked 400,000 feddans in northeastern Sinai for the North Sinai Agricultural Development Project (NSADP), an ambitious mega-project that aims to create an expansive irrigation network and light industrial zones. Proponents say the project could lure up to 3 million people to live in Sinai and create thousands of jobs. Detractors charge the $2 billion development scheme is a white elephant rivaled in scale and spending only by the Toshka project in southern Egypt near the Sudanese border.

The anchor project of the NSADP is the Al Salam Canal, a 262-kilometer-long irrigation canal to transport water from the Damietta tributary of the Nile to northwest Sinai. The first phase, an 87-kilometer-long stretch running from the Damietta tributary of the Nile to the Suez Canal, was completed in 1995. The second phase is still under construction. About half of its 175-kilometer-long stretch from the Suez Canal to Wadi Al Arish has been completed.

In 1997, President Hosni Mubarak pushed a button at a pumphouse in Ras Al Esh near Port Said and water from the Nile began passing underneath the Suez Canal via four massive pipes and into the Al Salam Canal to irrigate parched fields in North Sinai. As of last year, the government claimed it had reclaimed and begun cultivation of over 158,000 feddans in North Sinai. The project’s goal is to reclaim 400,000 feddans for agriculture.

“We are on target,” insists Hussein Al-Alfi, an undersecretary at the Ministry of Water Resources & Irrigation. “We’ve already completed the major infrastructure projects [in North Sinai] such as bridges and roads, and now we’re working on secondary projects.”

Nabil El-Khodari, director of the Nile Basin Society, one of the project’s most vocal critics, claims the project is an environmental disaster. Diverting water from the Nile will strain a river already overused, he says. That will have political ramifications and could spark a conflict with Egypt’s upstream neighbors who also depend on the Nile as a water source.

Egypt can’t spare a drop of water under the Nile Water Agreement of 1959 because it already uses its annual allotment of 55.5 billion cubic meters of Nile water. Upstream riparian states oppose any revision that would let Egypt exceed this quota in order to irrigate desert land. Alternatively, Egypt must either improve the efficiency of its water management or reduce its domestic use.

Moreover, critics question whether the land in North Sinai is even suitable for agricultural use. The desert soil in this area is heavily salinated. However, Shaden Gawad, head of the National Water Research Center, believes a simple solution is at hand. She advises initially planting certain crops, such as rice, that are able to leach the salt from the land. As conditions improve, these crops can be replaced with less water-intensive ones.

Gawad also dismisses the argument that the water carried in the Al Salam Canal, a 50/50 mixture of Nile water and irrigation runoff, is not suitable for many crops, especially leafy vegetables. She points out that land reclamation can use a mix of different types of water, whereas only the cultivation phase requires freshwater. “We do research to calculate the right quality and quantity of freshwater, drainage, brackish and seawater [in the reclamation phase]. We also run a mathematical model to calculate the long-term impact,” she says. During the cultivation phase, the center monitors water quality to ensure polluted water does not enter the canal from drainage pipes.

But is all this effort and expenditure really worth it? Government officials that Business Monthly spoke to were reluctant to go on record, but one quietly admitted that the government’s projection of relocating 3 million people to Sinai was “sheer fantasy.”

Indigenous population

Of course, Sinai does have people. The problem, if it could be summed up in a sentence, is that they either lack the skills to be productive or are in Sinai only as temporary workers. For Sinai’s approximately 100,000 Bedouins, the peninsula is a socioeconomic sand trap. Education is poor, jobs are hard to come by, and opportunities to escape poverty are limited.

One local study concluded that of youth in Sinai between 20 and 30 years old just 8 percent have full-time jobs, while 92 percent depend on seasonal work, such as farming, which can pay as little as $2 a day. A 2003 World Bank report found that the poverty rate, as defined by the inability to meet basic needs, of North Sinai was 37 percent, more than double the national average.

The Bedouin have never been a wealthy bunch. Their situation got decidedly worse when the Tourism Development Authority (TDA) carved up Sinai in the early 1990s without recognizing the land rights of Bedouins. Seeking to develop Sinai’s Red Sea coast as major tourist destination, the TDA sold off land the local Bedouin consider to be theirs to hotel developers. Without property deeds to prove ownership, many Bedouin were forcefully evicted from their camps and pushed further inland. Yet despite the thousands of jobs these tourism projects have created, almost all of the positions have been filled by migrant workers from Cairo and Nile Delta villages.

“The major impediment to development has been the government’s philosophy in developing tourism in Sinai,” says Tamer El-Meehy, managing director of Cairo-based Entrust Development & Management Consultants, a local consultancy whose clients include SMEs in Sinai. He explains that the government’s strategy led to rapid expansion, but “focused on the rich, in the process marginalizing the local, mostly Bedouin, population.”

