Table of Figures
Introduction about Egypt
Arab Republic of Egypt lies in the North of Africa, the capital of it is Cairo, it has a population of approximately 80 million, it has a total area of 1,002,450, and the currency of Egypt is the Egyptian pound. It's well known for the longest river in the world "The Nile River", and its unique tourism places such as the Pyramids in Giza which are also considered one of the seven world wonders. It's also known for producing Cotton and Rice.
Major Historical Events in Egypt:
A well known historical event is the three Great Pyramids in Giza; the ancient Egyptians started building them on around 2560 BC and took them 14-20 years to finish constructing them. The pyramids are named after the pharaohs of Egypt Khufu, Khafre and Menkaure.
Egypt was independent from the British rule on 28th of February 1922 after long years of suffering, as it was controlled by the British Empire from 1883 until 1922.
The most recent event in Egypt is the revolution against the Egyptian President Hosni Mubarak's. It started on 25th of January 2011 and ended successfully on the 11th of February 2011 with Hosni Mubarak's resignation. Now Egypt is ruled by the Egyptian Military for a short term of time until they select a new president.
Macroeconomic study
Major Macroeconomic Indicators
Real GDP:
Real Gross Domestic Product is the rate of the ending amount produced in a country during a given period regulated by the changes in prices.
Year
2005
2006
2007
2008
2009
Real GDP
89,685,724,889 US $
107,484,034,648 US $
130,472,894,495 US $
162,836,363,636 US $
188,412,876,658 US $
http://data.worldbank.org/indicator/NY.GDP.MKTP.CD
Figure 1: Real GDP
The increases in the Real GDP over the years indicate to the increases in manufacturing of goods and services, and partially to the increases in prices. In Egypt's case it started with the lowest rate on 2005 and increased slowly during these five years to reach the highest on 2009.
Real GDP Growth Rate:
Real GDP Growth rate calculates the sum of all amounts produced within the geographical border of the specified country, not considering the nationality of the units producing them.
Year
2005
2006
2007
2008
2009
Real GDP
Growth
4.5 %
6.8 %
7.1 %
7.2 %
4.6 %
http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG
Figure 2: Real GDP Growth
For Real GDP Growth rate, higher ratio is better for the position of the country. Year 2008 has the highest ratio. The drop from 7.2% in 2008 to 4.6% in 2009 shows a negative view in the Egypt's situation.
Unemployment Rate:
The Unemployment Rate indicates to the proportion of jobless citizens of a specified country or area throughout a specified time.
Regarding Egypt's Unemployment Rate here is what I have found:
Year
2005
2006
2007
2008
2009
Unemployment Rate
10.90%
9.50%
10.30%
9.10%
8.40%
http://www.indexmundi.com/egypt/unemployment_rate.html
Figure 3: Unemployment Rate
The lower is the ratio percentage; the better is the situation of the country. The lowest was 2009 with 8.40% which indicates to a very good position. The worst year was 2005 with 10.90%.
Current Account Balance (in the Balance of Payments) (CAB):
CAB is the total of all net income, net exports of goods, services, and the current transfers. It can be calculated by the total of all inflows minus the outflows of a country in a specified period of time in the weighing scale of payment.
This is the Current Account Balance for Egypt:
Year
2005
2006
2007
2008
2009
Current Account Balance
2,102,800,000 US $
2,635,400,000 US $
411,600,000 US $
-1,414,600,000 US $
-3,349,300,000 US $
http://data.worldbank.org/indicator/BN.CAB.XOKA.CD
Figure 4: Current Account Balance
In the following entry, the records Egypt's net trade in services, goods, interest, profits, earning from rents, dividends, and transfer payments for example funds from pension and remittances of workers. These were calculated depending on an exchange rate base.
Figure 5: Current Account Balance for the last 30 Years (International Monetary Fund)
The CAB was almost constant between 2005 and 2006, then in 2007 there was an expansion, however in 2008 and 2009 there was a huge recession that hit almost all the countries in the world.
Targets and fiscal indicators
In the medium fiscal policy statement four fiscal indicators to be projected were proposed. This includes: fiscal deficit, tax revenue, revenue deficit and total outstanding liabilities all of these are acting as a percentage of GDP.
Ratio of Gross Fiscal Deficit to Nominal GDP:
Year
2005
2006
2007
2008
2009
Fiscal Balance,
Deficit
(% of GDP)
-9.6%
-8.2%
-6.7%
-6.9%
-6.4%
Cash Deficit
-50,747.0
-56,545.0
-39,951.0
-56,823.0
-64,670.4
Overall Deficit
-51,643.0
-50,385.0
-49,160.0
-58,769.0
-67,344.0
Deficit as % of GDP
-9.6%
-8.2%
-6.7%
-6.9%
-6.4%
Figure 6: Deficit Percentage of the GDP
Figure 7: Relation between Cash Deficit & Overall Deficit in the Past Five Years
The overall deficit is constant from the cash deficit. However, deficit is calculated to be the largest by the domestic revenue and borrowing from private sales which is now the primary practice of accounting in Egypt's budget.
