No. _ _ E 55 CONFIDENTIAL 66962 This report is restricted to those members of the staff to whose work it directly relates. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT ON THE ECONOMY OF EGYPT July 26, 1949 Economic Department Prepared by F. G. Bochenski TABLE OF CONTENTS Bas12 Statist1o~ l. SW!!m and Conolustons I 1 II. The ,Sooial and Political Baokground 1 A. Social Structure 1 B. The Political and Administrative Struoture J C. Current History and Recent Developments 5 III. IbLM!!n ProbM!!!m. of, The EconomY or Egypt 7 A. Overpopulation 7 B. Inequality of Incomes 13 C. Dependence on One Crop 14 D. Dollar DeA!cits 16 IV • Internal F1.n.nnoe and Balance of Paments A. Fina:nfie and Investment --- 17 B. Public Finance C. Foreign Trade D. Balance of Payments v. Emt!:fs a Credit Risk 47 Jrnnex to t~e Report: Agriculture, Industry and Development Plans Egypt and the Nile Valley vi Inhabitable Parts or Egypt and Density of Population 6 Chart Egypt: Foreign Trade and Cotton Prices, 1900-1948 36 ~ BASIC - --- STATISTICS ----- !otal..!~ 100,000,000 he~tares ()86,000 Of which cultivaJQle 3,000,000 II sq.miles) Of which cultivat~ 2,400,000 II f2pulation (1949 estimate) 19,600,000 Rate of increase 1. 5% per annum - -- (1948 tentative estimate) National Income 'E 600 million 'E 31 per capita (equals ~~127 at official exchange rate) Agricultural Production (1947/48) Cereals 4,470,000 m. tons Cotton Fiber 386,000 II It Seed 691,000 II \I qurrengz Unit Egyptian Pound ,'E .:: 100 piasters) Exchange Rate Official ~E 1.0 =US ~4.l2 Black market ~ 1.0 =US ~3.0 a lrlholesale ices prices 1937 .:: 100 1948 .:: 316 Cost of living 1937 .:: 100 1948 :: 287 Government Budget 1947/48 1948/49 __ • {In Millions ~E2 Estimates Actual Estimates Figures . Ravenue 94.2 98.9 183 Expenditure 103.2 91.9 183 Surplus ~ ) Deficit - ) -~.O +7.0 0 EQrei@ Trade 1947 1948 (In Millions ~) Imports 100.4 162.5 Exports 68.5 132,,6 Excess of Imports - 31.9 - 29.9 ~~lanceof Payments Payments 142.9 206.9 Receipts 111.2 194.7 Balance of Current Payments - 31.7 - 12.2 -1- I. SU}·!T:A:aY' APD CQIrCLTJSIOlTS 1. Stimulated by energies released through the achievement of full national independence and assisted by a concurrence of such favorable factors as a substantial rise in cotton nrices t a succession of good harvests and new oil discoveries, the Egyptian economw has recently entered a period of expansion. ~'1i th a rising output» an increased. volume of foreign trade, a none-too serious foreign e~change position and several development projects well under way, Egypt has naturally thought of calling for external financi~l assistance to sustain an.d quicken,its present rate of development. 2. In the face of these generally encouraging elements it is important not to lose sight of the existing structural weaknesses of Egypt. Any large scale development project should be evaluated from the point of vie", of "..hether and to l,'hat extent it contributes to the solution of Egypt's basic economic problems. Among such nroblems of a long term character are: over-population, inequality of income distribu- tion and excessive dependence of the entire ecop-ony on cotton. The dollar shortage should be inclwied here. though i t may become somevlhat less intractable in the future. 3. 1-1hether judged from the point of vie'" of the density per inhabitable or cropped area, the large scale under-employment, or the prevailing standards of consl~tion. Sgypt must be regarded,as distip-ctly over-populated in relation to its existing resources. Nothing indicates that national income increases in proportion to the rapid growth of ponulation and there is even some reason to believe that the per capita income has a tendenc~r to fall. As neither birth control,- nor large scale emigration seem feasible at the moment and the -11- possibilities of enlarging agricultural output are limited by ~hysical conditions, the development of labor intensive industries remains perhaps the most promising solution of Egypt's po:pulation 1)roblem. 4. Industrial development in Egypt is not only conditioned by the availabilities of raw materials, fuel and vO'iTer and training facilities for skilled labor but, first and foremost, by the internal pu.rchasing 11- pow'er which, at present, is extremely 10111, due to the tremendous differences in income levels. An improvement of the standard of living of the masses is therefore not only a social and political, but also an economic, necessity. Some Egyptiansrecognize that a more e~uitable dis- tribution of land may therefore be one of the steP3tovmrds a better economic future. The traditional, reluctance of the privileged classes to invest in domestic industries ,vIhich is to be blamed for the slo\., accumulation of productive canital, is admittedly giving 'Vlay to a more enterprising spirit. This draws more manpower from land into industry, i.e. from +ow wage into relatively higher v~ge occupations • .5. Agricultural expansion d.evends on the increase of the sunply of water outside the flood season which can be achieved, centrally, by additional storage involving ambitious iJrojects on the Equatol'ia.l Nile or, locally., by pumping underground \1ater. It is calculated that the cwrr~lative realization of both schemes could increase the e~isting c1'o'O area and agricultural output up to 3.5 fe·,. It .11hou!~ be noted however that all the investment as well as current operational exnendi ture of these schemes is 'borne 'by the State, "rhose general policy ~. U m}!Oi~Jq pl3 is not to charge for irrigation services and only to derive a modest r- It ~r.onli.i be additional income from increased land taxes on irrigated holdings; this means that in fact other groups than the immediate beneficiaries have to carry permanently the main burden of this investment. - iii - 6. A combination of excellent climatic conditions, intensive labor and irrigation as well as a generous anplicatlon of fertilizers gives Egyptian agriculture some of the highest yields. but outnut per head of the land population is very 1o,,,,. Cotton is One of the most ·re~ep- :t.r~,;.:.(,di:l:~ crops and while supplying the ra'Vl material for several domestic industries, represents at the same time about 75% of the total value of exports. Although Egyptian long staple cotton, a product of the experienoe ot generations, has a mononolistic position for some limited uses, its general posl tion in the 1plorld markets does not seem to be too secure and its nric~s undergo rapid fluctuations. The excessive denendence On this one crop is, therefore, regarded as one of the most vtllnerable points of the country's economy. 7. vlhile no fruit or vegetables are eX1")orted from :Cg~rpt at present, it may become possible in the future to develop nrofitably such exports to nearby Euronean markets, thus bringing about a greater diversification of exportable :produce of the land. As to cereal crops, Egypt 1:1aS almost 's'Ef"lfsufficient before the "'' 1:'' 1'.. Since the \llar these crops fell short of domestic needs .. In spite of the fact U.a t 1'ctu:):'ns from extended m::.lt.ivation in this field as a rule do not compare favorably '.'ith other crops. the government's :policy is to develop cereals, partly on account of the l'rartime ex.perience when shortages Illere acute and also on account of uncertainties as to markets for high return export crops. 8. Far from being influenced by any doctrines or !lismsl! the Government's role in the countryls economy is either dictated by nhysical conditions of the land -- such as the necessity for central management of the only source of 'VTater - or motivated by the desire for a further strengthening of Egypt 1 s international position and economic indel')endence. Although Govf'rnment :participation is :planned - iv - in some of the ne'l:l industrial development projects, at present state enternrises are limited largely to trans'10rtation and banking; there are neither state-run industries, nor :public monopolies 1rrhile State_ operated farms are fe'lr' and largely devoted to emerimental pur1)oses. No nationalization is intended. 9. In 8ni te of the countryl s bacro~Jard social structure and partly feudal character, the Government includes a number of peonle who are not unaware of the eXisting social and economic weaknesses and of possible remedies, though speedier application of some of the latter ma~r sometimes appear desirable. Many development projects are studied and a number of them have been initiated but a better coordination of these 'Olans would facilitate their execution and fit them more harmoniously into the pattern of the COtU~tryls economy. 10. ~'1hile the volume of nrivate investment increases, the '1rospects of continued public investment seem to be safeguarded by the traditional budgetary surpluses. Unless the Government reserves should be activated too rapidly or large scale internal loan financing should take place, there seems to be no serious danger of inflfl.tion. The service ch2.rges of the internal uublic debt ~re not excessive and represent only about 4; of government expenditure. 11. Externally, the limitations of non-essential imnorts from hard currency areas must be regarded as fully justified at a time 1qhen all the resources of the country have to be mobilized for further investment. The size of the dollar deficit in Egypt ' s external payments does not compare unfavorably with that of other countries under similar conditions and its alleviation by external loans would yermit the country to embark, without delay, on some,of the very necessary projects aiming at an increase of the national output. v- 12. Egypt's departure from the ':sterling bloc ,."as motivated, apart from political reasons, by the experience in financing Allied ltl8.r exuenditure during 'florId 1:1ar II. \rlhich led to an accumulation of sterling balances; a large 'l)art of them is now blocked. Periodic releases of these assets have prove~ "sufficient to cover the current Egyptian deficit on s:terli~a:ccount~ Egypt continues to be largely dependent on sterling in both monetary and trade matters. 