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Egypt Mining
Egypt had adequate energy sources, but only a few other natural
resources. The total real value of minerals mined was about ŁE102
million in 1986, up from ŁE60 million in 1981. The chief minerals
in terms of volume output were iron ore, phosphates, and salt. The
quantities produced in 1986 were estimated at 2,048, 1,310, and
1,233 tons, respectively, compared with 2,139, 691, and 883 tons in
1981. In addition, minor amounts of asbestos, 313 tons, and quartz,
19 tons, were mined in 1986. Preliminary exploration in Sinai
indicated the presence of zinc, tin, lead, and copper deposits.
Manufacturing
The first systematic effort in modern Egyptian history to
create a manufacturing sector was undertaken during Muhammad Ali's
rule in the first half of the nineteenth century. Although that
attempt failed to achieve the ambitious goals set for it, the
rudiments of modern manufacturing were put in place. These
consisted primarily of food processing, such as rice milling and
sugar refining, and textile production, including cotton ginning
and production of linen and woolen fabrics. Little was
accomplished, however, for about ninety years afterward, and the
economy remained essentially dependent on cotton exports.
The Great Depression and World War II opened up new
opportunities for industrialization, and the interwar period
witnessed the beginning of import-substitution industrialization.
Industrial output, which rose more than 40 percent between 1939 and
1946, increased by nearly 63 percent between 1946 and 1951. A brief
recession occurred between 1950 and 1953, after a post-World War II
boom ended; recovery followed in 1954. The high growth rates before
1950 reflected the low base from which industrialization began;
during this period, industry was still in its infancy. Industrial
enterprises were overwhelmingly privately owned by Egyptian
nationals, a situation that contrasted with the previous periods
when foreigners dominated the sector.
Industrialization was given priority during Nasser's
presidency. The government increased investment outlays and
undertook a comprehensive planning effort to identify promising
projects. Gradually, it took over industrial firms, and by the
early 1960s, most large manufacturing firms were in public hands.
From 1953 onward, growth of the manufacturing sector was uneven,
with periods of high growth followed by recessions. Statistics in
the manufacturing sector, as in others, were problematic and should
be viewed with caution. In the ten years from FY 1953 to FY 1963,
manufacturing output grew at an average rate of more than 10
percent. Whether this growth could have occurred without the
revolutionary regime's drive and institutional changes is
debatable. Growth slowed, however, in the late 1960s and early
1970s, even registering negative rates, especially between 1966 and
1968.
The situation shifted in the mid-1970s. The real value of
manufacturing output at current prices was estimated to have grown
from about ŁE2.1 billion in FY 1975 to ŁE5.3 billion in FY 1980, at
an annual rate of 19.6 percent. The corresponding figures for the
period from FY 1980 to FY 1985 showed an increase to ŁE10.1
billion, and an annual growth rate of 13.7 percent. By the end of
the 1980s, however, the sector was facing difficulties and possibly
experiencing a recession, thanks, among other things, to the plunge
in oil prices in 1986 and to the country's accumulation of large
debts.
The output increases of the 1970s resulted from investment in
and improvement of the productivity of existing firms. The share of
manufacturing (including mining) investment averaged from around
one-fourth to one-third of total investment from 1954 up to 1989.
For example, manufacturing investment was estimated at 31.3 percent
in FY 1977 and 23.9 percent in FY 1986. The Second Five-Year Plan
(FY 1987-91) projected that manufacturing would make up more than
26 percent of the total. It was not clear how financial
difficulties would affect these projections, but the proportion of
total investment to GDP was already falling by the end of the
1980s.
Manufacturing productivity improved after the slowdown between
1966 and 1974 as a result, among other factors, of capacity
utilization made possible by the income-induced rise in demand.
Idle capacity approximated 16 percent of output value in 1973.
Subsequently, total-factor productivity of public-sector
enterprises under the Ministry of Industry was calculated as having
risen by 3.5 percent annually for textiles and by 8.7 percent
annually for chemicals between 1973 and 1981. No similar
information was readily available after that date. The growth rates
of private-sector manufacturing productivity were lower, probably
reflecting the higher prices the sector paid for inputs
(see below). Yet in spite of the steady rise of productivity and output,
the sector's share of GDP remained constant in the 1980s, because
it was outperformed by other sectors.
