Analysis of Protectionism and Free Trade in Egypt: A Report

This report analyzes the impact of the industrial revolution on Egypt's economy, focusing on the transition from an agrarian society to a more industrialized one. It examines the evolution of key industries, particularly textiles, and the role of cotton production. The report discusses Egypt's main trading partners, including the European Union and the United States, and analyzes import and export trends over a 10-15 year period. It delves into the influence of Foreign Direct Investment (FDI) on various stakeholders, highlighting the effects of liberalization and privatization. Furthermore, the report explores different trade agreements Egypt has entered into, such as the Egypt-EU FTA and agreements with the Great Arab Free Trade Area, discussing their political, social, and economic implications. The analysis also covers the impact of these agreements on trade flows and the overall economic development of Egypt, including the effects of various economic policies.

Running head: PROTECTIONISM AND FREE TRADE
Protectionism and free trade
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Introduction:....................................................................................................................................2
Discussion:.......................................................................................................................................2
Industries before and after industrial revolution:.............................................................................2
Main trade partners and import and exports for past 10 to 15 years:..............................................4
FDI in Egypt and how the stakeholders are affected:......................................................................7
Different trade agreement with other nations:.................................................................................9
Effects of different trade agreements:............................................................................................12
Conclusion:....................................................................................................................................14
References list:...............................................................................................................................15

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Introduction:
The report is prepared to demonstrate the change experienced by Egypt due to industrial
revolution. Discussion incorporates era of Egypt before and after revolution. Analysis has been
done by illustrating the impact on import and export of nation and its flow of foreign direct
investments. Various foreign trade agreements that Egypt has entered into and its political, social
and economic impacts have been discussed. Egypt was mainly an agrarian country before
witnessing industrial revolution. Considerable changes were brought resulting from revolution
(Abdelrahman 2014).
Discussion:
Industries before and after industrial revolution:
The phase of industrial revolution was identified for the period roughly from 1750 to
1825. Some of the major industries in Egypt were textile industries due to higher cotton
production. Before industrial revolution, Egypt was not well-equipped with social, political and
economic tools. Due to relatively higher production of cotton, the economy of Egypt was known
as an agricultural economy. Revolution transitioned the agricultural development to capitalism.
The industrial revolution of 1952 gave birth to industrialization in Egypt (Alexander et al.
2014). Industrialization of Egyptian economy were affected in broader way resulting from the
agricultural sector industrialization. Practices and structure of Egyptian agriculture was
significantly changed due to increasing cotton export on large scale. Agricultural land was
transformed into private property due to rapid expansion of cultivation of cotton and thereby
restructuring of agrarian social relations. In year 1876, nation went bankrupt and during this
time, one of the major part of Egyptian economy was exporting of cotton. Rural economy

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integration into broader market economy was another development of Egyptian agriculture.
Investment of European capital was done in projects of irrigation system, railroads and ports.
Investment was made in many industries such as steel, textile, paper, fertilizers, minerals
and iron. Reason behind investment made in such industries was to improve industrialization and
to attain a level of self-sufficiency. After industrialization that is since year 1961, the import of
raw materials increased significantly and consequently, it has speeded up the industrialization.
Some of issues that was faced by nation involved exchange and fiscal crisis. Egypt faced
increased recession resulting from limited flow of funds due to war periods in sixties and
seventies. An open door policy was initiated by government from year 1975 to 1985 that led to
encouragement of domestic and foreign investments. After the era of revolution, import
restriction policies was imposed by government that leads to entrepreneur shifting to industrial
development against engaging in imports. One of the major part of story of development of
Egypt is industrialization (Daoud 2014). Industrialization in Egypt can be explained by breaking
down in three periods. During the first half of nineteenth century, focus of nation was promotion
of modern industries that were sponsored by state. In second period of British influence from
1890 to 1920, there was limited development of industries. The reason is attributable to the fact
that during that period, the attempt of Egyptian to industrialize was discouraged by British and
more emphasis was on promotion of cultivation of cotton. Growth of industries under tariff
protection was witnessed in year 1930 and during 1950s, industrialization was at its peak.
Development of Egypt as an export economy was witnessed due to failure of industrialization
efforts in wake of period of Mohammad Ali. During Great Depression, export led growth
weakened and development of Egyptian firms was witnessed during inter war period. One of
example of phenomenon of export based economy was Misr Bank that had direct ties to

