International Business Management
Egypt in the World Economy: Prospects for Future Growth
This paper discusses Egypt’s participation in the world economy, specifically in areas of services and business growth. In doing so, it analyzes a book published by United Nations Conference on Trade and Development (UNCTAD), which deals with developing countries’ activity in the international economy. In recent years, we have seen a worldwide shift toward value added services as an important source of national income. In order to understand Egypt’s prospects for future economic growth, it is important to understand its performance and opportunities in these areas.
We will focus on trade in services, sector growth, labor migration, transnational businesses, and foreign investment. Relying primarily on UNCTAD’s findings and the data it reported in 2004, we will introduce additional Egypt-specific data, when necessary. These will help shed light on where Egyptian businesses might find opportunities and what weaknesses policy-makers should target for improvement.
Trade in Services
During the 1990s, developing countries accounted for a growing share of total exports in services but worldwide trade in services is still dominated by the developed nations. In fact, they account for over 73% of the total world export of services. At the same time, they also dominate world imports of services, with a nearly 71% share. Meanwhile, the share of developing countries in this services export pie has increased slightly over the past two decades, growing from 18% to 23%. South, East, and South-East Asia are responsible for the majority of this (15%), with the most successful countries including China, the Republic of Korea, Hong Kong, and Singapore, each generating over US $20 billion in 1997. Meanwhile, this dominance by a few regions leaves very little for the rest of the developing world.
In this regard, Egypt compares quite favorably with other developing regions and its neighbors in Africa and the West Asia. In fact, it managed to provide over US $9 billion in 1997, or .7% of world commercial service exports in that year. This constituted a slight decrease, however, from its 1983 total of .8%. Still, Egypt clearly outperformed its North African neighbors, whose services exports in 2002 accounted for a mere 1.1% of the world total, with Egypt’s contribution included. Similarly, all of West Asia, which is basically what we refer to as the Middle East, also accounted for less than 2% of the world total. In other words, Egypt ranks remarkably well, when compared to its regional counterparts, but has still not managed to keep up with world growth in the trade of services.
Sectors of Services
In order to shed light on areas of opportunity for future economic growth, we will analyze which countries contribute the most to various sectors of service exports. Travel and transport are two of the most important sectors because of the large total volume of exports in each category. In fact, the top ten countries in the travel category each contributed more than US $4 billion to total services export while the top ten exceeded US $2 billion in transport services. The highest performers, China, Hong Kong and the Republic of Korea, managed to generate roughly US $20 billion from these two categories combined. Communications, construction, financial services and insurance all play a relatively less important role, in terms of total revenues generated from export.
Given Egypt’s overall strong performance in services exports, it is not surprising that it performs relatively well in many of these categories. In fact, it ranks among the top ten in four of them. Although it is ranked higher in other categories, 5 th in communications services and 9 th in construction, Egypt’s most significant contributions are in the first two categories. Ranked 10 th in travel, Egypt generated over US $4 billion while it made US $2.6 billion in transport, where it is ranked 9 th. Meanwhile, Egypt’s performance in transport during the 1990s suggests a dangerous trend, with volumes stagnating during the decade. In fact, it was the only country in the top 10 to suffer a negative annual growth rate during this period. Meanwhile, Egypt enjoyed tremendous growth in travel services, as its 12.9% growth rate over the period was second only to China.
On one hand, Egypt is rather dependent on the travel and transport sources for its services export, with roughly 73% of the total coming from these areas. However, its high ranking in the communication sector is a positive sign because it is a relatively sophisticated sector of services. Egypt’s growth in the travel sector is also a positive sign but Egypt would be even better off if it would strengthen its financial service and insurance positions. Nevertheless, Egypt’s strong performance in four categories of services represents one of its greatest opportunities for future economic development.
During the 1990s, workers remittances grew in importance as a source of external finance for developing countries. In fact, the total value of remittances reached US $60 billion in 2001 and constituted the most stable form of external finance for many of these countries. Meanwhile, Egypt is the only country among the top ten recipients of total financing that saw an actual decline in its total value during the 1990s. In order to understand the changes in this important source of financing, it is important to examine who is paying these migrant workers. The United States leads all countries, providing over US $26 billion in 2000. Not surprisingly, other OECD members such Germany, Switzerland, France, Belgium, and Japan also top the list.
Meanwhile, an unusual amount of Middle East states also populate the list, with Saudi Arabia providing over US $15 billion in 2000, second only to the US and double that of any other country. In addition, Kuwait (13 th), Oman (14 th), and Bahrain (17 th) ranked just behind most of the European countries, with these Gulf States each providing more than US $1 billion in outflows. The origin of this anomaly can be traced back to 1973, when oil prices shot up worldwide. The Gulf States saw their oil rents increase dramatically, and they started funding major development projects with this extra money. Meanwhile, they had young and small populations and needed foreign workers to provide the labor for this rapid expansion. Conversely, the sending countries’ job markets were characterized by low wages home and high unemployment.
