MARCH 1989 - VOLUME 10 - NUMBER 3
E C O N O M I C S
Financial Woes in Egypt
by William Steif
Cairo--Hassan Ragab has profited enormously from the single booming sector of Egypt's economy, tourism.
Ragab, 77, and a retired diplomat, has also contributed enormously to that sector. In recreating the ancient art of making papyrus paper, he has turned a hobby into a lucrative tourist attraction. When he discovered that the papyrus plant no longer grew along the banks of the Nile, he bought a 32- acre island in a river near Cairo, imported papyrus plants from the Sudan, started his own plantation and spent more than three years developing his own nursery to grow papyrus.
Today, on a barge anchored to a bank of the Nile in the Dokki district of Cairo, he shows visitors how the plant is reduced to paper over a period of a week, without the use of chemicals. In the 1970s, he perfected papyrus paper equivalent to what the ancient Egyptians used.
Ragab employs free-lance Cairo artists to copy Egyptian tomb paintings on the papyrus. He sells them at his barge, now named the Papyrus Institute, and at The Pharaonic Village, a reproduction of a 2500 year-old Egyptian village he built for tourists on his Nile island.
The papyrus paintings are among the most popular souvenirs in Egypt and are widely imitated by other entrepreneurs. Ragab says he sells more than $1.5 million worth of papyrus paintings yearly. Tourists pile into his Pharaonic Village, cruising through the canals in boats, winding up at a shop where they can and do buy the paintings.
Ragab, who started his career as an Egyptian Army engineering officer before becoming his country's ambassador to China and Yugoslavia, is a multimillionaire.
Egyptian tourism, he says, "is at the top, doing very well." But he adds: "We're still not getting our share if you compare us to some place like Spain where they had almost 30 million tourists in 1987."
In all, Egypt attracted 1.7 million tourists in 1987, up 50 percent from the year before, and tourism generated between $1.2 billion and $1.75 billion in earnings. The 1988 figures are not in yet, but an Egyptian tourism official says "they'll be higher, 1988 was a very good year."
Reasons for the tourist boom are fairly obvious:
The contrast is striking from above, but even more so when experienced at ground level while walking through the squalor of these slums. Only a few blocks separate the pleasant surroundings of Hassan Ragab's Papyrus Institute and the Cairo Sheraton from the indigence of Dokki. For much of the Egyptian populace the economy has been "very sluggish in the last year or two" with little or no growth, according to a western diplomat.
What has been growing is the population. Cairo today is a city of at least eight million people. The exact population is not known, but estimates run as high as 12 million. The country's population has grown from 47.2 million in 1983 to 52 million today, according to U.S embassy statistics. The population is increasing by about 3 percent annually despite a decade-long family planning program and an infant mortality rate (deaths in the first year of life) of more than 1 per 10 live births. If this pace continues, Egypt's population soon will equal France's 56 million people. Though Egypt is as big as Texas, Oklahoma and Arkansas combined, more than 95 percent of it is uninhabitable desert. Virtually all of the population lives in the Nile Valley which stretches for 550 miles from Alexandria on the Mediterranean to the Sudanese border in the south.
About half of the labor force of 19.5 million people works in agriculture, raising cotton, wheat, rice, corn, sugar cane, fruits and vegetables. In 1987, the United States exported almost $800 million in agricultural goods to Egypt. It was the world's largest market for U.S. wheat flour, the second largest market for U.S. wheat and a top market for U.S. corn, soybean meal and frozen poultry. Egypt, once self-sufficient in food, has not been able to feed itself since the 1960s. Over the past 14 years the United States has contributed $14 billion in economic assistance to Egypt, according to the U.S. Agency for Inter-national Development. Of this total, 60 percent financed "essential food needs ... and industrial goods for economic growth," says AID.
The bulk of the 60 percent was food. Most of the remaining 40 percent was military hardware, more than $5 billion worth of which Mubarak's strapped government is still paying $500 million a year.
The United States continues to pour $2.3 billion a year into Egypt despite the country's current debt to the U.S. government of about $2 billion. Egypt's aid is second only to Israel, which gets $3.2 billion yearly from the U.S. government.
At the same time, Mubarak's government, through the 1980s, has run whopping deficits, ranging from 17 to 23 percent of gross domestic product (GDP); devalued the Egyptian pound by more than half, with the result that inflation has averaged around 20 percent yearly; and been squeezed by the fall in the price of its single major commodity, oil, whose production from wells in the Sinai is now running around 870,000 barrels daily.
For the average Egyptian, the 1980s have been hard. Egypt's 1987 GDP was about $18.5 billion, which works out to a per capita income of about $361. Although the GDP increased by more than a third since 1982, with the currency's devaluation, this did not translate to an improvement in per capita income.