13. An evaluation of the various elements of the country's credit-w.rthi~~e~~ shows a preponderance of favorable aspects as far as willi~gness and ability of the country to service a foreign loan are concerned. ''lith regard to a dollar loan this ability is limited by the volume of visible and invisible eXr)orts in hard currencies and the rivalltng claims of essential imports and the service of the existing debts. 1ifuile Egypt's hard currency requirements in 1949 \vill presumably be covered 1"rithout difficulties, service charges .of Government guaranteed debts as vlell as of the kno1rm nrivate debts in hard currency will tax the available dollar resources rather heavily during the four :rears beti"reen 1950 and 19.53. Loan arrangements bet1tleen the Bank and Egypt could take account of this fact either by restricting the amount of the initial loan or by providing a period of deferment before repayment begins. 14. Of the projects discussed by the Hission with Egyptian :representatives, the one ,!:lhioh is mature for immediate financing is the irrigation project of Qena. Its pur'l)ose is to provide additional '!Tinter and full summer irrigation for some 260,000 acres from under- ground ~ffl.ter by a large number of pumps to be established during the next ten years. The project has many advantages, the most im:portant of vThich are; a substa.'ltia1 increase of the production of cereals 'l'lhieh. - vi - while raising the income of a particularly poor province will also diminish import requirements; an avoidance of all the disadvantages of perennial irrigation, such as disease, gradual exhaustion of the soil and raising of the underground water level; saving of the 'iI!ater supuly of the Nile, 1·!hich '\'Tould be hardly affected by this operation. The3e advantages out\llsigh in terms of national economy and 1';elfare gains, the considerable cost of the creation and operation of pumps. " 1.5. The Qena Project, "rhen carried out, may, by in~.e..§taingthe... pro- duction of bread grains save some foreign exchange for other purposes; it will provide fuller employment for the ponulation of the province and, as it is located in an area where small owners are comparatively more numerous than in the rest of the country, it may even contribute to a better income distribution. ll'hen viet"ed from the perspective of Egypt's ba.sic economic and social 'lJroblems, the Q,ena project must be define~ as a step in the right direction, though a very small step only. 16. Industrial developments, discussed in a ureliminary ''lay ltd th Eg7ptian £'uthorities, include projects for a ne\'J fertilizer 'lJlant, for penicillin and DDT pl~nts as \lTell as 1)rojects of a steel and iron industry based on Egyptian iron ore from the Aswan province. These and similar other plans do not seem yet to have reached a stage yermitting their economic analysis, but will undoubtedly deserve the closest study espeCially where labor intensive industries are concerned. The pa~amount imoortance of industrial develonment for Egynt should not t h01,vevel', lead to investment in such industries ",here the urices of fuel and po,..rer, the tran&port costs of raw materials, the absence of external economies or other considerationu "rould make production permanently depend.ent on subsidies 01' protection. L I B D E s E s A H A E T and the NILE VALLEY PHYSICAL Land _"" 6000 fut 45{)() 6000 3000:"" 45{)() .... ~, lun 1.,0- KiloU.l~tl"s . 12()(J 3000 ..) :\0 lJo )!Ut '<100 (J()O - 12 (){) __ lWil...~,,~ . J(oadh' ,i.l'a...If}t",JtlIN _ (s,..."I, o- 60(1 "'ell. A p',',...mul¥ I";"~"'''''''' 6«..... • r,a·u., ..l Hltl.g}w, '" It-« II. THE , SOCIAL A}ID POLITICAL BACKGROUND ; A. Social Structure 17. On top of Egypt f s social pyramid is the group of large land- owners, who for the most part are absentees' and speno in towns the rents collected from their estates. They are a comparatively small but highly privileged group which wields considerable economic and 'Political power, The class of Egyptian private industrialists and merchants, although growing quickly, is still small in numbers and politically handicapped by its associations with foreign capital. There is also a lower mid.dle class, consisting of government officials, employees, tradesmen, crafts- men, etc. This group suffered particularly from the increased cost of living, not matched by a proportionate increase of salaries. A certain unemployment among young graduates lead s to !ncree sed xenophobia on the part of young people who frequently have found the way to promotion barred by foreign managers or by quicker Levantine rivals. The limitation of foreign staff by the new Company Law and the restrictive interpretation of Egyotian nationality, applied by authorities are reflections of these conditlons. Together with the University youth, this group is a natural hotbed of fermentation and unrest, resulting from dissatisfaction with its own position and with the inability of successive governments to solve the country's economic and social orob1ems. Any future reform movement would presumably originate or receive strong support from these circles. 18. The slowly increasj.n~ class of town workers is in a slightly better position than the majority of small holders or landless peasants. Some of the larger factories, visited by the Bank Hission, had remarkably modern welfare arrangements and conditions of labour in general (lir1 not - 2 - seem unfavorable bY Micldle ;;;astern standards. Yet the standaros of living are extremely low, housing conditions, especially in the slums of Cairo and Alexandria, are incredibly bad and the incidence of disease is very high. 19. The most numerous groups, representing to a certain extent the backbone of the population,are the peasants (calleo fellaheen - fellah, sing.) who amount to over 13 million people. As about half of the cultivated area is in the hand of large landowners, only a part of the peasants own land and their holdings are extremely small. The landless fellaheen (over 1 million of the male peasant population) depend for their livelihood completely on tenant farming, share-eroppi.ng or daily labour. As a result of the enormous populative pressure on land, rents are high and wages low (lower in Upper Egypt than in the Nile-Delta). 20. Hinorities and Forei~ Elements. The official religion of Egypt is Islam and the bulk of the population are Slnnites. Nembers of the Coptic Orthodox Church number over one million. @uang racial groups, differing from the Egyptian stock, the Bedouins or nomad Arabs have to be named a s well a s the Nubians of the Unner Nile, around ASiofan and Dongola. There is no minority problem of political significance. 21. Foreign elements comprise partly assimilated ~yrians and Lebanese, who used to be employed in the government service by the Fritish, but now mainly concentrate on import trade; some 60 thousand Jews with considerable influence 1n finance, commerce and industry; a similar number of Greeks who form the largest, oldest and most diverse of the European cOIl'JIlunities; Italians who have provided the country with many skilled artisans; a small French community whose cultural influence is still the greatest and a group of British businessmen, teachers and - .3 - technicians employed by the government. 22. Foreigners have in the past rendered great services to Egypt, for which they have been generously rewarded. Hith the regaining of full oolitical independence, a reaction against the strongly entrenched foreign economic interests has manifested itself, among others in the new Company Law of 1947, requiring a majority of Egyptian capital Darticioation and limiting the number of foreign staff; another example is the proposed new Land Bill which would render the acquisition of land by foreigners very difficult. B. The Political and Administrative Structure 23. Egypt is a hereditary, constitutional monarchy. The present ruler King Farouk r who, so far, has no son, is a descendant of the founder of the dynasty, 1,l[ohammed lily. The Constitution was established by Royal Rescript in 1923, abrogated in 1930 and reintroduced in 1935. This Constitution stipulates that all Egyptians are equal before the law and enjoy full civil and political rights without distinction of language, race or religion. Personal liberty is guaranteed and the house and property are inviolable. The King is the Supreme Chief of the State and Commander of the Armed Forces. He sanctions and promulgates laws and has the right to dissolve the Chamber of Deputies. 24. The government is nominated by the King, but responsible to the two-chamber parliament. Two-fifths of the members of the Senate are appointed by the lang and three-fifths are elected. All members of the Chamber of Deputies are elected. The three main parties are the \,Tafd, ""hich boycotted some of the previous elections, but is sometimes said to -4- have the greatest popular support; the Saadist Party and the Liberal Constitutional Party; the two last ones forming the present coalition government. Election issues hover around nationalistic pronouncements connected with Egypt's external aspirations and do not differ very much from each other. Neither is there any deeper difference in the social or economic outlook of the party leaders. tfuile the tJafd is usually credited with slightly more progressive social tendencies, all three parties are represented largely by big landowners and faithful to their interests. 