Egypt - Remittances

Remittances

The coincidence of the infitah and the upward jump in oil prices in the mid-1970s led to enormous labor emigration to the oil-producing Arab states, as well as to what became the largest source of foreign exchange: remittances. Egyptians had already been working in many of these countries but only in small numbers and usually as professionals and skilled workers. The sums they sent back home were modest; in 1970 recorded remittances were estimated at around US$30 million.

In 1986 the government estimated the number of Egyptians working abroad at 3 million. They included large numbers of unskilled workers, but there were also many skilled workers or professionals. Iraq hosted the largest number, sometimes estimated at 1 million. In part, the flow of Egyptian workers into Iraq was stimulated by its war with Iran, which required the drafting of large numbers of men of working age. The overall number of Egyptians working in Arab countries was thought to have decreased as a result of the drop in oil prices in the second half of the 1980s.

Analysts disagreed on both the amount and the actual impact of remittances on the economy. For instance, remittances were estimated in the early 1980s at between US$3 billion and US$18 billion. The reason for the discrepancy was that workers often remitted earnings to their families by hand, not through official banking channels. They were prompted to do so by the instability and official overvaluation of the Egyptian pound and by the fact that many workers were illiterate or had limited education and felt uneasy dealing with banks.

The avoidance of official routes gave rise to a hidden or invisible economy, controlled by intermediaries and money dealers who profited from exchange-rate differentials. Some analysts suggested that the presence of this economy, depending on its size, might invalidate calculations about such factors as the balance of payments, the GDP, and the government's ability to carry out particular exchange policies.

Recorded remittances fluctuated over time, not always reflecting the income of expatriate workers. According to some estimates, remittances fell to about US$1.94 billion in 1982, from about US$2.86 billion in 1981. The decline was probably caused by the uncertainty generated by the assassination of Sadat in 1981. Remittances recovered subsequently and in 1984 reached approximately US$3.93 billion, a record high. The combination of instability in the Persian Gulf and the collapse in oil prices caused remittances to fall again; in 1988 they stood at about US$3.39 billion.

Egyptian analysts and policy makers believed that a large pool of savings kept by migrant Egyptian workers and others either flowed abroad or never flowed home and that it vastly exceeded remittances. The sums they cited ranged from US$40 billion to US$70 billion. Attracting these funds to improve the balance of payments position might require improving the investment atmosphere and opportunities, raising interest rates, and simplifying exchange transactions. As one incentive, the government in 1986 offered tax exemptions on bonds it intended to sell in foreign exchange.

The future of remittances depended on many factors. In Iraq stirrings surfaced in late 1989 against the presence of large numbers of Egyptian workers. The events prompted high-level contacts between the two governments and the intervention of the Iraqi president to reassure the workers. In addition, because the construction boom in the Persian Gulf had ended, the Gulf countries, for social, political, and economic reasons, would hesitate to welcome many newcomers. According to one estimate, remittances could perhaps grow at a real annual rate of 1 to 2 percent after 1990.

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