The roots of many of these problems go back more than 30 years. In 1952, Gamal Abdel Nasser's "July Revolution" unseated King Farouk and the nation's "privileged classes" but also brought on a period in which banking, most industry and many commercial activities became state enterprises. At the same time, Nasser committed his government to providing all Egyptians with basic human necessities; he subsidized food and housing, provided free education and even guaranteed public employment to all university graduates. Then, from the mid-1950s through 1973, Nasser and his successor, Anwar Sadat, engaged Egypt in a costly confrontation with Israel that sopped up resources.
In the late 1970s, with the Camp David Accords and the return of the Sinai to Egyptian rule, oil production and the re-opening of the Suez Canal, Egypt seemed to be on new economic footing. But the economy still remained primarily statist and little new foreign investment came to the country. Indeed, over the past decade, there has been relatively little domes- tic investment. Rich Egyptians still tend to channel savings abroad "either directly or through the inter- mediary of banks and investment compa- nies," according to the U.S. Embassy's 1988 "Economic Trends" re- port.
Mubarak, in control since Sadat's assassi- nation in 1981,has gradually realized that the public sector must become more efficient and that some privatization and internal investment must occur. A late 1987 referendum that gave Mubarak another six year presidential term seems to indicate that the Egyptian public is willing to go along with that decision.
Recently, Prime Minister Atef Sidki told a conference of Giza business leaders that the private sector must "play a more effective role in the development process." He is also seeking to eliminate production subsidies. But nearly half of Egypt's 1987 budget was devoted to spending for public sector companies.
Industry Minister Mohammed Abdul Wahab says the public sector has made "a remarkable turnaround," with the number of unprofitable public sector companies reduced from 40 two years ago to 15 today. Abdul Wahab points out that in 1986 600,000 public sector industrial workers generated $3 billion worth of products, while in 1988 540,000 workers generated $5 billion worth of products. He says Egyptian industry can compete on the inter-national market, projecting that the 1986 industrial ex-ports of $400 million will increase to $1 billion for 1988.
Some U.S. investment is entering the country. In all, U.S. investment amounts to $1.56 billion directly, of which $1.3 billion is in oil exploration and production. The remaining $255 million comes from such companies as American Motors, Colgate Palmolive, Reynolds Aluminum, Gillette, Warner Lambert, York Borg-Warner, Otis Elevator, Pfizer, E.R. Squibb, Union Carbide and Xerox. During the past couple of years a handful of other companies, including GM, Proctor and Gamble, Trane Air Conditioners and Johnson & Johnson have joined with Egyptian entrepreneurs in joint ventures.
But the jobless total, according to an official Egyptian estimate, is still 2.9 million. Other estimates of unemployment and underemployment put the figure still higher. Private sector jobs remain very hard to find outside of farming. University graduates are exceedingly reluctant to take manual or technical jobs when the regime is still trying to live up to Nasser's old promise of white collar work.
Probably the greatest opportunities for Egyptian workers are in the rest of the Arab world, especially in the rich states along the Persian Gulf and in Saudi Arabia. The best estimates are that three million Egyptians work else-where in the Arab world, sending home remittances to help support their families. In late November 1988, Sidki told the new session of the People's Assembly, Egypt's legislature, that remittances from expatriates in fiscal year 1988 amounted to $1.5 billion, triple the previous year.
In the same time, he said, oil earnings rose to $3.3. billion, reflecting some improvement in crude oil prices. Overall hard currency earnings rose to $11.3 billion in fiscal 1988, compared with $9.7 billion the previous year.
That still leaves Egypt woefully short on hard currency. Sidki told the People's Assembly that Egypt still was negotiating for $600 million in World Bank loans and continuing talks with the International Monetary Fund on rescheduling its foreign debt. That debt is estimated at $43 billion, with payments due between July 1,1988 and June 30, 1989, estimated at $4 billion.
In December, Sidki met with reporters and said that he and the rest of Mubarak's cabinet planned to take all necessary measures to make it easier for the private sector to contribute to Egypt's economic progress. Mubarak's slogan, he noted, is "production increase," which he said means "increasing investments ... to make available the required machines, equipment and means of transport."
But Egypt still imports 60 to 78.5 percent of its food, has a 25 percent inflation rate, a huge deficit, a swollen public sector payroll, uninhibited population growth and a depressingly enormous foreign debt.
Entrepreneurs such as Hassan Ragab may contribute nicely to this ruined economy—and a million more tourists may enjoy their high-rise views across the Nile—but the basic problems of this ancient land still remain.