The Economy of Egypt

By | April 26, 2021

we first need to take a look at the


country’s history


how did egypt’s history shape its


economy in the aftermath of the second


world war


egypt was a monarchy but things would


quickly change


in 1952 when a coup by military officers


established the modern republic up until


then the private sector had accounted




97 of gdp and a similar proportion of




something which was going to change very




you see throughout its history egypt has


often found itself


a key regional player given its


substantial population


and strategic location at the core of


this is the suez canal


initially completed in 1869 it is the


fastest way to sell from europe to asia


reducing the journey from london to


mumbai by four and a half thousand miles


or about forty percent arguably making


it one of the world’s greatest shortcuts


importantly for our story at the time of


the revolution


it was owned and operated by the sewers


canal company


whose major shareholders were no less


than britain and france


yet ownership of the mega project and in


fact the whole economic structure of




would change through the delivery of


another mega project


the azwan dam this was an ambitious




to finally control the unpredictable


flow of the nile river


which supplies a staggering 90 of


egypt’s water


with approximately 95 percent of the




living by its banks now this crucial




was meant to be funded by the u.s


britain and the world bank


however following the revolution there


were growing concerns


over its government’s cold war


allegances resulting in funding being




in 1956 and in response egypt decided to


nationalize the suez canal


using the valuable foreign currency


revenue it generated to not only finance


the new dam but


also team up with the soviet union who


built it playing one cold war power


off against another as a side note this


didn’t go unnoticed


leading to the suez canal crisis an


ultimately failed military invasion by


britain france and israel


but that’s a different story altogether


the key point


is that nationalizing the canal was a


crucial turning point


for egypt’s economy after which the


state really started to play


a much larger role establishing


state-owned enterprises


an industrialization plan and even


widespread nationalization


of foreign property it was the


industrialization plan though


which proved to be fundamental you see


the plan


intended for the government to finance


heavy industry with the private sector


funding light industry


yet the results were underwhelming so to


help boost investment


the government developed an elaborate


system of price controls


particularly for agriculture using the


system to take profits


it would use to finance


industrialization as well as passing a


series of laws


forcing companies to buy government


bonds these laws were also




so when certain banks and institutions


failed to deliver on government




they were nationalized handing further


control to the government


by the 1960s the country for the first


time in its history


had developed its own 10-year economic


plan aiming to double gdp


within a decade split between two


five-year plans


the first period saw gdp rise by 30




pretty good until you consider its low


starting point and the anticipated 45




it was meant to achieve in the first


five years however


when it came to the second five-year


plan this ended up being largely




due to conflicts with israel essentially


turning its economy


into a wartime one with hundreds of


thousands of conscripts


military spending accounted for a


staggering 17


of gdp in the early 70s culminating


in an economic model which was clearly


unsustainable the nation


had to open up its economy or face


financial oblivion


which to be fair it did start to do in


the late 70s


through the so-called open door policy


the trouble though


was that open market policies were never


truly embraced


a theme we’ll see later on in the video


realistically speaking


the economy of the time did and to a


degree still does


rely on four main sources of income the


first is oil revenues through its


state-owned companies


the second the development of its


tourist sector certainly not a pyramid




the third being traffic flowing through


the sewers canal


and finally remittances from egyptians


working abroad


but what about local businesses with


global ambitions


well whilst open door policies existed


on paper


the finances didn’t always lend support




were largely hampered by an overvalued




making international competitiveness


even more difficult


a factor making a big appearance later


on as well back in the 1970s if you looked at the


economic growth data


this was somewhat misleading the devil


was in the detail


economic issues were reflected through


its high level of international debts


balance of payments problems and rising




so in order to solve this the government


decided to change strategy


it resorted to old habits


re-implementing five-year plans


with a focus on those core income


generating strategies


we mentioned earlier unfortunately for


the nation


this failed to remedy its underlying


structural issues


abandoning them for a much more


market-orientated approach


during the 90s and 2000s yet it’s


important to stress


how the economy’s structural issues were


never fully addressed in the process


sure over the decades egypt did make


some progress


with the share of agriculture falling


from 28


in 1974 to 11 today and services


rising to more than half of gdp though


largely low skilled ones


with the majority of the labor force


working in the informal sector


in fairness though industrialization did




but was dominated by the extraction of


natural resources


as opposed to the much prized heavy good




reflecting issues which all fueled


2011’s revolution


leading us on to the next section how


did the arab spring


impact the economy like many countries


in the region


there were high hopes that 2011 would


lead to a brighter economic future


unfortunately the political instability


in the process


dealt a huge blow to the tourist sector


a key source of foreign currency


tourism wasn’t the only sector to suffer


