Dependence on Extractives Revenues in Egypt

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Overview

Although Egypt has diverse sources of revenue, from agriculture to manufacturing and tourism, it is still considerably dependent on the extractive industry. Figures from the Central Bank of Egypt reveal that revenues from the extractive industry stood at US$33 billion in 2012 (15% of GDP at factor cost), second only to the manufacturing industry.[1] Income taxation from Egyptian General Petroleum Corporation (EGPC) stood at 10% of total state revenue,[2] while petroleum exports represented 40% of total exports in 2012.[3]

Problems Resulting from Egypt's Dependence on Oil Revenues

Egypt's oil production peaked in 1996 and since then, the country's oil output has declined by over 25 percent as of 2011. The overall decline continues each year as the rate of depletion in existing wells accelerates.[4] Although Egypt is the largest non-OPEC oil producer in Africa and the second largest natural gas producer on the continent,[5] increasing local demand has forced it to curb down [[Export Land Model|petroleum exports, resulting in decreased state revenues.

In 2011, consumption of oil products surpassed production, forcing the government not only to forgo its valuable exports, but also to start importing petroleum products to meet local demand. This resulted in several problems mainly being the government's inability to fund its own social programs, most notably the subsidy system.[6]

While Egypt used to be self-sufficient in all basic food groups back in the 1960s, the country now imports most of its food and the state has partially relied on oil revenues to subsidize food prices.[7] The dependence on oil revenues to fulfil government subsidies can be deemed as one of Egypt's "Resource Curse", being a product of weak policies that have resulted in poor development outcomes.[8]

The drop in export revenues has also left Egypt faced with liquidity shortages to pay for petroleum imports, and with the recent credit rating downgrades most suppliers are now demanding advance payment. In March 2013, the Federation of Egypt Chambers of Commerce warned against the effects of the energy crisis in Egypt and how it would lead to a direct rise in commodity prices.[9]


References

  1. "CBE Monthly Bulletin April 2013: GDP at Factor Cost by Economic Activity" Central Bank of Egypt, retrieved May 20, 2013.
  2. "CBE Monthly Bulletin April 2013: Consolidated Fiscal Operations of the General Government" Central Bank of Egypt, retrieved May 20, 2013.
  3. "CBE Monthly Bulletin April 2013: Balance of Payments" Central Bank of Egypt, retrieved May 20, 2013.
  4. "Egypt Riots and Oil" Oil-Price.net, January 1, 2011.
  5. "EIA Country Analysis Brief: Egypt" U.S. Energy Information Administration, retrieved May 20, 2013.
  6. "ww.oil-price" Oil Price.com, April 8, 2013.
  7. "Egypt Riots and Oil" Oil-Price.net, January 1, 2011.
  8. "The Resource Curse" Open Oil, retrieved May 20, 2013.
  9. "As Diesel Shortages Continue, Impact Becomes Broader" Egypt Independent, March 24, 2013.