25. There is no organized opposition 'itlhich would threaten the stability of the regime, but the poverty and dissatisfaction of the people flares up from time to time, taking the form of attacks on foreigners or Egyptian statesmen and politicians, several of whom were assassinated during Egypt's recent history. Hith the end of the war in Palestjne national feeling has subsided and after the death of the head of the i:toslem Brotherhood, He ssan el Banna ancl the arrests among the leaders of this organisation, antigovernment demonstrations seem to have ceased. 26. Although in comparison to all other Hiddle Eastern countries, with the possible exception of Turkey, Egypt is much better organized and its civil service is more developed, there is, as a natural sequel of the period of independence, some lack of experience. t-.ccusat:ions of graft and bribery are heard from time to time and there is a general complaint about the extreme centralization of Dower. Provincial Councils and l"'1lnioipalities are in their beginnings,with the exce'ltion of the Munici- pality of Alexandria, which has shown some enterprise, ,.,hile Cairo still has no selr-government. - 5 - c. Curre~ History Bnd Recent Developments. 27. Although Egypt regained independence off:i.oially in 1922, in the views of many Egyptians this date should be shifted to 1936, when after the signing of the Anglo-Egyptian Treaty of Alliance, British forces left all of Egypt with the exception of the Canal Zone. Only in this year the special privileges of foreigners, known under the name of capitulations,Y were abolished. 28. Soon after the Anglo-Egyptian Treaty was signed the King dismissed the lJafdist Government, which had led the nation in its struggle for full independence, and from 1937 until 1942 Egypt we s governed by civil servants or by minority governments. At the outbreak of Horld ~'lar II some of the Egyptians sympathised with the Axis Powers and amon~ them seemed to be Prime Minister, Ali Maher Pasha, an independent, who was dismissed following a British ultimatum. Between 1942 and 1944 a Hafd government stayed in nower; its most important achievement was the oonversion of the country's foreign debt into an internal loan. Some reforms were also introduced in the fields of education, health and labour organization. 29. After the dismisse1 of the VIard Cabinet in October 1944, Ahmed Maher Pasha, leader of the Saadist Party, formed a govermnent; he was assassinated four months later after informing the House of the decision 11 Strictly speaking capitUlations are treaties by ",hlch one state confers the privilege of extra-territorial ;jurisdiction on its ter- ritory to the subjects of another state. Capitulatory rights in Egypt were nossessed by: Belgium, Denmark, France, Great Britain, Greece, Italy, the Netherlands, Nor',ray, Portugal, Russia, Snain and the U.S.A. In Egypt the term caoitulation is often used for any foreign privileges, based on treaty obligations. - 6- to declare war on Germany and \-Tas succeeded by Nokrashy Pasha. At that time, Nationalist feeling was at its height and manifested itself by demands to review the 1936 Treaty and solve the Palestine problem. After various disturbances, Nokrashy had to resign in 1946 and was followed by a government of Sidky Pasha, a senior Egyptian statesman, who conducted difficult negotiations with Britain about a number of questions but could not reach agreement over the question of the Sudan. In December 1946 Nokrashy took control once more. He was assassinated in December, 1948 and the present Prime l\1inister is Abdul Hadi Pasha, the new leader of the Saadist Party.lI 11 It was reported from Cairo on July 25, 1949 that, after the resig- nation of Abdul Hadi Pasha, the creation of a Coalition Government on a broader baSis, including the Hafd, was contemplated. The mission to f~r.m a new Government has been entrusted to Hussein Sirry Pasha, a well known technician and bUSinessman, who had already once headed a Government in 1941/42. ALEXANDRIA TOTAL POPULATION DENSITY. BY GOVERNORATE a PROVINCE. 1937 PERSONS PER SQUARE MILE ~ 500-999 ~ 1000-1499 ~. 1500-1999 III 2000 - 2500 .2500+ • GOVERNORATES - - - PROVINCES o 30 MILES ~--'-_....I--JI .••.••••• APPROXIMATE LIMIT OF I I CULTIVABLE LAND a o 50 KILOMETERS FISCAL BOUNDARIES 32" 33° I 24·----------------~ 2 3 . - - - - - - - - - " ' + - - - 230 2 SO_=---.Jorts ",as absorbed by the U.K. ';Ihile this share "Jas reduced in 1947 to 15~, it rose again to 29% in 1948; there ~'ast at the same timet a considerable in- crease of trade ",i th other countries in the sterling group. India took 15% of Egyptts exports in 1948. ~vhile three of Egypt's important pre,,'ar customers, GermaIl¥ t Greece and Japan are no longer significant. exports to countries "rith l1hich trade and p~ments agreements ",ere concluded increased. in the case of USSR, from practically nothing in 1947 to about 8% in 1948; in the case of France there l1as an absolute increase (from bE 10.7 million in 1947 to ;E 14 million in 1948) but a relative drop (from 13 to IO%)~ 84. Exports to hard currency countries, such as the U.S., Belgium and Switzerland recently decreased slightly in value and considerably in volume, which is explained partly by the higher prices for Egyptian cotton '\-,hich hard currency countries were reluctant to pay_ As individual exporters could not be expected to export to these countries at a lower price so long as they had to surrender all the foreign exchange proceeds at the official rates, the Egyptian Government decided in the summer of 1948 to offer at cheaper prices but only against hard currencies, its o'\lrn stock of cotton, accumulated in previous years as a result of the Government's intervention on the internal market. Of Egypt's exports to the U.S.A., Belgium, Germany, ~Titzer1and and Japan t all p~able in hard currenCies, 50% consisted of cotton, 30% of rice and the balance of onions, cottonseed oil, medicinal herbs, Nool, etc. 85. An analysis of imports according to their sources reveals a con- siderable absolute increase in imports from countries accepting sterling from Egypt. Similarly imports from countr:les Ipfi th ,.rhich Egypt concluded trade and payments agreements increased appreciably. Imports from the U.S. remained practically on the same level in 1947 and 1948, ~. 'hile the total of imports l EGYPT: FOREIGN TRADE AND COTTON PRICES, 1900-1948 200 -- 20 VALUE OF TOTAL EGYPTIAN AVERAGE EXPORTS AND IMPORTS COTTON PRICES 180 IN MILLIONS OF £ -- - IN I,; PER CANTAR_ 18 a ..' 160 140 r--- --- --- -- . .: •• :. • • •• : • • ~ o' ~ COTTON PRICES -- , I I 16 14 :: l RIGHT HAND SCALE) :: 120 · ,~ ~ 12 , .. • • --- • • • · · · • I 100 1-------- --- • · • • • • • " • 10 : ,~ • • i /1 ,, I II • .. 80 8 , · :A .: . - -- -- -- r. f' ~/ • ;:···..i /' : , •• • '." • • • • • 60 · )J t>G/ . It.: / 6 --- ~ • • SCA~ ~.. I V • ~, IMPORTS : ... . ;..-: . . ... : ,.,' '. , 0 ~- (LEFT HAND 40 I--- ---- 20 .... •• •• ..•••••. ... ..... - •• ••• ~ ?::¥: • : 0• • •• • • f'''''-'''''~' • Ir,.l • ---- • \ ,~ .......... •• • ~ I :::':. ~ ... 00./ -------- 4 2 '0 .~ • • [\ •••• -4IE-- '\0, 0 ,f •• ~ !';; ' J ===--"" E X PORT S .-:JI""" (LEFT HAND SCALE) ~llt o 1900 I I 1905 I I I t 1910 I I t I 1915 I I I I 1920 t I I I 1925 I I I 1930 I 1935 1940 I 1945 L 1_1 L 1950 o NOTE: I cantor =99 Ibs SOURCE; Notional Bank of Egypt I.B.R.D. - Economic Dept. No. 388 - 37- from the hard currency area increased only slightly and not in proportion to thegeneral._increase o~Egyptian imports. This relative shift from dollar to sterling imports is generally considered a healthy development in view of the existing restrictions on sterling convertibility of Egypt's large sterling balances and of her traditional ties with sterling sources of supply and their proximity. 86. Trade with the Sudan in 1948 showed an expansion of nearly m1 million in imports from and of ~ 1.6 million in exports to that country. (In Thousands of m) Imports from Exports to Balance the Sudan the Sudan 1948 2,700 ),708 + 1,008 1947 1,720 2,082 + 362 The main articles imported from the Sudan were cotton and oil seeds with a value offE938,00q, followed by livestock worthi:E434.. ooo. The main articles exported to the Sudan were silk, cotton piece goods, sugar and confectionery and rice. Exports of silk, amounting to overfEl mill. account for 30% of total exports. Gold Trade 87. As in the case of other nations of the Middle East, the Egyptians have a great interest in gold and Cairo is one of the centers of gold trade. Known imports of gold, largely in the form of ingots from Holland and gold coins from Saudi Arabia, increased in 1948 to the value of over fE 12 million. They were largely financed through the crediting by Egypt of sterling trans- ferable accounts of Holland or those countries in the transferable account area, who bought sovereigns in Saudi Arabia and sold them in Egypt. A con- tinuation of this procedure may have become more difficult due to the Anglo- Egyptian monetary agreement of March 31, 1949 and its restrictions on financinz indirect imports with transferable sterling, - 38 - 88. A pa.rt of the imported gold is hoarded. There is no doubt, hat'l- ever. that a considerable if not the greater part of all the gold imported into Egypt in recent years, is eventually reexported. Exports of gold coins and gold ingots are forbidden. Exports of gold je,,'elry are permitted if the exporter can prove that he had previously imported in ingots at least hrice the amount he ",tshes to export. ~1ith the exception of 1947. 1.·hen gold je\,relry exports amounted to ~E 1.2 million, there is hardly any mention of gold exports in trade statistics. Gold ,'!hieh is smuggled out seems to serve mainly to finance imports for ~~Thich no foreign exchange \'Tas allo cated. Some of it may be tra.ded en a purely speculative basis, although Ca"sc is gecondary to Beirut as an interna~ional gold trading center. Trade Policy and Regulations 89. Tt-ro things from the past should be remembered ~'rhen Egyptian trade policy is considered; until 1930, owing to the existing treaties, Egj-pt had its hands tied aa' regards its Custom Tariff. 