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companies involved in building materials, textiles, maritime, air transportation, insurance,
mining and pharmaceuticals. It was a major representation in the development of economy of
Egypt. A broader trend of government adopting policies that favoured industry and increasing
nationalism was also witnessed in inter-war period. New industries in Egypt was granted credit
and special promotion (Gunning et al. 2014). This resulted beginning of new wave of
industrialization. In the twentieth century, growth of industries in Egypt characterise the
development of economy.
Main trade partners and import and exports for past 10 to 15 years:
Traditionally, the main trading partner of Egypt is European Union and the most
important trade agreement that nation entered in year 2004 is Egypt-EU FTA. 1995 Barcelona
process governed the economic relations between Egypt and European Union that aimed at
establishment of cooperative framework leading to advancement in social and economic
development. In year 2001, there was establishment of bilateral working group on services
liberalization. Egypt is a member of Great Arab Free trade area and the main trading partners till
period 2004-2008 are depicted in table below:

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Egypt export trading partners:
(Source: Elshehawy et al. 2014)
There has been growth in overall value of exports and 39% of exports were mainly
absorbed by EU. Dynamic growth have been witnessed in other trading partners and share of
exports of Egypt for Great Arab foreign trade agreement increased. Relative share of export
destination for Jordan, Turkey and common market for Southern and Eastern Africa have also
increased. Strong growth was also witnessed for non-foreign trade agreement partners. Egypt and
Mexico also has increased share of export growth while US share for exports decline (Bank
2015).

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Egypt import trading partners:
(Source: Elshehawy et al. 2014)
Imports from EU had increased since 2000 by 12%. However, their role as import source
had fallen to 32% in year 2008 as against 38% in 2000. Relative share of Egypt market has
increased for Great Arab foreign trade agreement. Significant growth had been recorded from
China since year 2000 by 28%. US import share had declined since to 11% in 2008 as against
17% in 2000 (Baldwin 2013). The climate of foreign investors improved due to liberalizing
trade. Liberalization of foreign investment regime was one of the core element of economic
reforms in year 2004. This was done with the intention of attracting foreign direct investment in
service and manufacturing sectors. More than 80 bilateral investment treaties was signed by
Egypt as a part of this endeavour (Titus et al. 2013).

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A free trade area is established due to association agreement between EU and Egypt that
is in force since year 2004. This eliminated significant concession on agricultural products and
tariff on agricultural products. Furthermore, nation entered into an ambition agreement came into
force on 1st June, 2010 regarding agricultural products, fisheries products and processed
agricultural products. In Southern Mediterranean region, the main trading partner for EU is
Egypt. Agreement between two these two parties have improved the trading condition of nation
since industrial revolution. The EU-Egypt since year 2004 at € 11.8 billion has doubled and has
achieved highest level since year 2016 to € seven billion. EU has ranked first as import and
export partner while covering 31.3% of trade volume in 2016.
FDI in Egypt and how the stakeholders are affected:
Egypt has witnessed increased flow of FDI since the economic reforms in year 2004.
Overall FDI stock increased to $ 50.5 million from $ 21.3 million. Increase in FDI flows in year
2007 increased to $ 11.6 from $ 200 million in year 2003. Other than industries such as
telecommunication, petroleum, tourism and cement, liberalization and privatization have
increased in all industries. One of the dominant non-petroleum recipient of FDI flows is financial
sector followed by retail sector, services, agriculture and manufacturing sector. Twelve flow
growth was noticed in FDI to the tourism industry. The bilateral investment relationship between
US and Egypt was improved in the past decade to about $ 7.5 billion in year 2007 as against $
1.1 billion in year 2003.

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Foreign direct investment of Egypt as a percentage of GDP:
(Source: Loewe 2013)
The average value of FDI of Egypt stood at 2.44% aster the period of revolution with
maximum value at 0.34% in year 2006 and reduction in investment by 0.2% in year 2011.
During fiscal year 2009-2010, there was a sharp decrease in real GDP growth rate and outflow of
FDI stood at USD 164 million. This has led to increased level of unemployment in nation. A
bold and transformation reform program was introduced by Egyptian government in year 2014
that aimed at staging a balanced inclusive growth, enhancing the nation’s business environment
and spurring the economy. Reform implementation along restoration of confidence and stability
helped in yielding positive results. This has led to improvement in annual rate of GDP growth of
economy to 4.3 percent in year 2015 compared to only 2% in year 2010-2011 (Ferro et al. 306).
Some volatility has been displayed due to floatation in the value of exchange rate. However,
there has been increased foreign investor demand for local debt instruments due to strengthening
of local exchange rates. In year 2015, Egypt retained its position as one of the top destinations by

