Egypt

By pjain      Published March 27, 2021, 6:34 p.m. in blog Geo-Politics   

Economy Current Trends

GDP growth

Socialism Legacy - Stifling rules and regulations

Need arrangements that reconcile the private sector’s goal of maximizing profits with the government’s goal of maximizing social welfare. Economic structural reforms are needed to enhance competitiveness for exports and attract foreign direct investment—building a more conducive business environment, promoting the transparency of rules, and ensuring fair

Creaky Courts system, Crony controlled Rule of Law

Egypt needs speedy settlement of disputes.

Export and Foreign Exchange Needs

  1. Rice Exports (and few other crops) to replace Egyptian cotton in decline

  2. 2015 Project to expand the Suez Canal has not seen significant revenue boost or ROI as cheaper oil has many ships going around. Djibouti port bypassing Suez for East Africa and China's Belt & Road is a major threat as rails might take over.

Rapid Urbanization

  • Since 1950s since Nasser launched major industrialization initiatives, migration places unbearable economic and social stresses on urban areas that are unable to absorb the expanding number of arrivals. Rural development must become a broad national priority, going beyond agricultural development to increasing and expanding rural livelihoods in general. Employment opportunities are scarce in rural areas, driving young graduates to migrate to metropolitan cities and other urban areas in search of employment. More often than not they wind up in the informal sector working in menial jobs not commensurate with their educational background. The random migration, which began when President Nasser launched major industrialization initiatives in the 1950s, places unbearable economic and social stresses on urban areas that are unable to absorb the expanding number of arrivals.

Land Reclamation Projects are Risky and Probably Unsustainable

The government has plans to reclaim one million acres of land to increase agricultural area and thus volume, which will require using non-renewable groundwater for 90 percent of the irrigation needs. But there are questions about the sustainability of drawing on non-renewable water sources.

Ironically, better uses of reclaimed land for expanding Egypt’s services sector and establishing new industrial communities, which would contribute to economic growth and employment opportunities.

There needs to be a significant investment in a reliable road and transportation system that will connect the reclaimed areas with the nearest cities, towns and villages, as well as functional markets. If the government wants farmers to settle on the new lands, it must carefully study how to create well-integrated and self-sufficient new communities—research is needed on the infrastructure to entice these settlers to reside there with their families, and on the upstream and downstream economic activities best suited to complement the new agricultural production.

Poor Logistics

To drive greater exports, especially of perishable goods, the government must ensure reliable road transport networks, proper storage facilities, and efficient export clearance procedures at the ports.

Declining Tourism which was 25% of Exports - beset also by Terrorism

Faltering of the tourism sector, which accounts for almost a quarter of export earnings; government statistics showed a 50 percent decline in tourist receipts from 2010 to 2013. The Central Bank has been rationing foreign currency, but ultimately may wind up having to depreciate the Egyptian pound to avoid depleting reserves. That in turn would make food imports more expensive and trigger inflation.

33% of State Budget blown away in Food and Cheap Fuel subsidies

Claiming to address poverty Egypt has pushed food subsidies. Together, food and fuel subsidies make up close to 10 percent of GDP, or 30 percent of the national budget.

Mismanaged Exchange Rates lead to exportable goods being overpriced in global markets

The Central Bank of Egypt protects Egyptian currency through the use of reserves for the purposes of macro stability and minimizing day-to-day volatility in the exchange rate. However now, the overvalued Egyptian exchange rate has been an obstacle to promoting the exports needed to generate foreign exchange in order to finance food imports.

Net net Egypt’s competitiveness is in decline because the goods it produces are overpriced.

AG : Egypt the Bread Basket to Rome becomes largest importer

Current Severe Situation - Food insecurity

Throughout the 1990s, Egypt imported a little more than one-third of its cereal products including wheat. From 2009 to 2011, however, imports reached an annual average of 44 percent. Since the mid-1990s, Egypt has been among the top three wheat-importing countries; it has been the biggest importer since 2007/2008, an upward trend that seems likely to continue in a country with one of the highest per capita wheat consumption rates in the world. This reliance on wheat and cereal imports to feed an ever-growing population makes Egypt especially vulnerable to international price volatility and supply shocks. Egypt, meanwhile, is more dependent on food imports: since 2000, on average 20% in 2019 of its import bill pays for food products, compared to only around 3% for India (mostly oil seeds, palm oil) and 4% for Brazil.

This is made worse by NOT having enough foreign exchange earnings to finance whatever food imports the nation may require.

