Egypt's Economy: Growth and Its Composition

Wafik Grais, 04 Mar 2015

From 1990 to 2005, Egypt’s gross domestic product (GDP) saw an average growth rate of 4.2 percent per year (figure 1), associated with a shift away from agriculture towards industry and service. The service sector remains the largest contributor to GDP (figure 2) (AfDB 2013). A burst of liberalizing reforms enabled a short-lived acceleration of growth during 2005–08, interrupted by several shocks.


Since the 1990s, growth has been driven mainly by domestic demand and capital accumulation. Total factor productivity and human capital accumulation due to education showed no significant contribution to growth (figure 3). This trait continued in the aftermath of the Arab uprising (Badr and Zaki 2013).

 

Figure 1: Egypt Real GDP Growth, 1980–2012 (annual %)

Source: World Bank, World Development Indicators Database 2013; http://databank.worldbank.org/data/home.aspx.


Figure 2: GDP Structure by Sector (%)

Source: World Bank, World Development Indicators Database 2013; http://databank.worldbank.org/data/home.aspx.

 

Figure 3: Egypt Trends in Total Factor Productivity: Estimated as Tornqvist Index (in difference, %)

Source: http://knoema.com/TEDGATFPCD2012Jan/total-economy-database-growth-accounting-and-total-factor-productivity-country-details-1990-2011-january-2012?tsId=1004350.

 

The concentration of investment and growth in highly human and material capital-intensive sectors was not conducive to broad employment generation and did not lead to significant poverty reduction.[1] Moreover, the largely urban-based growth marginalized a large segment of the rural poor, especially in Upper Egypt.

 

During 1991–2007, employment grew by more than 50 percent but remained concentrated in agriculture and government. Mining, trade, and finance continued to generate significant employment. Employment growth in construction and housing reflects  the real estate boom the country has experienced.  While this growth may have been partly a response to pent-up demand, it may be also the result of distortions rending those sectors attractive to investors (table 1).

 

Table 1: Employment by Sector, 1991–2007

Sector

Structure in 1991 (%)

Growth

1991–2007 (%)

Structure

in 2007

(%)

Agriculture

33.7

20.3

27.0

Mining

11.0

80.3

13.02

Manufacturing

0.3

210.3

0.5

Electricity

0.7

55.1

0.8

Construction

5.3

121.6

7.9

Transportation

3.5

72.4

4.0

Communication

0.6

90.5

0.8

Suez Canal

0.1

-10.0

0.1

Trade, finance, and insurance

8.6

78.5

10.2

Hotels and restaurants

1.1

134.7

1.7

Housing and real estate

1.5

232.0

3.3

Public utilities, social insurance, and government services

25.4

39.4

23.5

Personal and social services

8.1

19.7

6.5

Total

100

50.4

100

Source: Nassar 2010.

 

Employment and unemployment indicators  reflect inflated public sector employment, the informal sector absorption of job seekers, and emigration. According to some estimates, the informal sector makes up around 40 percent of economic activity (Schneider, Buehn, and Montenegro 2010). Unemployment has remained higher than the national average among youth, the educated, and females, compounding the country’s social, economic, and political challenges.


Sources of Growth

 

The growth pattern left the Egyptian economy vulnerable to its traditional revenue sources: workers’ remittances, hydrocarbon exports,[2] tourism, Suez Canal transit fees, and aid. Suez Canal receipts are around US$5 billion per year. Additional revenues come from the SUMED pipeline.[3] However, domestic crude oil consumption overtook production in 2005[4] and increasing domestic gas consumption is eroding domestic gas exports' potential.[5] The structure of revenues compounded the adverse impacts that began with the 1997 Luxor massacre and continues in the aftermath of the 2011 Arab Spring.

 

References

 

 

[1] For a similar argument, see El-Ehwany and El-Laithy (2002).

[2] Other natural resources include iron ore, phosphates, manganese, limestone, gypsum, talc, asbestos, lead, rare earth elements, and zinc. See https://www.cia.gov/library/publications//the-world-factbook/fields/2111.html; and Ministry of Planning (2013).

[3] The SUMED pipeline (also known as Suez-Mediterranean pipeline) is 50 percent owned by the Egypt Petroleum Corporation (EGPC) and has a 2.3 million barrel/day capacity.

[4] See http://www.indexmundi.com/energy.aspx?country=eg. Egypt is the largest non-OPEC (Organization of Petroleum Exporting Countries) oil producer in Africa.

[5] Egypt is the second-largest dry natural gas producer in Africa. See http://www.eia.gov/countries/country-data.cfm?fips=eg.

 

 


Wafik Grais is an International Senior Adviser specializing in Islamic finance, financial regulation, investment financing, private equity management, and corporate governance with expertise in SMEs and green growth financing. He was co-founder and chairman of Viveris Mashrek, a Cairo-based, financial advisory services company specialized in private equity investments in SMEs, licensed by Egypt's Financial Supervisory Authority. He spent 28 years in international finance notably with the World Bank in Washington DC where he held several senior positions both in operations and at corporate levels. He holds a Ph.D. in Economics.

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