Levels of Government Expenditures and their ratio to Nominal GDP:
Year
2005
2006
2007
2008
2009
Expenditures
161,611.0
207,811.0
212,104.0
241,552.0
340,370.4
Figure 8: Expenditures
When it comes to expenditures, it grew a lot and it remained a main part of the budget in Egypt. This is resulted from the continued strong expansion (from 2005 - 2008) of:
(1) Public-sector wages from the government.
(2) Interest payments on the public debt stock are very high.
(3) Costs of food and energy increased.
Levels of Revenues (tax plus non-tax) and their ratio to Nominal GDP:
Year
2005
2006
2007
2008
2009
Revenues
110,864.0
151,266.0
172,153.0
184,729.0
275,700.0
Taxes
75,759.0
97,779.0
108,609.0
120,075.0
166,500.0
Figure 9: Revenues & Taxes
On revenues side, total revenues 110,864.0 in 2005 and it's 275,700.0 in 2009. This increase came from the rise in tax revenues that's why it got affected. However, revenues have changed constantly (about 21%) as a percentage of the GDP over the past years.
Monetary Indicators
According to the Central Bank of Egypt few favorable conditions allowed the international revenues to accumulate, this increased from US$ 20 billion in Fiscal year2005, to US$23 billion in Fiscal year2006, and to US$30 billion in fiscal year2007, which resulted in growing both broad money and reserve money.
When the World Global Financial Crisis rose, this resulted to make a set of fiscal monetary policy standards led to confront the repercussions that affect it according to the national economy, which included the decrease of lending and depositing rates by 1% in the year of 2009. Central Bank of Egypt is expected to reduce interest rates in 2009, which resulted in little fear that the Egyptian Pound will depreciate from the decreased interest rates.
Rate of Growth of Money Supply:
According to CBE Money supply growth decreased by 9.38% in 2009. However, according to the Annual growth in domestic credit decreased, along with the decrease in growth in credit for government. Growth in domestic credit went down to 11.6% over the same period.
Figure 10: Egyption Money SupplyCapital inflows rebounding will positively affect the money supply growth in the medium and short term. Credit growth will also recover, however at a slow rate and the private sector will recover from the drop in 2009, and will continue expansion in plans and the use of inventory.
Rate of Inflation:
The era of inflation begun in Egypt recently, the country experiences showed that inflation targeting is the best-way strategy for the monetary policy. However, the monetary policy seems to respond more to the inflation pressures that are recently happening in Egypt, it seems that there is no primary inflation rate and the CBE is taking decisions according the released inflation rate.
Year
2005
2006
2007
2008
2009
Inflation
9.50%
4.90%
6.5%
9.50%
18.30%
Source: http://www.indexmundi.com/egypt/inflation_rate_(consumer_prices).html
Figure 11: Inflation Rate
The following are the entry of inflation from 2005 to 2009, as you can see inflation was in its highest peak in 2009 with a rate of 18.30%, and the lowest was on 2006 with a rate of 4.90%.
International Indicators
Openness Index (defined as imports plus exports as a ratio to GDP)
Figure 12: Imports, Exports and Trade
The following table and graph explains the ratio of imports and exports of Egypt as a ration to GDP.
Figure 13: Graphed Imports, Exports and Trade
These are some of Egypt's Exports and Imports:
EGYPT(Alexandria)
Exports
Imports
grain
papyrus
painted pottery
linen/flax
glass vases
lotions/perfumes
(imported spices)
pepper
cinnamon
frankincense
ginger
iron
wine
nuts / figs
As the graph and numbers showed us, Egypt has a high level of import and a lower rate of exports. The highest level of Imports was on the year of 2008 with a percentage of 43.72% and the lowest is 2006 with 31.44%. The highest level of Exports was on 2008 with a percentage of 21.49%, and the lowest was on 2006 with 16.458%. The average between imports and exports is in negative because the percentage of imports is much higher than the exports.
Levels of Exports and rate of Growth of Exports
Year
2005
2006
2007
2008
2009
Merchandise Exports
30%
30%
30%
33%
25%
Source: http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS
Figure 14: Merchandise Exports
Egypt's economy depends a lot on the exporting of oil, which is one of the basic income sources from foreign income, along with the tourism receipts. Egypt has to import most of its food, equipment and commodities because both industrial and agricultural sector are not well developed in Egypt. Other than the export of oil and petrol, Egypt also exports cotton, textiles, chemicals and metal products.
According to statistics, Europe and the USA are the most exporting markets for Egyptian oil and the other products. However, the largest share of Egyptian oil exporting is Italy which is 9.4% of the total volume.
Levels of Imports and rate of Growth of Imports
Year
2005
2006
2007
2008
2009
Merchandise Imports
33%
32%
35%
39%
32%
Source: http://data.worldbank.org/indicator/NE.IMP.GNFS.ZS
Figure 15: Merchandise Imports
In 2008 Egypt had the highest level of importing in 2008 which had a percentage of 39%, and the lowest rate was on the years 2006 and 2009.