As a result, remittances underwent tremendous and unprecedented growth over subsequent decades in the Middle East. Youth took advantage of this steady increase in job opportunities abroad, moving to the nearby Gulf region. As the development projects matured and the labor needs evolved, more sophisticated laborers such as scientists, lawyers, and teachers were needed as well, generating huge amounts of money for sending countries. During the 1980s, six countries in the region reached US $1 billion in annual remittances: Egypt, Jordan, Yemen, Tunisia, Morocco and Turkey.
Total Egyptian remittances grew from US $123 million in 1973 to reach US $1,824 by 1978. The value continued to grow steadily, passing US $3,000 in 1983, US $4,000 by 1990, and reaching US $6,104 in 1992. In addition to generating massive volumes of foreign currency, the jobs overseas accommodated much of Egypt’s growing supply of both skilled and unskilled labor. Egypt also became dependent on this source of exchange, as remittances accounted for nearly 10% of total GDP in 1990. As a consequence, they were especially vulnerable to the slowdown in oil state expenditures that occurred during the 1990s, causing a drop in demand for foreign workers. Numerous factors led to this slowdown, such as the fallout from the Persian Gulf, maturing economies in the Gulf, and changes in oil prices.
Meanwhile, Egypt is still ranked fifth worldwide in terms of the total value of inflows of remittances, receiving roughly US $2.8 billion. However, this is less than half of the 1992 totals. In addition, Egypt’s population has continued to grow, compounding the difficulty of seeing total remittances drop, a problem that has also affected Yemen, the Sudan, and others. Morocco and Turkey are the lone exceptions to this trend of declining remittances. This might be a result of their geographic proximity to Europe, which provides an alternative for those in search for employment. It would be interesting to investigate this further but now we will move on to a discussion of transnational businesses.
It is important to analyze where the largest transnational corporations (TNC) come from and recognize Egypt’s role in this area. Not surprisingly, developed countries dominate the top 50 TNCs, with all but one coming from the United States, Europe, and Japan. Although all sectors are represented in this list, it is interesting to note that many of the top companies work in petroleum, motor vehicles, or telecommunications. Meanwhile, it is clear that the business of owning large amounts (US $19 billion) of foreign assets is primarily limited to the developed world.
Meanwhile, no countries based in either the Middle East or North Africa even rank among top 50 TNCs coming from developing countries. Much like the previous list, the source of these companies is quite concentrated in a couple of regions, as Asia and South America are the primary contributors. In order to understand Egypt’s poor performance in this area, we can look to its history of FDI activity. For example, FDI inflows into Egypt have been roughly between 5 and 30 times larger than outflows into other countries. During that same period, developing countries’ inflows have only been between 2 and 5 times as large as outflows. In other words, there is a far greater imbalance in the total amount of money invested in Egypt relative to the amount Egyptians invest outside, as compared to the developing world as a whole.
Egypt has shown a similar imbalance in its record of mergers and acquisitions from 1995 to 2003. The total sales of Egyptian companies to foreign firms have been consistently valued much higher than the purchases by Egyptian companies. In fact, cross-border sales of Egyptian firms reached US $100 million in all but two years and averaged well over US $500 million per year for the last 5 years. On the other hand, Egyptian purchases of foreign assets have only exceeded US $10 million in one year.
It is alarming to note that no Egyptian company has had enough success expanding overseas to be ranked among the top 50 firms from developing countries. It has been unable to generate the type of international growth that has helped certain developing economies to grow, especially in Asia. This limited number of transnational corporations and Egypt’s imbalance in terms of investment flows and mergers is another important aspect of its economic performance.
While workers remittances constituted an important source of external financing in previous decades, this source has deteriorated and should not be expected to reach previous heights. This loss has left a hole that can hopefully be filled with continued growth in the export of Egyptian services. While Egypt has performed relatively well in services exports, it needs to continue this trend and diversify its service offerings. Primary areas of importance for Egyptian policy-makers ought to include the more sophisticated areas such as communications, insurance, and financial services. Perhaps future studies could discuss which of these areas would be most feasible for entrepreneurs and business developers.
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United Nations Conference on Trade and Development (UNCTAD). Development and Globalization: Facts and Figures. United Nations. New York, 2004.
UNCTAD. ‘Country Fact Sheet: Egypt.’ World Investment Report 2004. United Nations. 2004.
UNCTAD, Development, Table 4.3A – Exports
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UNCTAD, Development, Table 4.3A – Exports.
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UNCTAD, Development - Table 2.1B – Outflows.
UNCTAD, Development - Table 2.1B – Outflows
UNCTAD, Development - Table 3.1A.
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UNCTAD, Fact Sheet – Mergers
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Table 20. Global Trade.
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