Resentment, particularly among Bedouin in North Sinai where even indirect tourism revenues are scarce, has made people more susceptible to extremist tendencies. Some have turned to drug cultivation and smuggling. “In any society, as long as you have persistent marginalization and expanding poverty, you will end up with instability,” says El-Meehy. “The Bedouin need access to the full economy. Otherwise, they go to Sharm Al Sheikh and see these huge establishments, built on what they consider to be their land, and see workers who have come from the Nile Delta and taken what they consider their jobs.”

The estrangement between Bedouins and the rest of Egypt predates recent problems. During the decade-long Israeli occupation, Bedouins say Egyptian authorities on the other side of the Suez questioned their loyalty to the state and blocked them from positions of influence in the military, the police and even within the government. Even today, local officials, for the most part, are not from the area.

“It was better here living under the Israelis,” says Khaled, a tour guide from the Muzayna tribe, who lives in a two-room cinderblock house on the outskirts of Dahab.

His sentiment is not unusual, El-Meehy says. “The Israelis did their best to co-opt the Bedouin and provide services. Whenever you have an army that occupies a land, they try and pacify the local population. But when the land is yours, in the case of Egypt, you take the people for granted.”

The great rift

A line of lorries and pickups over a kilometer long starts at the Serapeum ferry crossing on the Suez Canal and snakes up a road cut through the Bar-Lev line. Small vehicle ferries shuttle back and forth, crossing the 300-meter-wide canal in under two minutes. Still, at the rate they’re going, it will take eight hours to whittle down the line. “The ferry can only take one big truck per trip and maybe a few small pickups,” says Mahmoud Nassar, general manager of Al Hoda Farms, the largest private agricultural project in Sinai.

Al Hoda’s 3,300-feddan organic farm is located just 15 kilometers north of the ferry crossing in Sinai, but when the ferry stops running, as it is prone to do, it can feel like a world apart. “When that happens, you’re pretty much stranded,” says Nassar. The only alternative crossings require circuitous travel up to 100 kilometers, and are themselves fraught with obstacles.

Even on a good day, covering the 35 kilometers from Ismailiya, where many of the farm’s 1,000 workers and staff live, can be a case study in logistics. “It takes about three hours to get to work,” he says. “Any less than this and you’re lucky.”

There is no shortage of cars and pickups on the farm, but only a handful have the special permits needed to cross the canal. “It requires lots of permits to move in this area,” says Nassar. “To come here, you need a permit from the Suez Canal Authority, and this is very hard to get. On the way back you need a permit from Border Security to use the canal road, and then you also need a permit from the Military Service Office. There’s three different authorities and each is more difficult than the other. And this is just for private cars. For big lorries you could be stuck forever.”

Then, of course, there are the setbacks. The ferry only runs from 7am until midnight, and can’t sail in fog. “Sometimes I receive a call at 8am from one of the workers saying the ferry is stuck in fog. But then just as the fog lifts a US Navy convoy comes. These convoys can take an hour to pass, but it’s not just an hour. It takes one hour to secure the area and another three hours for the vessels to travel through. So the worker might finally arrive at 12 noon,” says Nassar. He explains the farm’s workers can only be in the fields until dusk, and female workers, who account for the majority, must leave by 4pm in order to be home at a reasonable hour.

Under the terms of its work contract, Al Hoda Farms must pay its 700 field workers even in cases where they are delayed at the canal. “If it’s not fog in the morning, it’s the Egyptian army coming to prepare for some celebration or an American naval convoy passing through, or the ferry breaks down... there’s always something,” says Nassar. “In all cases you tell them to come anyway because you have 60 days to harvest a crop, but the most important is the final eight days, because this is the ideal time to harvest. And this requires working on consecutive days.”

“After transporting people, the big problem is transporting products,” says Nassar. He explains that during the harvest season at least a dozen trucks a day carry fresh produce across the canal to a packaging plant in Abu Sultan, then on to Cairo. Transport delays can be costly.

Given all the difficulties, it is hard to imagine why Al Hoda Farms would choose to cultivate desert land in Sinai. On the other side of the canal, just over the horizon, is a green plain stretching towards Ismailiya. While electricity, water and transportation are consistent there, capital costs are much higher.

“The price of land in Sinai is very low,” reveals Nassar. “In Sinai, undeveloped land costs as little as LE 2,000 per feddan, while across the canal near Ismailiya the same plot of land sells for LE 13,000 per feddan and upwards.” Furthermore, once cultivated, land in Sinai increases its value by 70 percent. By contrast, cultivated land on the other side of the canal only increases in value by 20 percent.

Potential resources

In Pharaonic times, Sinai was known as Mafkat, or the Country of Turquoise, on account of its prized turquoise mines. The mines have long been abandoned, but the mountainous country still yields stone of commercial value, including copper, granite, marble and limestone.

These days, attention has shifted to quarrying. Sinai’s marble quarries, which produce some of the country’s finest marble varieties, occupy the central interior. But transportation is costly, accounting for up to 60 percent of the delivered cost. The massive stone blocks require special trucks, carrying up to 50 tons per vehicle, to complete the 400-kilometer journey to Cairo, where a cluster of factories process the stone into finished products.