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capital investment with value recorded at $ 14.5 billion. FDI projects in solar power for amount $
5.9 billion was recorded in year 2015.
Since year 2010-2011, economy of Egypt was hardy hit by social and political instability
and there was a fall ion real investment growth and real GDP growth rate to -2.1% and 1.8%
respectively. There was a significant decrease in consumption and investment growth in year
2012-2013 after a brief recovery. Nonetheless concerning specific FDI sectors, there still exist
some restrictions in regard to regulation for some related reasons and national security. For
instance, there exist strict regulations in regard to seaport and air management, electricity power
grids, gas and oil extracting activities, exchange and other sectors having full governmental
control. Liberalization of Egyptian market was done by taking all possible efforts on part of
government. The model of bilateral trade agreement was revised by government in an attempt to
attract foreign investment leads to balancing of right of state to regulate and protection of
investment (De Smet 2014, 11-40). Apart from the measures, some measures also involved
considering sustainable development of goals, combating of corruption and refinement of
mechanism of international state dispute.
Different trade agreement with other nations:
Egypt has a large network of bilateral investment treaties and nation has signed more than
hundred such agreements. After Angola, nation is ranked second in the list of top African
countries in terms of foreign direct investment. Considerable increase has been recorded in flow
in FDI to $ 6.9 in year 2015 from $ 4.6 billion in year 2014. Many factors are attributable for the
expansion of FDI flows into country such as energy, construction, financial, transport and
pharmaceutical industry. Significant efforts are made by Egyptian government for making such
investment more attractive. In response to this, there was enactment of Investment Guarantees

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and Incentives law no. 17 in year 2015. Egyptian legal framework was significantly modified
resulting from several investment initiatives. Some of multilateral trade agreement that Egypt is
signatory to comprise of general agreement on Trade in services, General agreement on tariffs
and trade, Free trade agreement with EFTA states, Greater Arab free trade Area agreement,
European Union-Egypt free trade agreement, The common market for eastern and southern
Africa, Turkey-Egypt free trade agreement and Agadir free trade agreement among Morocco,
Jordan and Tunisia (Hendy et al. 2014).
European-Egyptian partnership-An agreement was signed between Europe and Egypt
with the intention of liberalizing trade off. This partnership helped in facilitating trading by
opening export of manufactured goods to Member states of European markets. Negotiations was
also witnessed in liberalization of trade in terms of agricultural products. As per this agreement,
parties to trade can engage in trade with each other for period of twelve years (Khalil 2015).
Qualified industrial zone-Under this agreement, additional interest for tax free entry of
goods to American market was offered by Egypt. The entry of goods is exempted from paying
tax on the condition that manufacturing is done by 10.5 of Israeli inputs and by 35% in one of
Egyptian qualifying Industrial zones. During the first four year of protocol implementation, it has
assisted in increasing growth of export of garments and textiles to United States.
Greater Arab free trade Area agreement-The convention on free trade area by 22 Arab
countries was ratified under this agreement. It is provided by such convention to overcome all
non-tariff barriers such as technical, financial, monetary and administrative. Moreover, this also
led to steady elimination of fees, tariffs between such countries.

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Free trade agreement between Egypt and turkey-This agreement helped in having a
direct accessing the large market of Turkey and facilitated free movement of goods and services
between these two nations.
Common market for eastern and southern Africa-Under this agreement, goods are
allowed to enter the market without incurring any fees by creating a common market for
southern and eastern Africa free trade zone. A degree of growth and importance for Egypt was
enjoyed by trading partners that helped in expanding the level of economic activity. Free
movement of goods would be ensured between removal of tariff and non-tariff barriers and
member state by operation of common market for Southern and Eastern Africa.
Agadir-This particular multilateral agreement enabled establishment of free trade zone
between Jordan, Tunisia, Morocco and Egypt. Free access to each other market is enjoyed by
member states without quotas scalable and tariffs. During 20006 and 2007, there was entire
activation of customer convention. This ratification has cemented economic ties between
countries along with industrial relations. Emergence of this has generated a particular partnership
in exportable product production to Arab countries and European Union to the convention of
Member states (Önder 2016, 251-258).
Several bilateral agreement have been signed by Egypt with Arab countries such as
Lebanon, Libya, Morocco, Jordan and Tunisia. Egypt and China entered into trade agreement in
year 1995 along with signing an economic treaty with Russia. An association agreement was
signed by Egypt with European Union in year June, 201 that came into force in year 2004. The
consequence of finalizing such agreement has led to duty free access of EU products, duty free
access of products of Egypt into market of EU for over a period of twelve year. An agricultural
annex to their FTA was completed by EU and Egypt in year 2010 that led to liberalization trade

