BY ALMOST any statistical measure Egyptians are far better off than ever before, even though there are many more of them. The population has nearly doubled in size in just 30 years, from 44m in 1980 to 84m today. Farmers who until the 1970s spent half their working day on the back-breaking labour of lifting irrigation water now use diesel pumps, plough with tractors and thresh their wheat by machine. Life expectancy at birth has risen from 52 years in 1960 to 72 now. Back then Egyptians were lucky to own a transistor radio. Now two-thirds of homes have a satellite receiver, 87% own a fridge, 97% have piped water and 99% have electricity. Egyptians chatter on 57m mobile phones, and the number of passenger cars on the roads has more than doubled in the past decade.

Nor is it just personal consumption that has grown strongly. The economy as a whole is performing better than ever, largely because the government has at last abandoned its old habits of central planning, state-managed capital allocation, high taxes and price controls. After decades of only minor improvements in living standards, GDP growth shifted into a much higher gear under the reformist cabinet that came to office in 2004. It went up from just under 5% in the mid-1990s to 7% in 2006-08. Egypt’s share of world trade, which had been falling continuously for 40 years, started expanding as exports tripled in value. Foreign investment gushed in at record levels, notching up a cumulative total of $46 billion between 2004 and 2009, says the dynamic young investment minister, Mahmoud Mohieddin.

Gross public debt in that period fell by nearly a third, to a still hefty but manageable 76% of GDP. The size of the country’s foreign debt dropped below the value of its foreign reserves for the first time in decades, and debt servicing, a crushing burden in 1990, dwindled to a small fraction of the value of annual exports.

It is easy to forget just how wretched the country was in the aftermath of the 1967 and 1973 wars. Without foreign aid, including emergency shipments of American wheat, many might have starved. But now the share of foreign aid in Egypt’s GDP has shrunk to less than 1% and the country’s ranking among aid recipients, long near the top, slid to 17th in 2008.

Last year was a grim one for the world economy, and Egypt too saw its trade and investment shrink and earnings from tourism and the Suez Canal plunge. Yet strong domestic demand, particularly for housing, kept the economy growing at 4.6% (see chart 3). In the first quarter of this year growth accelerated to 5.8%, and independent economists expect it to continue to do better than last year.

Gifts of the Nile

Egypt is favoured by nature. That may seem strange to say, given that its land is mostly desert and its people mostly poor. Yet by many measures it remains as richly endowed as in ancient times, when the Hebrews pined for its fleshpots and Herodotus dubbed it the gift of the Nile.

Desert takes up some 95% of the country, but the fertile remainder, albeit fractured into millions of smallholdings, has become much more productive. It is true that Egypt, once the breadbasket of the Roman empire, has been unable to feed itself. Yet that small amount of fertile land generates impressive crops. Two or three plantings a year are normal, given the steady water supply, constant sun and rich soil.

Despite the doubling of its population since 1980, and the loss of vast acreages to urban expansion, Egypt imports less food now, proportionately, than it did in those days. Government bread subsidies keep the price of a small baladi loaf below 1 American cent, helping Egyptians retain their place as the world’s top wheat consumers per person. But big gains in yields, along with price support, have quadrupled local production in the past 30 years. It now averages more than 7m tonnes a year, enough to meet 60% of Egypt’s needs.

Egypt still imports around $6 billion-worth of food a year and faces growing deficits in such things as edible oils. But government statistics say that its own production has grown by nearly 50% since the mid-1990s. It exports some $2 billion-worth of agricultural goods a year, including fresh fruit and vegetables, cotton and rice, a product where Egypt leads the world in yields per acre.

This balance looks unlikely to change. As fast as land in the Nile Valley is lost to housing, desert land is being converted for cultivation. This is only partly a result of government policy. Since the 1950s costly public land-reclamation schemes have struggled to recoup investments. Toshka, a giant project to channel Nile water far into the desert south-west of Aswan, was touted in the 1990s as a future home to 2m farmers, cultivating 2m acres, but it has proved a white elephant, with little to show for the hundreds of millions of dollars sunk in pumping stations and canals.

More modest plans, such as the extension of branch canals in the Nile delta, have worked much better. As a glance at Google Earth will show, smaller-scale private efforts have eaten up deserts all along the river valley and far to the east and west of the delta. Egypt’s planted area has grown by 30% in the past 25 years. The newer farms tend to be large and export-oriented. They use far more efficient irrigation techniques and often rely on abundant ground water rather than the Nile.

Moreover, new uses are being found for the Nile itself. Citadel Capital, a fast-footed Cairo-based private-equity group with a claimed $8 billion under management, is pouring some of that money into the river, in the form of an ambitious scheme to revive its once-thriving but now defunct shipping network. It has built cargo ports, commissioned lots of new barges and plans to expand upriver, in Sudan.

Geography’s most obvious gift to Egypt, though, is its location. Since its opening in 1869, and especially since nationalisation in 1956, the Suez Canal has provided a steady stream of revenue, against little outlay, by providing the shortest shipping route between Europe and Asia. Constantly widened to accommodate the growing size of vessels, the canal can now handle all but fully laden supertankers and giant bulk carriers. Revenues doubled in the boom from 2002 to 2008, hitting a record $5 billion that year. After a slump in 2009 they have started to climb again and look set once again to exceed $5 billion this year.

Nor is it just the canal that exploits Egypt’s position. The Sumed pipeline, which allows tankers from the Persian Gulf to offload oil in the Red Sea, and others to pick up the load on Egypt’s Mediterranean coast, also brings in a tidy revenue. In recent years Egypt has tried something similar with dry goods. The Suez Canal Container Terminal, managed by the Dutch-based group APM, was recently built as a trans-shipment hub at the northern end of the canal. It now handles a fifth of trans-shipment volume in the region and is set to double its capacity by 2012.