Medhat Moustafa, chairman of Sinai International for Marble & Granite, says his company is constructing two new factories about 30 kilometers from its quarries in central Sinai. He says the finished marble will still need to be shipped to Cairo, but its reduced size and weight will make it more transportable, reducing transportation costs by about 25 percent.

By setting up factories in Sinai, Moustafa also expects to increase his company’s competitive advantage as a result of lower overhead. “Transportation from Sinai to Cairo is very expensive, but the land in Sinai is very cheap,” he says. The price to purchase land in central Sinai is LE 1 per square meter, compared to LE 700 for the same space at an industrial park near Cairo, he explains.

But even a low-tech industry like marble extraction and processing requires infrastructure, and this is where Sinai-based outfits operate at a disadvantage. “The biggest problem is electricity,” he says. “Right now, we use a generator. The generator costs about as much as an external source would, but it’s not very reliable.”

As for water, used in large volumes to cut the stone and cool machinery, Moustafa says his quarries rely on underground tanks and tanker trucks from Cairo, increasing costs by about 10 percent. While he expects the government will follow through on its promise to supply electricity in FY 2007-08, he is not very optimistic that it will supply water. “Forget it,” he scoffs. “I think it’ll never happen. We have to do it ourselves.”

Industry has been slow to develop in Sinai. Despite its proximity to Israel, and owing to its lack of industrial infrastructure, the peninsula was excluded from the qualifying industrial zone (QIZ) agreement, which allows goods manufactured with inputs from Israel duty-free access to the US market.

Sinai’s two main industrial zones, one at Qantara on the east bank of the Suez Canal, and the other at Bir Al Abd near Al Arish, have struggled. This is not the result of any specific investment obstacle, but rather a lack of government funding to complete the infrastructure, says Amr Azim, vice chairman of the General Authority for Investment & Free Zones (GAFI). He says investors face no additional hurdles when setting up projects in Sinai and the investment authority “carries the ball exactly the same way” as if the project were in Cairo. “The only difference is that there are some measures we take in Sinai for national security that require the approval of the prime minister’s office or the governorate in Sinai.”

One of these measures revolves around land ownership. In 2003, the government stipulated that while property owners who had registered land in Sinai would retain full ownership, all new property could only be leased. “We are fine-tuning the rules and working with the minister of justice to have these lease contracts for 49 to 99 years, but it has not been decided,” Azim told Business Monthly, adding that leases signed after 2003 have not stipulated duration.

When asked why the government decided to implement this new rule, Azim said that it was “related to national security,” but would not elaborate. Analysts have suggested the land ownership changes, and the vague regulations associated with them, are designed to prevent Israeli investors from buying up undervalued land in Sinai.

Despite the uncertainty, Azim insists the rule change has “not had any effect whatsoever” on the pace of investment. “I don’t think this is a problem, or at least we haven’t heard from anyone that this is a problem,” he says.

The promise of tourism

While industry has been slow to develop, one area where Sinai has succeeded in attracting investors is tourism. Approximately 25 percent of the 8.6 million tourists who visited Egypt in 2005 traveled to Sinai. Yet revenues from this vibrant sector have been unable to penetrate the peninsula’s mountainous interior. To date, development has focused almost exclusively on developing resorts, luxury hotels and dive centers along the Red Sea coastline between Sharm Al Sheikh and Taba. By contrast, North Sinai’s coast strip is almost deserted despite having pristine palm-fringed beaches (though no coral reefs).

Samir Abu Hamid, former general manager of Sama El Arish Touristic Village in Al Arish, says this imbalance is a result of sharp differences in the investment climate between Sinai’s two governorates: North Sinai, which has almost no facilities and an overbearing security apparatus, and South Sinai, where infrastructure is more developed and investment procedures less restrictive. Moreover, North Sinai’s security situation is especially erratic, which makes investors nervous. “Investors don’t want to throw their money somewhere without knowing the future of it,” he says.

Abu Hamid complains that the government is doing little to assure investors that their capital is safe in North Sinai. “I think the government wants the business community to do things by themselves,” he says.

But it’s not that much better for tourist developments in South Sinai. Many still rely on gas generators for power and tanker trucks to bring water. The government is proceeding with plans to build public desalinization plants and extend a drinking water pipeline from Sharm Al Sheikh up the coast to Dahab and other tourist resorts. But some of Sinai’s driest stretches still lie beyond the reaches of piped water. Officials say it’s all a matter of money.

Yet for all the talk of economic development, the real issue may boil down to politics. Stability could be the key to sustainable economic growth. If terrorists strike again, the government and investors will probably shy away from long-term commitments. “Peace in the region would be the real key to development in Sinai,” says Essam Zahran of Sinai Cement Company. “The real boom will come then. What we are doing today is just the preparations.”

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