Middle East Research and Information Project: Critical Coverage of the Middle East Since 1971

For most countries in the Arab oil economy, the years 1982 and 1983 have marked an important moment of truth. The most obvious reason for this has been the decline in oil revenues as a result of falling world demand, cuts in production and the failure to hold the OPEC base price at $34 a barrel. As far as the Arab states of the Gulf are concerned, this has meant a reduction in oil revenues from $164.3 billion in 1981 to $111 billion in 1982, while most forecasts for 1983 indicate a further fall to well under $100 billion.[1] One major consequence has been the cancellation or postponement of a number of major projects; in the case of Saudi Arabia, government expenditure has been cut from $91 billion in the 1982/3 budget to $75 billion for 1983-1984.[2]

Shocks of this kind, resonating with obvious political difficulties, have produced a heightened sense of the Arab states’ vulnerability, of the paucity of their resources other than oil, of their limited industrial power and, in general, of their relative lack of economic weight in world economic affairs. According to Yusuf Sayigh, the combined gross domestic product of the 21 Arab states in 1979 was less than that of Italy, although their population was almost three times as large.[3] Ibrahim Shihata has pointed out that the present gross domestic product of Japan is six times that of the six major oil exporters—Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Iraq and Libya—combined.[4]

For those states with little or no oil surplus of their own, this has been a particularly worrying time, with fears of a large drop in the foreign currency revenues they receive from Arab aid and from the remittances of their workers in the oil states. In Egypt, such concerns have also been combined with an attempt to come to grips with the economic legacy of President Sadat. In John Waterbury’s striking phrase, the seven “lean” years of low growth and little investment, 1967-1974, were followed by seven “fat” years, 1974-1981. In this period, access to huge resources of foreign aid, oil revenues, tourism, the Suez Canal tolls and the remittances from Egyptian workers abroad produced a growth rate of seven to eight percent a year. But this bonanza had its dark side: a huge mountain of debt as well as serious problems connected with the structure of the economy and the failure of agriculture and industry to respond to an explosion in domestic demand.[5] Now, two years after President Sadat’s assassination, it is possible to attempt a preliminary assessment of how his successor, Husni Mubarak, has coped with what he has publicly identified as some of the major negative features of the economic situation he inherited, while keeping within the general policy framework incorporated in the notion of the ”open door.”

This requires a review of the main features of the Sadat version of economic liberalization. President Sadat announced his policy of infitah in the euphoria which followed the crossing of the Suez Canal in October 1973. It featured a concerted attempt to attract Arab and foreign capital and to use it to upgrade Egyptian technology; the encouragement of local private enterprises; and the revitalization of the Egyptian public sector by breaking up sectoral monopolies, encouraging individual units to compete with one another and with the private sector as well as by the establishment of joint ventures with foreign firms.

While such policies were not particularly successful in attracting capital into local industry and agriculture, they did pave the way for the accumulation of large quantities of foreign exchange.[6] By the end of the 1970s, Egypt had been given over $4 billion in non-military aid from the US as well as enough from other foreign sources like the European Economic Community, the international agencies and Japan to make it the largest aid recipient in the developing world. In addition, the country was obtaining up to $3 billion a year from the 2 million or so Egyptians working abroad, and nearly the same amount from the export of its oil, output of which had risen four times between 1974 and 1981, increasing its share of gross domestic product from five to 22 percent. [7] Further large sums came from the Suez Canal after its reopening in 1975, and from tourism. As a result, between 1974 and 1978 the balance between the revenues from traditional exports like cotton and those from oil and labor (remittances) had changed entirely.

Windfall Consequences

The immediate consequence of these windfall gains was a huge import boom, fed by the demand from a rapidly growing population which had felt itself starved of consumer goods before 1974. From ready-made clothes and medicine to cars and electrical appliances, the local market was far larger than local industry could supply.[8] Other aspects of this consumption boom were the construction of hotels, offices and modern houses, often with a very large part of their furniture and fittings imported from abroad, the proliferation of banks and a process of internationalization which placed an obvious premium on the knowledge of foreign languages and the adoption of a European style of living. (One resulting sign of the times was the 1983 strike by Egyptian students at the American University at Cairo, partly as a protest against the employment of local teachers with a poor ability to speak English.) In such conditions, one of the easiest ways of starting a profitable enterprise was simply to imitate some well-tried formula which had worked in Europe or North America: a local version of the private security agency, a fast-food chain or a publishing house for children’s readers.

