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Confidence in the convertibility of the Egyptian pound had improved sufficiently for the currency to begin to strengthen against the US dollar (and other major currencies) on the official foreign-exchange market by December 2004. The pound appreciated by some 7% between late December and early February and blackmarket activity is now minimal—although it does persist. The appreciation marked the first strengthening of the pound on the official market since its ten-year peg to the dollar was broken in early 2000. This was followed by an aggregate 45% decline, including a fall of 25% during 2003 alone following a mismanaged "float". The rise was facilitated by strengthening foreign-currency inflows and steps taken by the Central Bank governor to improve access to foreign currency and raise rates on Egyptian pound savings instruments. More broadly, improved confidence in economic policymaking under Mr Nazif’s government contributed to the pound’s rally.
Indeed, the situation improved to the extent that the authorities sought to prevent the pound appreciating too strongly by purchasing hard currency in the market. This is in part driven by an effort to support non-oil exports, but has also facilitated a substantial build-up of foreign reserves since the start of the year 2005, in turn bolstering the authorities’ ability to effectively manage the pound. Overall it was expected that the pound would rise to an average E£5.78:US$1 in 2005, from E£6.2:US$1 in 2004, 263 and to E£5.73:US$1 in 2006 (July 2008 it is 5.3:$1). This will mark a cumulative real appreciation of about 14% against the euro and 13% against the yen, but the competitiveness of Egyptian exports will not be compromised significantly given the extent of the fall in the pound since the start of 2000.
Economic Status of Agriculture in 2005
“According to economist intelligence report, the share of agriculture in nominal GDP fell from percent 25.6% in fiscal year 1985-86 to 13.9% percent in fiscal year 2005. But the sector is still the country’s largest employer accounting for about 28% of the labor force, down from 34% in fiscal year 1991.
Egypt is a major producer of premium long and extra long staple cotton. Cotton is the country’s largest agricultural export and was for many years the most extensively subsidized commodity; however, the sector has suffered from inconsistent state policy, inflexible export pricing and a government more interested in propping up the massively overstaffed 1 million workers and debt ridden state owned spinning and weaving industries thru the provision of cheap cotton. Cotton production and exports have declined and the proportion of cultivated land planted to cotton has consequently dropped sharply from 924,000 hectares in 1962 to 302,400 hectares in 2005.
Since 1986, controls have been removed from almost all crops. Controls still in place affect sugar cane produced by large state run factories in upper Egypt, rice cultivation which is restricted in some areas owing to water shortages, and specific varieties of cotton which have to be cultivated in designated areas.
By 1994 many subsidies for fertilizers, seeds and pesticides had been eliminated although energy continued to be provided at reduced rates. The result has been impressive gains in output with wheat and rice crops reaching record levels and self sufficiency has been achieved in several important commodities. Some 95 % of local production is consumed domestically despite the increased emphasis on cash crops for export, notably horticultural produce. Nevertheless, population growth will insure that Egypt remains one of the world’s largest food importers. Food imports accounted for 11.6% of the total imports in fiscal 2004. Egypt is one of the world’s major wheat purchasers, buying about 6.5 million tons per year.
An estimated 3.5 million farmers cultivate holdings of an average size of two feddans or 0.84 hectares. Production is therefore intensive and yields are among the highest in the world despite the irregular and insufficient supply of water for irrigation. Only 3% of the total land area is arable of which about 1/3 is serviced by main and secondary drains, and many are in dire need of repair. Drainage has proved to be insufficient to counter water logging and high soil salinity which are the unforeseen consequence of a rise in the water table following the construction of the Aswan dam. In addition, only 2% of the 8 million feddans of cultivated land are irrigated by modern methods. Egypt’s cropped area is 14.5 million feddans.
In response to the pressures on arable land for production and for housing, some one million feddans of desert had been reclaimed by 1995 bringing the surface area of cultivable desert land to about 3 million feddans. Another 3.4 million feddans are to be secured by 2007. However, the area under cultivation has been more or less constant as agricultural land is lost to urban and industrial expansion at about 30,000 feddans per year.
Fertilizer use is among the highest use among developing countries at an annual 465 kilograms per feddan.. Excessive 265 regulation in the production of fertilizer has become a deterrent to the development of private and foreign investment. As a result, Egypt has a 20% shortfall in its own fertilizer needs. This heavy regulation has also made privatization of state owned fertilizer companies almost impossible.
