An Economic View of Egypt - Research Paper Example

An Economic View of Egypt Introduction Egypt, the country lying across Africa and Asia is one of the most populated countries of the world. Egypt has a history that dates back to the 10th millennium BC. The longest river of the world the Nile flows though a major part of the country making the course of its journey fertile for cultivation. The country is thus termed as the gift of the Nile. The economy of the country is much diversified with various sectors that have developed over time. The major sector in the economy is agriculture, industry and services the major part of which includes tourism. The country has a lot of military and political influence over a number of countries in Africa and Middle East. This paper makes an investigation into the country from the economic and political points of view. The various economic indicators have been thoroughly analyzed. Along with that the present issues that is of the biggest concern for the country has also been enumerated. Finally a recommendation has been provided which provides an insight into the prospects and the possible way forward for the country. Research Objective The country of Egypt has gone through various turbulences in the recent times. This has some effect on the economic and political condition of the country and has brought the country under various challenges. The objective of this paper is to find out the various nuances of the economic and the political aspects of the country. The study would provide an insight into impact of the happening in the country as well as find a feasible solution to the host of problems. Literate Review The economic and political aspects of the present day Egypt has been captured in the writings of a number of researchers. The existing political scenario of a particular country has a direct impact on the economy. The well being of a country is largely dependent on the kind of governance that is existent in the country. The major indicator of the development of any economy is the growth rate of the GDP. From the figure below it can be concluded the Egypt experienced a growth rate which have fluctuated over a period of time. The country has faced phases of positive trend in the rate of growth of the economy during the period from 1992 to 1998 and again from 2003 to 2008 as see in the diagram below. However the economy faced a major downturn with the growth rate bottoming out during 2011. The chief reason behind this is the political turbulence that had been taking place in the country due to the removal of Hosni Mubarak from the political control of the government of Egypt. The country recovered from the drastic situation with an extremely slow pace which resulted due to the various social and economic challenges that the newly formed government faced. The national issues had greater significance at that point of time. However, the real GDP showed a positive trend in the growth rate by 2.0 % in the year 2012. The consumption expenditure of the government also increased during this phase which justified the path of recovery of the country. The country has always reported a very high rate of inflation which remained above 10% with the consumer price index always having a double digit figure. After the period of political turbulence, in 2012 as the economy recovered the inflation rate was also brought under control and was reported to be 8.7%. However, the currency of Egypt faced a huge amount of depreciation because of the high rate of depletion in the foreign reserves of the country. This resulted in the weakening of the currency and exchange rate for the country became very vulnerable. The diagram that follows explains the position of foreign exchange of the country. During the year 2012, the foreign exchange reserve of Egypt slowly went down. This resulted in a low level of reserve as low as 13424.1 million US dollars in 2013. A lot of capital outflow took place in the country during this period. Source: Trading Economics Though some of the economic indicators were performing in a positive manner, the economic scenario of the country was so adverse that the good performances could not make up for the existing worse situation. The demand for export was low from the countries that traded with Egypt. Along with this the country was burdened with a lot of external debt. This resulted in a current account deficit as the exports of the country went down in 2013. The following graphs depict the current account position of the country. During the year 2013 it became the worst and the deficit amount was as high as 2765 million US dollars. Source: Trading Economics The adverse condition in the current account position also had its effect on the balance of payments of the country. The amount of goods exported in the country was extremely low and the imports were high. Thus the balance of goods in the country increased in the negative direction by 8.1%. Source: Trading Economics Egypt is involved in trade relations with a large number of countries. The country exports to Africa countries, the European Union, the United States. On the other hand Egypt imports from these nations along with the Asian countries and Russian Federation. Petroleum is one of the major products of exports for the country. However, there was a decline in the amount of export of the petroleum products. There was also increase in the private consumption of petroleum especially during the times of the election. Egypt generates a lot of revenue from tourism and the use of the Suez Canal. Though the revenue from tourism increased the revenue generated by the Suez Canal decreased and thereby balanced these two items. Agriculture sector has remained one of the most important sectors of the country and despite the present day political and social disturbances managed to maintain the growth rate of 2.9%. This contributes a major part of the GDP of Egypt (Licari 12). The private sectors contributed to this agriculture. However any investment in this field had gone down over the period. Wheat is the most important agricultural product of the country and comprises of the major area of the cultivated land of the country. On the other hand the country is also the largest importer of wheat because most of the people of the country have huge demand for the consumption of this crop. Along with wheat sugarcane and vegetables are produced in plenty in the country. Since the change in the government, the country has witnessed the inception of various national agricultural projects which would promote the growth of the country. The manufacturing sector in Egypt has presented a better trend of growth especially because of the petroleum refinery industries. On the other hand the mining and the extraction sector which are major GDP contributors have reported negative trends because of the slackening of the demand from the public (Saif 16). The government prior to the collapse of the Hosni Mubarak Government had invested a lot of funds on the projects related to crude oil extraction. This had declined by 45% in the present economic scenario. Conversely the natural gas production was given more importance in the Egyptian Economy. Various financial and cost