Countries of the World/COUNTRYS.BIN/dp/0120/01207.txt

Text File | 1991-06-25 | 32KB | 504 lines

$Unique_ID{COW01207}
$Pretitle{243}
$Title{Egypt
Chapter 3A.   The Economy}
$Subtitle{}
$Author{Darrel R. Eglin}
$Affiliation{HQ, Department of the Army}
$Subject{percent
economic
government
growth
economy
foreign
plan
investment
policy
early}
$Date{1982}
$Log{Limestone Tablet*0120701.scf
}
Country:     Egypt
Book:        Egypt, A Country Study
Author:      Darrel R. Eglin
Affiliation: HQ, Department of the Army
Date:        1982

Chapter 3A.   The Economy

[See Limestone Tablet: Senwosret (Kheperkare) and god Min. Sunken relief on
limestone with hieroglyphs.]

     Writers from time immemorial have remarked on Egypt's fertility. By
the 1980s it applied as much to the inhabitants as to the land, however. A
rapidly expanding population, on the order of 3 percent a year, resulted in a
more densely packed people on the thin ribbon of the Nile Valley than in
almost any other nonurban area in the world. Some years ago the people began
to out-produce the land. Increasing amounts of food had to be imported into
what had been a granary in Roman and more recent times. The land remained
fertile and responsive to care; high yields were obtained compared with many
countries, but more was needed. The land was capable of it, which was
fortunate because additional cultivable acreage had proved difficult to
obtain.

     For more than a century and a half Egyptians have been developing
additional sources of income and employment. An industrial base was built
capable of producing a range of mainly consumer products, even though most of
the larger plants were neither as productive nor as efficient under public
sector management as had been hoped. In contrast the Suez Canal was
efficiently run by a nationalized company, earning valuable foreign exchange.
Various constraints, internal and external, limited the economy's development,
however. In 1980 the total output of goods and services (gross national
product) amounted to about US$23.4 billion-US$550 on a per capita basis. This
reflected an economy with a relatively low standard of living; the government
three decades earlier had made a social contract to help the more
disadvantaged of the population and to work toward a more equitable
distribution of income.

     Since the mid-1940s several wars and constant threats of war affected
the allocation of resources and economic policy. After the October 1973 War,
President Anwar al Sadat set in motion developments that led to a peace treaty
with Israel and a substantial relinking of Egypt to the world economy. The
policy changes greatly reduced Egypt's balance of payments constraints and
promoted a high rate of economic growth into the early 1980s. There were
pluses and minuses as the dynamic situation unfolded, but Sadat's policies
bought time for the various aspects of the economy to adjust and become more
productive.

     In the early 1980s the economy, under a new president, Husni Mubarak,
was at a crossroads. Some variables could change but slowly in the 1980s.
Population and labor force growth could be affected little for a decade or
two. Arable land could be expanded slowly at best. Increasing amounts of foods
would almost certainly have to be imported, and later in the century crude
oil-and in the longer run nuclear power plants-may also need to be imported at
substantial costs. Other variables were less fixed; they could be changed
by policy and investment decisions. The questions of the 1980s were how well
the government chose policies and how effectively they were implemented to
increase investment and production. If economic management and policy
selection were good, the country's economic prospects were good. If the policy
choices proved inadequate, the government would probably be faced with
deteriorating economic conditions that a long-suffering citizenry might no
longer find tolerable.

Structure and Growth of the Economy

     Egypt's modern economic development began in the early 1800s. The shift
from a subsistence economy followed the introduction of modern irrigation,
cultivation of long-staple cotton for world markets, and some
industrialization. Economic growth was rapid and substantially higher than
population growth throughout the century (see Muhammad Ali and the Nineteenth
Century, ch. 1).

     Agriculture was the primary growth sector, built on an export boom for
long-staple cotton. Although experts disagree on exact figures, between 1820
and 1880 the cultivated area increased by more than 50 percent and the
cropped area (including acreage with multiple cropping) by nearly 90 percent.
Agricultural production increased about twelvefold in this period and about
sixfold on a per capita basis. Cotton production accounted for much of the
growth in agriculture, increasing more than eighteenfold in the sixty
years. The rate of growth of the agricultural sector slowed in the last two
decades of the nineteenth century but still remained impressively high.

     The export boom caused extensive investment in, and growth of, the
transport and financial infrastructure. Railroads, canals, and harbor
facilities were developed to facilitate cotton shipments to markets aboard.
Elementary cotton-processing facilities, such as gins and balers, as well as
banks, insurance companies, and other commercial firms, were established as
part of cotton marketing. Foreigners dominated this activity, stimulating
construction, housing, and utilities in Alexandria and Cairo, where most
foreigners lived.

     Industry did not share in the economic expansion of the 1800s. A
commercial treaty in 1838 with Britain that fixed a very low tariff on
foreign goods imported into Egypt made it nearly impossible for local
industry to compete. The British occupation in the 1880s further hampered
development of industry. By 1900 most of the country's industry either
was protected by high transportation costs, such as building materials and
sugar, or was a utility, such as electric power.

     An increasing foreign indebtedness accompanied the economic growth of the
late 1800s. The khedives (viceroys of the Ottoman sultan) contracted a large
part of the debt, only a portion of which became available for actual use
because of discounts, large commissions, and other subtractions from the
amount the treasury received. The khedives were not always prudent in their
use of public money. During this period foreigners also made substantial
direct investments in Egyptian enterprises. Repayment of foreign obligations
had become large by the 1880s, draining off potential investment funds
generated by the export boom. Only a portion of the borrowed funds had gone
into productive investments, and debt repayments continued to be a drag on
economic development during much of the first half of the twentieth century.

     The period of rapid economic growth ended in the early 1900s. The supply
of readily available arable land had been largely exhausted, and multiple
cropping, concentration on cotton cultivation, and perennial irrigation had
lessened the fertility of the soil. Cotton yields fell in the early 1900s and
did not recover to the level of the 1890s until nearly 1940. Investments
in fertilizers, pesticides, drainage, and improved seeds were necessary to
achieve a recovery in cotton yields.

     The problems of cotton production were reflected in the whole
agricultural sector. The estimated production of the eight major crops
increased only 40 percent between 1900 and 1950 while the population
increased about three times as fast. Since agriculture dominated the
economy, overall economic growth was low. Economic studies of this period
of Egypt's economic history revealed that the real gross national income
per capita probably declined about 20 percent between the early 1900s and
1945, caused by a fall in per capita production and an adverse trend in the
terms of trade.

     In contrast to agriculture, industry began a rapid expansion in the
late 1920s, but because it started from such a low base, industrialization
had only a small i