Mining to overtake tourism as Egypt main revenue source?
Joseph Mayton Middle East Times
CAIRO -- Tourism has long been Egypt's most lucrative source of income, but that could change in the near future with the discovery of immense deposits of minerals, including gold, in the Eastern desert near the Red Sea coast.
A representative of Centamin, a junior mining corporation from Australia, recently confirmed to the Middle East Times the existence of at least £E21-billion ($3.7-billion) in proven gold reserves in one area of the desert's six hills alone.
According to Sami Al Raghy, Centamin founder and chairman, mining could take over as the primary revenue-generating sector in Egypt's economy, with up to £E60 billion ($10.5 billion) per year in income.
Despite what could potentially be the nation's most lucrative endeavor since the Ptolemaic era - 95 percent of Egypt's gold mining occurred during the time of Pharaohs - difficulties have arisen that have not allowed the largest companies to enter the exploration stages.
Frank Sader, chief strategist and senior operations manager at the International Finance Corporation (IFC), told the Middle East Times, that current regulations are archaic and do not provide an environment tempting enough to secure the millions of investment dollars necessary from larger corporations, in what could turn out to be not as optimistic a venture as early signs indicate.
"The existing legal framework is relatively old, and in fact, the framework has never been designed for mining, so we are helping to create a policy for Egypt and mining companies," Sader, who is leading the project to create a new framework for mining in Egypt, says.
This is the major drawback for mining companies to enter Egypt. Currently, the policy of the Egyptian government is based on revenue sharing and joint ventures, which are not common within the mining industry across the world. This, in turn, has limited interest to engage in exploration to see if Centamin's optimism is well-founded, Sader argues.
"Their current thinking is 'why bother with the current framework.' Through the establishment of a new framework it will allow companies to move in and establish their own exploration of the area."
That is where the IFC comes in. Sader and his team are currently reassessing the present mining code and the national mining strategy in order to help establish a new code and strategy for mining projects that is Egyptian, as well as in line with standard norms within the mining community worldwide.
The IFC hopes to have a new code and strategy completed by the end of this year with the goal of presenting it to parliament for approval.
"New laws create uncertainty," Sader continues, "so we have to educate members of parliament on what a new code would give Egypt, such as royalty issues, taxes, and revenue-sharing as well as other fiscal issues. MPs are going to want to make sure that Egypt is getting a proper percentage of money from mining companies, which is understandable, so it is a major challenge to educate them on worldwide norms."
Despite the current hurdles that must be overcome, the overall atmosphere is optimistic that the end of 2007 will see a new code and mining companies should begin to enter the market sometime in 2008.
Sader points out that mining will benefit Egypt in many ways, not simply monetarily. Mining operations will create thousands of jobs, making available a skill base that Egypt currently does not have, such as new engineers.
"It is simply too expensive to bring in foreigners for all jobs necessary for everything, so Egyptians will need to be trained. That will bring new skills to many Egyptians," Sader adds.
"We will be directly employing around 4,000 people during the construction phase," Esmat El Raghy, field director at one of Centamin's sights in the desert, recently told Egypt's online monthly Business Today. "For every person we directly employ there will be three more indirectly in terms of logistics and support operations."
Centamin is currently building an entire city in the desert that will house the workers at the mines. Roads are also being built to support the mining community and it is expected that thousands of Egyptians will flock to the new area in search of jobs.
"It is exciting to see that this whole project will create numerous jobs outside the capital," Sader says.
The mining industry in Egypt could become the nation's top source of Gross Domestic Product (GDP), but it depends on whether the IFC, led by Sader, can work with the Egyptian government to create a framework allowing larger corporations to enter the Egyptian mining market.
The World Bank estimates that if current assessments are correct, mining could increase Egypt's GDP by at least 2 percent, and possibly as much as 5 percent.
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