Egypt isn’t hitting its infrastructure investment potential: Despite a recent uptick in public investments flowing into Egypt, a lack of regulatory oversight and monitoring systems is stunting the potential of infrastructure investment efficiency and limiting contributions from the private sector, writes the International Monetary Fund in its latest Technical Assistance report (pdf) for Egypt. Plus, where investment is needed, fiscal space to finance projects is limited due to high government debt with current arrears just to international oil and gas companies estimated to stand at USD 6.25 bn in March.

By the numbers: In 2019, Egypt’s efficiency gap for physical infrastructure stood at 39% — putting it near the global average and above others in the region. However, the infrastructure quality gap came in at 28% — which puts Egypt below the global average.

A large chunk of the fiscal year 2024-2025 Public Government Budget will go towards the state’s infrastructure priorities, with total spending penciled in to rise 29% y-o-y to EGP 3.9 tn. The government will make efforts to reel in off-budget spending, placing an EGP 1 tn cap on public investments in response to the IMF’s request to slow spending on infrastructure projects and rationalize fiscal policy. Urban development is another top priority, expected to see some EGP 186 bn in funding, with EGP 136 bn earmarked for the oil and gas sector, and EGP 85 bn for ICT.

Investment efficiency? Efficient public spending increases the volume and quality of a country’s infrastructure assets without adding to expenditure and can solve issues of need and limited financial options, an IMF report on public investment (pdf) explains. Inefficient infrastructure investments can be seen worldwide in the form of uncompleted or disused projects and those that have little to no improvement in the delivery of public services or fail to result in a greater stock of infrastructure assets.

The implications of falling infrastructure investment: Not only are Egypt’s investment needs compounded by rapid population growth — with the population expected to grow by 20 mn people between 2021-2030 — but climate change requires that the government direct public investment to building resilient infrastructure assets that can adapt to challenges such as higher temperatures, desertification, water insecurity, and coastal degradation.

It’s a global issue: There is considerable underinvestment relative to the capital required for growth, thinks Goldman Sachs’ Teresa Mattamouros (listen: 23:46). In 2022, G20 countries spent around USD 1 tn on infrastructure, accounting for some 5% of their central government budgets or about 1% of GDP, yet the value needed to support economic growth and reach environmental net zero targets is closer to USD 5 tn.

The IMF has five recommendations as to how Egypt can ensure value for money from public infrastructure investments.

#1- Strengthen project appraisal and selection processes: The state should issue and publish executive regulations that set requirements for project appraisal, planning, and implementation at each stage of the public investment process, to remove the potential of ad hoc selection and inadequate project implementation. Appraisal and approval processes must be reviewed and define clear and transparent criteria and processes for project selection.

#2- Enable private sector involvement in public infrastructure provision: Regulatory structures are not sufficient to attract the private sector to infrastructure investments, thinks the IMF. The government should further deregulate markets with fully independent regulators and ensure that PPP structures are consistently integrated within the budget and their fiscal implications are reflected in headline fiscal indicators.

#3- Operationalize public financial management law provisions for medium-term budgeting: Short-term budgetary cycles obscure effective planning, while Egypt’s budgets lack sufficient detail, and are ambiguous regarding sub-national funding and uncertainty on cash availability, the report reads. Egypt must publish medium-term capital budgets and annual public sector investment plans that detail project costs, funding, and responsible delivery agencies. Furthermore, the state should formalize mechanisms for distributing resources to sub-national government entities and work with spending entities to improve the accuracy of forecasting cash needs.

#4- Strengthen asset management and ensure sufficient maintenance: The absence of consolidated asset registers and standard procedures for maintenance funding in Egypt undermines the durability of infrastructure assets. This could be supported by consolidating government entity asset registers, establishing standardized methodologies for assessing maintenance needs, and publishing budget and account spending.

#5- Strengthen procurement, project, and portfolio management: Egypt lacks standardized project management implementation processes, with monitoring concentrated on individual projects. The IMF suggests that the government develop an electronic procurement system and deploy standardized diagnostic tools such as Methodology to Assess Procurement System (MAPS) to evaluate the system's operation with published reviews. Additionally, Egypt should establish a standard project management model for government projects, use technology to track key developments in cost, scheduling, and benefits and identify risks, and undertake reviews of major projects that are also published.

Your top infrastructure stories for the week:

  • The government is looking into expanding 13 airports across the country to accommodate an anticipated surge in hotel capacity that could see some 24k hotel rooms added to the market this year alone. (Asharq Business)
  • Water treatment plants in Mauritania: A consortium including Egypt-based Samcrete Engineers and Contractors and Saudi SARH ATTQNIA Co. is set to ink an agreement to build water treatment plants in Mauritania that will cost USD 200 mn. The agreement will be inked in 3Q 2024 and construction will take 18 months. (Asharq Business)
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