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Further Reading

Egypt - Economy

Egypt continues to be a major regional economic, political, and cultural power. However, economic problems have frustrated many Egyptians. Egypt's per capita GDP was on par with South Korea's 30 years ago; today it is comparable to Indonesia's. There were bread riots in 2008 for the first time since 1977. Political reforms have stalled and the Government of Egypt has resorted to heavy-handed tactics against individuals and groups, especially the Muslim Brotherhood, whose influence continues to grow.

Economic reform momentum has slowed and high GDP growth rates of recent years have failed to lift Egypt's lower classes out of poverty. High inflation, coupled with the impact of the global recession, has resulted in an increase in extreme poverty, job losses, a growing budget deficit and projected 2009 GDP growth of 3.5% - half the 2008 rate.

In 1981, 21.5% of the Gross National Income (GNI) went to the wealthiest 5% of the population, while the poorest 20% of the population received a mere 5% of Egypt's income. In 2007, there remains the general sense that Egypt's economic growth is benefiting only a tiny portion of the population. 17% of today's population lives under the poverty line, almost identical to the percentage in 1981, and the poorest 20% of the population received 4.8% of the GNI in 2004/05, while the richest 10% of the population received 30% of GNI. Although statistically the standard of living has not dramatically deteriorated, neither has it improved, leaving Egyptians with the feeling that others have passed them by to a brighter economic future.

Mubarak himself refuses to discuss economic assistance to Egypt, but other interlocutors may raise it. On May 7, Egypt formally and publicly accepted FY 2009 and FY 2010 assistance levels, ending a stalemate over the FY 2009 program, linked to levels, a perceived lack of consultation, and political conditionality. Based on our assessment of Egypt's most pressing assistance needs, and broad public consensus in Egypt that the educational system is seriously deficient, we would like to focus on education. We believe the Egyptians would welcome a new presidential level initiative in this area, which would also be in U.S. national interests given the critical role education will play in Egypt's political and economic development.

With the installation of the 2004 Egyptian parliament, the Government of Egypt began a new reform movement, following a stalled economic reform program begun in 1991, but moribund since the mid-1990s. In the past year, the cabinet economic team has simplified and reduced tariffs and taxes, improved the transparency of the national budget, revived stalled privatizations of public enterprises and implemented economic legislation designed to foster private sector-driven economic growth and improve Egypt's competitiveness. Despite these achievements, the economy is still hampered by government intervention, substantial subsidies for food, housing, and energy, and bloated public sector payrolls. Moreover, the public sector still controls most heavy industry.

In sectoral terms, agriculture is mainly in private hands, and has been largely deregulated, with the exception of cotton and sugar production. Construction, non-financial services, and domestic marketing are also largely private. The Egyptian economy, however, relies heavily on tourism, oil and gas exports, and Suez Canal revenues, much of which is controlled by the public sector and is also vulnerable to outside factors. The tourism sector suffered tremendously following a terrorist attack in Luxor in October 1997. The tourism sector feared a repeat of the downturn in tourist numbers when terrorists attacked resorts in the Sinai Peninsula in 2004 and 2005. So far, however, the sector has not suffered as greatly as expected.

The U.S. has a large assistance program in Egypt and provides funding for a variety of programs in addition to some cash transfers. A portion of U.S. assistance to Egypt under the 2003 Iraq war supplemental appropriations was provided in the form of bond guarantees, which were contingent upon Egyptian compliance with a series of economic conditions. Egypt met the conditions and in September 2005 issued $1.25 billion in 10-year bonds that were fully guaranteed by the United States. To support the Middle East peace process through regional economic integration, the United States permits products to be imported from Egypt without tariffs if they have been produced in Qualified Industrial Zones and 11.7% of the inputs of these products originate from Israel.