Although livestock production is dominated by small farmers who account for about 80% of output the number of modern dairy and feed farms has increased over the last few years. There are 3.9 million cattle and 3.7 million buffalo as well as 5.1 million head of sheep and 3.7 million goats. Cattle are mainly kept for dairy production but nevertheless, 80% of domestic red meat consumption is produced locally. The poultry industry in which the public sector has invested heavily is greatly affected by international supplies and prices since most of its components are imported and sharp fluctuations in production and prices have put many producers out of business. The nine year ban on poultry imports was lifted in July 1997 but import duty was set at 80% to protect the local industry.
According to national figures, the fish catch was 724,000 tones in 2001 about 35% of which was marine. Egypt exports some 2900 tones per year of fine quality fish. The government is aiming to increase annual production by encouraging the use of the country’s inland lakes and waterways for intensified aquaculture.
Although Egypt is a leading cotton producer, textile output has been dogged by overstaffing, outdated technology and a lack of quality control owing to the State’s monopoly on most spinning and weaving activity. State firms account for 30% of total manufacturing employment. By contrast, the ready made garment industry, 90% of which is owned by the private sector has boomed and manufacturing for international franchising, largely for export, is growing in popularity. In December 2004, Egypt signed an agreement 266 with Israel and the US for the establishment in Egypt of seven qualifying industrial zones allowing goods to be exported duty free to the US provided they contain an 11.7% minimum proportion of Israeli input.
The composition of merchandise exports has changed markedly in the past few decades. Between 1965 and fiscal 2004, the share of agricultural commodities in total exports including items derived from cotton, dropped from 71% to 9 %. Superseded by hydrocarbons, minerals, metals and manufactured goods reflecting the process of industrialization and the development of building and industry. In June 2004, a tortuous 8 years after negotiation first began, a wide ranging association agreement with the EU came into affect. Although the accord covers political, security, economic, social and cultural ties, the single most important aspect of the accord is far-reaching trade liberalization. The agreement gives Egyptian industrial goods immediate duty free access to the European market. It expands the quotas for some Egyptian agricultural exports and extends the agricultural export calendar. In return, Egypt will gradually phase out customs duties on EU industrial goods, tariffs on raw materials and capital goods for industry must be eliminated within three years.
The impact of the world trade organization continues to be of interest and concern to Egypt. If the necessary improvements that are projected continue to be developed, Egypt would be expected to enjoy greater opportunities and to obtain higher prices for its textiles, cotton and food exports.
Both the US and the EU have made major investments in the construction of waste water projects in Helwan, south of Cairo, and in Alexandria as well. Another massive project that’s taking place in the southern valley development project is often known as the Toshka project. This highly ambitious plan aims to create an alternative delta parallel to the Nile valley involving large scale land 267 reclamation linked to industry, tourism and mining projects and the creation of new urban communities to relieve congestion in the Nile valley. When completed, it is envisaged that the project will use 5 billion cubic meters of water per year which will come from Egypt’s Nile water allowance of 55.5 billion cubic meters of water per year. It is intended to cultivate 800,000 to 2 million feddans.
The Southern Valley scheme is part of a much larger national program to increase the amount of habitable land from 4% to 25%. The program which has been constrained by cost consideration includes 150,000 rain fed feddans on the NW coast as well as in areas along the river Nile, the border area with Sudan and other areas which are fed by ground water such as East Oweinat in the western desert. The Al Sala’am canal, inaugurated in 1997, will carry water from the Nile near Dumyat under the Suez canal to south Al-Arish in northern Sinai and irrigate 620,000 feddans of desert.
Agriculture is an issue as a local food source, for international trade, for balance of payments, land use and water use and as a basic product for food and fiber manufacturing. Hence every aspect of the economic structure of a country relates to agriculture. Banking, transportation, tax and tariff structure, subsidies, local and international markets and health are all part of the agricultural system of a country. Not to mention politics, of course. (Data from The Economist Intelligence Unit, Ltd for the year 2005) (28)
Rapid agricultural growth results in the quickest employment growth
Development research across a broad array of countries suggests that rapid agricultural growth results in the quickest employment growth, so it is the best entry point for ensuring that economic growth is broadly participatory and hence equitable. The difference between rapid (4.8 percent per year) and slow (2.8 percent per year) growth in Egyptian agriculture represents 300,000 more jobs per year. About 60 percent of those additional jobs are in the rural non-farm consumer goods and services sector, 15 percent are in agricultural production, about one-fourth in the agribusiness input and output marketing activities.
