Egypt’s land shortage
After years of searching, Sheikh Ibrahim Abul-Wafa, an influential figure in his community, managed to find an appropriate plot of land to build an Azharite school. He wanted to carry out the project since there was no such school in his town in the southernmost part of Upper Egypt.
His search was not unique. Finding land for projects in Egypt can be a real problem, and even more so if that land is connected to the main utilities networks. The problem impacts all sectors and in different ways. In real estate, it manifests itself in high prices, in industry it obstructs new projects, and in services it leads to problems with the infrastructure of key services such as education and health care.
Investors have many stories to tell of how their projects or the expansions of their factories have been terminated and how in some cases they have even been forced to relocate to neighbouring countries because the state has been unable to provide them with the land necessary for projects or expansions.
Galal Abdel-Fattah, chairman of Eyal, a company making circuit breakers and vice-chairman of the Industrial Investors Syndicate, told Al-Ahram Weekly that investors in industry have suffered greatly from shortages of suitable land over the past decade.
“This was the case even before the 25 January Revolution, and it’s been getting worse as time passes,” he said. After planning for years to expand his factory in Egypt, he was forced to relocate to Sudan.
“Although I did what I wanted, I felt very sad about it. In Sudan, I was able to complete the paperwork for a plot of land and receive it within one week,” said Abdel-Fattah. “In Egypt, it takes years for a new project to start because of land allocation problems and complicated procedures.”
Minister of Investment Ashraf Salman recently told a news conference in Ain Al-Sokhna called to discuss the new investment law that there is no land available for industrial projects in Egypt. However, he added that the new investments guarantees and incentives law, signed by President Abdel-Fattah Al-Sisi on the eve of the Egypt Economic Development Conference in March 2015 and later amended, would provide land and would ease the speed by which it could be acquired.
The law contains articles creating a so-called “one-stop shop” for investment, slashing the time needed to create companies and receive the necessary licences to start operations. Salman said that the law has cut the process down from several months to 72 hours and that it eventually aims to reduce this to two hours.
In order for this to happen, the law has delegated the Investment Authority to assign land to entrepreneurs. It requires all authorities and bodies who have a say on land plots to create an inventory and evaluate land that is connected to the utilities networks under their control and send this to the Investment Authority, which will in turn facilitate the allocation of land to companies.
However, according to Abdel-Fattah, the new law “has negatively impacted land availability because it increases the obstacles and the time required for land allocation.” The new mechanism has upset agencies that previously were in control of the allocation process, and unnamed officials have made statements to the press criticising Salman.
One source told a newspaper recently that Salman had complained to the president two weeks ago that the bodies were obstructing the implementation of the new one-stop shop by delaying the sending of data to the Investment Authority.
Various agencies want to take back the authority for allocating land, including the Industrial Development Authority, which is affiliated with the Ministry of Industry. An official at the ministry, who asked to remain anonymous, told the Weekly that the cabinet had seemed to agree that land for industrial projects should be returned to the ministry instead of being put under the control of the Investment Authority.
“The issue is out of anyone’s hands. It will now be applied,” Salman nevertheless told the Weekly last week. He was speaking on the sidelines of celebrations in Aswan marking the re-opening of the Elephantine Hotel on the Botanical Island in the city after a 20-year closure.
Yasser Gaber, a spokesman for the Ministry of Industry, said that the Industrial Development Authority had been given 622 plots of land last August that were currently being allocated. He told the Weekly that coordination with the Ministry of Investment and the Urban Communities Authority was underway to provide new plots of land.
Gaber added that after the investment law was issued there was conflict over who had authority and “there were not many land plots connected to utilities.” There was a need to think of other ways to provide land with utilities, he said, especially in the light of the current budget deficit.
He added that LE3 billion has been spent to extend utilities to industrial plots over the last three years, while the budget for utilities in the general budget for the current year is no more than LE100 million.
THE BUDGET DEFICIT: The budget deficit has loomed ever larger over recent years despite the introduction of new fiscal policies to address the problem.
These include more borrowing from domestic and foreign markets, raising the prices of various state services, such as the issuing of marriage, divorce and birth certificates, and removing energy subsidies — a plan that began last year and will be implemented over the next three to five years and will be accompanied by appropriate social assistance in a country where more than 26 per cent of the population lives below the poverty line.
Last year, the budget deficit reached 11.5 per cent of GDP, compared to the targeted 10 per cent. The government aims to have the deficit drop to 8.9 per cent in the current fiscal year, but analysts and investment banks believe it will be more than 11 per cent and even higher as the fiscal year draws to a close in June.