In these circumstances, the major growth sectors of the Egyptian economy were inevitably trade, services and banking. But in spite of foreign competition, governmental neglect and access to only small amounts of outside capital and expertise, there was speedy growth in some of the productive sectors of the economy as well. This was most obvious in public sector manufacturing. Up to a point, the greater freedom given to managers to direct their own affairs and to obtain their own sources of foreign currency seems to have led to a better utilization of capacity and, for the most part, a sustained rise in productivity per worker.[9] Chemicals and fertilizers experienced the fastest growth; there also seems to have been some progress in every category except the important one of textiles, which employed nearly half of the public-sector labor force and accounted for nearly half of its output.[10] The reasons for this are unclear, but probably have to do with intense competition from cheap imports from Asia, its poor stock of equipment, and the loss of much of its Eastern bloc market following the enormous reduction in bilateral trade agreements after 1974.[11]

Thus it seems reasonable to conclude that the process of economic liberalization has proceeded as far as it is likely to go under present circumstances. It leaves Egypt with a large and still largely unreformed public sector and a still fledgling private industrial sector. It leaves the regime trying desperately to offset nearly ten years of wasteful consumption of windfall foreign funds with some notion of economic self-reliance at home. And it leaves the balance of class forces largely unchanged.

The subject of public-sector profitability is particularly difficult to study due to the complex network of subsidies and compensations, which mean that most enterprises are provided with cheap inputs in exchange for holding the price of their products at well below the free market rate. Energy, for instance, was provided at something like a fifth to a sixth of the international price and raw cotton at perhaps a third. On the other hand, some 40 percent of public sector output was priced at lower than cost in the interests of providing cheap goods to the Egyptian consumer.[12]

The performance of the private manufacturing sector was more uneven. In 1974 it provided just over a quarter of total Egyptian output and was beginning to develop quite an important market in Eastern Europe for some of its more traditional lines, like shoes, furniture and carpets.[13] It then suffered a double blow from the reduction in bilateral trade agreements followed by heavy competition from a flood of foreign imports in 1975 and 1976. Toward the end of the Sadat period, there were signs of more vigorous growth based mainly on the establishment of modern factories, often in conjunction with foreign firms, making high-quality fabrics, pharmaceuticals and metal products. This did something to redress the balance between private and public sector enterprises as far as size and technology was concerned. Nevertheless, the private sector remained, for the most part, characterized by small firms with a low capital-output ratio.

The progress of the Egyptian agricultural sector under Sadat is the most difficult to judge of all. Output increased at rates variously calculated at between 1.6 and 2 percent a year. These figures would be considered satisfactory in most countries of the world—the more so if, like Egypt, they were suffering from a whole host of serious problems ranging from deterioration of the soil, the loss of perhaps as much as one percent of the cultivated surface a year to urban sprawl and, at the end of the period, quite serious labor shortages due to migration.[14] On the other hand, output failed to keep up with the growth of population, let alone the explosive per capita demand for such foodstuffs as meat and high quality flour. This increasing need had to be met by imports from abroad. In July 1982, the minister of agriculture noted that the country was spending nearly $3 billion a year on foreign food; in the case of wheat, its ability to meet local demand out of local production had declined from 70 percent in 1960 to only 25 percent in 1980.[15]

The Sadat regime’s response to this situation had been low key. Acting, no doubt, in response to the wishes of a vocal constituency of large and medium landowners well-entrenched in the dominant party and in the People’s Assembly, it turned a blind eye to such practices as the reallocation of land away from the major crops like cotton and wheat, which were purchased at a controlled price by the government cooperatives, towards fruits and vegetables, which could be sold on the open market. At the same time, it studiously avoided confronting the vexed question of reform of either the agricultural institutions or the system of land tenure. Rather, the regime contented itself with promoting only minor changes which had the effect of improving the economic position of the rural elite. Such administrative energy as was devoted to agricultural matters generally took the form of trying to devise technical solutions for what were identified as outstanding problems, usually in alliance with the officials of the USAID program. These included efforts to encourage mechanization (by 1979 about 40 percent of the cultivated area was being plowed by tractor), to promote the use of high-yield seeds and to implement a program which would provide the whole of Lower Egypt with a system of tiled drains.

