A special report on egypt a favoured spot the economist
1. A special report on Egypt: A favoured spot | The Economist 9/15/10 2:30 PM
A special report on Egypt
A favoured spot
Egypt is making the most of its natural advantages
Jul 15th 2010
BY ALMOST any statistical measure Egyptians are far better off
than ever before, even though there are many more of them.
The population has nearly doubled in size in just 30 years, from
44m in 1980 to 84m today. Farmers who until the 1970s spent
half their working day on the back-breaking labour of lifting
irrigation water now use diesel pumps, plough with tractors and
thresh their wheat by machine. Life expectancy at birth has
risen from 52 years in 1960 to 72 now. Back then Egyptians
were lucky to own a transistor radio. Now two-thirds of homes
have a satellite receiver, 87% own a fridge, 97% have piped
water and 99% have electricity. Egyptians chatter on 57m
mobile phones, and the number of passenger cars on the roads
has more than doubled in the past decade.
Nor is it just personal consumption that has grown strongly. The
economy as a whole is performing better than ever, largely Liquid asset
because the government has at last abandoned its old habits of
central planning, state-managed capital allocation, high taxes and price controls. After
decades of only minor improvements in living standards, GDP growth shifted into a much
higher gear under the reformist cabinet that came to office in 2004. It went up from just
under 5% in the mid-1990s to 7% in 2006-08. Egypt’s share of world trade, which had been
falling continuously for 40 years, started expanding as exports tripled in value. Foreign
investment gushed in at record levels, notching up a cumulative total of $46 billion between
2004 and 2009, says the dynamic young investment minister, Mahmoud Mohieddin.
Gross public debt in that period fell by nearly a third, to a still hefty but manageable 76% of
GDP. The size of the country’s foreign debt dropped below the value of its foreign reserves for
the first time in decades, and debt servicing, a crushing burden in 1990, dwindled to a small
fraction of the value of annual exports.
It is easy to forget just how wretched the country was in the aftermath of the 1967 and 1973
wars. Without foreign aid, including emergency shipments of American wheat, many might
have starved. But now the share of foreign aid in Egypt’s GDP has shrunk to less than 1%
and the country’s ranking among aid recipients, long near the top, slid to 17th in 2008.
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2. A special report on Egypt: A favoured spot | The Economist 9/15/10 2:30 PM
Last year was a grim one for the world economy, and Egypt too saw its trade and investment
shrink and earnings from tourism and the Suez Canal plunge. Yet strong domestic demand,
particularly for housing, kept the economy growing at 4.6% (see chart 3). In the first quarter
of this year growth accelerated to 5.8%, and independent economists expect it to continue to
do better than last year.
Gifts of the Nile
Egypt is favoured by nature. That may seem strange to say, given that its land is mostly
desert and its people mostly poor. Yet by many measures it remains as richly endowed as in
ancient times, when the Hebrews pined for its fleshpots and Herodotus dubbed it the gift of
the Nile.
Desert takes up some 95% of the country, but the fertile remainder, albeit fractured into
millions of smallholdings, has become much more productive. It is true that Egypt, once the
breadbasket of the Roman empire, has been unable to feed itself. Yet that small amount of
fertile land generates impressive crops. Two or three plantings a year are normal, given the
steady water supply, constant sun and rich soil.
Despite the doubling of its population since 1980, and the loss of vast acreages to urban
expansion, Egypt imports less food now, proportionately, than it did in those days.
Government bread subsidies keep the price of a small baladi loaf below 1 American cent,
helping Egyptians retain their place as the world’s top wheat consumers per person. But big
gains in yields, along with price support, have quadrupled local production in the past 30
years. It now averages more than 7m tonnes a year, enough to meet 60% of Egypt’s needs.
Egypt still imports around $6 billion-worth of food a year and faces growing deficits in such
things as edible oils. But government statistics say that its own production has grown by
nearly 50% since the mid-1990s. It exports some $2 billion-worth of agricultural goods a
year, including fresh fruit and vegetables, cotton and rice, a product where Egypt leads the
world in yields per acre.
This balance looks unlikely to change. As fast as land in the Nile Valley is lost to housing,
desert land is being converted for cultivation. This is only partly a result of government policy.
Since the 1950s costly public land-reclamation schemes have struggled to recoup
investments. Toshka, a giant project to channel Nile water far into the desert south-west of
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3. A special report on Egypt: A favoured spot | The Economist 9/15/10 2:30 PM
Aswan, was touted in the 1990s as a future home to 2m farmers, cultivating 2m acres, but it
has proved a white elephant, with little to show for the hundreds of millions of dollars sunk in
pumping stations and canals.
More modest plans, such as the extension of branch canals in the Nile delta, have worked
much better. As a glance at Google Earth will show, smaller-scale private efforts have eaten
up deserts all along the river valley and far to the east and west of the delta. Egypt’s planted
area has grown by 30% in the past 25 years. The newer farms tend to be large and export-
oriented. They use far more efficient irrigation techniques and often rely on abundant ground
water rather than the Nile.
