Galal Amin is an Egyptian economist and thinker who has written extensively on economic and social affairs and works as a professor of economics at the American University in Cairo (AUC). In this book, Amin sheds light on the Egyptian economy over the last two centuries, from the era of Mohamed Ali to that of Hosni Mubarak. It presents a panorama of the Egyptian economy in the periods of its rise and fall, confirming that the economy was doing well in the periods when there was a reasonable amount of independent administration accompanied by proper international conditions. The book gives due attention to foreign debts and how these were a burden on the economy, particularly in cases where they were not used for productive activities. The book begins with a glimpse of the Mohamed Ali era (1805-1848), stating that development in that period took place without debt and Egypt's experience of development was independent of outside interference. The Egyptian economy was integrated into the global economy in a way that was not commonplace until many decades later Under Mohamed Ali, foreign trade was the prime mover of the economy, and local prices were close to those in Europe due to the increase in exports and imports, particularly with the progress made in transportation. The book explains the independent character of development during the Mohamed Ali period by reference to three main reasons, the first being food self-sufficiency. Egypt exported its surplus rice to import ships and exported its wheat surplus, together with that of maize and beans, to meet the needs of factories and the army. Second, Egypt then had the ability to maneuvre among exporters and importers. In spite of the fact that Egypt had no option but to export cotton to Europe and import machines and expertise from it, the country was in a good position to secure the best conditions for its exports and imports, supported by the monopoly mechanisms instituted by Mohamed Ali. Third, Mohamed Ali did not resort to debt as a way of financing development. The author considers this reason as the most critical one. Egypt was self-sufficient in capital and it did not receive aid, loans or foreign investment. Capital outflows were restricted to paying taxes and gifts to the Ottoman sultanate. The book states that the successors of Mohamed Ali later incurred foreign debts even though there was no need to do so. It describes the Egyptian economy in the period from 1882 to 1956, the age of the British occupation to Egypt, as being devoted to the service of debt. If the Mohamed Ali era witnessed development without debt, the era of the khedive Said and Ismail was one of debt without development. It cannot be denied that the Ismail period showed some growth, but it did not cause a tangible change in the productive structure of the economy. During the period from 1882 to 1952, the Egyptian economy was dedicated to the service of the British occupier. At the end of World War II, the British had to pay Egypt some 340 million pounds sterling, but Egypt had difficulty receiving this money as it had suffered earlier in paying its own debts. An economic history is not concerned with the sharp defeats of political history. A revolution can overthrow a political regime, but economic growth may continue for years on the same pattern as that before a revolution. This scenario existed in Egypt after the 1952 Revolution, when the Egyptian economy kept the same features as those that prevailed before the revolution until 1956. However, the distinct economic features of the early Nasser period from 1956 to the end of the first five-year plan in 1965 gave rise to the country's greatest economic achievements and the most important development period. There was a tangible rise in the investment rate, an increase in per capita income despite the rapid increase in population, and a noticeable change in the structure of the economy and the rate of industrialisation. Most importantly, the period witnessed the sole Egyptian experience of comprehensive planning and serious government interventions to redistribute income.
S uccesses and after: The success of the economic development of Egypt from 1956 to 1965, when the economy achieved a high level of economic growth, a tangible change in its structure, and a reasonable degree of food self-sufficiency without any additional foreign debt burden, is explained by the coherence of the economic policy tools used. During this period the government intervened in the details of economic activities, and the planning system was implemented at a higher level of seriousness than has ever been applied either before or since. Prices were subject to strict administrative controls, private foreign investment was reduced to the minimum, and national investment was mainly implemented by the public sector. The Egyptian economy saw tepid economic growth after 1965, and no administration, regardless of its skill or wisdom, was able to rescue the economy's deterioration. After the 1967 War, the economy suffered a sharp decline in foreign currency resources, making the continuation of development impossible. The earnings of petroleum from Suez and Sinai were stopped, and the Suez Canal was closed. Egypt lost nearly $164 million annually as a result, along with a decrease in tourism earnings that were generating nearly $100 annually before 1967. In addition, US food assistance and aid from Western states and international institutions declined sharply. The book states that in reaction to this decline Nasser could have resorted to increasing domestic saving by putting pressure on public and private consumption and adopting more austerity measures in respect of wages and public spending. He did not do this, however, choosing to not add economic burdens to the already heavy psychological burdens of the 1967 War. After the war, Egypt received grants equal to $286 million from the Arab countries, particularly Saudi Arabia, Libya and Kuwait, by virtue of the Khartoum Agreement in 1968. Despite the difficulties the economy faced after the 1967 War, Nasser did not resort to foreign debt as an option. Amin applauds Nasser's wisdom in this regard, as more debt at that period would have forced Egypt to abandon any attempt to continue the independent development process Nasser had initiated at the end of 1950s. At the end of Nasser's rule, the book estimates that the country's foreign debt, whether civilian or military, public or private, and short, medium or long term, to be $5 billion. The Open Door policy of 1974 to 1986, unlike the 1956-1965 economic development policy, witnessed a high degree of hesitation and a lack of coherence in implementing the new free-market policies. The author describes the Open Door policy as not being able either to properly implement economic freedom or to implement a strict policy of government intervention in economic activities. As a result, it reaped the benefits neither of a controlled economy nor of a free-market economy. The policy was not necessarily wrong, but it was implemented in a hasty manner towards liberalising imports, Amin says. There was no distinction made between the foreign investments that Egypt needed and those it did not need, and there were no attempts to impose conditions on foreign investors to achieve maximum gains and minimum losses for the Egyptian economy. The structure of production did not change towards the convertible industries, and the economy continued in its dependence on fluctuating sectors such as oil, the Suez Canal and tourism. The services sector continued to grow faster than the goods sector, and income distribution continued to deteriorate after the mid-1970s.
