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Cablegate: Sinai: Economic Development

VZCZCXYZ0000
RR RUEHWEB

DE RUEHEG #2836/01 2621436
ZNR UUUUU ZZH
R 191436Z SEP 07
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 6952
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0341

UNCLAS CAIRO 002836

SIPDIS

SENSITIVE
SIPDIS

STATE FOR NEA/ELA, NEA/RA
USAID FOR ANE/MEA MCCLOUD AND DUNN
USTR FOR SAUMS
TREASURY FOR MATHIASON AND HIRSON
COMMERCE FOR 4520/ITA/ANESA/OBERG

E.O. 12958: N/A
TAGS: ECON EAID ETRD EG
SUBJECT: SINAI: ECONOMIC DEVELOPMENT

Sensitive but Unclassified. Please protect accordingly.

REF: CAIRO 673

------------------------
Summary and Introduction
------------------------

1. (SBU) Emboffs visited El Arish, capital of North Sinai
governorate, September 12, to discuss economic development with
local business leaders. Members of the North Sinai Businessmen's
Association (NSBA) and the Al-Fawakhreya Association for Economic
Development told Emboffs that the local economy needs more financing
for SMEs, management capacity building for young entrepreneurs and
business leaders, and training programs to improve the employment
prospects of the local population. A lack of legitimate economic
opportunities is contributing to smuggling into Gaza and leaving
unemployed youth more vulnerable to recruitment by extremists, they
claimed. The associations include representatives from northern
Sinai in both houses of Egypt's parliament, several university
professors, and directors of a number of large firms. NSBA Chairman
Osama El Kassas runs a microfinance NGO receiving funding from
USAID.

---------------------
Development Potential
---------------------

2. (U) NSBA members identified agriculture, mining, manufacturing
and tourism as areas ripe for development in northern Sinai. Unlike
the mountainous and rocky terrain in southern Sinai, northern Sinai
is relatively flat and closer to sea level, with sandy soil perfect
for agriculture, according to Dr. Ali Ibrahim El Kassas, Professor
of Agricultural Science at Suez University and brother of Osama El
Kassas. Current agricultural activity is mainly subsistence farming
by local Bedouin tribes. With more investment in irrigation
infrastructure, however, El Kassas believes the northern Sinai
desert could become a center for agribusiness.

3. (U) One illustrative example is an olive grove and olive
processing factory owned by Abdel Hamid Selmy, a Shura Council
member and member of the Al-Fawakhreya Association for Economic
Development in el-Arish. The farm uses water from aquifers, which
although salty, is suitable for olives trees. The processing
factory produces olive oil that is sold domestically and partially
pickled whole olives, which are exported to Israel for further
processing and export to Europe. Orabi told Emboffs he would like
to do the full processing in Egypt and export to Europe directly,
but lacks the capital needed to expand the operation.

4. (SBU) According to El Kassas, the salty water produced by
aquifers in Sinai limits the variety of crops that can be grown.
This would change dramatically with completion of the "Peace Canal,"
an infrastructure project begun in the 1990s to bring water from the
Nile to northern Sinai. The project was never completed, and views
differ significantly as to the reason. Speaking at a USAID
conference on Sinai development on September 11, former governor of
North Sinai, Mounir Shash, said he believed the GOE did not complete
the project because neither Israel nor the U.S. wants Sinai
developed for security reasons. Osama El Kassas told emboffs,
however, that he believes the project ran out of funding, as the GOE
focuses most of its agricultural development spending on the Toshka
land reclamation project in Upper Egypt, near Lake Nasser.
Regardless of the cause, the GOE has given no indication of
intention to complete the canal.

5. (U) In addition to its agricultural potential, NSBA members
believe the Sinai's vast mineral wealth could form the basis for
industrial development in the region. Sand and rock, two major
inputs for cement production, are readily available in large
quantities. (Comment: It is somewhat ironic that with abundant
sand and rock in Sinai, and throughout the country, Egypt is
currently experiencing a cement shortage. A booming construction
sector, coupled with high international prices, led the GOE to
impose fees on cement exports in early 2007 (reftel), in a move to
control rising domestic cement prices). Emboffs visited one
enterprise taking advantage of Sinai's mineral wealth, a marble
factory owned by another member of the Al-Fawakhreya Association for
Economic Development. The factory processes large marble slabs
extracted from nearby mountains. The slabs are cut into sheets that
are then polished and re-cut into tiles for building construction.


6. (U) In the area of tourism, former Governor Shash told the USAID
conference that this sector has the greatest potential, and is the
least developed, of all sectors in northern Sinai. El Arish is home
to the single beach resort on the northern Sinai coast, a modest 100
room hotel with limited services. The Sinai's Mediterranean beaches
are arguably as attractive as those on Egypt's northern coast near
Alexandria, which is rapidly becoming overdeveloped. Moreover, the
Sinai offers convenient camping and desert trekking, which is not
readily available on the Alexandria coast. The downside is the
greater distance to the northern Sinai beaches from Cairo. While
Cairenes drive 2-3 hours to the Alexandria coast, the northern Sinai
is a 4-5 hour drive from Cairo. The NSBA members echoed Shash's
views, but Osama El Kassas believes Shash is to blame, as he never
developed a coherent tourism promotion policy while in the
governor's office.

-------------------------
Unemployment and Security
-------------------------

7. (U) NSBA members pointed out that economic development in Sinai
would have larger benefits for Egypt, not just for Sinai residents.
Manufacturing could be moved out of the crowded, polluted Nile
valley and take advantage not only of Sinai's resources, but also
its large population of unemployed youth. Former Governor Shash
noted in his discussion at USAID that unemployment is worse in
northern Sinai, which has a population of approximately 300,000,
than in southern Sinai, with a population of around 10,000. He
estimated unemployment at 25-30%, more than double the official
nationwide figure of approximately 10%.

8. (SBU) Shash claimed that the government in Cairo ignored the
development needs of the Sinai until the Taba, Sharm el Sheikh and
Dahab bombings of recent years underscored the need to address Sinai
residents' concerns. El Kassas agreed with this assessment,
claiming that militants recruit from among the unemployed youth of
northern Sinai. Moreover, lack of economic opportunity drives many
residents of the region into the profitable smuggling trade on the
Egypt/Gaza border. Not only arms and ammunition are smuggled
through tunnels at the border, but also commercial goods, according
to El Kassas. Gaza's economy would not survive, El Kassas believes,
without smuggling.

9. (U) According to Shash, Bedouins have traditionally fought over
land, with the strongest tribe enforcing "ownership." The GOE made
no effort to intervene in these struggles until after the bombings
in Sinai. In the last year the GOE started imposing land ownership
regulations in Sinai, and granting property deeds to Bedouin tribe
members. Shash praised the industriousness of the Bedouins, noting
that despite land disputes, and with no assistance from the central
government, the Bedouins more than doubled the cultivated land in
Sinai in the last ten years. Most of the cultivation is still
subsistence farming, but Shash used the example to illustrate how
rapidly agriculture could expand with supportive policies from the
GOE.

------------------------
U.S. Assistance in Sinai
------------------------

10. (SBU) USAID is planning a community development project in
north and central Sinai, worth $10 million over the next four years
(2008 - 2011). The project will focus on provision of water,
education, health care, and development of employment and business
opportunities. This project responds to the needs of many of
Sinai's low income communities which lack infrastructure, basic
services and employment opportunities. (Comment: Although the
USAID project is not a specific response to the problems in Sinai
highlighted by bombings in tourist resort over the past few years,
the program will provide a positive alternative to the negative
messages used to recruit Sinai residents into militant activity).
RICCIARDONE

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