1.rhich 1"as only to provide a.> certain income 1111 thout regard to any considerations of the country's economy; the year 1947 was the first in tghich Egypt. having officially left the ster- ling bloc, was in a position to pursue an independent commercial policy. 90. The principal problem is Egypt's inability to balance the trade 1,,'1th its important hard currency area suppliers. As a conseo"uence strict import licenses for non-sterling purchases were introduced. Follm,ring sub- stantial releases of sterling from balances held in the U.K. requirement for licenses ~"as rescinded for goods originating in any country or area accepting sterling payments. At the same time the diffioult hard currency situation occasioned the continuance of licensing for all exports and the exercise of more positiv'e government action to channel as many shipments as possible tO~Tard hard currency takers. Cotton cake, for instance, is only exportable against payments in dollars: ri~e can be exported for dollars or in exchange - 39 - for bread grains. Other considerations have led to a number of further export restrictions. The export of grains and pulses is absolutely prohibited and the same applies to sugar, as the authorities hope to meet fully domestic requirements and to stop rationing sugar. Exports of cement, as ~ell as of fruits and vegetables, are prohibited in order to keep the domestic supply sufficiently high. 91. The Government's pOlicy of import restrictions "ras partly circum- vented by the somewhat complex forms of trade T!rith the U.S •• involving a TI!eb of trans-shipments and participation in free and black money markets both within Egypt and abroad in addition to the normal pattern of exports and imports cleared through "rorking balances held by om:,k"" In 1948 Egyptian authorities outlined a list of commodities considered essential to Egypt and procurable only. or at least at advantageous prices. ft'om the U.S. This im- port program did not envisage the import of a great nurriller of consumer goods. U.S. automobiles. canned food, clothing, cosmetics. etc •• w'ere specifically excluded. Licenses for such items were issued without dollar allocations; the procurement of hard currency was left in these cases to importers who often took recourse to rather intricate patterns of transactions. Some American products "rere apparently also imported via :Beirut, "thich accounts for the surprising phenomenon of an unfavorable trade balance for Egypt with Syria and Lebanon during 1947. 92. Another part of U.S. goods found their way into the Egyptian market at relatively high prices, through import licenses for the import of goods of U. S. origin from third countries with the price stated in sterling. Needless to say, these transactions involved considerable discount on the sterling, and indirectly the Egyptian pound, at rates ,,!hich during 1948 ran aboutPT 30-40 equal $1.00. against the officia~ PT 24 e~ual $1.00. In this connection, it is necessary to analyze import figures in the light of the -40- fact that in some cases imports of U. S. goods "rere listed by the customs under the country from ',rhich the trans-shipment was effected. This is particularly important in the case of Italy. T.rhich country instead of replacing the U. S. as the second supplier of Egypt t should be much further dONn the list. 93. A number of important trade agreements \I!ere recently entered into by Egypt. The agreement with the Q§,§R, effective Harch 1948, involvect the barter of long staple cotton in exchange for "rheat and corn. A clearing agreement t·ras signed 'dth Jfrance in June 1948, providing that transactions bet",reen the t"ro countries for the space of one year be conducted through accounts in the currency of the tt,"0 countries rather than subject to sterling transfers as had been previously the case. In the a\S.l.'eement 1,ri th S~'ritzerland. signed in September 1948 and extended for 6 months, beginning May 1. 1949. certain government stocks of cotton were envisaged for sale to cover some Fr. s. 13 million ~rorth of imports including machinery. chemical products. dairy prod'IJ.cts t ,-,'atches, etc. Fr. S. 9.5 million "rere a.pportioned to cover Aswan project imports ~rhile the amount of Fr. S. 8 million bras calculated as required for invisibles including arrears on Swiss investment in Egypt. More recently, trade agreements "rere also concluded with Anglo-American Bizone authorities in Germany. ~,dth Poland and India. D. Balance of Pa.Yments Egypt's Sterling Balances 94. AI!! a result of Allied ~rar expenditure in Egypt, financed by notes issued against sterling, t.his country accumulated during the second ~rorld '){ar considerable sterling balances ~"hich, at their peak, 1'rere estimated at ~ 425 million. These balances represented the count~,ls chief monetary reserves and its first line of defense against an adverse trade balance. These assets are not the property of the Egyptian Government and should not be dealt "'ith like an inter-gover~~ental debt. A large part of them is held by the National - 41 - Bank either as cover for the note issue or as the counterpart of its liabili- ties to depositers. Most of these balances are held in British Treasury Bills, which bear an interest of one-half per cent per annum. 9:5. The utilization of the Egyptian Sterling balances ..,as regulated successively by the three Anglo-Egyptian agreements of June 30, 1947. of January .5. 1948 and of March 31, 1949. The first of these agreements marked a turning point in the international financial position of Egypt as it pro- vided for its departure from the Sterling Area. The second agreement provided Egypt ..lith 2.5 million U.S. dollars for the payment of current transactions 111ith countries 1"hleh might refuse sterling and the equivalent of 4 million dollars in gold ",hich Egypt "rae required to subscribe to the IMF and IBRD. Provision 1,-rae also made for the release of further amounts of sterling; these proved amply sufficient. Under the terms of this agreement during 1948 Egypt1s sterling balances llTere reduced by a net amount of t 3.9 million; that is to say, Egypt "rae able to utilize in full her current sterling earnings (includ- ing the interest received on the sterling balances) and to reduce her capital claims Qy a little over 1%. As per December 31, 1948 the Egyptian sterling balances amounted to Ji, 343.2 million. Of this amount, Ji, 72.9 million ','Jere on Account No.1, ",hleh means tha.t they '"rere available for payments in the sterling area as '\IIrell as in the transferable sterling countries '\.1 inflationary forces; (b) that nrices for Egyptian cotton \'lill not suffer a catastro~}hic fall, comparable to that after "Torld '.Tar I; (c) that the present pattern of financial arrangements ,d th the U.K. \-7i11 be continued for a number of years; (d) that a certain influx of canitel from hard currency areas will continue to contribute to the covering of the remaining hard currency deficits (,,!hich development \-JOuld be greatly assisted by a clearly positive attitude to foreign bUsiness and investment); there is reason to expect that Egypt should be able to provide a j J loan service of about $1 to $2 million annually without undue strain, ANNEX TO THE REPORT ON THE ECONONY OF EGYPT (No. E.55) AGRICULTURE, INDUSTRY AND, DEVELOPMENT PLAN~ Table of Contents Page 1. AgriQulture and the Food Supply 1 A. Cultivable Land and Irrigation 1 B. Land. Tenure 3 c. Agricultural Method.s 4 D. Main Crops 5 II. Industries, Power and Transport 8 A. Mining 8 B. Industries 9 C. Power 11 D. Transport 12 III. Development Projects (with special reference 12 to Qena) A. General 12 B. Agricultural Projects 13 C. Industrial Projects 16 - MAPS The Nile Basin 2 Distribution of Egypt's Natural Resources 8 ANNEX TO THE REPORT ON THE ECONOMY OF EGYPT ,AQEIQULTURE. INDUSTRY AND DE~OPHENT PLANS A. Q,Bltivable Land ansLIrriB!!!tion 1. Of the total area of Egypt amounting to 1,000,000 sq. km. ()86,110 square miles) less than 4% are cultivable, the rest being barren desert. A distinotion has to be made between the cult:ivable land, the aotually oultivated land and the cropped area; owing to the practice of double cropping, the cropped area is alHBYS larger than the cultivated land. According to the latest available figures, these areas were relate r3 to each other roughly as follows; Cultivable land Cultivated land ..... . ...... - 7,200,000 aores!! 5,900,000 II Crop area (1948) ...... 9,440,000 n While the crop area increased considerably since 1912 (when it only amounted to 7,950,000 acres) in connection with shifts from basin to perennial irrigation, the cultivated area increased only imperceptibly. It is understood that land reclamation on a larger scale could be undertaken if the water supply were increased. 