The rural non-farm sector is almost entirely a producer of non-tradable goods and services and occupies 44 percent of the labor force. Agriculture is the dominant source of increased demand for the rural non-farm sector. Without rapidly rising farm incomes, the essential increased demand for the goods and services provided by the employmentintensive rural non-farm sector will not exist. Agricultural growth can be accelerated to achieve nearly a 5 percent growth rate through increased productivity, efficiency, and competitiveness. Such a growth rate, with its profound impact on employment growth, requires major improvements in policy matters.
Policy reform and implementation in Egypt are gradual processes, but processes that have seen important changes in the structure and operation of the agricultural sector. Egyptian agriculture is now more responsive to domestic and international market forces, less constrained by government involvement in production and marketing decisions, and more open to competition than ever before. Much of this progress stems from USAID’s commitment to high quality policy analysis and reforms, constructive interaction with the government and private sector, and detailed monitoring and evaluation. However, policy constraints continue to prevent Egypt from fully realizing the comparative advantage it has in most commodity systems. The challenge of reform is not completed, but the environment in which policy reform and its implementation occur is changing rapidly in Egypt.
Factors requiring policy change
First, as Egypt becomes more integrated into the global economy, its policies must conform to the requirements of WTO, exchange rate policy, reform of the Customs Service, and reduction of State involvement in trading.
Second, global competition places a premium on policies that could reduce production and marketing costs through more efficient customs services, efficient use of natural resources such as water, and access to low-cost production inputs.
Third, the growing role of the private sector is the most dramatic change affecting how policies are formulated and implemented. Business and trade associations are becoming a major force in the policy process. However, these associations are not yet capable of fulfilling this policy advocacy role entirely on their own.
Finally, given this assessment’s emphasis on fast growth in agriculture as a prerequisite for large increases in farm and rural non-farm employment, the lack of a policy focus on the productivity and competitiveness of smallholders is a serious shortcoming. For example, current cotton policies create major distortions in this system and deserve continued engagement. Other significant policies include sanitary standards in livestock that are not science-based and those that impede the importation and registration of cultivars in horticulture.
There should be a concerted effort to transfer policy analysis capabilities to Egyptian institutions, public and private, over the coming years. The progress of trade associations holds promise as one element of this strategy. Programs promoting high value non-traditional agricultural exports (NTAE) have initiated a new era in Egyptian horticulture. Although exports of the major traditional products—potato, orange, and dried onion—have declined, NTAE products are being successfully commercialized. They are projected to account for more than one-third of the increase in total horticultural export volume in the current decade (more in terms of value) and to increase in importance as production increases.
The Horticultural Export Improvement Association, an association of growers, exporters, and service organizations, is providing marketing information and support, technical services, and policy analysis and advocacy for continued improvements in the enabling environment. It follows that the best long-term growth strategy for the horticultural sub sector is to work to expand the domestic and export markets for both fresh and processed products (especially through value-added innovation), while upgrading the quality, safety, and consistency of supply of small, medium-sized, and large operators.
Livestock and fisheries together make up 24 percent of value added in the agricultural sector. Livestock represent about two-thirds of that total and, within livestock, milk and associated meat account for over half of the livestock sub-sector. Women dominate livestock production, and marketing. Production is predominantly on small farms. There is a powerful interaction of livestock and crop production, with substantial area devoted to the principal high-quality roughage, berseem. Rapid growth in livestock will increase the demand for maize as feed. Maize is already an important import. The levels of efficiency and productivity in this sub-sector are low. There is immense scope to reduce costs of production and increase competitiveness. The private sector marketing and feed distribution channels and facilities are poorly developed, as are the support systems for improving technology development and application.
Livestock and dairy in particular are the number one opportunities in the whole Egyptian economy to have an impact on women’s incomes and to develop their entrepreneurial capabilities.
How to accelerate the growth in demand for labor
A now large literature points to accelerated growth in the agricultural sector as the basic determinant of increased demand for labor. Martin Ravallion (82) and his colleagues at the World Bank and Peter Timmer (94) and his colleagues, show that it is rural and agricultural growth, not urban or industrial growth, that reduces poverty and increases demand for labor.
These findings are consistent with the fact that agriculture drives the demand for labor through its demand for goods and services produced in the large, labor-intensive, rural non-farm sector. There is a large literature (Carl Liedholm (53 & 54) that shows the rural non-farm sector as dependent on agriculture as the driving force for its demand, and that the goods and services produced by the non farm sector are largely non-tradable. That means that their goods are not salable in the international market because of low quality and high transaction costs. Hence the non-farm sector depends on increased domestic demand for their growth.
