Russian developers are planning to give a major push to Egypt’s Suez Canal Economic Zone by clinching an agreement with the Egyptian government this month, May 2017, paving the way for starting major projects, including the assembly of Russian trucks, cars, agricultural tractors, construction equipment, furniture making, concrete products and chemicals. Invest-Gate digs deep into the projects to be carried out in Russia’s new industrial zone in the Suez Canal.

“The industrial park will open the door for attracting foreign investments in various sectors in Egypt, especially infrastructure and construction,” Mohamed Montasser, member of the British-Egyptian Business Association, tells Invest-Gate.

Montasser adds that Egypt needs to increase its productivity levels and export rates and the establishment of the Russian industrial park will fulfill such goals.

“Egypt’s production rates total USD65 bn per year, which is very low in comparison with other countries like Turkey, whose production stands at USD195 bn and South Korea, whose production hits USD325 bn,” Montasser says.

The real estate expert also notes that Egypt’s exports stand at USD19.5 bn while its imports total more than USD70 bn. “The zone will increase Russian investments in Egypt and will push up hard currency in the country,” he says, highlighting that the new industrial park will also help promote Egyptian products in Russia as well as export locally-made products to countries in Europe, Africa and the Middle East.

In February 2016, Egypt and Russia signed a memorandum of understanding to establish the industrial park in the east economic zone of Port Said with total investments worth USD 4.6 bn.

The park is planned to be built on an area of two million square meters and is expected to generate at least USD 11.6 bn in revenues, as well as, create 77,000 jobs, according to data released by the Russian Ministry of Trade and Industry.

Almost 60 Russian companies are taking part in the project, mostly private companies including GAZ, Gazprom Neft, Kamaz, UAZ, Transmashholding, Tatneft, InterRAO, among others.

The project, which is expected to be finalized and be fully operational by 2035, will have a friendlier tax regime for resident Russian firms. The tax rate for businesses in the project and personal income tax will be 10 percent while sales tax will be abolished.

“I think that it is a very promising project. There will be major new investments, new jobs, and use of the logistic potential of Egypt,” says Chairman of the Federation Council Valentina Matvienko at a March meeting with Egyptian Prime Minister Sherif Ismail early in March 2017.

According to estimates presented at the International Industrial Exhibition Innoprom 2016, construction works at the Russian industrial zone will start in June 2018. The managing company of the Russian Industrial Zone in Egypt will be set up in August 2017, while the project planning of the first stage, 80 hectares in size, will start in December 2017, the Innoprom report confirms.

The park will also include a living sector on an area of 220,000 square meters as well as a hotel, offices, and an exhibition zone. It will encompass a recreation area and rely with about 50% of its consumption on renewable energy sources as well.

“We consider Egypt as a regional hub and we should have several of such regional hubs with our businesses,” Russian Minister of Industry and Trade Denis Manturov says in press statements carried by the Russian news agency TASS. This mechanism, according to him, is used by China to develop their exports, the news agency adds.

The Russian zone should be the first of several zones to be established around the Suez Canal with plans already underway for Chinese and Italian industrial parks.

The SCZone Chairman Ahmed Darwish said that the Russian industrial zone will be built under a usufruct right for 50 years. “The Russian side will get a land in the zone under usufruct right for 50 years and will develop the land in line with a general plan approved by the board of the authority,” Darwish announces at a meeting with Russia’s First Deputy Minister of Industry and Trade Gleb Nikitin. Darwish adds that the SCZone has come a long way in the negotiations with the Russian developer as of November 2016.

Saad Teima, head of the Transport Committee at the country’s House of Deputies tells Invest-Gate, “The construction of the new Russian industrial zone would not only increase Egypt’s exports and production, but it could also be a bellwether for resuming flights between the two countries after about one-year hiatus.” Russian flights to Egypt’s Red Sea resort town of Sharm el-Sheikh were suspended following the October 2015 downing of a Russian aircraft over the Sinai.

“The new park will take Egyptian-Russian relations to a new level and will push forward development in the Suez Canal zone,” he says.

In 2015, Egypt inaugurated the New Suez Canal, a 37-kilometer waterway dropping to a depth of 24 meters and running parallel with the existing 145-year-old Suez Canal. Originally, the project was planned to be completed in three years but later it was reduced to 12 months.

The project attracted USD 8.5 billion in six days and is expected to produce USD 12.3 billion in revenues each year to double double the canal’s current revenue intake by 2023. The vessel traffic is also expected to increase by about 50% to take the daily transit volume to 97 from 49.

The Suez Canal Economic Zone seeks to become a global logistics and industrial hub and is one of President Abdel-Fattah El-Sisi’s flagship mega projects, with officials previously expressing the hope that it would eventually contribute about a third of Egypt’s gross domestic product.