2. Egypt received practically no rain during the \-lhole of the year; the small amounts of precipitation in the northern and southern parts of the country are of no importance for agriculture which depends on water from the Nile. During"the seasonal flood between July and October the average rise in the level of the river is 7t meters at Aswan and 4t meters at Cairo. Since time i~ernorial great ranks of earth were raised, trans- versal to the river, dividing the land into basins which retained the water a little longer and increased the deposit or the fertile silt. The moisture thus preserved is sufficient to grow one crop, soon after the recession of the nood 'Haters. This system of basin irrigation, 5tHl practiced in parts of Unper Egypt, hss, by ensuring a regular flow of ",ater and an annual fertilizstion of the soil, made Egyptian agriculture one of the stablest in the world, but does not provide sufficient means of existence for the rapidly growing population. It has, therefore, been renlaced by the system of perennial irrigation which actually staves off the flood from the fields by dykes And supplies "Hater all year round through feeder canals thus making it possible to have several crops during a year on the irrigated area. In order to bring the water into the fields it has to be either pumped from the river or the level of the stream has to be raised by the il Higher estimates of"c~ltivable ~a-(up't; 9 million' acres) given by some sources can probably be disregarded for the time being, as they would not only require more water than is available now, but also such investments as a syphon tunnel under the Suez Canal, as well as a large supply of cheap power in Lower Egypt neoessary to lift irrigation water from 5 to 20 meters. - 2 - construction of barrages. Apart from these barrages of which several have been constructed at fairly regular intervals on the Nile and in the Delta, there are three dams for storing water during the flood: the Aswan Dam in Egypt, which after its third heightening has now a storage capacity of 5 billion cubic meters and the Gebel l'.ulia and Sennar Dams which, although situated in the Sudan, are under Egyptian administration, and have a storage capacity of 2.5 and 0.6 billion cubic meters respectively. Thus, the average Nile water supply available to Egypt between the beginning of February to the end of July, is composed of: Some 15.4 billion cubic meters from the normal flow of the river. Some ~ bill~on cubic meters from storage in Aswan, Gebel Aulia and Sennar. Total 23.4 billion cubic meters (as measured by hswan discharges) If the water requirements of Egypt are calculated for 7.2 and those of the Sudan for about 2.0 million acres, the total water supply of 23.4 billion cubic meters falls short of the total requirements of both countries by about 6 billion cubic meters. As allowance has to be made for a reserve connected with very low years ano with possible errors in forecast of river discharges, the additional total water requirements are usually taken as between 10 and 12 billion cubic meters. 3. To provide this additional supply of water and also to protect Egypt against floods in years of exceptionally hi.n;h discharge, it is necessary to harness the Nile more completely, thus avoiding any waste of water during the flood period and providing a more even supply over all of the year. In order to achieve all these purposes a very ambitious scheme has been worked out which would include the folloWing, largely interdependent, constructions: a) A new Main Nile reservoir in the region between Atbara and irladi HaIfa for flood protection and summer storage: b) A reservoir for over one-year storage in Lake Albert, combined with a regulator on Lake Victoria: c) A diversion canal in the Sudd region (also called the Jangle! qypass) to avoid losses of water in the Sudd marshes; d) A reservoir for over one-year sto~sge in Lake Tans. While projects (a) and (c), even though located in the Sudan, would be largely Egyptian affairs, projects (b) involving also Uganda, Tanganyika and the Belgian Congo and project (~) involving also Ethiopia, anticipate a higher degree of international cooperation and the sharing of costs. 4. It is estimated that Egypt's expenditure on these projects would amount to a total of ~ 67 million, of which over ~E 14 million would be required for imported equipment. A. financial schedule has been worked out which divides this expenditure over the next 25 years in the following way: ~ 5 million in 1950; from 1951-54, 7 million annuallY} 5 million in 1955j from 1956-64, 2 million annually; from 1965-75, 1 million ner year. As en addition or partly as an alternative to the above schemes, it has been also 20 .30 40 MEDITERRANEAN SEA Scole in Mites o 200 400 3 , LIBYA i i i • i i i o 2 ......... .,...,./ ' l , "\.., 10 ". SOURCE: THE MIDDLE EAST JOURNAL The Nile Basin -3- contemplated to make use of the Wadi Rayan" a barren valley in Egypt" where flood waters could be stored and the water pumped back into the Nile for summer irrigation. 5. The increased water supply would enlarge the crop area by permitting the reclamation of some 1,300,000 acres as well as the trans- formation of the 900,000 acres which still remain under basin or combined perennial-basin irrigation into perennially irrigated land. But it should not be forgotten that perennial irrigation has some serious disadvantages, the most important of which are: --increased danger of damage from high floods, which previously were partly absorbed by basin irrigation: --the spread of endemic diseases, particularly bilharzia and ankyl- ostoma, among peasants who work in irrigation ditches and health deterioration follo\v.Ung the consumption of stagnant water: --decreasing fertility of the soil which under the perennial regime has to yield more than one crop while it is deprived of the deposit of silt carried by the floodwaters; -rising of the underground water table, which in many cases can be avoided only by expensive drainage: --loss in crop area through ditches and drains which in some cases occupy up to 16% of the surface. 6. As a new solution it is now proposed to develop on "basin" land additional irrigation with water pumped from the subsoil, where consider- able quantities of water remain after the floods and as a result of seepage from the Nile. Against the disadvantage of the initial expenses connected with the installation of the pumps, this system, having none of the faults of perennial irrigation, promises to improve health standards by supplying clean water and also avoids drawing on the limited Nile water supply. It is the basis of the Qena irrigation project, for which Bank assistance is sought. 13. Land Tenure 7. According to the last agricultural census (1939) out of about 2.5 million of landowners in ~gypt, over 1.7 million own holdings of 1 acre or less, while another 0.6 million own holdings between 1 and 5 acres each. The proportion of land owned by these 93.5% of Eg~~t's landowners is only 22% of the total. TJhile the group of medium landowners (5-50 acres) repre- sents only about 6% of the owners but 40% of the area, the remaining 38% of agricultural land is the property of some 12,000 people. Comparisons of these figures with data from 1896 indicate that while the area be- longing to large landowners remained unchanged and medium proprietors suffered a slight loss, the whole increase in cultivated land went to the small owners, whose average size of properties. however, decreased farther, as a result of continuous splitting up by inheritance. 8. About 61% of the cultivated area is leased. Lease contracts follow varying local customs. The most popular method, applied mainly in -4- leasing the lend of the Government, Wakfs1l and big estates, involves money payments. Under another system the owner advances expenses 1., of the limited purchasing power of the population, apy large-scale increase of fruits and vegetable production seems to depend on the possibility to intensify exports. II. Industries. Power and Transport A. l>'iining 20.Petroleum, calcium phosphate and IDe.nganese ores are the most important deposits now exploited in Egypt; of the other minerals found in the countryls deserts, the most imyortant are: asbestos ,beryl, copper, grajJhite. iron ores, kaolin, lead and zinc. magnesite, sulphur and pyri te t talc, tin and tungsten. In most of the cases no data are available as to quantities found and the possibilit? of economic exploitation. 21.The following figures sho':J the develonment of crude ill production in E~Jpt ( in thousands of metric tons): . 1938 2.50 1939 742 194.5 1,349 1947 1,328 1948 (est.) 1,900 The main fields are AssaI, Sidr, end REt.s Natarma on the Sinai pen- insula, operated jOintly by the Anglo-Egyptian Oilfields Ltd. (1'l.ffiliated \vi th the Royal Dutch-Shell Group), and the Socony-Vacuum Oil Co., and Ras Ghareb and Hurghada on the Red Sea coast, operated by Anglo-Egyptian. Proved and ino.icated oil reserves in Egypt are estimated at aronnd 17 million tons and it is likely that this figure ~,!ill be revised upNard after further exploratory 'VJork. 22.Egypt l s consumption of oil products has risen from 0.7 million tons in 1938 to million tons. A larger :oroportion of internal reqUire- ments may no,\" be covered by domestic production but, due to the quality of domestic crude, the country will continue to import kerosene, gas oil and diesel all. A certain bottleneck remains also in refining capacitYQ Of the ti10 refineries, both at Suez" the smaller one belongs to the Government, the other one belongs to the anglo-Egyytian. In both cases enlargements are under consideration. . 23. Before 1937 the only com:oany producing oil in rg:;rpt 1.'Jas tl:e Anglo- EgYI'tian. Ne N regulations introduced in that year enabled the ;:;tanclard Oil Company of j~gypt (.itandard Oil of ~Tel"l Jersey) anG. the 60cony Vacuum to enter the field. In 1947 a ne,:r PetrOleum Lal" ",as passed and leases "vere approved for some of thE' fields. Delays in implementing the la',r forced oil companies to continue exploration nrogre,ms ;-rithout full legal clearance ",hile severe drilling obligations and. rentals induced them to abandon exnlorations '!rest of the Hile. These and other uncertainties seem to have been among the reasons of the temporary suspension of operations *'frkr THE LegeIJd !'-AIRPORTS ~DAMS G! COTTON ~CORN 'i WHEAT ef RICI: , - , MILLET •• JP"'~ " V ~ CANE SUGAR FRUITS ...6.. RUGS 1 FISHERIES PETROLEUM \ korn Ombc ~OIL REFINERIES ~yCEMENT ~PHOSPHATE (\M, ASWAN .a SALT f3 CAUSTIC SODA _E/ Shan.1 c::::. GOLD ~SILVER DISTRIBUTION OF • IRON ~LEAD EGYPT'S NATURAL RESOURCES ~COPPER ~ UNGSTEN ',- ' ZINC 0;;- MANGANESE ...J4 MANUFACTURES &1...