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