A final aspect of government economic policy concerns the growing importance of a whole variety of subsidies. Egyptian writers on the subject have identified three types: direct subsidies, mainly on foods; indirect subsidies by which, for example, public-sector goods are sold at below cost price; and a number of “hidden” subsidies such as the provision of unnecessary jobs for unemployed workers.[16] Direct subsidies increased from only a few million Egyptian pounds in 1970 to over a billion pounds by the end of the decade.[17] By 1979, food subsidies covered over 15 percent of total food consumption and accounted for over a quarter of total public expenditure.[18] According to Waterbury, indirect subsidies may well have cost a roughly equivalent amount. [19] The process by which these subsidies were allowed to increase so enormously in amount has never been properly charted, in spite of the great public debate which they have occasioned. It most certainly reflected the regime’s desire to damp down or to contain popular discontent at a time when the value of public services was in obvious decline and real incomes were being eaten away by rampant inflation.[20] The one attempt to reduce them, in January 1977, produced an instantaneous explosion of popular discontent in the major cities: from there on, Egyptian and Western policymakers have regarded as axiomatic that the subsidies were an essential tool of political control, even though the IMF and other international agencies have repeatedly attacked them as wasteful and economically unnecessary.

Constructing an Interpretation

Most of these facts are quite easily established. What is more problematic is how they should be interpreted. One approach involves a consideration of some of the possible definitions of key notions such as dependence, class and the state. Waterbury sees Egypt’s increased dependence during the Sadat period largely in its increased reliance on foreign aid—technical, monetary, food and weapons. Just as important, this aid came primarily from one source: the United States. This obviously gave Washington a great deal of political leverage over Egyptian policy, and Waterbury attempts to measure the degree of this inequality in the usual way of examining the interaction between a superpower and a politically important client.[21]

Such a use of the notion of dependency, though, does not explain very much about the key relationships at work within the economic sphere. Here a more useful version is that employed by ‘Adil Husayn, when he writes of the restructuring which took place during the Sadat period. The country became more dependent on external funds and technology: In addition to the direct contribution of remittances, oil revenues, tourism and canal receipts, Husayn considers the consequences of emphasizing mechanized agriculture, and the decline in importance of those activities over which the Egyptians had their own store of expertise, such as the production and export of long-staple cotton.[22] The result was a clear reduction in Egyptian control over their economy and the replacement of an Egyptian by a foreign technical input in many important areas.

Husayn’s analysis is helpful up to a point, but it lumps together all the sources of external funding. During the 1970s Egypt derived considerable advantage from the fact that these funds came from a number of sources, all of which were unlikely to be cut off at any one time. This allowed President Sadat to avoid complying with most of the IMF’s terms during the prolonged negotiations in 1978-1979. As Waterbury notes, Egypt’s temporary balance of payments difficulties were then almost immediately overcome by a sudden sharp increase in the receipts from remittances and oil.[23] In a similar fashion, Husayn’s employment of the notion of dependency tends to be mechanistic, with little attention to the different types of inequalities which work themselves out in different ways at different times.

Husayn shares with Waterbury a tendency to downplay the explanatory power of the concept of class. In the case of Hussein, the influence of Washington is supposed to act directly on the Egyptian economy via the weakness of the regime and without the mediation of local classes and groups. The central importance Waterbury attaches to the idea of the autonomy of the state seems to deny the possibility of any significant impact on policy from groups outside the upper reaches of the bureaucratic elite. In reality, as far as economic management is concerned, the state cannot possibly be seen as a single agent with a single will, and is much better conceptualized as an arena in which a variety of shifting struggles are waged between different foreign and local interests at several levels of the state’s institutions. The extent to which different groups control productive property forms a crucial part of the conditions and the objectives of the struggles.

