Economics · May / June 2017 · Paper 21 · Question 1

The New Suez Canal In August 2015 the Egyptian Government opened a second Suez Canal, alongside the original canal, to enable more and larger ships to sail from the Mediterranean Sea to the Gulf of Suez. It cost more than US$8 billion to build, with land having to be purchased, capital equipment acquired and wages paid to the workers building the canal. This was at a time when there were calls for increased spending on healthcare, in particular improving the quality of public hospitals and improving education, especially adult literacy. The Egyptian Government believes that the canal will attract more ships, both those carrying goods and those carrying people. The number of goods and people using sea transport is influenced by a variety of factors. These include the speed of the transportation, the level of economic activity and the price of other forms of transport. Some goods have to be transported quickly, and recent years have shown how sensitive demand for sea transport is to recessions and economic booms. Fig. 1 shows how the market for sea transport has recently been affected by the change in the market for air transport. S price of sea transport P1 P2 D1 D2 O Q2 Q1 quantity of sea transport Fig. 1 The market for sea transport The Egyptian Government is hoping that new industries connected to the shipping industry will be built along the canal. Developing infant industries may help to reduce the country’s unemployment rate, which in 2015 was 12.5%. In 2015, the country had a population of 90 million, a population growth rate of 1.5% and a labour force of 28 million. Its death rate was falling. The government’s spending on healthcare was equivalent to 4% of Gross Domestic Product (GDP). 2015 also saw GDP at US$280 billion with an economic growth rate of 5%.

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