Under Gamal Abdel-Nasser, Egypt opted for socialist development. A command economy, backed by the Soviet Union and spearheaded by the public sector, placed the country at the forefront of the developing world for a while, but soon troubles began. The country came under a Western economic blockade and the 1967 war undermined its industrialisation programme. Egypt's domestic conditions and foreign policy were responsible for undermining the programme of state-run industrialisation. Through nationalisation, the economy was deprived of the experience of national capitalist industrialisation. National industrial capitalism was strangulated rather than preserved, and Egypt took only belated steps towards moving from an import-substitution economy to an export-oriented one. The command economy eventually failed to mobilise and develop resources and -- despite Soviet backing -- the collision between the Nasserist regime and US interests was too much to bear. Later on, El-Sadat opted for an open door policy and made a bold peace initiative with a vision to boost the country's domestic and foreign fortunes. Egypt's transformation from an economy of war to an economy of peace was dramatic. Egypt's opposition to the invasion of Kuwait led to a cancellation of US and Gulf debts. Egypt received unprecedented foreign aid, allowing it to revamp its infrastructure, create new cities, and develop capitalist industry. Half the country's foreign public debt was written off, which helped the country address long- standing fiscal and monetary imbalances and accumulate foreign currency reserves. The social cost of the transformation from a command economy to a market economy was relatively low and Egypt became one of the world's acclaimed emerging markets. Yet once again, the economy ran into trouble, partly because of the country's domestic and foreign policy and partly because of foreign events. Uneven globalisation, the Asian crisis, 9/11, and regional instability were not good news for the economy, nor was Egypt's opposition to US policies in Iraq and Palestine. Terrorist attacks, the cost of fighting terror, capital flight, consumerist tendencies, bad loans, an unproductive real estate boom, as well as public and private corruption all conspired against economic growth. The country spent more on education, health and subsidies. And yet a low level of economic growth coupled with a high population increase undermined the efforts of human development and led to an increase in unemployment. Soon after the completion of the first phase of economic reform, Egypt found itself in the middle of a recession and a liquidity crisis, and had to devalue its currency. The slow pace of the post-reform stability programme, the Luxor attack, lower oil prices, the rise in imports from Asia, investment in major long-term projects, and the low level of exports held back the economy. Reform may have been belated, but it has not been without merit. But more needs to be done. Egypt still lags behind other emerging economies in research and development, for example. Egypt is not new to industrialisation, but its industry is not yet competitive enough. Taha Abdel-Alim An expert at Al-Ahram Strategic& Political Centre.