Level of Foreign Exchange Reserves
Foreign exchange reserves are also called Forex reserves; however, they are only the foreign currency deposits which are under the monetary authorities and central banks.
The pound depreciated against the US dollar in FY 2004 and most of FY 2005. However, in 2006 and the end of 2007 the pound raised to EGP 5.69 per USD. It was expected that the pound will keep appreciating on the short term, giver that the oil and petrol prices and weakening of the economy of the US, the affect of the global economic crisis that happened in 2008 resulted that foreign investors to go out from the Egypt stock market so the dollar exchange increased against the Egyptian pound which resulted in bankruptcy. However, as the foreign investors exited, the dollar exchange rate was against the Egyptian pound and it declined in 2008.
Critical Problems Facing Egypt
Most of the business companies were affected negatively by the 25th of January 2011 event, because they were forced to close their factories during the rebellion time, and shortly after it for more than one week which caused them to a decrease in their production rate. They had difficulties in shipping the produced products to the spreading centers, and carrying the raw materials from harbors. The workers also had difficulties in transporting from to the factories, and from them. Businesses also faced two critical problems which are the employee's strikes and the shortage of safety measures in the manufacturing company. You see, the violent scenes in Egypt remind markets too much of the 1979 Revolution in Iran when the geopolitical risk doubled oil prices, and plunged global economic output. Although Egypt isn't a major oil producer, market participants are getting jittery about the possible effects of political unrest with Egypt's neighboring countries, such as Jordan, Yemen, or Saudi Arabia. After all, the Middle East is the hub of oil production in the world and conflict in the region could disrupt global oil supply.
Egypt's economy mainly depends on Oil Exporting, and it's the main resource of foreign income along with tourism notes, and US financial & military aids. Most of its food, commodities, and tools are imported due to its narrow development in the agricultural and industrial area. In 2010 almost 630,600 barrels of oil were produced everyday in Egypt, and 155,200 barrels are exported per day. Moreover, as we know that Egypt is responsible of holding the keys of the Suez Canal and the Suez-Mediterranean pipeline which are for transportation of over 2 million barrels of oil to the rest of the world.
The headline inflation rate was 15.8% March 2008, and the overall price of food inflation rate was 23.7%. Moreover, in 2008 in urban areas, the inflation rate became 16.4% while food price inflation rate was 22.0% so it decreased by a lot. In 2009, it was said that Egypt was afraid that the return of 500,000 Egyptian laborers that are working in the Gulf.
Future Prospects
It is expected that approximately 70% of gas exports will be delivered in the form of liquefied natural gas by a ship to Europe and the United States. Moreover, it is also said that Egypt, Jordan and Syria made an agreement to extend this pipeline to Syria, which will make a way for future connections with Lebanon, Turkey and Cyprus in 2011. The market of the mortgage under process of development in Egypt, and foreign still are not able to make mortgages on their properties in Egypt. So in the future, there will be a new mortgage law that will allow them to take loans. This will be open in the near future which will create a huge development in real estate activity.
Economic Predictions:
Looking at Egypt in the next 40 years, there is a high potential that it will have a very high dependency ratio. This will result strain upon the economy activity sector, and the economy will not be as successful as money needs to use so that it can care for dependents. Egypt is expecting an aging population and the tax payers will be needed to pay for their care and pensions eventually, which will become a problem as the taxes will increase when there are more elderly people in the population. Then it's expected in 2050 that perhaps there will be declining in the fertility rate.
Political Predictions:
In the future Egypt will be more urbanized because of the industrialization, and as a result the
Government will need to fix and organize the cities, especially Cairo, in order to accommodate more people. For example: Extending water and electricity lines and Building sewage systems and building good apartments for low income workers.
Conclusion
In conclusion, Egypt is the most popular country in the Arab world, and more than 80 million people live in Cairo, and along that Egypt has the key to the Suez Canal, so its economy will basically affect most of the Arab countries and most of the world's countries that export oil from Egypt. The economic team should simplify and reduce tariffs and taxes to improve the transparency of the international budget and to implement the economic legislation to encourage economic growth and to improve Egypt's competitiveness. As we saw, the GDP growth rate in Egypt's economy was increasing-to-slightly-constant rate between 2005 and 2008, but then it dropped below 5% because of the global economic crisis. On the other hand of Egypt's growth, the economy is still not stable because of the government's intervention aside for food housing and energy and the public payments we talked about earlier. Energy should be limited for the Egypt and they should decrease the exporting because natural resources are not forever, and for Egypt oil is one of its largest resources for income. To have a growth in the economy of Egypt, in my opinion the government should focus on the tourism and Suez Canal revenues. To conclude about the economic crisis and what it has done to the economy of Egypt, we can finally say that the annual revenues fell sharply, and they started to recover in the end of 2009, and the fall of revenues in the Canal traffic and its revenues was one of the reasons that the oil price has raised internationally.
