Egypt: Smallholder contract farming for high-value and ... - IFAD

Background
Country Economic Background
The total population of Egypt has grown rapidly over the last 25 years, to more than 70 million,
but the annual rate of population growth has slowed to a moderate 2.1 per cent. 2 During the 1990s,
the Egyptian economy experienced sustained growth in response to economic reforms and the
implementation of a comprehensive structural adjustment programme. The reform programmes
also instigated fundamental changes in what had been the dominant role of the public sector. The
shift was from central control to a system in which privatization and the liberalization of trade and
investment policies freed the economy and provided the stimulus for improvements. As a result,
gross domestic product per capita rose from US$720 to US$1,390 between 1994 and 2002. In
2003, the economic growth began to recede.
However, this was reversed with the arrival of the new reformist government in the summer of
2004. The economy has improved considerably since. The reformers have successfully floated the
Egyptian pound (EGP), eliminated the foreign-exchange shortages and the black market, reduced
tariffs and simplified the tariff structure by cutting the number of rates and categories, moved to
reform the financial sector, introduced measures in Parliament to simplify the tax structure and
lower tax rates, and reduced the amount of red tape necessary to conduct business. The economy
is now growing at a rate of 6 per cent per year, and the new measures have inspired a wave of
enthusiasm in the business community.
However, the main development challenge remains unchanged. Apart from the need
continuously to expand services in response to population growth, there is a need to generate
employment for the approximately 600,000 entrants to the job market each year. Job creation,
which is considered the driving force in expanding the economy, is now clearly seen as a role of the
private sector.
Another challenge is to reduce poverty. Overall, the number of poor in Egypt is about 10.7 million.
Of these, 29 per cent are urban poor, and 71 per cent are rural poor. However, the sharpest
distinction in poverty rates is now between Egypt’s metropolitan areas, Lower Egypt and the border
areas, on the one hand, and Upper Egypt on the other (annex 2). Upper Egypt is where most of the
poor are now located. The extent of unemployment and underemployment can be gauged from the
estimate that only 46 per cent of the working age population participates in the labour force;
among those people who are employed, 40 per cent earn a living in microenterprises and small
enterprises that operate in the informal sector. 3 While unemployment exists across all educational
categories and age groups, most of the unemployed are young, educated people.
Agricultural Sector
Although the contribution of agriculture has fallen, it still accounts for about 17 per cent of gross
domestic product and 20 per cent of total exports and foreign-exchange earnings. In addition,
industries related to agriculture, such as processing, marketing and input supplies, account for
another 20 per cent of gross domestic product. Agriculture is therefore a key sector in the Egyptian
economy, providing livelihoods for 55 per cent of the population and directly employing about
2/ See annex 1 for summary country data drawn from the World Bank database for April 2005.
3/ Source: UNDP Country Evaluation Egypt, 2004.
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