The Political Economy of Reforms in Egypt. Khalid Ikram
share of agriculture from 29 percent of the total to 15 percent, and a corresponding increase in the share of industry from 27 percent to 39 percent. A substantial part of the increase represented the emergence and growth of the petroleum sector. The share of the services sectors fluctuated a little between 45 percent at the start of the period and up to 52 percent in some years, but by 2016 had more or less returned to its share in 1965. See figure 4.
Figure 4. Structure of GDP, 1965 and 2016, percent
Investment and Savings
Economic growth is driven by a combination of investment, financed mainly by domestic savings, and improvements in productivity. Between 1947 and 1957 gross fixed investment remained low, accounting for only 12–13 percent of GDP, and from 1957 to 1964 it increased to about 19 percent. Starting in 1964, the cutbacks in demand required to curb inflation and improve the balance of payments substantially decreased the share of investment in the GDP, while the June 1967 war intensified this fall. At the end of the 1960s, the share of investment in GDP was almost as low as in 1947 (Hansen and Nashashibi 1975, 14–15).
For about two-thirds of the period between 1965 and 2016, the investment rate remained below 20 percent of GDP; see figure 5. This rate was much below that sustained for periods of three or more decades by fast-growing countries in Asia. Thus, to put matters in perspective, South Korea, Taiwan, Malaysia, Singapore, and Hong Kong maintained investment rates of around 35 percent of GDP during their decades of rapid growth, while the rate for China was frequently in the 40–45 percent range. The discussion in the introduction showed that improvements in total factor productivity, representing the efficiency with which factors of production are combined, played a minor role in the growth of Egypt’s GDP. The insufficiency of the quantity of Egypt’s investment was not compensated for by improvements in its productivity.
Figure 5. Investment and savings, 1965–2016, percent of GDP
The financing of investment raised its own problems for policymakers, as Egypt’s domestic savings consistently fell short, frequently by a large margin, of the investment rate. Over the fifty-year period as a whole, the average ratio of investment to GDP was 20.2 percent, while the domestic savings rate averaged 13.5 percent. This savings ratio might make the picture look a little worse than it probably was. Largely because of remittances from expatriate Egyptians, the country’s national savings are higher than its domestic savings.1 However, there still remained a large gap between total savings and investment. Moreover, national savings, that is, savings generated by Egyptian nationals working outside the country, are vulnerable to political interference (including the expulsion of Egyptian workers) by the host country. This has happened on more than one occasion: for example, after President Sadat’s trip to Israel; during the mid-1980s when oil prices fell and development programs in the major oil-producing states slowed; during the two Gulf wars; during Egypt’s conflict with Libya in 1977; and during the political unrest in Iraq and Libya following the collapse of the “Arab Spring.”
The shortfall was financed through inflows of foreign aid or by commercial borrowing from abroad. The borrowing obviously added to Egypt’s external indebtedness, as did the amount of foreign aid that was not provided as a grant. The failure to mobilize sufficient domestic savings meant that Egypt’s economic growth remained critically dependent upon the willingness of foreign institutions and countries to provide resources, while the buildup of external debt preempted an increasing amount of the country’s foreign-exchange earnings to service this debt and was thus not available to pay for essential imports. Figure 5 illustrates the behavior of investment and savings from 1965 to 2016 as a percent of GDP.
Population, Labor Force, and Unemployment
Population and Labor Force
Egypt’s population increased from about 26 million in 1960 to 90 million in 2016. The growth rate of the population of course fluctuated from year to year; the average over the period as a whole works out to about 2.3 percent a year. The labor force is estimated to have increased from 7.8 million in 1960 to 30.8 million in 2016. The bulk of the labor force is male; roughly 75 percent of males between the ages of 15 and 64 participate in the labor force, compared with only 23 percent of women. Issues relating to Egypt’s population are elaborated in chapter 3.
Unemployment
Figure 6 shows the unemployment rate for selected years from 1960 through 2017. Although the data are continually being improved, and the analyses of employment deepened (in which the work of Samir Radwan, Ragui Assaad, Caroline Krafft, and Nader Fergany figures importantly) the reliability of the figures for the earliest years may be suspect, and the IFIs tend to use data chiefly from the 1990s.
Figure 6. Unemployment, 1960–2016, (percent of labor force), selected years
Sources: 1960–2000 (except 1982) Ikram (2006, table 4.3 and sources cited there [with 1976 corrected]); 1982 from Ministry of Planning; and 2005–2016 from the IMF/World Bank database.
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