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of ninety percent of agricultural products (Stearns et al. 2014). Some of the reasons for
establishment of foreign trade agreements comprise of following:
 Developing framework that would encourage foreign investment and strategy
development for encouraging investors to make investment in nation.
 Exchange of experiences and information in the field of investment and increasing
awareness of investment by regulating policies and laws that would assist in doing same.
 Settling investment disputes by providing investors with several options with host
countries.
 Supporting and encouraging for activities such as promotion mission, investment and
exhibition, conferences and workshops.
 Facilitating investment and promoting the same within nation’s territories.
Effects of different trade agreements:
Free trade agreements of Egypt helped in potential levering for jobs and growth along
with offering the opportunities for making considerable change in future. There was improved
access to markets due to removal of tariff on all EU goods. Increased agricultural and textile
prices were experienced by Egypt. Tariff elimination with US has led to increase in export prices
of clothing and agriculture. The trade relations with United States and participation in
international economic agreements has led to improvement in harmony and improved
governance. Natural complements of good governance arises from rule of law and freer markets.
Centrally controlled economy, there is far more confer on preference and rents on political allies.
Practice of custom clearance has led to increment in increased business cost. Inefficiencies of
service sector was removed from and there was attenuation of import and export due to
prevalence of such agreement (Elshehawy 2014).

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With regard to qualified industrial zone, agreement helped in boosting exports and this
leads to increased chance of recovering market share in labour intensive industry. One of the
main reason for creation of such agreement was to remove taboo of Arab countries to openly
conduct business with Israeli firms (Marti et al. 2014). A strategic new directions was witnessed
and it lead to integration of economy with other regional economy.
The long term economic development sustainability of Egypt has received little
contribution as a result of political and economic effect. One of the main components of
capitalization on intraregional synergies was clear identification of diagonal accumulation among
economies.
Another social and economic dimension was witnessed in terms of migration issues due
to some progress made in security level resulting from bilateral agreements. Signing of
agreements with other nations has promoted economic, social and cultural cooperation. Social
benefits was offered in range of areas resulting from agreements such as promoting the rule of
law, strengthening democracy, development in transport and energy sector and upholding of
human rights to trade liberalization. There was progressive reduction in number of custom
charges and reduction in tariff is not symmetric. Continuation in urban migration was witnessed
despite improved efforts for social programs and rural infrastructure. Factors that has prompted
migration to urban areas was due to movement of people in cities and uncertainty of agricultural
sector (Vatikiotis 2013). Increased price of basic goods due to free trade has caused hardship
among people and threatened the social stability.
Other impediments to trade still exist due to many liberalization efforts of Egypt. For
reducing trade barriers, a process of trade facilitation was launched by the nation. The procedures
of red tape reduced import and exports. Liberalization of trade in Egypt should come with

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polices that would helped in alleviating the hasty social change. Opening of market trends
resulting from such agreements comes with some serious cost of economic adjustments such as
bankruptcy, loss of job in certain industries and social hardships. Number of disaffected areas
increases along with politically high cost. The precarious ability and overall growth of Egyptian
economy has received little contribution of bilateral trade agreements.
Conclusion:
The analysis of scenario of Egypt after industrial revolution depicts that significant
changes were witnessed in several areas of economic development along with development of
country on social and political front. Benefits achieved by Egyptian economy were lower than
actually projected after the revolution. However, positive benefits could be derived by Egypt
from their US relationship. As against confining to one merchandizing trade, a deep agreement in
investment and services would benefit the nation. Dynamic effect of such trade agreements
would form the basis of economic benefits magnitude. In order to ensure effective
im0lementation of regulations and laws as imposed by trade agreements, it is required by nation
to incorporate mechanism for monitoring and conditionality. Nonetheless, the analysis of
political implications of revolutions is difficult as compared to economic.

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