Poor domestic food production esp. in Wheat

Egypt’s food security challenges of the availability of food at the national level. Egypt is largely self-sufficient in the production of most agricultural products except for wheat, oil, and sugar. It is great in rice production yields.

Poor access to food at the household level.

Weak targeting of food subsidies is another problem. Studies have estimated that a significant number of those covered by the ration card system are deemed non-poor, while nearly 20 percent of the vulnerable are not covered.

Key Cause : Food subsidies to Prevent Riots - Entitled to Cheap or Free Bread

  1. Socialist FREE food to seduce population to put up with corruption and militarism. Claiming to address poverty Egypt has pushed food subsidies. Together, food and fuel subsidies make up close to 10 percent of GDP, or 30 percent of the national budget. In reality the subsidies act as social safety net to prevent dissatisfaction from boiling over against food price volatility from hoarders, etc. Subsidies have provided relief to millions of Egyptians, especially after the multiple crises affecting food security of the past ten years; for example, avian flu led to the extermination of thousands of poultry, restricting the access of poor households to an affordable and consistent source of protein. Subsidized food represents close to a fifth of the poor’s spending on food. More than 70 percent of Egyptian households use or rely on food subsidies for their dietary intake.

  2. Egyptians see the bread subsidy as a social entitlement, which makes removing it a politically sensitive issue.

Key: Price Controls to curb inflation = Low incentive for marginal farm

  1. Price Controls to curb inflation

  2. Low incentive for marginal farm

  3. Farming is marginal, Low income and increasingly fragmented. Land fragmentation is reducing income potential in agriculture and is thus a threat to traditional farming.

  1. Rapidly rising population to 85m - largest Arab country already and growing at two million people a year. Population density in the past half century has risen from under twenty-nine to more than eighty-two people per square kilometer—an increase of around ten people per square kilometer per decade. The figure takes on more worrisome dimensions when factoring in that the population is concentrated along the Nile on less than 4 percent of Egypt’s total land area.

  2. Mismanaged Exchange Rates lead to overpriced overvalued Egyptian exchange rate has been an obstacle to promoting the exports needed to generate foreign exchange in order to finance food imports. Egypt’s competitiveness is in decline because the goods it produces are overpriced.

Climate change esp. Salinity in Nile Delta

Rising sea levels along the Mediterranean coastline are compacting soil areas and increasing salinity in the Nile Delta, which comprises a large area of Egypt’s high-value agricultural land.

Prospects for deriving higher productivity from Egypt’s traditional farmland along the Nile are limited due to the problems of rising soil salinity and increasing urban encroachment.

Water Scarcity

Egypt’s agricultural sector relies almost completely on irrigation from the Nile—rainfed agriculture in the county is nonexistent. The Nile accounts for more than 97 percent of both Nile and groundwater sources together, of which 85 percent is used in agriculture.

Best Use - Regulation "Free" pricing needs reforms

To make the most efficient use of scarce water resources, the focus should be on producing high-value, high-quality crops and livestock (such as poultry and large animals for dairy) rather than staple crops like wheat and corn.

Gray and Wastewater for agricultural and industrial use

Currently around 50 percent of wastewater is treated, and less than 25 percent of that is reused in agriculture.

There may also be alternatives to relying solely on groundwater depletion for agriculture in reclaimed lands, such as increased water harvesting from rain occurrences and flashfloods, desalination, and improved treatment of wastewater for agricultural and industrial use.

Lack of Water from Ethiopian dam

Changing Nile River flows related to the construction of upstream dams such are a FUTURE threat to Egyptian agriculture. Studies indicate that Egypt will be the country most adversely affected by the dam’s reservoir filling time.

  1. Rapid Encroaching on fertile land. Dwellings and infrastructure needed to accommodate the expanding populace are encroaching on agricultural land, placing constraints on the potential for increasing agricultural production.

Wheat - bread eaten in Egyptian diets needs wheat as staple

Cereals represent Egypt’s most serious shortfall. Throughout the 1990s, Egypt imported a little more than one-third of its cereal products including wheat. From 2009 to 2011, however, imports reached an annual average of 44 percent. Since the mid-1990s, Egypt has been among the top three wheat-importing countries; it has been the biggest importer since 2007/2008, an upward trend that seems likely to continue in a country with one of the highest per capita wheat consumption rates in the world.