foreign direct investment


also collapsed and whilst it did begin


to recover


progress was slow a common trend as most


economists have highlighted


the slow place of economic reform


representing factors


which failed to improve the chronically


high unemployment and rapidly rising


costs of living


leading to a further change in


government as the military took control


though despite the change in government


egypt’s macroeconomic outlook


continued to decline for years the


country had run huge deficits


to compensate for its underperformance


poor results


partly driven by an overvalued currency


one the central bank had been defending


through its ever-dwindling foreign


currency reserves


by 2016 the country’s debts had reached


such unsustainable levels


it was forced to turn to the imf for a


12 billion dollar bailout


raising an important question what


economic impact


did egypt’s imf bailout have as is


typical with imf loans


this was conditional upon a series of


structural forms


perhaps the greatest being the floating


of its currency


which immediately declined by a shocking


50 percent overnight


now to be fair this decline was in the


official exchange rate the majority of


egyptians had been using the unofficial


black market one


for a very long time a product of a dire


shortage of foreign currencies and heavy




on their use way before such a


significant decline


even in the official rate had severe




for example the rate of inflation rose


and eye watering 30


the following year with interest rates


rising to almost 20 percent in response


representing a huge blow to the cost of


living so why undertake the devaluation


well it helped increase exports and


improve the nation’s balance of payments


both fundamental to avoiding further


bailout egypt’s inflation


is also looking a lot better compared to


where it was just a few years ago


declining to its lowest level in more


than a decade as well as other


macroeconomic indicators


showing positive signs despite saying


all of this


substantial issues remain what are




main economic challenges even before its




the country was struggling with high


rates of poverty an


estimated quarter of the population live


on less than 3.20 per day


austerity cuts particularly to food and


fuel subsidies


have hit the poorest hardest you see


for decades egypt has directly


subsidized food


more than 60 of the population received


bread rations


in the form of something called baladi


bread at a fixed price


which has been unchanged for decades


although the size of the bread has


recently shrunk


in fact egyptians consume more bread per




than anyone else in the world at an


estimated 180


to 210 kilograms per year


compared to the 60 to 70 kilogram global




levels many people take to be a sign of


financial distress


lacking a balanced diet this is also


linked to why egypt


is the largest importer of wheat in the


world to give you some context


the cost of bread and food ration cards


half percent of gdp


with subsidies in general accounting for


a quarter of government spending


in recent years however a big strain on


government spending


has also been rising interest rates


repayments on its debt


equate to more than a third of


government revenue raising questions


over whether egypt


has actually fallen into a classic debt


trap unable to ever earn enough


to fully pay off its debts in addition


to this


the improvements seen in its foreign


reserve currency levels have been


criticized as being misleading


whilst it’s true they have increased a


large proportion of this


is actually borrowed money questioning


how much of a benefit this really is


but perhaps its biggest challenge lies


in its geography


unlike microstates which are swimming in


oil egypt has the largest population in


the arab world


almost entirely restricted to the banks


of the river nile


with 95 percent of the country living on


four percent of the land


the remainder being largely desert with


a rapidly growing population


already crowded cities are continuing to




so does egypt have a plan well


yes for all its economic problems it’s


currently planning or building including the new administrative capital


intending to house the new parliament


and most government agencies its central


business district


will also be filled with skyscrapers


including the tallest building in africa


iconic tower to be honest it’s fair to


say that the country is going through a


construction boom


at least concerning skyscrapers


according to a 2019 deloitte report


it had the highest number and value of


construction projects of


any african nation creating hundreds of


thousands of jobs


and attracting much needed investment


though one mega project


may also be its biggest economic threat


the grand renaissance dam of ethiopia


is set to slow the flow of water through


the nile as it fills a reservoir


larger than the size of greater london


posing a risk to egypt’s water security


over the estimated four to seven years


it will take to fill


on the other hand the hydroelectricity


generated is aiming to offset chronic


power shortages


in both ethiopia and its upstream


neighbors presenting if nothing else


just one other challenge egypt will have


to overcome if it is to ever truly


thrive so overall


we can’t help but notice that egypt has


experimented with more than its fair


share of economic policies


shifting from a private to a state-run


development model in the 50s and 60s


attempts to open its economy were often




resulting in an underwhelming


performance a common theme through all


of this


has been its macroeconomic instability


one which revolutions


largely failed to address whilst the


country’s more recent performance


has shown some positive improvement deep


structural flaws remain


including concerns over its governance


and levels of corruption


ranking 117th out of 180 countries on


the corruption index


a sign of the significant issues the


nation needs to address


to unlock its true potential and now


it’s over to you do you think egypt’s


economy shows promising signs


has its imf bailout set it on a better


path can it continue to diversify its



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