A new privately managed port and industrial free zone at the canal’s southern end, meanwhile, has already become an important industrial hub. The investment ministry has lately worked especially hard to woo Far Eastern business, offering the firm that developed China’s Tianjin export zone a licence to develop a 20-square-kilometre (7.7-square-mile) industrial area aimed at smaller Chinese investors. With its links to Asia and proximity to Egyptian markets, cheap labour and energy, along with Egypt’s preferential trade status with Europe, the region around the city of Suez is likely to see rapid growth.

The country’s inhospitable deserts have long fed its demand for iron ore, phosphates and manganese, as well as marble, granite and the limestone crushed to make cement, of which Egypt is now one of the world’s big producers. More recent commercial discoveries include tantalum and tin, and there has been a rediscovery of something more enticing still: gold.

Visitors to the Egyptian Museum in Cairo invariably gasp at the lavish use of that metal in the treasures of Tutankhamun, yet for nearly two millennia the mines in Egypt’s eastern desert that made it the biggest supplier of gold to the ancient world lay unexploited. It took one of Egypt’s other largely untapped resources—its estimated 3m émigrés, many of them highly skilled—to strike gold again. When Sami el-Raghy, an Egyptian-born engineer, conceived the idea nearly 20 years ago, he benefited from his mining experience in Australia, an ancient papyrus scroll showing the location of gold mines, and access to capital. But he needed immense patience to deal with Cairo’s bureaucracy.

Still, the company he founded, Centamin, which is half-owned by the Egyptian government, has now started production at its Sukari concession, a 160-square-kilometre patch of barren, mountainous terrain near the Red Sea that is dotted with ancient mines. Its surveys have so far indicated an estimated 13.7m ounces of gold at the site, worth $16.4 billion at current prices, and geologists believe that Sukari may be only one of many similar gold-bearing formations in the region.

An even bigger gift of the desert is energy. By both reserves and oil production Egypt ranks only a distant 27th in the world, and its output has fallen since the 1990s (see chart 4), yet it has been pumping the stuff far longer than most rivals. Crude production started in the Gulf of Suez in 1910. The oil has never stopped flowing, despite six wars and the nationalisation of the industry in the 1960s. New technology has slowed the decline in old fields, and oil in commercial quantities keeps being found elsewhere.

Apache Corporation, a smaller American firm with the biggest concessions in Egypt’s western desert, took a chance 15 years ago and now pumps some 150,000 barrels a day. Two dozen other international companies are hard at work too, including such giants as BP, Eni and Lukoil. Some oilmen reckon that Egypt’s reserves have actually risen in recent years, and much of the country remains unexplored.

More to the point, just when Egypt’s oil output started declining, two lucky things happened. Oil prices rose, boosting export income despite the fall in volumes; and Egypt began to discover and tap big reserves of natural gas, particularly offshore, north of the Nile delta. Quicker than many countries to exploit the finds, Egypt is already Africa’s second-ranking producer, and the world’s 12th largest. Pipeline links to both Israel and the Arab Levant, as well as two large plants producing LNG for the European market, have pushed the value of gas exports above that of crude.

The rapid expansion of gas output has not been painless. Local critics have accused the all-powerful petroleum ministry of committing too much for export at prices that are too low. Foreign investors have faced their own pricing troubles in a world gas market that faces overproduction. Despite promising offshore finds they have been wary of committing further funds. But a new agreement just reached with BP, whereby Egypt commits itself to buying the full production from a promising new field off Alexandria at a flexible price, looks set to unlock $8 billion in investment from the oil giant. Egypt has also invested heavily downstream.

Just right

Even so, hydrocarbons make up only around 15% of Egypt’s GDP. That, too, may be a good thing. It not only shields the economy from international price volatility but has spared Egypt some of the ills that affect its truly glutted neighbours, where governments have a hard time motivating their citizens to work. At the same time the government’s income from energy exports, added to other revenues such as from the Suez Canal, is big enough to help keep the overall tax burden light, at 16% of GDP.

Better still for Egypt, it has bright energy prospects aside from oil and gas. Experts say the lack of clouds and the angle and intensity of sunlight, especially in Egypt’s south, are especially propitious for solar power, as are the cost benefits of a large existing electric grid and heavy demand close to empty deserts suitable for large solar installations. The country is set to open its first large solar-powered generator, part of a combined-cycle power plant, later this year. Numerous local firms tout smaller-scale gear for household use, and some are starting to manufacture trickier parts, such as photovoltaic cells. The official goal is for clean energy to meet 20% of Egypt’s power needs by 2020.

If there is any chance of that, the key may not be solar power. As windsurfers have discovered to their delight, Egypt also happens to own some of the world’s choicest spots for wind turbines. Two large wind farms on the Gulf of Suez already generate 500MW. Another is due to come on stream soon. The World Bank has just agreed to provide a $220m loan to connect these to the power-hungry Nile valley.

Long as the list of Egypt’s advantages is, more deserve mention. Few countries can match the wealth Egypt is best known for: its spectacular antiquities. But they are not the sole reason for the success of a tourism industry that has more than doubled in the past decade. Aside from the beaches that now attract most of the 13m tourists who arrive annually, credit must be given to the Egyptians themselves. Visitors complain of traffic and crowds, but they also remember the warmth, good humour and patience of the Egyptian people, who in many ways are the country’s greatest resource. That begs the question why so many of them have remained poor, unskilled, often unhappy with their lot and largely unable to change it.

Source: www.economist.com/