There is also an employment-intensive, non-tradable sector in urban areas that is driven by demand from growth in the urban tradable sector. However the urban non-tradable sector is only half the size of the rural non-tradable sector.
Since land is a major factor in agricultural production and is very limited in the extent to which it can be increased, it follows that technological change is the primary source of agricultural growth. Capital dominates the urban tradable sector and is the primary determinant of its growth rate.
The Determinants of Demand for Labor and the Wage Rate
With high balanced growth, that is, both the agricultural and urban tradable sectors growing quickly, the demand for labor grows rapidly. If the source of rapid urban tradable growth is maintained at a high level, but the basic source of agricultural growth is eliminated, then agriculture does not grow at all. The demand for labor grows hardly faster than the labor force growth.
Wage rates and the income of the labor class Egyptian Data for the Model
The most important numbers for the model are those for employment. The 1998 CAPMAS survey (19) of the labor force provides detailed data that facilitate division of the labor force into the sectors described. Those data show 23 percent of the labor force is in agriculture, 15 percent in urban tradable and 62 percent in non-tradable, of which 42 percentage points are in rural non-tradable and 20 percentage points in urban non-tradable. The rural nontradable sector dominates employment.
National income statistics are not tabulated according to tradable and non-tradable sectors, or even rural and urban, hence it was much more difficult to make that division. A firm figure is available for agriculture value-added as a percent of total GDP. That is 17 percent. It is estimated from the expenditure patterns of rural people that 18 percent of GDP is produced in the rural non-farm sector.
The urban sector was divided, largely on the basis of size of enterprise, with 57 percent of GDP in the tradable sector and 8 percent in the non-tradable. Note that the rural sector has nearly twice as high a share of employment as GDP, while the opposite relation holds in the urban sector.
Concisely, the structure of growth makes a tremendous difference. When agriculture grows rapidly, demand for labor grows rapidly; when urban tradable grow rapidly, GDP grows rapidly. A structure weighted towards agriculture is weighted towards benefits to labor; a structure weighted towards urban tradable items is weighted towards fast growth in GDP. It is agricultural growth that increases the income of labor. It does so through its impact on the demand for the goods and services of the rural non-tradable sector.
It should also be noted that agriculture and urban tradables grow in quite different ways. They are not fully competitive for resources. Urban tradables grow primarily through increase in the capital stock. Rapid growth in this sector may well require creating a favorable environment for foreign direct investment. Agriculture grows largely through technological change. Rapid growth of agriculture requires investment in research and extension. It should also be noted that in a model of this type, factors of production move readily across the economy in response to relative prices, and goods move readily into the export market when domestic production grows faster than domestic demand. In practice, policies must be in place not to impede, but to facilitate, those flows. (37, 54)
The Urban-Rural Story in Developing Countries--According to UNFPA
Defining the basic terms “urban” and “rural” in a universal way has always been problematic. As globalization advances, the division of human settlements into “rural” and “urban” can also be seen as increasingly artificial. Better transportation and communications bring cities, 274 villages and farming areas ever closer. Rural areas come to look more like towns, while informality is transforming cities’ housing, services and workforces, and even production and consumption. (95)
However, very few developing-country cities generate enough jobs to meet the demands of their growing populations. Moreover, the benefits of urbanization are not equally enjoyed by all segments of the population; left out are those who traditionally face social and economic exclusion—women and ethnic minorities, for example in India the Government plans to assume the responsibility for providing a legal guarantee for 100 days of employment in every financial year for every rural household with an adult member willing to do unskilled manual work. It remains to be seen what impact this will have on rural-urban migration.
The Balance Between Urban and Rural Living and Work
Until recently, rural settlements were the epicenter of poverty and human suffering. All measures of poverty, whether based on income, consumption or expenditure, showed that rural poverty was deeper and more widespread than in cities. Urban centers on the whole offered better access to health, education, basic infrastructure, information, knowledge and opportunity. Such findings were easy to understand in view of budgetary allocations, the concentration of services and the other intangible benefits of cities.
There is evidence that the difficulty of securing title to property in rural areas is prompting women to migrate to cities in hopes of securing property there, where prospects are assumed to be better. If we want families to live in rural areas we have to provided the living conditions that enable their development including television and internet. The conclusions are that the rights of the poor to the city and to its benefits are often severely restricted and that the advantages of the urban poor over rural populations are surprisingly small in many developing countries.