Moreover, new uses are being found for the Nile itself. Citadel Capital, a fast-footed Cairo-
based private-equity group with a claimed $8 billion under management, is pouring some of
that money into the river, in the form of an ambitious scheme to revive its once-thriving but
now defunct shipping network. It has built cargo ports, commissioned lots of new barges and
plans to expand upriver, in Sudan.
Geography’s most obvious gift to Egypt, though, is its location. Since its opening in 1869, and
especially since nationalisation in 1956, the Suez Canal has provided a steady stream of
revenue, against little outlay, by providing the shortest shipping route between Europe and
Asia. Constantly widened to accommodate the growing size of vessels, the canal can now
handle all but fully laden supertankers and giant bulk carriers. Revenues doubled in the boom
from 2002 to 2008, hitting a record $5 billion that year. After a slump in 2009 they have
started to climb again and look set once again to exceed $5 billion this year.
Nor is it just the canal that exploits Egypt’s position. The Sumed pipeline, which allows
tankers from the Persian Gulf to offload oil in the Red Sea, and others to pick up the load on
Egypt’s Mediterranean coast, also brings in a tidy revenue. In recent years Egypt has tried
something similar with dry goods. The Suez Canal Container Terminal, managed by the
Dutch-based group APM, was recently built as a trans-shipment hub at the northern end of
the canal. It now handles a fifth of trans-shipment volume in the region and is set to double
its capacity by 2012.
A new privately managed port and industrial free zone at the canal’s southern end,
meanwhile, has already become an important industrial hub. The investment ministry has
lately worked especially hard to woo Far Eastern business, offering the firm that developed
China’s Tianjin export zone a licence to develop a 20-square-kilometre (7.7-square-mile)
industrial area aimed at smaller Chinese investors. With its links to Asia and proximity to
Egyptian markets, cheap labour and energy, along with Egypt’s preferential trade status with
Europe, the region around the city of Suez is likely to see rapid growth.
The country’s inhospitable deserts have long fed its demand for iron ore, phosphates and
manganese, as well as marble, granite and the limestone crushed to make cement, of which
Egypt is now one of the world’s big producers. More recent commercial discoveries include
tantalum and tin, and there has been a rediscovery of something more enticing still: gold.
Visitors to the Egyptian Museum in Cairo invariably gasp at the lavish use of that metal in the
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4. A special report on Egypt: A favoured spot | The Economist 9/15/10 2:30 PM
treasures of Tutankhamun, yet for nearly two millennia the mines in Egypt’s eastern desert
that made it the biggest supplier of gold to the ancient world lay unexploited. It took one of
Egypt’s other largely untapped resources—its estimated 3m émigrés, many of them highly
skilled—to strike gold again. When Sami el-Raghy, an Egyptian-born engineer, conceived the
idea nearly 20 years ago, he benefited from his mining experience in Australia, an ancient
papyrus scroll showing the location of gold mines, and access to capital. But he needed
immense patience to deal with Cairo’s bureaucracy.
Still, the company he founded, Centamin, which is half-owned by the Egyptian government,
has now started production at its Sukari concession, a 160-square-kilometre patch of barren,
mountainous terrain near the Red Sea that is dotted with ancient mines. Its surveys have so
far indicated an estimated 13.7m ounces of gold at the site, worth $16.4 billion at current
prices, and geologists believe that Sukari may be only one of many similar gold-bearing
formations in the region.
An even bigger gift of the desert is energy. By both reserves
and oil production Egypt ranks only a distant 27th in the world,
and its output has fallen since the 1990s (see chart 4), yet it
has been pumping the stuff far longer than most rivals. Crude
production started in the Gulf of Suez in 1910. The oil has
never stopped flowing, despite six wars and the nationalisation
of the industry in the 1960s. New technology has slowed the
decline in old fields, and oil in commercial quantities keeps
being found elsewhere.
Apache Corporation, a smaller American firm with the biggest
concessions in Egypt’s western desert, took a chance 15 years
ago and now pumps some 150,000 barrels a day. Two dozen
other international companies are hard at work too, including
such giants as BP, Eni and Lukoil. Some oilmen reckon that
Egypt’s reserves have actually risen in recent years, and much
of the country remains unexplored.
More to the point, just when Egypt’s oil output started
declining, two lucky things happened. Oil prices rose, boosting
export income despite the fall in volumes; and Egypt began to
discover and tap big reserves of natural gas, particularly offshore, north of the Nile delta.
Quicker than many countries to exploit the finds, Egypt is already Africa’s second-ranking
producer, and the world’s 12th largest. Pipeline links to both Israel and the Arab Levant, as
well as two large plants producing LNG for the European market, have pushed the value of
gas exports above that of crude.
The rapid expansion of gas output has not been painless. Local critics have accused the all-
powerful petroleum ministry of committing too much for export at prices that are too low.
Foreign investors have faced their own pricing troubles in a world gas market that faces
overproduction. Despite promising offshore finds they have been wary of committing further
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