The contribution of manufacturing to employment was also not
commensurate with the funds that were allocated to it. The number
of workers in manufacturing (including mining) was estimated at
about 1.1 million in 1970, 1.4 million in 1980, and 1.8 million in
1986, or 12.3 percent, 12.6 percent, and 14.8 percent,
respectively, of total employment. The sector's inability to
increase employment substantially was usually attributed to the
fact that manufacturing operations were highly capital intensive.
Also, the increases in productivity and value added may have come
largely from using previously underemployed labor, rather than from
new hiring.
One of the central issues of Egyptian industry in the 1980s was
governmental price regulation in both the production and
distribution domains. In the production domain, public sector
companies purchased inputs, such as energy, at subsidized prices.
The private sector complained that it, in contrast, had to pay
higher prices. The successive increases of energy prices and the
lifting of controls on agricultural prices probably narrowed the
gap between the costs of the two sectors, however.
In the distribution sphere, the government fixed the prices of
a wide array of domestically manufactured consumer products, from
beverages to soap to cars, at levels that many economists
considered too low. Thus, the pricing system acted as a double-
edged sword and affected companies differently; some benefited
whereas others lost. After 1982 the government eased its price
controls and permitted gradual increases so long as they did not
threaten political stability. The companies themselves also
resorted to various mechanisms to offset the restrictions. For
example, private companies producing beverages reduced the bottle
size but maintained the price, and the public car manufacturing
company, An Nasr, required that buyers pay in dollars so as to have
access to hard currency and avoid the continual decline of the
value of the Egyptian pound. In spite of this, both private and
public firms continued to lobby in 1990 for more flexibility in
pricing their products.
Manufacturing exports grew slowly, falling in some years;
exports started to make a strong showing only at the close of the
1980s. For example, the value of manufactured exports dropped from
US$504 million in 1978 to US$373 million in 1979 and exceeded its
former level only in 1983. Manufactured exports nearly doubled in
value, however, between 1983 and 1987, from US$656 million to
US$1.26 billion. The share of manufacturing in total exports was
dwarfed by that of oil during the peak period of oil prices in the
first half of the 1980s. It grew subsequently, amounting to more
than 26 percent in 1988, and manufactured exports were becoming
perhaps the fastest growing area of the economy in the late 1980s.
The largest manufactured export item throughout was textiles
because of the favorable reputation of Egyptian cotton. Textiles
made up more than one-third of total manufacturing exports in the
1980s.
Industrialization was an inward-looking undertaking, intended
in the first place to enhance self-reliance through import
substitution. Industrial selection, therefore, often did not take
into account comparative advantage. Some domestic-resource cost
analyses indicated that steel and chemical industries, for example,
did not enjoy comparative advantage. Comparative advantage changed
over time, however, and domestic-resource costs for the steel
industry, for instance, fell considerably between 1965 and 1985 as
a result of experience, increasing skill of workers, discovery of
better quality raw materials, and improving economies of scale.
Manufacturing exports were also affected by macroeconomic factors,
such as the overvalued currency and the level of domestic demand.
The growth of exports in the late 1980s probably partially
reflected the depreciation of the Egyptian pound that made Egyptian
goods cheaper abroad. Developing a successful export market also
required marketing skills and access to information that Egypt
lacked after many years of bilateral trade. The Second Five-Year
Plan (FY 1987-91) spoke of a shift to export-oriented rather than
import-substitution industrialization.
Egyptian manufacturing was progressively diversified over the
years through the introduction of new products, but food processing
and textiles, which produced mostly consumer goods, remained the
dominant categories. The share of food processing hovered around
one-third of total manufacturing between 1975 and 1985. The share
of textiles was close to that of food until 1981, when, because of
the fall in cotton production, it began to shrink, reaching one-
quarter in FY 1985. The proportion of engineering and electrical
manufactured goods, which included such items as iron and steel,
vehicles, and equipment, rose from 18 percent to nearly 24 percent
between 1975 and 1985. The fourth largest category was chemicals
and pharmaceuticals, with 12 to 14 percent of the total over the
same period. The last two types of industry were those producing
intermediate goods, that is, inputs for other industries, and
capital goods; no data were available on the exact share of each of
these.