Treating “rural” and “urban” poverty as somehow separate and in competition with each other for resources is not only a conceptual mistake, but a remarkably short-sighted view of the problem. In fact, successful rural development generally stimulates and supports urban development. Conversely, urban growth is a powerful stimulus to food production, especially by small farmers. Access to flourishing urban markets contributes both to the reduction of rural poverty and to urban food security.
In many regions, people are forced to leave rural areas. Population growth and environmental change may have depleted the natural resource base and its capacity to support local residents. Moreover, insecurity due to civil strife also compels many rural people to flee to the cities or their environs. Thus, for many, moving to the cities is not only rational but sometimes the only way to survive.
The need to safeguard environmental and agricultural land from chaotic urban expansion is a genuine concern. However, most cities still have build able land in good locations, but it may be owned or controlled by private interests or by state agencies with no interest in socially directed uses of the land. The real shortage is thus not of land, but of serviced land at affordable prices.
However, most urban sites are critical parcels of land. Their increased rate of expansion, and where and how additional land is incorporated into the urban make-up, has significant social and environmental implications for future populations.
Many cities are situated at the heart of rich agricultural areas or other lands rich in biodiversity, the extension of the urban perimeter evidently cuts further into available productive land and encroaches upon important ecosystems.
With world population at 6.7 billion people in 2007 and growing at over 75 million a year, demographic concentration into cities gives sustainability a better chance. The protection of rural ecosystems ultimately requires that population be concentrated in non-primary agricultural lands and densely populated areas.
In developing countries, cities of 100,000 or more occupy areas of 200,000 km2. They are expected to triple their built-up land area to 600,000 km2 in the first three decades of this century. Cities in developed countries expand at an even faster rate per resident, despite their smaller population size and lower rate of population growth. They will increase their built-up land area by 2.5 times between 2000 and 2030. At that point, they will occupy some 500,000 km2. Recent trends to lower densities may accelerate as globalization has its effect on lifestyles and production processes. Whatever the case, the data show that developing countries now share the trend to urban sprawl.
Residential Suburbanization and Peri- Urbanization
Urban sprawl results from the combination of different types of pressures on territorial expansion. For purposes of simplicity, these can be classified into two groups: residential suburbanization and peri-urbanization.
Peri-urban (urban fringe) areas often provide more accessible housing for poor residents and migrants in informal and scattered settlements. Poor settlements in such areas tend to be more insecure and subject to removal, while their residents generally lack services and infrastructure. They compete with agriculture for space, and both can be displaced by other economic uses. Land conversion, market opportunities, and rapid flows of labour, goods, capital and wastes force land prices up. Peri-urbanization also increases the cost of living for the original rural population.
Agriculture is booming in urban and peri-urban areas. Farming in and around cities is a vital livelihood strategy for the urban poor; it provides nutritional health, income for other household expenses and mitigates some of the ecological problems of growing urban areas. The downside is that peri-urban continues to be illegal in parts of the developing world, and many local authorities are slow to recognize its important role. As primary producers of food crops in many developing-country cities, women stand to gain or lose the most as the future of this activity is determined.
Peri-urban areas encompass a wide range of activities, including farming, husbandry and cottage industries, together with industrial expansion, land speculation, residential suburbanization and waste disposal. They fulfill other key functions for urban areas, from the supply of food, energy, water, building materials and other essentials, to the provision of ecological services such as wildlife corridors, microclimates and buffer areas against flooding. This involves a complex readjustment of social and ecological systems as they become absorbed into the urban economy. Environmental degradation is also an issue in peri-urban areas. Specific health hazards arise when agricultural and industrial activities are mingled with residential use.
Global Environmental Change
Global environmental change (GEC) is the sum of a range of local, national or regional environmental challenges. The issue of water is particularly relevant in this discussion. The dependence of cities on a guaranteed supply of water makes significant demands on global fresh water supplies. Cities already compete with the much larger demands of agriculture for scarce water resources in some regions.
Urban areas can affect water resources and the hydrological cycle in two other main ways: first, through the expansion of roads, parking lots and other impervious surfaces, which pollute runoff and reduce the absorption of rainwater and aquifer replenishment; and, secondly, through large-scale hydroelectric installations that help supply urban energy need.
From a demographic standpoint, urbanization accelerates the decline of fertility by facilitating the exercise of reproductive health rights. In urban areas, new social aspirations, the empowerment of women, changes in gender relations, the improvement of social conditions, higher-quality reproductive health services and better access to them, all favor rapid fertility reduction. The projected expansion of the urban population in Asia and Africa, from 1.7 to 3.4 billion over a period of only 30 years, and the reduced level of available resources, stress the need for a more imaginative but pragmatic response.