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 As it was then...
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Egypt was not always a third world country. It’s been the cultural and economic hub of the Middle East region more than once; the New York, Paris or Dubai of its time. It flourished in pulses under the pharaohs, Romans, Arab Fatimids, and Turkish Mameluks. During King Farouk’s rein, its high society famously glittered.
Unfortunately, ostentation is symptomatic of a long Egyptian problem. Upper classes live in opulence while the peasants and their urban relatives, i.e., 75% of the population, live in poverty.
Egypt was and is a fiefdom[i]. And, in the last couple of hundred years, its modern period, it hasn’t been that blessed by its liege lords.
Mohammed Ali 1805-1954
Mohammed Said Pasha 1854-1863
Ismail Pasha 1863-1869
British Colony 1883-1907
War Years: 1914-1945
Gamal Nasser:1954-1971
Anwar Sadat: 1971-1981
Hosni Mubarak: 1981-present
PHASE I: 1805 –1954
The Mohammed Ali Dynasty: Modernize, make money and blow it.
Not to say that Mohammed Ali Pasha, Egypt’s first modernizing leader didn’t lay some good foundations for Egypt’s future -- establishing state schools, a hospital, roads and canals, factories, and a shipbuilding foundry. Although geared to serve the Pasha’s military ambitions (he wanted the Levant), the projects updated the institutional face of the country.
Promising too, was his reorientation of Egypt’s agriculture to long-staple cotton, a new cash crop, which the British fed to their ravenous textile mills. In keeping with feudal tradition, however, the Pasha bought all the crops, sold them at a considerable mark-up and kept the profits for himself.
Finally, introducing a family tradition which would, in the end, siphon off enormous quantities of Egyptian wealth, he started importing things European. Mohammed Ali Pasha pursued French science and culture eagerly, spending lavishly on marble columned buildings, objects d’art, Louis IV furniture, and expensive colognes. He sent hundreds of elites to study in France and imported Frenchmen to rebuild Egypt in the European fashion.
(Note: Around the time this Pasha came into power, Napoleon’s people produced the Description de l’Egypt, the world’s most comprehensive record of Egyptian land and monuments, and Paris blushed with Egyptomania – thus raising the question of who was appropriating whom.)
By the time of Mohammed Ali’s death, and due to the expenses of war, a downturn in the cotton market and foreign extravagances, the man and the country were deeply in debt.
Effect on Egypt's economy: 
Sober and scientific where his uncle Mohammed Ali was ambitious and extravagant, Said Pasha pursued good governance. He shifted some of the burden of taxation from the peasants to the landowners, confiscated sheiks’ lands & promoted municipal codes. On the economic front, he cultivated both the English and the French; building railroads for the former’s trade with India and investing heavily in the French project of building of the Suez Canal. While neither paid off during his rule (he would sell Egypt’s shares of the enterprise back to the French) both added long term economic value to the country. See our photojournal.
Effect on Egypt's economy:
Is
ma’il Pasha, the “Magnificent”(or was it “Extravagent?”)
Ruled 1863-1869
It was Mohammed Ali’s grandson, the Khedive Ismail, who bankrupted the country: First with his military campaigns (he coveted what is now Sudan, Ethiopia and Eritria) and then by financial incompetence and frenzied spending.
Like his forbearers, he also made lasting improvements: a vast expansion of railways, lighthouses, and post offices; he modernized customs procedures and established a (quickly passing) Assembly of Delegates. Momentarily flush with cash from cotton sales (America dropped out of the market during its Civil War), he bought back Egypt’s shares in the canal at a considerable loss.
When the price of cotton tanked, even when his own money (routinely mixed with that of the country) had spirited away, Ismail kept spending. To keep canal construction going, he forced peasants off the land and into work gangs, thus undercutting agricultural production and profits.
Undeterred, he borrowed from London bankers to emulate the great parks, buildings and palaces of Europe. He envisioned a “Paris on the Nile” for the opening of the Canal in 1864, and built, among other amenities, a brand spanking new private palace for the Princess Eugenie of France to occupy during her stay. Today it is the Marriot Hotel.The British, biding their time until the numbers were in their favor, made a bad debt good by forcing Egypt to sell England its shares in the canal, once again at a considerable loss. Egypt became a defacto colony
reduced to selling cotton to England and buying overpriced British manufactured goods in exchange.
Effect on Egypt's Economy:
PHASE II: 1883-1907
Defacto British Colony: Stabilize and Paralyze
Lord Cromer
Consul General 1883-1907
Foreshadowing the austerity beloved by the International Monetary Fund in the late 20th century, the British balanced the Egyptian budget by 1888 by cutting administrative spending and selling more and more cotton, its single cash crop, to Britian. Little if any money was spent on education, no investment made in industrialization; Egyptian products and early industrialization projects were undercut by cheaper British imports, and Britian – owning the Suez shares - took the revenue from the Canal. The one lasting economic benefit: an opening of Egypt’s tourist industry.
Effect on Egypt's Economy:
PHASE III: 1914-1945
The War Years: Windfall
“Downtown Cairo had banks, boutiques, bookshops, cinemas, department stores with liveried guards and the Groppi tearooms where people danced in the afternoons to the music of live orchestras."
Cairo: City of Sand
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The economy picked up a bit during WWI – selling supplies to the Allies, and serving as a staging area, but WWII transformed Egypt: somewhat theatrically but also lastingly.
Cairo was instantly cosmopolitan; personnel from all over the world bunked up in its hotels and rooming houses; camp followers washed in; nightclubs, belly dancers, gambling houses, and cross-cultural dalliances titillated the city. Locals provided and guests consumed. Profits stayed in the country.