The new value-added tax (VAT), which will be a major source of revenue for the current budget at LE30 billion, has not yet been introduced. Neither has the second phase of removing energy subsidies, except in the electricity sector.
Abdel-Fattah proposes offering land for industrial projects without utilities and requiring industrialists to install them as a way of solving the land shortage problem. “Egypt has a lot of land, and if we are given the land and we add the utilities when we construct our factories this will cut down on time and end the dilemma of funding utilities,” he said.
“It would take a year on average and then activity could begin. This is an acceptable solution for industrial investors, and they are willing to do it until this crisis is resolved.”
The problems are compounded in the Upper Egyptian governorates, which have higher rates of unemployment than the Delta ones. Alaa Omar, chairman of the Investment Authority, said at a recent conference that the problem in Upper Egypt is not so much extending utilities to empty plots, but persuading investors to go there in the first place. Roads are sometimes not appropriate for transporting goods, he said, and transportation costs are high.
He said that if the government follows through on its promise to build a port at Safaga on the Nile, this could help attract investors to the governorates “if the land has utilities and is offered to investors”.
The tourism sector suffers from similar problems. Ali Khalil, an investor in the sector in the Red Sea governorate, said there is a shortage of land for tourism projects. Even the plots that the government claims have utilities do not, he said. “I bought some land there 30 years ago in the 1980s and even today there is no sewage network,” Khalil said.
He said the multiple offices that have authority over the land increase the problems of providing land with utilities, and these include the governorate and various agencies. This has created a lot of bureaucracy, he said, but added that the new investment law could be a positive move, “though we have seen nothing so far”.
Khalil added that tourism projects should be supported with land plots that have utilities at low prices because of their great potential for revenue and employment. He said the state’s former policy of selling land in these areas at $1 per square metre to investors had been a good one, and he criticised auctioning land because it negatively impacted projects by raising costs.
Land auctions started in 2009 and have created more problems of land availability, whether for companies or individuals, he said. Prices have shot up, which raises the cost of housing units. People understood this and saw the auctions as an obstacle to resolving Egypt’s housing problem, he said, as had been seen in media comments about the first auctions.
In December 2009, the then-housing minister, Ahmed Al-Maghrabi, decided to offer 248 special plots of land in six new cities for community housing and apartments and villas in a public auction. Al-Maghrabi said the ministry would use the revenue from the land sales to finish service projects. The auctions would take place in New Cairo, 6 October, Sheikh Zayed, Al-Shurouq, Al-Obour and New Damietta.
This was the second auction by the Ministry of Housing for individuals, rather than investors, following the auction of Marina beach chalets some years earlier which some had blamed for raising land and housing prices.
Comments varied between accusing the minister of corruption and allegations that he was offering these plots at auction in order to raise their prices in favour of businessmen who had bought them previously, raising prices for ordinary citizens. Others suggested something similar to what Abdel-Fattah had proposed for industrial plots; namely, offering land without utilities and leaving it to the private sector to install them. Others demanded that land for individuals should not be auctioned.
Many years later, and after the toppling of former president Hosni Mubarak in the 25 January Revolution, with many ministers, including Al-Maghrabi, ending up in jail on corruption charges, the modus operandi remains the same and the auctions continue.
An official at a real estate company who preferred to remain anonymous said real estate prices are shooting up and that the government is contributing to this because it is offering land at high prices, reaching LE4,200 per square metre in some areas. As a result, the private sector has also raised prices to match those of the government, he said.
The source added that the government is offering finished apartments for the middle-income sector at between LE600,000 and LE800,000 per unit, although 90 per cent of people belong to the lower- and middle-income segments and cannot afford these housing units.
“There is a problem in land pricing because of shortages in supply and shortages in housing units,” the official said. There are about half a million marriages every year in Egypt, which meant the market needs 500,000 new housing units every year. The government needs to provide 100,000 plots of land of around 600 to 1,000 square metres in size in all governorates, but in reality it only provided 5,000 plots of land, meeting just five per cent of market demand, he said. This had forced people to build homes on agricultural land because there were no alternatives, the source said.
SOURCE OF REVENUE: Shortages of land with utilities appropriate for real-estate projects forced consecutive governments before and after the revolution to deal with the issue as a revenue-generating resource.
The last cabinets before the revolution used land as a source of funding for the services sector by selling them in public auctions, according to statements by Al-Maghrabi at the time. However, the previous cabinet of Prime Minister Ibrahim Mehleb and the incumbent government of Sherif Ismail have used these land plots to bring in dollars.