-.._ _ _ ----1 Source, ROYAl EGYPTIAN EMBASSY, WASHINGTO~, O.c. -9- by Standard Oil early in 1949 • . 24. Before \,iorld :!ar II :Egypt ranked sixth among the phosphate producing countries, with the output of phosuhate rock totalling in 1934 nearly 550,000 tons. Following a wartime decline, output rose steaQily and amounted in 1947 to 370,000 tons. The most important deposits are in the Red Sea. area and in the Nile Valley: the former's outnut being usually ex~orted to Japan, the latterts to Europe. The average percentage of the ore shipped is 63% (ir!hich compares wi th an over-all average of 72;b content in the U.S. production). ~gyptian reserves are estimated at about 4 million tons of commercial phosphate rock. Only a small proportion of the mineral has been retained in Egypt until now for domestic production of super-phosphates but a new production uni t began operations at Abu Zoabal in 1948. :'.25. The principal manganese deposits in Egypt are found on the Sinai Peninsula, in the Om Dogma district, ,,'There production of are averaged about 85.000 tons annually for the period 1936-43. rost of the ore is lOiv-grade averaging 28-32% manganese, 1·r1th ail iron content of 30';0,. During the \-lar years production vlaS cut drastically due to the general disruption of international trade, and substantial stocks were accumulated. After the war, these stocks were dra,~ uuon for most of the exuort trade, and only since the early part of 1948 has there been a resumntion of operations in manganese production. B. Industries 26. General- Industrial activi t~T in Egypt is faced by several adverse factol's, such as the restricted range of industrial ra~;T materials available locally, the searci ty of cheap fuel and p01"er, the reluctance of j:.:gyptian capitalists to invest in industry and the absence of an organized system of industrial credit; the most important limiting factor is the narro\-mess of the home market, resulting from the very 10"j purchasing '001t.'er of the mass of the population. lmile the last named element remains unchanged, some of the other obstacles are being gradually reduced, be it by increased mining production, or by the activities of Bank Misr and the creation of an Industrial Bank. On the other hand, cheapness of ~abor and the government1s desire to increase the country's uolitical and economic independence by indUstrialization encoure.ge industrial develonment • . . • 27. Industrial production in Egypt was greatly stimulated by the ti\TO l!orld Wars. During tr.e 1914-1918 war, the shortage of imports brought into being many industries, some of ",hich survived the ..,~'ar.. Since the increase of duties on imports in 1930, industry enjoys a substantial measure of protection. In the absence of reliable or uniform statistics it is difficult to judge the extent of the industrial advance.. Import statistics, hO'li'leVer, supply some indirect information, by shOt-ring that bet1rleen 1913 and 1938 increased imports of machinery and ravl materials "rere accompanied by decreased imports of certain manufactured goods. It is estimated that before '!orld 'I'iaI' II Egyptian industries satisfied comnletely ~he countryl s reQuirements in sugar, alcohol, cigarettes and salt, UlJ to 905~ in cement, shoes and soap, up to 6Cf;: in vegetable oils and up to 40% in cotton textiles. '. -10- 28. During 'i'lorld ~Jar II most of Egypt's industries worked to capacity, benefiting by the joint advantages of increased demand and little or no comp8tition from abroad. This wave of ~rosperity was reflected in the balance sheets of most of the manufacturing and producing companies and high dividends 'Nere paid. Index nUInbers of industrial production ~t the end of 1945 were 134 by quantity and 350 by value (1938 100). = Post~'rar adjustments caused some decline of production in 1946 and 19L~7 • . 29. Some invight into the amount and ownership of capital invested in E~Jpt can be obtained from a recent renort of the Census and 0tatistical Department of the Egyptian Government., ,·rhich 1)laces the number of limi ted liability companies in Eg"JPt at 375. 1;rith a total capital of ;bE 78 million C~312 million). Three hundred and forty of these companies are stated to be entirely Egyptian I:ri th a combined capital of tE 69 million" Of the remaining companies, 26 are British "ri th a total capital of ltE 8 million; t1~ro are French "ri th a capital of about ;bE 1 million, and six are Belgian \\lith a capital of about ;bE 1 million. The field of activity of the most important of these companies is divided as follo\·!s: 25 financial corporations ••••• 0 •• ;bE 14 million 51 la.nd companies ;bE 14 million 155 103 industrial companies commercial compe.nies .......... !If • • • • • • • • • • • • • • ......... I.E 26 ;bE 12 million million These figures ShO'll a certain incrPRse over 1938 ,·!hen there i'Jere 300 companies ",i th a total capi tal of i.E 58 million., 30 0 The Government's policy to assist industrial development takes several forms: foreign experts are being employed to study both existing and proposed industries and advise as to their future; otherwise restricted hard currency resources are being allocated for machinery, spare parts and raw materials; credit facilities are provided for srraller industrial firms. Another case of Government intervention is the ne1!' company IaN of August 1947 "Ihieh, apart from such provisions as that nobody can combine public office \ori th participation in a board of a stock company and that nobody can be a member of more than 10 boards at the same time, contains also certain regulations concerning specifically foreign companies. Forty per cent o:f members of the board have to be Egyptians, as "rell as 75 %of employees and 90» of the ,·rorkers. On the founfu,.tion of ne", companies or on capital increases of the existing ones, 51% of the :..l:ares should be offered for sale to Egyptians who have bet",een one or t"ro months to take up these shares, after ,-,hich time the Hinister of Industries ce.n "Taive this requirement. During the first year of its operation the neN la," seems to have been anplied 1:ri th moderation and mutual understanding, the only major point of dissent between managements and authorities being the interpretation of nationality status. ::31. Textiles. In Egypt, as in many other ne,rly industrialized countries cotton sp--iiming and ~IJeaving is the branch of industry in "'Thieh advance has been mOst marked. Between 1930 and 1939 the output of cotton piece goods increased from 25 million to 150 million square meters and quality imnroved. Nevertheless, Egypt seems to have only about 400.000 snindles, i.e. 1 per 50 inhabitants, I,,,hile the uronortion in India is 1 per 36, in Brazil 1 per 15 and in the U.S. 1 per 5. The industry continues to be heavily handicapped by the prohibi tion of the import of cheap foreign ra\" cotton into Egypt. This means that i t is compelled to make lo\.,... quali ty goods "Tith high q.uali ty exuensive Egyptian cotton, ,,;hich removes muer of the effect of the protection '. -11- afforded to this industry and entails subsidy payments by the Gove;rnment. ;2. About 40~ of the .£Q1tonseed crop is urocessed in Egyptian presses, ""hich produce some 50,000 tons of oil of ,"hich about one-fifth is exported. The main by~product is cottonseed cake, 901; of which is exported. The ~ industry uroduces about 45,000 tons of soap annually, which covers 90% of the local requirements. :33. Scrap, coming largely from abandoned 1t!ar materials, as 1,'ell as imT)orted ra1t' material is Horked in a fev' iron and one COlyper plant. The recent ouening of the National Metal Industry's furnaces stepued up :Jroduction: 50 to 60 thousand tons of scr9-p iron are halldled per year. ProEiuction is mainly concentrated on bars of ",hich }~gypt used currently 100,000 annually, and on some pipe. 34 • TvlO cement plants, operating near Cairo, have a combined capacity of 800,000 tons. A nei'r company has been formed recently to construct a cement plant near Alexandria 1>1hich is to devote its prod~ction })rincipally to exports to other Middle ~astern countries, 35 .. Cigarettes are still one of the chief indUstries but production has suffered recently both from the declining taste for Egyptian cigarettes in foreign markets and from the deterioration of quality caused by substitution of cheap Chinese and Japanese tobacco for more ex')ensive Balk8? brands on 1/1hich the government has imposed heavy custom duties. 36. Among~he£ .more important industries are: building, 1,o,hich employs some 120,000 men, hotels, bre\q>enditure outside Egypt. 44. The Qena Project. Qena is one of the poorest nrovinces of Upper Egypt, probably due to a certain elevation of its arable land which excludes perennial irrigation by gravity. As apparently only the larger owners could afford irrigation by lift, merely about 100,000 acres out of the total 360,000 acres of arable land in the nrovince are perennially irrigated, the rest relying only on basin irrirration. The extreme back- wardness of the province, observed by the Hission in the field, is also confirmed by the exceptional high inoidence of infectious diseases. In 1944 over 50% of all eases of infectious diseases in the whole of Egypt were in the province of Qena, which has less than 8% of the country's population. It should be noted that this particularly heavy incidenoe of disease, which affected lout of every 6 inhabitants, was the outcome of different illnesses, undoubtedly facilitated by poverty and lack of hygiene. 45. Another feature of Qena is its comparative larger prouortion of small landowners. 