In the particular context of Egypt in the 1970s, the control exercised by the political leadership of the state was significantly reduced in a variety of ways, for the purpose of attracting foreign currency and foreign investment. One example is the unwillingness of the authorities to place any barrier in the way of the free movement of Egyptian workers to the Arab states or to control the ways in which they remitted their earnings back home. This absence of policy means that, to this day, no one in the Egyptian government has any exact idea about how many Egyptians there are abroad, what they are doing or how much they might be earning. Another example is the diminution of political control over the legal system so that courts could be safely used to protect private property and private commercial transactions. Even more important was the limited experiment in political liberalization after 1974, which provided considerable scope for different interest groups to use the institutions, such as the Economic Committee of the People’s Assembly, either to block certain pieces of legislation or to introduce their own programs into the legislative agenda.

In this situation of little coherent official government economic policy, one group of economic interests was able to push for the extension of infitah policies to a wider and wider area of economic activity, always on the argument that such steps were necessary to encourage lagging investment. An important role was played by a plethora of organized pressure groups, like the Association of Egyptian Businessmen (composed of commercial agents engaged in foreign trade) and the Egyptian-American Business Council (active in suggesting amendments to PL 43 of 1974 governing foreign investment), which emerged from the process of liberalization itself. Public-sector activity was less well organized and tended to rely on the isolated response of groups of both workers and managers which, for a variety of reasons—ideological as well as economic—were not willing to submit to the internationalization and privatization of their enterprises. They generally received support from some sections of the press, notably al-Ahram al-Iqtisadi. The public sector, despite its handicaps, was able to fight a largely successful rearguard action against attempts to open it up to private foreign interests or to make it more accountable to the political leadership.

The same kind of dynamic seemed to characterize the economic influence of the ever-growing USAID administration. In the absence of any coherent governmental strategy towards the economy, AID—together with a number of high level missions from the IMF and the World Bank—was often the only agency attempting to establish priorities or to think systematically about the economy. At the same time, this very lack of coherence insured that the impact of policy suggestions was very much reduced; since there was no obvious way they could be implemented. There is evidence of considerable opposition to US- sponsored projects from within the bureaucracy, which may explain why a great deal of the allocated American funds remain unused.[24]

Enter Mubarak

The accumulation of economic problems facing the regime at the time of President Sadat’s assassination was formidable. Most immediately pressing was a recurrence of a balance of payments deficit: while imports continued to rise rapidly, non-oil exports remained stagnant and income from oil, tourism and workers’ remittances was beginning to decline. In the context of the world recession, this situation was bound to worsen before it improved. Some of the underlying trends were even more worrying. For oil, rice and a number of other key foreign-currency earners, domestic demand was increasing fast, eating away at the surplus available for export. Under these circumstances, the interest payments on the external debt might well become unmanageable. There was also mounting public criticism of a number of basic features of economic liberalization: corruption, wasteful consumption, shortages of necessities, and its failure to encourage productive foreign investment. The numbers of industrial and agricultural projects actually established under Public Law 43 of 1974 were quite small. In addition, they had managed to attract only a tiny proportion of European and American capital. Businessmen in the West seemed remarkably unimpressed by President Sadat’s picture of Egypt’s economic attractions, and preferred to confine the bulk of their investment to the more profitable activity of producing oil and gas.[25]

President Mubarak, on taking office, responded publicly to these criticisms with a set of economic principles. These included the re-examination of import policies, the reduction of unnecessary government expenditure, an attempt to make sure that food subsidies went only to those who had a right to them and, most fundamental of all, an emphasis on an “infitah of production” rather than “consumption.”[26] The greater part of his early dialogue with two main parliamentary opposition groups, the Progressive and the Socialist Labor Parties, seemed aimed at getting them to support publicly such policies. A two-day economic conference in Cairo in January 1982 gathered together most of Egypt’s leading economists, who more or less agreed that the policies of infitah should continue, subject to certain basic amendments designed to ensure that it led to a better development of the country’s productive resources.