To supply the war, the British employed thousands of Egyptians and equipped the country with a lasting industrial base. Technological and industrial advancements in mining, cement, oil refining and chemicals occurred in this period to increase the military capacity of the country. Egyptians also began to weave their own cloth instead of usual reliance on British industries.”
Yet the British maintained control of the budget and the wastrel descendant of Mohammed Ali Pasha, King Farouk, spent his $100 million inheritance on toys and lavish living.
PHASE IV: 1952- 1971
The Revolutionary Years: Well-intended/poorly implemented
In 1952, army officers led by Gamal Abdel Nasser and Muhammad Naguib forced the abdication of King Farouk. The rallying spirit was: Egypt for Egyptians, which the regime ultimately interpreted as nationalizing the economy. Among adverse effects, this drove business people - their skills, connections and money - out of the country.
Hypertrophy of the tertiary sector
This tongue-twisting academic phrase means that the number of people in make-work jobs is swollen. The phenomena is common in developing countries and usually refers to the excess number of people working in the government bureaucracy, a make-do solution when the economy can’t offer enough jobs.
Egypt suffers mainly from government hypertrophy (employment keeps people off the streets), but it can also be seen in private business. It can take 6 people to make a burger in a fast food restaurant.
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While nationalizing the economy, Nasser undertook land reform, created model villages, promised to build a school a day (remember, the British had ignored education; a massive detriment of Egypt’s attempt at economic rebirth) offered free health care, and promised jobs to all college graduates. He started what was to become an unfortunate habit of subsiding basic commodities.
To grow industry, increase productive land and provide power to his country, Nasser was determined to build the High Dam. But the World Bank, at the urging of the United States, withdrew its promised loans. In response, Egypt nationalized the Suez Canal, infuriating England, the USA and Israel.
War with Israel (1957 and 1963) and a semi-proxy war with England and Saudi Arabia in Yemen (1962-67) drained the country dry.
Effect on Egyptian Economy:
PHASE V: 1970-Present
Road to Globalization: Under construction
In the West, Anwar Sadat was portrayed as the guy who saw the light and brought Egypt back from its Soviet dalliances and into arms of capitalism. What’s more, he was willing to go to Israel to make peace.
Egypt was rewarded with massive U.S. economic assistance and, eventually, austerity prescriptions from the World Bank and IMF.
Although he enjoyed the sweets from his new relationships, Sadat never really took the bitter medicine – the austerity part. Under his Open Door Policy (infitah) money and imports flowed in; foreign direct investment increased new industrial complexes were built, undercutting local manufacturers and displacing local workers with mechanization. Within the country, the use of available resources was, at best, undisciplined; at worst, corrupt.
Hunger increased.
Effect on Egyptian economy: 
Mubarak sludged through most of the 80’s along the same lines as his predecessor. Late in the decade, however, he signed one agreement with the IMF, abolished some subsidies, and devalued the Egyptian pound. Things only got worse.
Finally, in 1991, Egypt succumbed and signed an “adjustment program” with the World Bank and IMF. Oversimplified, the idea was to cut public expenses to the bone, and, one way and another, pile up money for investment in the private sector.
It wasn’t until the turn of the century however, that the outside world noted improvements in Egypt’s economy: GDP has risen; inflation and foreign debt are reduced; foreign reserves and foreign direct investment have both increased. The Cairo Stock Exchange re-opened. The Economist's July 15, 2010 special report on Egypt details more of Egypt's economic improvements.
In a step most miraculous for a 3rd world country (see box), Egypt simplified its customs procedures and reduced its tariffs, earning it international approbation in 2008.
Unfortunately, nothing has tumbled the 15%:85% wealth:poverty ratio.
The government fails to invest in the institutions and infrastructure necessary to developing a broader, deeper, more economically diversified economy: education, public health, transportation. Only very recently did it cut red tape and reduced prohibitive start-up criteria ($80,000) for small businesspeople.
What gets the people the most, though, is corruption. It continues –- perhaps at a reduced level -- undercutting people’s trust in the government and their hope for a sounder economic future. Al Ahram News' May 2009 report on a national survey about the subject paints a painful picture of the facts.
The OK news is that it may be -- slowly, slowly -- being winnowed away by the spread of the rule of law, made necessary by the country’s interest in participating in the global market.
For some of the changes being made by the government, see “Good Job! Egypt Government” Also, be sure to see the The Economist's July 15, 2010 special report on Egypt.
Posted July 2010
...so it is now |
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Some Economic Facts
Corruption
Major Sources of Income
- Tourism: Egypt has expanded its tourism market to reach the Gulf States, Central Europe and the former Soviet Union. After a slump in 2009, tourist arrivals are expected to rise from $10.8 billion to $11.5 billion in 2010.
- Remittances: While the economy’s relative dependence on remittances from Egyptians working abroad dropped to less than 5% GDP in 2006, the actual amount reached a new peak of $5.9 billion in 2007.
- Suez Canal (about 2.5%GDP): In 2008, Egypt proudly announced that the Suez produced record revenues of over $5 billion; unfortunately, the global economy and piracy in the Gulf drove down profits to $3.3 billion in 2009-10, but use of the canal is again rising.
- Mineral fuels: Sales continue to increase reaching $3.4 billion in 2004.
- Manufactured Goods: Sales continue to increase reaching $1.6 billion in 2004.
- Foreign Aid: US economic and military aid to Egypt dropped from $2 billion to 1.5 billion in 2008. Other countries also offer aid to Egypt.
i] We use the word loosely. For a discussion of “feudalism” to describe relationships between the peasants and the powerful, see Joel Beinin’s Workers and Peasants in the Modern Middle East, accessible on the web.