1:lhile for the "Thole of Egypt the proportion of the area in holdings of up to 5 acres is 32% and that of estates over 200 acres each is 22%, for Qena the former is 40% and the latter only 13%. It is clear, from what was said before, that as the area of about 100,000 acres oerennially irri~ated by private pumps, which lift the water from the Nile or from underground, is largely in the hands of big owners, a~all owners predominate on the remaining 260,000 acres. 46. These 260,000 acres are the subject of a"-overnmental irr:i.gation scheme which intends to supply during a part of the year free water to this area pumped from underground sources by 1,000 diesel or electrically operated pumps. .Lts this nroject is fully described and discussed in the separate renort of the technioal expert of the Bank's Hission to Egypt, all that remains to do here is to review briefly the effects of this project on the economy of Egypt as well as some aspects of its financing. 47. The project promises a number of advantages: a) If, as intended, the cultivation of the present tyPe of crop will be continued, the increased "Tinter crop and the entirely new S1l.mmer crop on newly irrigated land should reuresent together some 140,000 m. tons of cereals and le~~inous crops as well as 390,000 m. tons of clover. This addition would represent a 72% increase in the value of the present total crop of the area or an increase of over ~E 2.5 million. - 15 - b) Although the amount of new employment involved in the project after its completion seems insignificant, the change from single to double cultivation would employ the presently underemployed populatiot of the involved area more fully. c) As long as cereals are grown in the additional crop area of Qena, they would contribute to reduce the Egyptian deficit in this type of crops. At the present level of world prices for wheat and maize the corresponding foreign exchange savin~s are estimated at around ~ 0.5 million a year, after allowing for additional fertilizer imoorts for the new cultivation d) This additional production 'Would be achieved practically vithout any drain on the limited supply of Nile 1tJaterj it has been calculated that only about 1% of the vroter pum~ed in this project would affect the Nile flow, the remainder coming from water resources which at present are completely wasted. e) The continuously renewed fresh ~ter su~ply from the pumns 1ATould not give rise to parasitic diseases as does the stagnant water in perennial irrigation from the Nile. The water from the subsoil would serve as clean drinking water without being previously filtered. Thus, the health standards of the province should improve. 48. To sum up, it can be stated that through its impact on proQuc- tion, employment and balance of payments as well as on the income of a particularly distressed area, the Qena project will ~e a favorable cevelopment in the economy of Egypt. Its contribution toward the solution of the main problems of the country will, of course, be very small. The resulting increase of agricultural outDut will not amount to more than 1% of the total; the population involved is well below 1 million. 49. The total cost of the investment is given as about bE 8 million, which seems high; it may also be worth mentioning that the original estimates were lower. The annual operating costs are estimated to be rela- tiyely higher in the first stage of the investment when at first 16 Diesel pump: are to be installed on 4,200 acres, follm.red by 200 electric pu..rnps on over 51,000 acres, than in the second stage when e total of 1,000 electric pumps powered by energy from .AsHan is to irrigate the whole area. Assuming a 3% interest charge on capital and B renewal of civil engineering works in 40 years and of machines in 25 years, it is assu.rned that about bE 6 per annum per acre 'Would be required to cover interest charges, capital amortization and operational cost. The conservatively estimated increase in the yield, on the other hand, amounts to bE 10 per acre annually. A net ennuel p;ain of about bE 3 per acre would be equivalent to 7t% on the capital invested, which is considered a good return on an agricultural project. 50. This calculation, while showing that the project brings a net gain to Egypt's economy, has no significance on an individual basis as - 16 - none of the landowners is expected to contribute in any way to the con- struction or operation of the new irrigation. The only way in which the State can expect to recover a part of this expenditure is through increase of the land tax which increase, however, under present regulBtions cannot amount to more than :bE 0.60 on the average; added to it could be some uncalculable additional revenue derived through indirect taxation from the higher incomes of the population concerned, as well es perhaps some small economies on present health and welfare services for the province. 51. The follo",ing coul(l be said with regard to the non-self-liqui.,.. dating character of this oroject: a) As far as known, similar projects in other countries, if limited to the use of water for irrigation only are often non-self-liquidating, although, as a result of water charges, the gan to be covered from other sources is usually small; b) the present 'Rgyptian policy can be partly justified, at least with regard to ~ena by the following consideration: if the Government deprives a nrovince of the prospects of higher income, by forbic1djng cotton cultiva- tion, it seems fair that this handicap shoulr be offset by some form of subsidy such as providing irrigation; c) 1;Jhile it may be difficult to change the traditional system of free government irrigation in the whole country, it is hardly thinkable that a beginning of such a change should be attemnted in Qena where the poorest farmers would be affected; d) a reform of the land tax is overdue in any case and abolishing the existing maximum charge which is absurd in view of the rise in lana values and crop prices would enable the State to recover a larger part, though not all, of its investment; e) A general reform of the present policy of financing nutlic investment in irrigation may become necessary though not so much in connection with the small Qena project, as in vie..] of the large Nile projects; otherwise the burden of these exoensive works, which are intended to increase agricultural prodUction, 1,.Joul(~ be carried largely ry other than agricultural taxpayers. c. Indu~trial Projects 52. As none of the contemplated industrial development nrojects vas presented to the I'1ission in a form sufficiently advanced for financing or with such intent, these projects will only be briefly enumerated in view of their general interest. 53. Aswan Dam Hzdroelectric Station. The station will make use of the existing dam and have a capacity from 86,000 11J to 260,000 !{lII, depending on the seasonal changes of the head. The total cost of con- strUction of the station and of a transformer station oermitting the increase of the tension to 275 KV for transmissions is given at ~E 11 million. The annual operation costs of ~ 660,000 would be equivalent to the price of 0.35 mm I s or about 1.40 mills (U.S.) per KHH - which is comparatively low. The excavation work for the project is well under way, orders for equipment from abroad have been placed and the station should be ready to start production in 1954. - 17 - 54. Hydroelectric Stations on the Nile Bartages of Esna, Naga Hammadi and Asyut with a total installed capacity of 8?, 000 l{1d are planned. They are supposed to be linked with the Aawen station by a transmitting s.ystem of 275 KV and together with it provide for the electrification of Upper Egypt. 55. Fertilizer Plant at Naga Hamm~1!. The erection of such a plant with a production capacity of 300,000 tons of nitrate fertilizers is contemplated. The cost of construction is estimated at retween M 11 and 13 million and estimated production costs of I,E 11.26 per ton would compare favorably with prices-of imported fertilizers. Pm.J'er from Aswan would be used. The joint output of this plant and of the new fertilizer plant at Suez, which is now under construction, would cover most of Egypt's demsnd for nitrate fertilizers. 56. Iron and Steel Horks. The existence of easily accessible iron ore some 15 miles northeast of Aswan has given rise to projects for the erection of iron and steel works either in the neighborhood of Aswan, or near Cairo. In the first case Aswan power would be used, in the second case ooke would be imported or alternative coking coal to be processed on the spot, which would involve the construction of a cokery in Egypt. These Drojects are now being studied by an international committee of experts. The problem of their rentability requires a particularly thorough analysis as the creation of heavy industries in Bgypt would, naturally, have to overcome such additional difficulties as result from long hauls of either fuel or raw materials or both, from the lack of technically trained personnel and from the absence of a great number of other cost-saving elements. 57. The establishment of a ~ factory is contemplated at the exPense of ~O.5 million, which roughly equals the present cost of tlvO years L~~orts of this produce which is wicely applie~ in Egypt to combat insects and parasites. Host of the raw materials required for the production, except benzol, are available in Egvot. 5e. The oossibility of producing Penicillin in Egypt is being considered. The cost of erecting and equipping a olant is estimated at between ';:;0.3 and W.5 million. This project, similar to the 12I2Lproject is largely motivated by the desire to save hard currency imports. Both projects are the subjects of offers from private foreign firms. STATISTICAL APPENDIX !able I The Growth of Egypt's Population II Area of Land Properties in Egypt Classified by Groups According to Size III Estimates of Egypt's Crops in 1949 Compared with Crops in 1947, 19M3 IV Livestock in Egypt V Egypt's Industrial Production in Selected Years VI Movement of the Port of Alexandria, Egypt VII Monetary Circulation, 1>lholesale Price and Cost of Living VIII National Bank of Egypt - Balance Sheet 31st December 1948 IX Egyptian Government's Revenue and Expenditure x Egypt's General Reserve Fund XI Egypt's Public Debt Outstanding, Debt Service and Amount of Revenue Paid Out as Shown in Balance of Pa.yments XII Egypt's Private External Debts Year of Census Population* .