Egypt. Growth and Opportunity in Agriculture
Agriculture has always been an important economic activity for Egypt since the ancient times when human settlements first grew along the Nile Valley where the fertile river basin was discovered to be eminently suitable for the cultivation of a wide variety of crops. Agriculture today still plays an important part in the country’s economy, as highlighted by a new report from Bank Audi.
Strong domestic growth in 2009 was an important driver of the country’s economy over a difficult global operating environment, says Bank Audi in its new Egypt Economic Report.
The Egyptian economy successfully avoided recession and against with background of a strong fiscal stimulus real GDP growth was estimated by the IMF at 4.7%, lower than the pervious year but healthy given the context of the worst global crisis in decades.
Activity in the country’s important agriculture sector was relatively modest in 2009 with annual output growing by 3.2% in real terms during the financial year. The sector attracted a total value in investments of LE6.69 billion during the year.
The country’s external position was not immune to the global economic meltdown and thus showed signs of weakening in 2009. Merchandise activity, measured by the total of exports and imports, decreased by some 24% in the first nine months of the year relative to the previous year.
The fiscal stimulus package in 2009 injected $2.7bn into the Egyptian economy in order to support economic growth.
Meanwhile, monetary conditions in Egypt were marked by a deceleration in inflation rates, moderate expansion in the money supply and sustained strong official reserves.
Inflation slipped from 18.4% at the end-December 2008 to 13.2% at the end-December 2009.
The Central Bank’s gross official reserves managed to stand at $34.2bn at end-December 2009, with no change relative to end-December 2008.
Banks in Egypt weathered the conditions of global crisis and its spillovers relatively well, posting a 10.2% rise in total assets in 2009 to reach $210bn at end-December 2009.
Agriculture still accounts for some 14% of the country’s GDP and as such it remains an important sector for investment. Egypt is focusing on developing the productivity of the sector, encouraging investment in domestic production as well as raising agricultural production in order to reduce dependency on imports.
Exports of Egyptian produce to the European Union are expected to increase in 2010 with the establishment of a free trade zone between the EU and the Mediterranean states.
Egypt has one of the highest rates of wheat consumption in the world with the authorities providing bread subsidies for the poorest in the community. Wheat production increased by 6.8% to 8.5 million tons in FY2009, while the planted area rose by 7.8% to cover 3.15 million feddan. Procurement prices were increased to provide more support for the country’s farmers. However, wheat productivity per feddan decreased slightly.
In May 2009, Egypt reached an agreement with the International Centre for Agricultural Research in the Dry Areas to initiate a ten-year wheat improvement programme. The aim of the Ministry of Agriculture is to make Egypt 75% self-sufficient in the next decade through investment in land reclamation projects to increase the area that is suitable for agricultural output. The current self-sufficiency ratio is 55%.
Rice is an important cash crop and basic commodity produced and consumed in Egypt. It is attractive to farmers because it is generally sold at a higher price than many other crops.
In 2009, rice production grew by 5.4% to reach 7.24 million tons. Egypt extended its ban on rice exports to October 2010 as part of a strategy to cut rice production to save water.
Sugar cane is another important harvest in the country with production totalling 16.98 million tons in 2009, almost unchanged from the previous fiscal year.
Cultivation techniques have been enhanced and the government has improved on the delivery price it pays to cane producers.
Sugar beet production totalled 6.01 million tons in FY2009 which was up 7.7% on 2008. Sugar beet is believed to have a good earning potential in that it can grow on land that has been newly reclaimed with high levels of salinity.
In general sugar consumption in the country is expected to rise in coming years driven by population growth.
Egyptian cotton is renowned worldwide for its high quality, but production has been on a downward trend with farmers discouraged by high production costs and uncertain prices. They have been looking to fruit and vegetables as a safer source of income. As a result, production of cotton decreased from 621 thousand tons in FY 2008 to 362 thousand tons in 2009 and there was a decline in the planted area.
In conclusion, overall the agricultural sector in Egypt benefits from government support and continued levels of investment.
The country possesses a large pool of cheap labour which is a valuable asset for the cultivation of labour-intensive commodities such as rice. Food production is better developed as an industry than in many neighbouring countries and this is creating strong export opportunities.
However, the sector still faces some structural weaknesses and at present only 3.5% of Egypt’s land qualifies as agricultural land. Weak infrastructure increases the cost of transportation for farmers and drought represents a perennial threat, which is compounded by poor irrigation.
The country remains dependent on the importing of a range of key commodities which are essential to meet the demands of its growing population, Bank Audi concludes.
Global Arab Network