S adat and Mubarak: During the first five years of his time in office, then president Anwar Al-Sadat allowed Egypt's foreign debt to increase sharply due to two main reasons. First, there was the increase of imports of necessary and unnecessary goods in the aftermath of the 1973 War, when the limited foreign resources available to the country and the relative slowing of exports did not allow such an increase in imports. Second, there was excessive reliance on foreign debt to finance a great portion of the current account deficit using short-term borrowing at high costs. The book cites the failure of the administration at this time as the main cause of the increasing foreign debts in Sadat's period, at the end of which Egypt's foreign debts stood at $30 billion. In 1986, the Egyptian economy was exposed to a sharp shock that clearly showed its feeble structure and shed some light on the mistakes that had been committed for more than a decade. Suddenly, Egypt found itself made to pay accounts that had been deferred for year after year. The shock came in the form of a sharp plunge in oil prices, which were expected to decline by 50 per cent by the end of that year, impacting expatriate remittances and causing workers in the oil-producing countries to return, exacerbating unemployment. Two other sources of foreign currency were hard hit. Suez Canal earnings declined as a result of the oil shock, and tourism earnings decreased due to the harsh political events negatively affecting tourists coming to Egypt. The book says that in June 1986 the foreign debt was around $45 billion, and it blames the administration at that time for resorting to borrowing to finance public utility projects and neglecting productive sectors that could have generated resources to avoid the burden of loans. It preferred an easy solution in the short run and ignored its destructive impact in the long run. The government was investing heavily in public utility projects, assuming that the private sector would play a greater role in agriculture and industry. Alas, the private sector was not able to produce sufficient earnings from exports, and foreign private investments constituted an increasing burden on the current account balance when imports increased, transferring profits abroad and leaking Egyptian savings into foreign currencies outside the country through foreign bank branches in Egypt. As a result of Egypt's participation in the 1991 Gulf War, the country's foreign debts decreased by nearly half. In June 1990, Egypt's foreign debts were $47.6 billion, but by mid-1994 they had fallen to $24 billion. In summer 2004, a new government was appointed, and it adopted four principles when managing economic affairs. These were, first, a perception that the main economic problem in Egypt was the low growth of GDP. The new government believed that raising GDP would solve unemployment and income-distribution problems. Second, it thought the best way to raise GDP would be to encourage foreign investments, and third, it was committed to privatisation. Fourth, it wanted to see a reduction in government intervention in economic affairs. However, with the global financial crisis of 2008, it was proven that market forces are not always the right option, and there have been renewed calls for the decisive intervention of the government in managing economic affairs. This book sends out the crystal-clear message that over the last two centuries the Egyptian economy has achieved a considerable level of development in periods when Egypt enjoyed a reasonable degree of independent management accompanied by a reasonable degree of improvement in its international relations. Furthermore, the Egyptian economy has always been affected by two factors: first, changes in international political and economic relations, and second, the ways economic policy has been applied and the degree to which the government intervenes in economic affairs. In its attempt to decipher the development of the Egyptian economy over the past 200 years, the book says that in order to judge the success or failure of the economic performance of the state, any state, over a certain period of time, there are three factors that need to be considered. These include, first, increases in GDP, and second, the changing structure of the economy (in other words, the relative importance of different sectors) with a focus on convertible industries since with an increase in their share as a percentage of output there is a likelihood of raising the level of welfare. Third, there is the degree of success in achieving a high level of fairness in distributing income and preventing the concentration of wealth in the hands of the few and distributing the fruits of growth to the largest possible number of the population. History is full of important chances, but what permits these to be taken or not are economic, social and political circumstances. Personally, I think the book provides a number of lessons we have to fully and deeply grasp. These include: - The performance of the Egyptian economy is affected by both internal and external circumstances; - Reliance on debt to raise the level of development may lead at a later stage to sacrificing development for the sake of servicing debt unless the interest rates on the loans are less than the rates of return on the investments to which the loans are directed; - Resorting to foreign debt may be acceptable in certain circumstances provided that the administration uses such debts to finance productive activities that lead to changing the structure of the economy in the interests of productive activities that produce earnings capable of paying back the loans and their interest; - Coherence in the use of economic policy tools is very important; and - The government has a pivotal role to play in the country's economic activities. Galal Amin, History of the Egyptian Economy: From Mohamed Ali to Hosni Mubarak, Cairo: Dar Al-Shurouq The writer is a senior international trade policies researcher and general manager of anti-dumping department in the Ministry of Trade, Industry and Investment.
