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Economic development and the structure of Egypt’s economy Essay

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Updated: Nov 20th, 2019

Egypt is one of the World’s economically diversified middle-income countries with both the private and public sectors contributing to the growth of its GDP. The country has good prospects for the medium term growth based on continual structural reforms. The country also has substantial natural resources including oil and gas and rich agricultural and manufacturing sectors.

The country is strategically located along the Suez Canal and utilizes its tourist industry to increase on foreign exchange earnings. The growth of the GDP in the first quarter of the year 2012 was recorded at 5.2% which was an increase from previous years. However, the GDP growth was determined to be below the average growth of 6% amidst severe political unrest that was experienced (HKTDC, 2012).

The competitiveness of Egyptian economy was enhanced by the government’s implementation of floating exchange rate and the frequent depreciation of the currency. The Egyptian pound was floated in the year 2003 leading to drastic depreciation in the exchange rate.

However, the government managed to avert the effects by introducing some form of control. Unified and flexible exchange rate system was enabled through establishment of what was referred to as self-regulatory inter-bank foreign exchange market. This has helped in the creation of a liquid foreign exchange market leading to stabilization of the Egyptian pound and consolidation of parallel market rates (HKTDC, 2012).

The country has experienced increased export of goods between the year 2001 and 2006. The rate increased from 8% to 17% of GDP respectively. Such rate of recovery is attributed to the impacts caused by depreciation in exchange rates and recovery within the global economy.

The level of import also recorded high rates between the years 2001 and 2006, rising from 16% to 28% respectively (Krugman and Obstfeld, 2011). This revealed that imports were valued at higher prices. However, the effects of higher import prices could be experienced in the nature of deficit within the merchandise trade balance (HKTDC, 2012).

The recent case on recession, led to the easing of Egypt’s inflation rate from 20% in 2008 to 9% in first quarter of 2012. Despite the recorded decrease over previous years, there is high expectation of increase in the rates in the near future. This is speculated from the nature of price increase on goods experienced within the global market.

Various challenges contributing to weaknesses within the global market poses a big threat to Egypt’s economy (HKTDC, 2012). Additionally, the current political instability poses a major challenge to the economy. The recent political unrest experienced in the country made investors to shy away owing to disruption of flow of goods from manufacturing and tourism sectors. The economic policymaking may encounter significant draw-backs owing to conflict amongst various groups with arms of government.

Trade Policies

Egypt has been a member of the World Trade Organization since 1995 and this has helped the country to operate under liberal trade policies.

The country also revamped their tariff regime upholding new tariff structure which promoted the removal of service fees and import surcharges not in agreement with WTO policies. Such move contributed towards the reduction of official tariff rates charged on commodities. Additionally, the Egyptian government made a liberating move by cutting duties for over one thousand items in the year 2007.

This made the weighted rate to fall to 6.9%, making over 90% of agricultural products and approximately 85% of non- agricultural products to be charged less than 15%. The government highly protects automotive and textile industries, with 40% tariff being charged on imported vehicles (Krugman and Obstfeld, 2011). However, the country experienced a set-back in the agricultural sector with the government banning export of rice owing to escalating food prices in 2008(HKTDC, 2012).

One of the strategies used by Egyptian government to restore sanity within its market is introducing restrictive labelling rule on imported food products. This ensures use of appropriate packages which are health conscious and at the same time capable of preserving the product’s characteristics.

The labelling should be done in Egyptian national language. Such labelling include; the type of product and its brand name, country of manufacture, both dates of production and expiry, also included should be instructions and prescriptions on the usage of the product (HKTDC, 2012).

The country is divided into a number of free trade zones such as Cairo, Alexandria, and Port Said amongst others. Where all commodities moving in and out of the zones are not taxed. This also applies to all exports including machinery and other equipment from the zones.

The European Union and the United States are some of the biggest trading partners of Egypt (HKTDC, 2012). The import volume in Egypt recorded a 24% increase in the year 2009. However, the country experiences trade imbalances due to surplus imports. The major items of import for Egypt include; food, equipment, wood products and commodities with the United States recorded as the largest import partner of Egypt followed by China (Hill, 2006).

Agricultural sector

The share value of GDP from Agricultural sector is valued at 14% since 2006. The sector caters for a good percentage of the labour force and substantial foreign exchange earnings. Crops mostly cultivated within the agricultural regions include; cotton, wheat, rice, beans and clover. The implementation of price liberation policies gave the sector a boost making it an important player on Egypt’s economy. However, arable land is limited in Egypt despite the government plans of reclaiming minimum of 63000 hectares annually.

The average demand for agricultural products has increased over the years. This is attributed to high population growth rate and also need for additional earnings from export. Over 90% of the agricultural sector in Egypt is in private hands, the public sector is mostly involved in agriculture marketing and distribution while the private sector hold big share in food distribution (Hill, 2006).

Conclusion

The country has given priority to industrial upgrading and technology transfer, and at the same time. The growth of the GDP in the first quarter of the year 2012 was recorded at 5.2% which was an increase from the previous year. However, the GDP growth was determined to be below the average growth of 6% amidst severe political unrest that was experienced improving the credibility attached to public policies.

The government adopted a program known as Industrial Modernization Program (IMP), used in the upgrading of the industrial sector and assist in diversifying the country’s economy. This program is also essential for preparing the industrial sector for the challenges within the global market. Currently the industrial sector contributes averagely 20% of the GDP, hence one of the main contributors to the county’s economy.

References

Hill, C. W. (2006). Global business today (4th ed. p. 449). Boston: McGraw Hill/Irwin

HKTDC. (2012). Egypt Market Profile. Retrieved from

Krugman, P.R. & Obstfeld, M. (2011). International Economics: Theory and Policy. (9th Edition). New York, NY: Pearson

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IvyPanda. 2019. "Economic development and the structure of Egypt’s economy." November 20, 2019. https://ivypanda.com/essays/economic-development-and-the-structure-of-egypts-economy/.

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IvyPanda. (2019) 'Economic development and the structure of Egypt’s economy'. 20 November.

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