Rice has Great Yields

The country’s agricultural yield for rice is among the highest in the world; throughout the past six years, Egypt’s rice yields have consistently surpassed those of the other leading producers, China, India, and Indonesia. This success is due to new crop varieties that produce more rice with less water and land. While some production has been diverted to satisfy domestic demand, Egyptian rice exports have risen steadily since 1980 - partly to pay for other imports including wheat.

Cotton - major Cash Crops declined rapidly

In 30 years cotton exports have declined due to falling global demand for Egypt’s long and extra-long staple cotton—shorter staple cotton is less expensive and, as a result of technological advances, can now be used in fine textile production.

Health

Poor Urban Diet and Nutrition mainly from Subsidies on Narrow foods

Food subsidies have promoted the consumption of an unbalanced diet overly rich in calorie-dense and nutrition-poor foods. Partly this is due to "free" allotted quantities of food choices including bread, cooking oil, sugar, and rice that may have exacerbated malnutrition.

At the household level, a significant public awareness campaign must be launched to promote a more nutritious Egyptian diet. The fact that the stunting prevalence also includes some children in higher income brackets points to the dire need for nutritional education.

Poor Maternal, Neonatal

Programs targeting mothers will be crucial in preventing nutrition deficiencies during the important first thousand days of a child’s physical development. Focusing on better public service delivery can go a long way toward reversing food insecurity at the household and individual levels.

Severe Malnutrition and Child stunting

  1. 35% Egyptian children are stunted

  2. 75% Malnourished Overweight Mothers lead to Stunted babies. Ironically, more than three-quarters of all women above the age of 20 are overweight. One in five stunted children has a mother who is overweight.

The adverse effects of stunting include reduced cognitive development as well as an unhealthy physical development, both of which will ultimately impact not only the individual’s income and well-being but the nation’s economy as a whole. It has been estimated that a 1 percent loss in adult height as a result of childhood stunting translates into a 1.4 percent reduction in economic productivity; income earnings of these individuals tend to be a fifth of those of their healthier counterparts.

  • 1991-2003 anti-stunting campaign. Egypt began experiencing a growth nutrition gap in 2003. The country succeeded in lowering the stunting rate from a little under 35 percent in 1991 to just over 20 percent in 2003. But despite Egypt’s high economic growth rates in subsequent years, child stunting began to rise again—a surprising paradox, given that nations typically see health improvements not reversals as they register economic growth.

  • Infra and Distribution equity a cause. Some of the increase in stunting may be due to recent economic crises and underinvestment in nutrition-related infrastructure and public services.

  • Lack of Health Education is a reason may be a lack of nutritional awareness

  • Egypt a healthy food desert? Access to safe and stable sources of nutritious food is an issue for most of the poor.

Hygiene still an issue - water borne diseases common

More spending on improved water and wastewater infrastructure is necessary in order to reduce chronic occurrences of diseases such as diarrhea that exacerbate micro nutrient deficiency in children.

Politics Current

Political Cronies dominate economy since 1950s

US Ally - Subsidies, large Aid packages to buy peace with Israel

Timeline

50s Nasser - Ag price controls, urban bias

1950s, President Gamal Abdel Nasser’s attempt to abolish feudalism and tackle inequality led to cronyism throughout the agricultural sector. His agricultural price controls and urban bias in investment further crippled incentives for small farmers.

1970s Sadat Era

  • 1977 food subsidy reforms. President Anwar Sadat eliminated the bread subsidy in 1977; the move triggered riots, and was quickly reversed.

In the Sadat era, the migration of workers to oil-boom Gulf countries disrupted the agricultural and other labor markets; greater urbanization increased food subsidies and food imports; and land fragmentation (due to inheritance customs) and worsening drainage sent agricultural sector growth rates into decline.

Mubarak

President Hosni Mubarak eased or even removed price and quantity controls from strategic crops, and opened agriculture to the private sector; yet the growing population, urban bias, rampant cronyism, and worsening public service delivery continued to threaten Egypt’s food security.

2014+ El-Sisi

  • 2014 tweaks - ration card value not item allocation. President Abdel Fattah El-Sisi has initiated new reforms to the food subsidy system especially covering the baladi bread favored by the Egyptian masses. Though still priced at five piasters a loaf, it is now a part of a ration card system under which beneficiaries are entitled to up to 150 loaves a month. The new system eliminates quantity-based quotas for subsidized food items. Instead, beneficiaries receive a monthly cash allotment on a smart card, which can be redeemed for any of the subsidized commodities in any of the available packaged units. The change may have a positive effect on dietary habits, as it reduces—but does not fully remove—the considerable economic incentives that promoted the consumption of an unbalanced diet.

References


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