models have been implemented by the foreign investors like British Petroleum to operate under a cost effective and optimal production process of the natural resources. The demand for housing and infrastructural investments of the country remained extremely volatile because of the political happenings of the country. The increase in the population of the country needed the expansion of the housing industry. On the governmental front there was a fiscal deficit experienced by the government of the country and there was a gap of 11.1% of the GDP in the government revenue and the expenditures incurred by the government. The government expenditures mainly took place due to the subsidies and the wages that the government provided to the people of the country. The consequences of the political tensions were also faced by the banking sector of the country. Thought the deposit base of the banks increased, at the same time they were exposed to various types of foreign exchange risks (AfDB 5). Methodology The methodology that has been adopted in this study is that of a secondary research. The information that has been gathered for the study is mainly from books, scholarly journals as well as academic publications from authoritative sources. The graphs and diagrams that support the study have been taken mainly from credible web resources. All these papers have been studied to arrive at the necessary conclusions. Analysis of the Political and Economic Challenges of Egypt From the above analysis it is clear that the major reason for the occurrence of the revolution in the country was the weak economic set up in which the general public lived. The reason for the removal of the dictator Hosni Mubarak from his position was the abuse that the police did to the people and the repressed state in which the common people lived (Sharp 3). However, the major reason for this oppression is the unstable situation in the economic front. The people in their protest simply demanded the fulfillment of the basic needs of their lives which were not met during the reign of the dictatorial ruler. The major problem in the country was unemployment. Many of the Egyptians have been skeptical about the policies framed by the present government. During the time of Mubarak the resources were not utilized in the efficient manner and corruption had engulfed the entire economic and political standings of the country. Though the reforms brought about during the later part of the tenure of Mubarak nothing effective took place that could change the economic position of the country. Source: (Dewan 2) A major part of the population of Egypt, i.e. about 41% of the people was poverty stricken in the country and the rate of poverty was very high in the rural areas of the country. The main reason behind this was the high rate of inflation and the devaluation of the currency of Egypt. Though the government had tried to provide for these people through the transfer of subsidies and pensions most of the poor people were not benefitted by it because the money did not reach the target group of people. The government also went for development programs in a selective manner. Thus while the people of the north witnessed development the south, which mainly comprised of the rural areas, remained untouched by the process and remained underdeveloped. Thus the reforms that took place in the country with a motive to remove President Hosni Mubarak were instilled in the people due to several chief reasons. First of all, the high level of inflation and the lack of any effective economic reform on part of the government caused the people of the country rise up against the existing government. There was an immediate need to address the problems of unemployment in the country. Even after the overthrow of Mubarak the problem persist in the society. Secondly, the government exercised control over a large number of social institutions. There was lack of freedom to form associations and a lot of restrictions were imposed on any political group that was formed. The constitution of Egypt that was prevailing was old fashioned and took the society to an age backwards. Finally the Egyptian society was burdened with a host of problems. There was political influence even on the labor unions and the leaders of the country remained far away from the real situation of the country that was affecting the major part of the urban and the rural population. All the above mentioned reasons forced the people of Egypt to come forward to demand their economic, social and political rights that the people were deprived of. The country also saw a convergence of the people who were engaged in political and social reforms. Recommendation The country in the existing political and economic scenario, require decentralization of the administrative and political governance. This is because the specific areas of the country have different needs to be developed enough. A single set of rules would not be able to bin the entire country. Since some parts are developed and the others are less developed the growth policies for the various regions should be different (Brumberg 12). The population of any country looks for the major issues to be addressed by the government. Despite the removal of Mubarak from political power, a huge number of the population has still remained unemployed. Therefore it is important to set up infrastructural and development projects by the government which would help in the creation of jobs in the economy (Dewan 10). Foreign investment in various projects can help in reduction in the rate of unemployment. Conclusion This report analyzed the different types of problems that the present day Egypt has been facing. The country is seen to slowly recover from the economic downturn which was fuelled by the political unrest that the country had been witnessing. However, the country has not yet being able to cope up with the major economic setbacks like inflation and unemployment which are still hurting the major chunk of the population of Egypt. Recommendations have been provided that would lead the country to a path of more sustainable development. The country should move towards a democratic social and political set up that would encourage the public to participate in the workings of the government and economic policy making. Works cited Dewan, Sabina , James Hairston, and Jordan Bernhardt. The Path to a Successful Economic Transition in Egypt. Washington D.C.: Centre for American Progress. 2012. Print. Sharp, Jeremy M. Egypt: Background and U.S. Relations. Congressional Research Service. 27 June 2013. Web. 14 November 2013. Brumberg, Daniel and Hesham Sallam. The Politics of Security Sector Reform in Egypt. Washington, DC: United States Institute of Peace. October 2012. Web. 14 November 2013. < http://www.usip.org/sites/default/files/resources/SR318_0.pdf> Licari, Joseph. Economic Reform in Egypt in a Changing Global Economy. Working Paper No.129. OECD Development Centre. December 1997. Print. African Development Bank. Egypt Economic Quarterly Review. Vol. 3. April 2013. Web. 14 November 2013. Saif, Ibrahim. Challenges of Egypt’s Economic Transition. Carnegie Middle East Centre. November 2011. Web. 14 November 2013. Read More