Industries were located mainly in the urban governorates. Cairo
and Giza accounted for about 37.5 percent of all industries and
Alexandria for more than 23 percent. Industrial location was
governed by factors such as population density, as in the case of
food processing, and by the availability of skilled labor, as in
the case of electronics in Cairo, Giza, and Alexandria, as well as
in the case of furniture in Damietta and Al Qalyubiyah, north of
Cairo. The concentration of industries both expressed and
reinforced regional disparities as well as the skewed population
distribution. In the 1980s, the government was offering tax and
other incentives to investors who would locate their factories away
from the metropolitan centers.
Manufacturing had become largely a public-sector activity by
the early 1960s. Before 1952 the government owned a limited number
of enterprises, including a petroleum refinery, the government
press, and some military factories. By the late 1960s, the public
sector's output value accounted for about two-thirds of the total,
and it has remained more or less at that level since. The size of
the public sector would be smaller if measured in terms of its
share of employment, which ranged from 50 to 60 percent. The public
sector was dominant in large-scale firms, especially those with
more than 500 employees; its share declined in smaller-scale
industries. Government firms tended to be large because investment
favored such scale, the nationalized factories were selectively
large, and government job guarantees in FY 1961 often led to
overstaffing. The manufacturing categories in which the public
sector dominated were the chemicals, pharmaceuticals, engineering,
and electrical industries. The public sector also owned large
textile and sugar refining factories.
The private sector dominated small-scale industries, especially
those with ten workers or fewer. This group included industries
devoted to food, beverages, dairy products, spinning and weaving,
and various handicrafts. Some of the most profitable private-sector
firms in the 1980s were those producing beverages, light tools,
consumer electric products, printing, and apparel. Businesses with
the highest productivity growth rates were food-processing
operations, such as those producing sugar, oil, fodder, dairy
products, and canned fruits and vegetables. Some analysts,
therefore, anticipated that these manufacturing fields would
attract private entrepreneurs in the near future, unless incentives
in other areas were forthcoming.
The public-sector predominance occurred chiefly through
investment. Public investment in manufacturing throughout the 1960s
and 1970s ranged between 85 percent and 90 percent of total
manufacturing investment. In the First Five-Year Plan (FY 1982-86),
it constituted about 80 percent; in the Second Five-Year Plan (FY
1987-91), it was to be reduced to between 60 percent and 63
percent, mainly because of the government's dwindling financial
resources. Public investment was to focus on finishing ongoing
projects and upgrading industrial plants. Any new projects would be
subject to greater technical and economic scrutiny than in the
past.
Whether the private sector would be able to provide the
estimated 40 percent of new investment remained to be seen. The
sector faced a thicket of problems, including an unwieldy
bureaucracy, a pricing system that was not based on market factors,
a shortage of skilled labor, and the uncertainty of investment
calculations because of the instability of the national currency.
In addition, unregulated operations of investment companies drew
investments from productive areas, and it was difficult to obtain
foreign exchange as the pound depreciated, especially for schemes
with a large import component.
The role and size of the public sector became a point of
contention after the 1974 infitah. The struggle over the
sector grew more heated as Egypt's creditors and aid donors,
especially the United States through AID and the multilateral
agencies, began to press the policy of privatization. Many
interests were involved: business, labor, political parties,
government, and the intelligentsia. The thrust of the argument for
privatization was that the public sector was inefficient and that
many firms were losing money and would have closed down had it not
been for government "bail-out." Moreover, it was contended that by
selling its companies the government could reduce its debt and its
budget deficits. While admitting that some public firms had lost
money, privatization opponents claimed that the number of losing
firms had decreased substantially in recent years; that pricing
policy was responsible for some of the losses; that profits as a
whole substantially surpassed losses; that the public sector
invested in projects important for the country's welfare, in which
the private sector would not be interested; that privatization
would lead to the displacement of large numbers of workers; and
that the public sector was the largest taxpayer in the country.
Opponents of privatization argued that if the private sector wished
to invest in manufacturing it could create new establishments
rather than buy existing ones. They agreed, however, on the need
for public-sector and other policy reforms. The proposed reforms
revolved around giving the enterprises more flexibility to set
their own production and price levels and employment policy, as
well as introducing modern management procedures.
Data as of December 1990
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