(in_thousand s) 1~97 9,715 1907 11,190 1917 12,728 1927 14,178 1937 15,921 1947 19,039 *) not including nomads Source: Gouvernement Egyptien. Annuaire Statistique de Poche, 1947 Table II according t~~ Comparative date for the whole country and for the Qena province Total Egypt _ __ Qena . Pr2yi!1Qe Size of ProRerty Area Percentage Area Percentage in thousandi/of each in thousandi/ of each of feddens1 group of feddans1 group , Up to 1 fedden 702 12 45 13 1 - 2 feddans) 2 - 3 feddans) 3 - 4 feddans) 1,191 19 94 27 4 - 5 red dans ) 5 - 10 feddens 569 10 46 13 10 - 20 reddans 549 10 42 12 20 - 50 reddans 646 11 39 11 50 - 100 reddens 467 8 20 6 100 - 200 reddans 444 8 18 5 Above 200 1,269 22 45 13 17 1 redden '=-r703 acres 2~!: ~gricu1turs1 oensus of Egypt, 1939. Table III Estimates of Egypt's crops in 1949 compared with crops in _ _._ _ _,____ 124Z.s. 1948 _ __ _ _ _ _ _ _ _'_...._ J.249 iI2r e1im .) _ 1948 _-12k2_ _ Area I ~yerage zie1d ' Production I Productio~roduction hectares' per hectare I , __ ... metrIotons tJheat 595,310 18.7 1,116~000 1,080,414 1,044,291 Barley 70,627 20.0 141,240 166,4$9 169,689 Maize 639,782 22.5 1,439,200 1,409 1 194 1,401,406 Millet 168,872 30.8 521,080 558,521 577,786 Rice 294,056 42.7 1,256,850 1,307,991 1,276,382 Beans 178,137 17.2 307,675 287,129 261,359 Lentils 29,867 15.0 44,808 49,043 45,580 Fenugreek 26,885 13.8 37,355 38,301 35,130 Lupins 5,461 13.7 7,500 7,608 7,407 Chick-peas 7,141 15.3 10,950 10,799 8,342 Sesame 18,484 7.6 14,160 14,101 14,160 Ground Nuts 9,662 18.6 18,000 18,070 18,657 ) fibre 6.3 428,443 385,662 286,181 Cotton jseed 672,128 1.1 768,556 691,531 510,444 Flax fiber 47.0 39,536 42,472 18,885 ) seed 8,402 8.7 7,368 7,933 3,466 Sugar Cane 37,807 694.0 2,624,200 2,709,234 2,709,234 Onions Chitur 14,997 174.0 260,582 195,400 191,605 Potatoes 18,067 134.0 241,230 241,806 199,708 -- -----, Source: Egyptian Government Table IV Livestock in Egypt (in thousands) 1939 1947* 1. Horses 47 28 2. Other Draft stock a) Donkeys 1,069 1,126 b) Mules 29 12 c) Camels 175 197 3. Total Cattle a) Buffaloes 966 1,240 b) Cows 1,230 1,321 4. Milk Cattle 920 1,314 5. Sheep 1,897 1,875 6. Pigs 23 50 7. Hens including chickens 15,767 16,312 8. other a) Goats 1,086 1,476 * Latest census Source: Egyptian Government Table V E,g,.vptts Industrial Production in Selected Years (In thousands of metric tons) 1938 1941 1943 1945 Cotton Textiles 21.7 29.1 34.9 37.1 Cotton Seed Oil 65 73 97 74 Petroleum Derivatives Benzene 95 157 170 176 Kerosene 18 61 61 68 Heavy Oil 168 800 725 737 Cement 375 392 423 444 Refined Sugar 209 196 159 148 Beer 6 25 34 38 Alcohol 4.9 5.4 8.9 9.0 Source: Economic Bulletin of the National Bank of Egypt Volume It No.3. October, 1948. Table VI Movement of the Port of Alexandria, Egypt Number of Shi:es Tonnage Oargo Year Arrivals Departures Arrivals Departures Discharged Transit To E~t . Loaded Passengers Transit From Egypt Arrivals De~artures 1937 2,495 2,486 5.686.239 5.675.790 34,389 3,489,897 10,426 1,495,781 20,270 62,654 19,8 2,452 2,441 5.595,372 5,5.57,590 30,390 3,532,989 28,012 1,353,602 59~817 60,901 1939 2,251 2,620 5,686,802 5,315,637 24,371 3,332,132 12,270 1,510,978 42,899 51,122 1944 735 588 2,384,;62 1,992,938 39,733 1.051,441 78,088 284,553 107 78 1945 810 534 2,193.633 1,521,465 57,955 1,302,109 58,562 43.5,331 3,048 3,002 1946 1,357 1,343 3,081,729 3,197,478 91.5.52 1,816,082 63,077 1,023,515 11.765 19.421 1947 1,770 1,752 3.731,215 3,666,219 61,930 2,114,214 56,745 1,027,966 20,368 26,408 1948 1,784 1,772 4,387,027 4.332,345 15,783 2,742,460 40,951 1,008,023 14,200 18,203 Source: U.S, Consulate General in Alexandria. TABLE VII MONETARY CmCULATION, lmOLESALE PRICES AND COST OF LIVING In Egypt from 1939 to First Quarter of 1949 Currency in Deposit Year or Quarter Circulation Ivfoney Wholesale Cost of (End of Period) s -rffiros ).I --lGross) Pri~ ___ ..11!~ in millions of ~) (1937 ::: 100) ----- 1939 26 35 100 102 1940 37 49 124 115 1941 51 74 156 141 1942 75 103 200 188 1943 96 175 254 247 1944 117 228 300 285 1945 141 268 318 299 1946 137 269 308 294 1947 138 262 292 285 1948 154 n.a. 316 287 1948 1st Quarter 132 n.s. 321 289 1949 1st Quarter 149 n.s. 304 285 §.~: --International Financial Statistics, I.M.F. June 1949 Table VIII National Bank of Egypt Balance Sheet 31st December 194~ (in;t,E) Issue Department Liabilities Assets Notes issued •••••• ••• ••• 164,000,000 Gold •• 0 ••• ••• 6~375,874 ••• ••• Egyptian and British Gov1t. Treasury Bills and Securities ••••• e •• 157,624,126 164,000,000 164,000,000 - -- ~anking Department Liabilities Assets Share Capital: Government Securities 300, 000 full paid Shares of and Securities guaranteed ;10 each •••••••••••• 2,9 25,000 by the Egyptian Govtt. 176,215,693 Statutory Reserve Fund••••• 1,462,500 Sundry Securities •••• 0. 384,421 Special Reserve •••••••••• 1,462,500 Advances on merchand- Current Deposit and other ise ••••••••••••••• 3,976,745 Accounts ••••••• 0 ••••• 100,895,140 Advances on Securities •• 1,957,164 Eg~~tian Government ••••••• 44,225,212 Sundry other Advances •• 2,230,757 Egyptian Government "Treasury Bills" (Law No. 119 of 1948) Special a/c. 35,000,000 Bills Discounted •••••• 149,952 Sudan Government 0 •••••••• 1,358,492 Bankers' Accounts •••••• 21,198,515 Bankers' Accounts ••••••••• 42,858,572 Money at Call and at Cheques and Bills payable ••• 321,968 Short Notice •••••••• 14,699,100 Provision for payment of Buildings •••• 0 • • • • • • • 100,000 final dividend at the rate Cash: of 15% p.a ••••••••• ••• 438,750 N.B.E. Notes 250 L.E .. 10,164,085 Profit and Loss Account other Notes and Coin Balance •••••••••••• ••• L.E. 186,082197 10,350,167 Clients I Liability for Acceptance, etc. as per Acceptances, etc ••••••••• 17,389,442 contra 17,389,442 248,651,956 248,651,956 Table IX Egyptian Governmentts Revenue and Expenditures (In thousands of fE) FINANCIAL YEAR Y Revenue Expenditure Surplus + Deficit - 1938/39 44,207 47,889 - 3,682 1939/40 46,080 48,639 - 2,559 1940/41 43,677 42,,559 + 1,118 1941/42 56,336 46,062 +10,274 1942/43 67,,141 56,553 +10,588 1943/44 77,774 71,938 + 5,836 1944/45 87,731 82,097 + 5,634 1945/46 103,500 95,304 + 8,196 1946/47 112,793 102,491 +10,302 1941/48 (10 months) 98,938 91,985 + 6,948 y From 1st :May to 30th April until 1946/41 From 1st M.ay to 29th February, for 1947/48 From 1st March to 28th February, thereafter. Source: Egyptian Ministry of Finance. Table X Egyptts General Reserve Fund (As at 28th February 1948) (In Thousands of hE) Free Reserves! Cash 38,873 Investments 11,687 50,560 Engaged Reserves: Government participation in Credit Agricole, advances and sundry accounts 13,039 Egypt t s quota in the IMF 10,889 Egypt's quota in the IBRD 1,936 25,864 Total Reserve Fund as at 28th February 1948 76,424 Source: Report of Egyptian State Audit Department on 1947/48 Budget as quoted in Economic Bulletin of the National Bank of Egypt. Volume II, No.1, 1949. Table Xl ~~s Public Debt.Outstanding, D~E~_~rvic~ ~nd ftmount of Re:!~nue Paid Out as qhown in Balance of••PaZEents (in millions of :bE) - Public Debt (at end of fiscal year) ----- -Total ---- .-- Financial Debt Debt Year Domestic Foreign ·TQtal Debt Service Service ending Debt Debt Amount Year-to-Year (during as Shown 30 out- increase (.) fiscal in April standing or year) Balance of decrease (-) Payments 1927/28 101.7 4.73 2.3 1928/29 . 3.3 97.5 100.8 4.97 2.3 1929/30 2.9 96.9 99.8 -1.0 4.75 2.2:. 1930/31 2.6 96.4 99.0 -0.8 5.28 2.3 1931/32 2.4 96.0 98.4 -0.6 4.34 2.0 1932/33 2.1 95.4 97.5 -0.9 4.37 1933/34 1.9 5.4 94.9 100.3 .2.8 4.19 1.8 1934/35 5.0 94.4 99.4 -0.9 4.19 1.8E 1935/36 4.5 93.9 98.4 -1.0 4.19 1.8E 1936/37 3.6 93.4 97.0 -1.4 4.19 1.7E 1937/38 3.1 92.8 95.9 -1.1 4.19 1.7E 1938/39 2.8 92.2 95.0 -0.9 4.19 1.7E 1939/40 1.6 91.6 93.2 -1.8 4.19 1.6E 1940/41 1.5 91.0 92.5 -0.7 4.17 1.6E 1941/42 11.4 90.4 101.8 .;.9.3 4.15 1.6E 1942/43 10.4 89.7 100.1 -1.7 6.34 1.6E 1943/44 93.4 93.4 -6.7 5.89 1.0 1944/45 92.0 92.0 5.80B 1945/46 92.0 1.0 Jj 92.0 5.80E 0.8 Y 1946/47 125.0 125.0 .;.33.0 7.88E 12.2 2 E - Estimated by IBRD. !I Amortization only. y Includes payments of service arrears to bondholders in formerly enemy-- occupied territories. Source: ~ublic De9t 191~-1946, Department of Economic Affairs, United Nations, Lake Success, New York, 1948, p. 58. Table XU Egret's Private External Debts (in thousands) Issued Outs_tandinL-.~__ Various Expressed Various Expressed Curre12cies in U.S. ~. Currencies in-1!~~.:.,_$;::;.,., __ Land Bank of Egypt 3-1/2% 1905-1981 F.Fcs. 25,000 116 F.Fcs. 13,885 65 Land Bank of Egypt 4% - 1981 F.Fca. 70,000 326 F.Fcs. 504 2 Land Bank of Egypt 5%, 1926-63 b 1,174 4,728 b 102 411 Egyptian Delta Ltd. Rys. 3-1/2% 1969 b 250 1,007 It 141 567 Egyptian Delta Ltd. Rys. 5% Deb .. It 563 2,267 b 563 2,267 *Credit Foncier Egyptian 3% 1903-1953 Sw.Fcs.100,OOO 23,175 Sw.Fcs.31,657 7,337 *Credit Foncier Egyptian 3% 1911-1961 Sw.Fcs.l00,000 23 t 175 Sw.Fcs.56,798 1Z t 16J 54,794 23~~~~ *Service of some of these bonds has been temporarily suspended becauso of the lack of foreign exchange, but may ha.ve been resumed, following the Egyptian - Swiss agreement of September 1948, reported in part IV C of the report. Only bonds of private corporations on which detailed information was readily available are inc1ud.ed in the above. ppurces: The Stock Exchange Yearbook of Egypt 1947/48 Lond.on Stock Exchange Yearbook 1949