Land plots in new communities have been offered to Egyptians abroad in three phases in a project called “Motherland Home”. Minister of Housing Khaled Abbas said at a recent conference in Cairo on funding development that proceeds from the Motherland Home project have so far generated $3.5 billion.
But Egypt is facing a serious crunch over foreign currency, and the current foreign currency reserves of $16.5 billion can only cover three months of imports. The government has taken several steps to shore the reserves up because of the sharp drop in revenues from tourism, exports and foreign direct investment.
Nonetheless, real estate has been luckier than others in land allocation for various reasons, including the fact that the Urban Communities Authority has focussed on extending utilities for large expanses of land and has a substantial share of the state budget.
According to Abbas, the state allocated LE30 billion in this year’s budget to extending utilities to land used for real estate, and he believes there will be more activities in the real estate sector in the coming two years.
A senior official at the Urban Communities Authority, who preferred to remain anonymous, told the Weekly that since the incumbent minister, Mustafa Madbouli, was appointed, all land plots have utilities. He added that utilities cost an average of LE600 per metre, which increases the further the land is from existing infrastructure, such as in 6 October City when compared to Badr City, for example.
The source added that the authority’s recent focus on extending utilities before offering land is a result of problems that have arisen with real-estate developers when land was offered on the basis that projects would begin and utilities would be extended within a timeline.
Delays in installing utilities have led to many problems because investors resorted to legal action and the ministry was fined. The ministry has begun extending basic infrastructure, such as water and roads, because without these work on housing cannot begin. The remaining utilities have been added as work continues on projects.
The real estate sector is also lucky because the government provides services for housing units built on agricultural land even though they are built illegally, according to a senior source at a real-estate company. He said that this helps resolve the problem of the availability of land for housing but it compounds the problem of shortages of agricultural land.
Bahaa Al-Din Abu Shaqa, the secretary-general of the Wafd Party, wrote a report published in the party newspaper in July 2015 stating that recent satellite studies revealed changes in agricultural land areas in some governorates. In Kafr Al-Sheikh, for example, agricultural land has decreased by 20 per cent over the past two decades, he said. Meanwhile, the East Delta has lost 43 per cent of its agricultural land.
Recent satellite images analysed by scientists from the National Authority for Remote Sensing and Space Sciences reveals an annual 23 per cent increase in urban encroachment on agricultural land in various governorates. This decreases the amount of agricultural land at a time when the state is spending a great deal of money reclaiming land in the desert.
Abu Shaqa added that some scientists have predicted that by 2050 Egypt will have lost 17 per cent of the Delta region as a result of urban encroachment on agricultural land. Routine tracking of satellite images also shows the spread of hamlets, villages and towns on agricultural land, he said.
He noted that, as a result, the prices of products and crops will rise and the country will need to find further foreign currency for imports and to provide food for the population. There will also be a hike in unemployment resulting from the lack of jobs for farmers. Egypt already imports 70 per cent of its food needs.
As a result of this worsening problem, several MPs recently demanded a law to end intrusions on agricultural land, either by building, dredging or laying waste, and enforcing strict penalties and regulations to prevent any new violations. This would protect agriculture and halt diminishing agricultural land and the need to reclaim desert land that is not as good or as fertile as agricultural land.
Some MPs have said that land where reinforced concrete has been used for construction is no longer fit for agriculture and that therefore there is no need to remove the violations. However, large penalties should still be collected, they have said. They also want the state to build housing units in the desert near villages in Upper Egypt and facilitate more housing for young people so they do not resort to building on agricultural land.
A report issued by the Central Department for the Protection of Land at the Ministry of Agriculture has revealed that 64,161 feddans of land were encroached on in 2015, and that 269,551 such violations were removed, amounting to about 15,201 feddans. The most violations were removed in the Minya governorate, where over 48,000 incidents were addressed, followed by Sharqiya, where almost 41,000 violations were removed. Qalyubiya had about 24,000 violations, and Suez came in last with only 31 violations.
Agricultural land, which constitutes four per cent of Egypt’s total land area, is also threatened by other factors besides urban encroachment, such as water shortages. These have reduced the areas growing primary crops such as rice by about half since before the 25 January Revolution, even though Egypt has some advantages in exporting rice and there is high world demand. The land available for cotton has also dropped.
Egypt suffers from low wheat production because of the smaller areas allocated for this crop, which now makes the country the largest importer of wheat in the world. Egypt produces about 4.5 million tons of wheat a year, but its annual needs reach 12 million tons.