Most of 1982 was taken up with various measures designed to implement Mubarak’s general program. A series of investment conferences were held with different groups of foreign businessmen—American, Japanese, European and Arab. Here, lists of government-approved projects—about half of them industrial—were presented for foreign participation. In an effort to meet foreign criticism, investment procedures were streamlined. In September 1982, the government signed an investment treaty with the United States providing a set of guarantees around such key issues as compensation in the event of nationalization and the unimpeded repatriation of profits.[27]

There was also a more determined effort to reduce imports and encourage exports (to the Eastern bloc as well as the West), and to mobilize Egyptian savings for domestic investment by improving the machinery of tax collection and by encouraging banks to channel more of their deposits into industry. The new minister of agriculture, Yusuf Wali, was put in charge of a program very similar to that recommended by successive USAID and World Bank missions, emphasizing mechanization and the improvement of yields. The purpose here was to increase the supply of agricultural exports as well as to meet a larger share of local demand for cereals and meat. Finally, as a culmination of this process, there was the publication of a new Five-Year Plan for 1982/3-1986/7, which set out the main lines of future economic policy, concentrating on projects which would increase economic self-sufficiency by improving the supply of goods for both local consumption and export. The central purposes of Mubarak’s effort to provide a coherent economic program were to establish a clear set of priorities and to convince both Egyptians and foreigners alike that the laissez-faire era of Sadat was at an end. Such a program represented an attempt to find a consensus among Egypt’s major classes and groups, while maintaining the support of USAID and the international financial agencies. Inevitably, though, any attempt to impose an overall strategy forced the government to confront the many different contradictions posed by the relative positions of those different interests, and by the different modes of interaction between the Egyptian economy and the rest of the world.

The priorities established by the Five-Year Plan are just those which would be recommended by the IMF, the World Bank or almost any contemporary mainstream development economist. In such conventional wisdom, the principal aim of a country experiencing serious balance of payments problems must be to reduce the demand for both tradeable and non-tradeable goods and services, thus cutting expenditure on imports and freeing domestically produced goods for export. As elsewhere, there is serious disagreement about the fiscal and monetary policies which may be required to implement such a program, in particular those concerned with the reduction or elimination of subsidies and the exposure of the public sector, both in industry and agriculture, to market forces. So far, the Egyptian government has cut the sums allocated to direct subsidies in the 1983/4 budget to 1,680 million pounds (as compared to 2,040 the previous year).[28] The government aims to accomplish this not by raising prices, but by controlling the distribution of subsidized food to ensure that it goes only to those in real need.[29] Against this, there has been no mention of any attack on the even larger sums involved in indirect subsidies, such as cheap energy. Nor is there any present inclination to reform the pricing system within the public sector: a World Bank report with strong recommendations on the subject has been quietly shelved, and President Mubarak went out of his way in his last May Day speech to offer his protection to the public sector, promising to resist further efforts to privatize it. Finally, perhaps for financial reasons, the regime has been very unwilling to raise the lower-than-market price it pays producers for the bulk of Egypt’s crops, notably cotton and cereals.

In the realm of foreign investment, the Mubarak regime has intensified the bargaining over the terms of proposed joint-ventures to ensure that such projects embody as large an Egyptian input as possible, particularly Egyptian- made components. This has to be reconciled with such foreign demands as the establishment of quality control systems by foreign technicians and the allowance of some degree of monopoly in the local market. The Egyptian press has recently been full of details of this type of bargaining, with special stress on foreign investors’ unwillingness to share industrial secrets and their attempts to undervalue the Egyptian contribution to joint ventures. This is a particularly serious matter, because Egyptian public sector companies very often have few liquid assets to contribute to such ventures and usually provide their capital in the form of their plant or their real estate. The army-controlled Ministry of Military Production is now experiencing these problems with some of the joint ventures it is trying to establish for the manufacture of trucks and other military goods.

