Egypt - The Economy

The economy

FROM THE 1850S UNTIL the 1930s, Egypt's economy exhibited a classic Third World dependency syndrome, the essence of which was reliance on the export of a single, usually primary, commodity. In the case of Egypt, the commodity was long-staple cotton, introduced in the mid-1820s during the reign of Muhammad Ali (1805-49), and made possible by the switch from basin to perennial, modern irrigation. Cotton cultivation was a key ingredient in an ambitious program that the Egyptian ruler undertook to diversify and develop the economy.

Another such ingredient was industrialization. Industrialization, however, proved for various domestic and external reasons to be less than successful, and until the 1930s, virtually no industrial build-up occurred. The failure of industrialization resulted largely from tariff restrictions that Britain imposed on Egypt through the 1838 commercial treaty, which allowed only minuscule tariffs, if any. The isolated industrial ventures initiated by members of Egypt's landed aristocracy, who otherwise channeled their investment into land acquisition and speculation, were nipped in the bud by foreign competition. The few surviving enterprises were owned by the foreign community. These enterprises either enjoyed natural protection as in the case of sugar and cotton processing, or benefited from the special skills that the foreign owners had acquired, as in the case of cigarette making by Greeks and Turks.

The beginnings of industrialization awaited the depression of the late 1920s and 1930s and World War II. The depression sent cotton prices tumbling, and Britain acceded to Egyptian demands to raise tariffs. Moreover, World War II, by substantially reducing the flow of foreign goods into the country, gave further impetus to the establishment of import-substitution industries. A distinguishing feature of the factories built at this time was that they were owned by Egyptian entrepreneurs.

In spite of the lack of industrialization, the economy grew rapidly throughout the nineteenth century. Growth, however, was confined to the cotton sector and the supporting transportation, financial, and other facilities. Little of the cotton revenues was invested in economic development. The revenues were largely drained out of the country as repatriated profits or repayments of debts that the state had incurred to pay for irrigation works and the extravagance of the khedives.

Rapid economic growth ended in the early 1900s. The supply of readily available land had been largely exhausted and multiple cropping, concentration on cotton, and perennial irrigation had lessened the fertility of the soil. Cotton yields dropped in the early 1900s and recovered to their former level only in the 1940s, through investments in modern inputs such as fertilizers and drainage.

The fall in agricultural productivity and terms of trade led to a stagnation in the per capita gross national product (GNP) between the end of World War I and the 1952 Revolution: the GNP averaged �E43.0, in 1954 prices, at both ends of the period. By 1952 Egypt was in the throes of both economic and political crises, which culminated in the assumption of power by the Free Officers.

For more recent information about the economy, see Facts about Egypt.

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