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Chapter ThreeGlobalization Challenges to Egypt’sProduction SectorsGlobalizationchallenges to theEgyptian economy gobeyond itsexport/importrelations with othereconomies andmarkets.Globalization challenges to the Egyptianeconomy go beyond its export/importrelations with other economies and markets.Export-import relations are the outcome ofhow different sectors of the nationaleconomy face increasing competition andmarket openness, a ceaseless technologicalrevolution, intensified knowledge-basedproduction, and the techno - economicalliances led by Trans - NationalCorporations (TNCs). This chapter,however, is dedicated more specifically toexploring the impact of globalization onEgypt’s production sectors, focusing onagriculture, industry and the financialsector.Modernizing AgricultureAgriculture is an important sector of theEgyptian economy. It constitutes 19 per centof GNP, and plays a major role in foodsupply. Moreover, one third of the Egyptianlabor force is employed in agriculture andaround 50 per cent of the population live inrural areas. In spite of a decline inagricultural exports to total Egyptian exportsduring the last two decades, agriculturalproducts remain a potentially high anddynamic contributor to export growth.In the period 1955-80, government policieswere biased towards manufacturing andagainst agriculture. This was reflected ingovernment interventions that negativelyimpacted upon the growth of agriculturalproduction and its composition as well asproductivity and pricing in the sector. Thisresulted in serious problems, notably withregard vital issues such as food security, andheavy dependence on the import of essentialfoodstuffs, which in turn, aggravated thebalance of payments deficit. Consequently,the government launched an agriculturalreform program, well before the beginningof the ERSAP.However, reform has had to take placeunder serious constraints stemming fromlimited natural resources, especiallyirrigation water, and insufficient financialand physical capital for expanding cultivableland. Despite the far from negligible effortsto modernize the agricultural sector, there isstill a need for a major technological push toease many of these constraints. Whetherglobalization will help achieve thisobjective is a question that this sectionendeavors to answer by reviewing thereform measures, and by examining theprobable effects of globalization on thissector.Agricultural Sector ReformThe agricultural policy reform (APR) inEgypt has been carried out in three distinctphases:Phase I (1986-1989) included the adoptionof a number of measures dealing with priceand market controls. During this period,procurement quotas for ten crops wereabolished, input subsidies were reduced, andthe private sector was allowed to conductagricultural marketing and agribusiness.Private sector participation in agriculturalexport of some crops was also permitted.Phase II (1990-1994) witnessed: (a) theelimination of subsidies to agriculturalcredit and inputs; (b) the end ofprocurement quotas for all crops; (c) theprivatization of seed production for somemajor crops; and (d) the liberalization ofagricultural prices as well as of agriculturalland rent (Law 96 of 1992). Thus,deregulation and liberalization were themain features of this phase. Free marketmechanism replaced government interventionin allocating agricultural resources andinvestments and deciding the terms of tradebetween this sector and the rest of thenational economy.42 -Egypt Human Development Report 2000/2001