Last but not least, there are all the usual problems connected with trying to reconcile the interests of a whole variety of different domestic enterprises—public, private and joint-venture—as well as in producing a tariff policy which combines an efficient degree of protection with access to cheap sources of foreign supply. For Egypt, such problems are exacerbated by a weak currency and by subsidies which often have a strong implicitly protectionist element. Furthermore, many public sector enterprises are forced to obtain needed foreign currency by importing and selling products manufactured by their foreign rivals, very often giving preference to those willing to pay in foreign currency. Such a situation seems to produce not so much a policy as a set of ever-shifting expedients.

Textiles and Trucks

One good example of this is the repeated failure to rationalize the Egyptian textile industry. This industry is still responsible for about half the country’s total output, with the public sector contributing perhaps 75 percent of this. It consumes half of Egypt’s annual cotton crop. At present, it is the main source of Egyptian manufacture exports. Its problems are sizeable: machinery is generally old and out of date; the local Egyptian cotton is of too high a quality for the cheaper textiles which form the bulk of the industry’s product, and it is supplied at well below cost. The government has willingly created further difficulties by allowing the import of cheap, ready-made clothing from abroad. In recent years, one major and misguided attempt to impose a new regime on the industry—Bank Misr’s ill-planned project for a huge textile and synthetic fiber complex at al-Amira, near Alexandria—was defeated by a combination of public- and private-sector interests. (According to Waterbury, the project was attacked on a number of counts, including its exaggerated estimates of Egyptian demand, its threat to the public sector textile industry and the allegation that a few middlemen had managed to make huge sums of money on commissions for imported machinery. Nevertheless, the project was not halted, but only scaled down, by a special parliamentary commission set up to investigate it. It now consists of a plant to produce polyester.) As yet, there is nothing to put in its place.[30]

A more constructive instance concerns developments in the truck assembly industry. The leading public sector firm, the Nasr Automotive Company, has drawn up a general plan for the sector, in association with the government’s General Organization for Industrialization. For the past seven or eight years, a large number of foreign companies (including Peugeot-Citroen, Renault, Volkswagen, Nissan, Honda, Ford, General Motors and Daimler-Benz) had been energetically lobbying for permission to establish assembly plants in Egypt. Egyptian planners want to upgrade Egyptian activity from the simple assembly of foreign-made parts to providing a significant proportion of the components from Egypt itself. The plan involves expanding Nasr Company’s own operations by charging full cost for cars (rather than selling them at a subsidized price), reducing foreign imports and finding foreign partners with whom to produce more Egyptian-made components. The plan also proposes sharing the rapidly-expanding Egyptian market for light and heavy trucks with a number of Egyptian/foreign joint ventures; the first two, involving Daimler-Benz and General Motors, have already been signed. In each case the new joint venture company has agreed to use up to 60 percent of local components within five years of beginning operation.[31]

It seems necessary to refer briefly to the main contradictions involved in formulating a policy towards the Egyptian agricultural sector. The regime has gone along with American-inspired technological solutions on a number of occasions. But in two main areas it has resisted American pressure. First, the government has been unwilling to raise to world levels the farmgate price it pays for major crops. Second, it continues to emphasize expensive land-reclamation projects, in spite of repeated calculations that the money would be much better spent on improving the productivity of existing fields. This emphasis on reclamation had its rationale in a prevailing assumption that, somehow or other, the ever-expanding Egyptian population has to break out of its imprisonment within the narrow strip of land along the Nile. One such project at Salhiyya, 100 kilometers northeast of Cairo, involves both desert reclamation and the creation of a new town, with capital from the government and Osman Ahmad Osman’s Arab Contractors. Clearly, too many vested interests are now involved for the regime to withdraw easily. Hardly a week goes by without President Mubarak’s visiting one desert reclamation project or another. The situation is very reminiscent of that during the first few years of the 1952 revolution, when the regime and important civilian and military interests within it were so closely identified with similar programs that it took at least a decade to assess their actual contribution to agricultural improvement.[32]

Liberalization and the Future

What are the major lessons to be drawn from Egypt’s economic liberalization so far, and how are policies likely to develop over the next few years? Any answer to these questions must be based on the following considerations:

  • Egypt is a country with a relatively low domestic savings ratio (the Central Bank estimates it currently at just over 12 percent of GNP).[33] This is the result of a low tax base, a bureaucracy which is relatively inefficient when it comes to tax collection, and a partnership between the state and private bourgeoisie which has always made it difficult to squeeze the middle class.
  • With limited local resources, successive regimes have remained heavily reliant on foreign aid. One high-ranking official in the General Authority for Investment and Free Zones recently stated that almost 40 percent of the investment envisaged under the new Five-Year Plan is supposed to come from abroad.[34] This will make it difficult to alter the main lines of the present version of liberalization. It also means that the regime will remain subject to constant foreign attempts to dictate policy.
  • The limited nature of local resources will encourage further reliance on the public sector, which provides almost twice as much in direct taxes as the private.[35] For these and other reasons it will be difficult to make major reforms in the public sector. It will also be tempting to continue to expand the use of the public sector to raise revenues and to earn scarce foreign currency.
  • The strategy of seeking to effect an Egyptian industrial renaissance by way of a partnership with foreign capital has more or less failed. Foreign companies are mainly interested in access to the Egyptian market. To do this they are willing to pay a price by going into partnership with a limited number of Egyptians. Otherwise they are not interested in encouraging a large Egyptian input. They are certainly not interested in employing cheap Egyptian labor: by the end of 1982, the number of new jobs to be created in schemes accepted under PL 43 was only 45,000.[36] For its part, the regime has shown no inclination to use its political power to provide cheap, disciplined labor for new enterprise. Indeed, in many cases it has tried to prevent joint ventures from taking advantage of the opportunities provided by PL 43 to hire and fire at will.
  • Foreign countries have shown little interest in using Egypt as the base for entering the rest of the Arab market. The regime’s own efforts to promote exports have concentrated on the difficult task of selling to Western Europe rather than to the Eastern bloc or the countries of Africa and Asia. As far as the Middle East itself is concerned, Turkey has emerged as a more efficient producer of manufactured goods for the Arab and Iranian markets.
  • There are obvious limits to the degree to which private Egyptian industry can provide a larger share of Egypt’s total output. For the most part it is small-scale and technologically backward. It faces strong competition from well-entrenched interests in the public sector. It suffers from the frequent changes of policy towards tariffs, imports and the value of the Egyptian pound.
  • Agricultural policy is the product of a coincidence of interests between government, the foreign aid agencies and the larger landowners. It has led to an emphasis on projects designed to increase yields both by improving inputs and substituting higher-value for lower-value crops. In spite of considerable criticism of existing arrangements, it has not addressed itself to either of the two major institutional problems: the reform of the cooperatives and the existence of tiny individual plots. The emphasis on reclaiming desert land can also be seen as an attempt to encourage the growth of agribusiness without disturbing the existing ownership pattern of ordinary cultivated land.
  • As far as the future distribution of Egypt’s resources is concerned, the regime will have to continue to pay particular attention to two important constituencies. The first is the military, whose share of current expenditure has risen substantially over the last two years and reached over 26 percent in fiscal year 1982/3. The second is the peasants, workers and petty bourgeoisie, whose political acquiescence has been purchased by the provision of high subsidies on basic necessities.

Thus it seems reasonable to conclude that the process of economic liberalization has proceeded as far as it is likely to go under present circumstances. It leaves Egypt with a large and still largely unreformed public sector and a still fledgling private industrial sector. It leaves the regime trying desperately to offset nearly ten years of wasteful consumption of windfall foreign funds with some notion of economic self-reliance at home. And it leaves the balance of class forces largely unchanged. For all the gains they have made under liberalization, Egypt’s compradors and private capitalists remain weak, and doubly dependent on the state and foreign capital for further advance. For their part, the public sector managers have been forced on the defensive without, so far, having to surrender much of the position they had achieved under Nasser. Finally, the workers and peasants, though almost totally disenfranchised under present parliamentary arrangements, are still credited with enough negative power to force the regime to leave them their land and their public-sector jobs, while attempting to buy them off with subsidies and the right to find work abroad. In these circumstances, Mubarak’s version of infitah is certainly no radical reappraisal. This regime has demonstrated slight inclination or capacity to break through the blockages that are the legacy of Egypt’s economic development and class formation for more than two decades under Nasser and Sadat.

