Economy of Egypt

Egypt’s economy depends mainly on agriculture, media, petroleum exports, and tourism; there are also more than 5 million Egyptians working abroad, mainly in Saudi Arabia, the Gulf area like UAE, and Europe. The United States as well has a large population of Egyptian immigrants.

The completion of the Aswan High Dam in 1971 and the resultant Lake Nasser have altered the time-honored place of the Nile River in the agriculture and ecology of Egypt. A rapidly-growing population (the largest in the Arab world), limited arable land, and dependence on the Nile all continue to overtax resources and stress the economy.

The government has struggled to prepare the economy for the new millennium through economic reform and massive investments in communications and physical infrastructure, much financed from U.S. foreign aid (since 1979, an average of 2.2 billion dollars per year). Egypt is the third-largest recipient of such funds from the United States following the Iraq war.

Economic conditions are starting to improve considerably after a period of stagnation due to the adoption of more liberal economic policies by the government, as well as increased revenues from tourism and a booming stock market. In its annual report, the IMF has rated Egypt as one of the top countries in the world undertaking economic reforms.

Overview

A series of International Monetary Fund arrangements, coupled with massive external debt relief resulting from Egypt’s participation in the Gulf War coalition, helped Egypt improve its macroeconomic performance during the 1990s. Through sound fiscal and monetary policies, Cairo tamed inflation, slashed budget deficits, and built up foreign reserves. Although the pace of structural reforms, such as privatization and new business legislation, has been slower than the IMF envisioned, Egypt’s steps toward a more market-oriented economy have prompted increased foreign investment.

Lower combined hard currency inflows - from tourism, worker remittances, oil revenues, and Suez Canal tolls - in 1998 and the first half of 1999 resulted in pressure on the Egyptian pound and sporadic dollar shortages, but external payments were not in crisis.

Despite ample reserves, the Central Bank did not provide sufficient hard currency to commercial banks and Cairo restricted imports for a short period; these developments confirmed to some investors and currency traders that government financial operations lack sufficient coordination and openness. Monetary pressures have since eased, however, with the continued oil price recovery starting in mid-1999 and a moderate rebound in tourism. Increased gas exports are a major plus factor in future growth.

Economy: in greater detail

Under comprehensive economic reforms initiated in 1991, Egypt has relaxed many price controls, reduced subsidies, and partially liberalized trade and investment. Manufacturing is still dominated by the public sector, which controls virtually all heavy industry. A process of public sector reform and privatization has begun, however, which could enhance opportunities for the private sector. Agriculture, mainly in private hands, has been largely deregulated, with the exception of cotton and sugar production.

Construction, non-financial services, and domestic marketing are largely private. This has promoted a steady increase of GNP and the annual growth rate. Among Arab countries, Egypt’s GDP is second only to Saudi Arabia’s. However, the Egyptian economy relies heavily on tourist revenues. The tourism sector suffered tremendously following a terrorist attack on tourists in Luxor in October 1997, and the September 11, 2001 attacks against the United States, affecting the economy as a whole.

Agriculture

Approximately one-third of Egyptian labor is engaged directly in farming, and many others work in the processing or trading of agricultural products. Practically all Egyptian agriculture takes place in some 25,000 km² (6 million acres) of fertile soil in the Nile Valley and Delta. Some desert lands are being developed for agriculture, including the ambitious Toshka project in Upper Egypt, but some other fertile lands in the Nile Valley and Delta are being lost to urbanization and erosion.

Warm weather and plentiful water permit several crops a year. Further improvement is possible, but land is worked intensively and yields are high. Cotton, rice, wheat, corn, sugarcane, sugar beets, onions, and beans are the principal crops. Increasingly, a few modern operations are producing fruits, vegetables and flowers, in addition to cotton, for export. While the desert hosts some large, modern farms, more common traditional farms occupy one acre (4,000 m²) each, typically in a canal-irrigated area along the banks of the Nile. Many small farmers also have cows, water buffaloes, and chicken, although larger modern farms are becoming more important.

The United States is a major supplier of wheat, corn, and soybean products to Egypt, almost all through commercial sales. Egypt is, in fact, the U.S.’s largest market for wheat sales. U.S. agricultural sales to Egypt total USD 1 billion annually. U.S. food assistance programs to Egypt ended in 1992 as Egypt became more prosperous. Egypt continues to receive modest food assistance through the World Food Program and from France.

“Egypt,” wrote the Greek historian Herodotus 25 centuries ago, “is the gift of the Nile.” The land’s seemingly inexhaustible resources of water and soil carried by this mighty river created in the Nile Valley and Delta the world’s most extensive oasis. Without the Nile, Egypt would be little more than a desert wasteland.

The river carves a narrow, cultivated floodplain, never more than 20 kilometers wide, as it travels northward toward Cairo from Lake Nasser on the Sudanese border, behind the Aswan High Dam. Just north of Cairo, the Nile spreads out over what was once a broad estuary that has been filled by riverine deposits to form a fertile delta about 250 kilometers wide (150 mi.) at the seaward base and about 160 kilometers (96 mi) from south to north.

Before the construction of dams on the Nile, particularly the Aswan High Dam (started in 1952, completed in 1970), the fertility of the Nile Valley was sustained by the water flow and the silt deposited by the annual flood. Sediment is now obstructed by the Aswan High Dam and retained in Lake Nasser. The interruption of yearly, natural fertilization and the increasing salinity of the soil has been a manageable problem resulting from the dam. The benefits remain impressive: more intensive farming on thousands of square kilometres of land made possible by improved irrigation, prevention of flood damage, and the generation of millions of gigajoules of electricity at low cost.

The Western Desert accounts for about two-thirds of the country’s land area. For the most part, it is a massive sandy plateau marked by seven major depressions. One of these, Fayoum, was connected about 3,600 years ago to the Nile by canals. Today, it is an important irrigated agricultural area.