Egypt’s Economic Structure

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Abstract

This memo explores the economic structure of Egypt and its composition. It also highlights the major economic sectors and their contribution to the Gross Domestic Product. Over and above, the memo gives figures of the macro-economic indicators in the recent years. Finally, the memo touches on the composition of Egypt’s imports and its trading volumes with the United States.

Egypt is a Muslim country found in the Horn of Africa. It is largely a semi-arid country though it is endowed with some very precious natural resources including oil and gold. Over the past few years, Egypt has been enjoying relatively stable economy with economic growth rate ranging between 4% and 5%.

Despite the recent political upheavals, Egypt’s economic structure remained relatively unshaken. Due to the strong manufacturing and service sector coupled with good government policies, Egypt’s economy is among the best performing in Africa and the Middle East. Egypt is a mixed economy with both the private and public sectors playing significant roles in the development of the economy.

Initially, agriculture constituted the largest sector in the economy of Egypt. Almost 90% of the country’s labor force was working in the agricultural sector until late 1960s.

However, in the 1970s the significance of agricultural sector in the economy of Egypt decreased drastically despite efforts that were directed at reviving the sector. In the year 2010 agricultural sector contributed a mere 13.1% to the Gross domestic product (GDP) compared to 87% in the 1960s (Sriramesh & Vercic, 2012). This has been attributed to the rapid expansion of the industrial sector, and the fact that less attention was paid to the sector by the government.

It should be noted that though Egypt has fertile soils, it lacks enough rainfall which makes the agricultural sector highly dependent on irrigation. Water for irrigation is harnesses from the rivers that have their sources in different countries, mostly Eastern Africa Countries. On the same note, the soils are highly saline which limits the quantities of agricultural produce. Egypt has highly invested in irrigation majorly the production of cotton for a very long time now.

In addition to cotton, Egypt also produces wheat, fruits, vegetables, rice, sugarcane and corn (Al-Din & El-Din, 2008). The agricultural sector is highly regulated and the government ensures that water for irrigation is used effectively. In addition, the government has the role of ensuring that food crops are also incorporated in irrigation schemes. Similarly, due to reforms that have been instituted by the government, disparity between local and international prices has been reduced.

On the other hand, the industrial sector plays a very crucial role in the modern Egypt. It should be noted that the industrial sector is very vital in Egypt and employs around 17% of the total workforce according to 2010 statistics (Sriramesh & Vercic, 2012).

To begin with, availability of oil has highly helped Egypt to build many industries which are employing a lot of people compared to the agricultural sector of the economy. Egypt manufactures automobiles which it exports to various countries both in Africa and the Arabic world. The sector has been growing steadily and has attracted foreign investors who partner with local firms thus increasing production.

On the same note, Egypt is among the largest producers of chemicals and fertilizers in the Middle East (Ahmed, 2001). Chemical production can be traced back to the 1970s, and has continued to grow significantly since that time.

Apart from the chemical and automobile manufacturing, Egypt has steel, electronic and domestic appliances industries, oil extraction and refinery factories as well as building and construction. The contribution of the industrial sector to the economy has also been increasing since the 1980s being 37% in 2010 (Sriramesh & Vercic, 2012).

On the other hand, the service sector has grown to be the highest contributor to the gross domestic product in recent years. Egypt has numerous tourism attraction sites which include the historical sites and good beaches that are well maintained earning the country a substantial income.

On the same note, the banking sector has also advanced due to liberations that were instituted by the government which modernized the banking system. Communication and information technology are also well advanced. Averagely the service sector contributes more than 48% to the national economy and employs slightly more than half of the total work force (Farah, 2009).

Egypt has a vibrant economy which is growing rapidly at around 5.3% per annum as per the statistics of 2011 (Sriramesh & Vercic, 2012). Additionally, the country has a huge population which was 78.238 million in 2010 and is growing at a significant rate making the country’s market capacity continue to expand (Sriramesh & Vercic, 2012).

However, the country is struggling with high rates of unemployment which stood at 9.7% before the political uprising. However, this figure rose to around 11.9% due to the political instability that was caused by the uprising (Sriramesh & Vercic, 2012). Like most countries, Egypt’s economy is operating on a current account deficit. In 2010 it had a revenue collection of $46.82 billion with a fiscal expenditure amounting to $64.19 billion yielding a budget deficit of $17.37 billion (Sriramesh & Vercic, 2012).

On the investments front, Egypt has one of the most dominant security markets in the North African region. In 2003 the Egyptian government increased its interest rates to counter the problem of foreign currency deficits. Unfortunately, private investment shrank warranting the introduction of a radical fiscal policy, and the government instituted pay cuts by nearly half.

In order to increase the disposable income of people and spur investment, a new tax law was rolled out in 2005 reducing the tax rate on income from 40% to 20% (Farah, 2009). In a nutshell, Egypt has made amendments in its laws in a bid to comply with international standards of doing business. By and large, this has made Foreign Direct investments conducive in Egypt enabling multi-national companies tap into the ever growing market in North Africa.

Egypt trades heavily with foreign countries, the United States being one of them. Foodstuff is one of the major imports of Egypt together with machinery, chemicals, wood products and fuels. Due to the fact that Egypt is a semi arid area coupled with the tendency of concentrating on cash crops by many irrigation schemes, a number of foodstuff are imported.

Currently, the United States of America is the largest trading partner of Egypt. The largest quantity of wheat and corn imports into Egypt comes from the United States. On the same note, Egypt also exports petroleum products, cotton and textile among other goods to the US. In the year 2009, the United States purchased 7.95% of Egypt’s exports while 9.92% of Egypt’s imports came from the US (Al-Din & El-Din, 2008).

Besides other commodities, Egypt imports most of its agricultural commodities due to the limitations on the volume of agricultural production. In this regard, milk and dairy products are also imported given that the local industry cannot produce enough milk to satisfy the entire population. Given the rate at which population is increasing, Egypt will require even higher quantities of dairy products. Currently, Egypt imports up to 900,000 tons of milk from different countries (Sriramesh & Vercic, 2012).

Arguably, despite the civil unrest that engulfed countries within the Middle East and its borders, Egypt is a country with fairly sound macro-economical policies that promote trade and investment.

Moreover, with surpluses that multi-national companies make, it has become increasingly important for firms to tap into foreign markets so as to increase their profit margins. In this regard, Egypt offers a very lucrative market for would be investors because it boasts good infrastructural support, an active service sector and a receptive consumer base.

References

Ahmed, A. U. (2001). The Egypt Food Subsidy System: Structure, Performance, and Options for Reform. Washington: International Food Policy Research Institution.

Al-Din, H. K., & El-Din, H. K. (2008). The Egyptian Economy: Current Challenges and Future Prospects. Cairo: American University in Cairo Press.

Farah, N. R. (2009). Egypt’s Political Economy: Power Relations in Development. Cairo: American University in Cairo Press.

Sriramesh, K., & Vercic, D. (2012). The Global Public Relations Handbook, Revised Edition. New York: Taylor and Francis.

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Egypt’s Economic Structure

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