 


Footnotes

[1] Petroleum Intelligence Weekly, quoted in the Times (London), April 6, 1983.
[2] Times (London), July 1, 1983.
[3] Yusuf Sayigh, Arab Oil Policies in the 1970s (London and Canberra, 1983), p. 183.
[4] Quoted in Khalid Al-Shawi, “Arab Oil Exporting Countries and the Challenge of International Cooperation,” OAPEC Bulletin 9/7 (July 1983), p. 12.
[5] John Waterbury, The Egypt of Nasser and Sadat: The Political Economy of Two Regimes (Princeton, NJ, 1983), pp. 112, 404-405, 423-434.
[6] Ibid., pp. 402-405.
[7] The figures for workers and remittances are best guesses, based on information found in a discussion of Arar Muhi al-Din’s work on the subject in al-Ahram al-Iqtisadi, March 1, 1982. For the contribution of oil to GNP, see the discussion of a US Embassy economic report in al-Ahram al-Iqtisadi, September 14, 1981.
[8] For example, the numbers of licensed cars in Egypt increased by 300 percent between 1975 and 1982. See Middle East Economic Digest, November 19, 1982.
[9] For example, “Industrial Activity of the Public Sector During the Period 1974-1979,” Economic Bulletin of the National Bank of Egypt 35/1 (1982), pp. 24-25.
[10] Waterbury, pp. 104-105.
[11] “Industrial Activity of the Public Sector,” pp. 20-23.
[12] For information on the level of energy subsidies, see for example, Waterbury, p. 218; Middle East Economic Digest, April 2, 1982.
[13] Information on the private sector in 1974 comes from Ali el-Gritly, quoted in Nermine Mokhtar, “The Upper Economic Class in Egypt,” unpublished M.A. thesis, American University in Cairo, 1980, pp. 78-79.
[14] Figures concerning the increase of agricultural output range from the 1.6 percent of Hansen and Radwan, Table 3, to the 2 percent quoted by various American missions and the Egyptian Ministry of Agriculture, Rose al-Yusuf, July 20, 1982.
[15] Ibid.
[16] For example, al-Ahram al-Iqtisadi, January 25, 1982, or “Foodstuff Subsidies in Egypt,” p. 126.
[17] Ibid., p. 128.
[18] Ibid., pp. 128, 133.
[19] Waterbury, p. 217.
[20] This is the argument of Waterbury (pp. 228-31) and the anonymous author of “Foodstuff Subsidies in Egypt,” p. 139.
[21] Waterbury, pp. 29-40, 402-405.
[22] ‘Adil Husayn, al-Iqtisad al-Misri min al-istiqlal ila al-taba‘iyya, 2 vols. (Beirut, 1981).
[23] Waterbury, pp. 410-411.
[24] For example, Colin Smith in Observer, November 14, 1982.
[25] For examples, see the American economic report quoted in al-Ahram al-Iqtisadi, September 14, 1981.
[26] Mubarak’s seven points can be found in al-Ahram, November 9, 1981. One of the leading members of the Progressive Party replied with his “Seven Principles of Isma‘il Sabri ‘Abdallah,” al-Ahram al-Iqtisadi, January 11, 1982.
[27] Middle East Economic Digest, October 8, 1982.
[28] Ibid., June 10, July 1, 1983.
[29] Ibid., June 10, 1983; Egyptian Mail, January 15, 1983.
[30] Waterbury, pp. 151-152.
[31] Middle East Economic Digest, February 4, May 6, 1983.
[32] Robert Springborg has a good account of this process in the second section of his Family, Power and Politics: Sayed Bei Marei—His Clan, Clients and Cohorts (Philadelphia, 1982).
[33] Quoted in Egyptian Gazette, February 12, 1983.
[34] Quoted in Middle East Economic Digest, May 13, 1983.
[35] Ibid., April 29, 1983.
[36] Al-Ahram al-Iqtisadi, December 6, 1982.

How to cite this article:

Roger Owen "Sadat’s Legacy, Mubarak’s Dilemma," Middle East Report 117 (September 1983).
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