The Role of Agriculture and Agro-industries for Accelerating Economic Transformation in Egypt

The Role of Agriculture and Agro-industries for Accelerating Economic Transformation in Egypt

Presenter: Hoda El-Enbaby Based on joint research with Jose Luis Figueroa, Hagar ElDidi, and Clemens Breisinger (all IFPRI)

IFPRI Egypt Seminar Series in collaboration with FAOFAO, CairoDecember 13, 2016

MotivationEgypt embarked on historic macro-economic reforms to tackle some of its economic challenges.In parallel, the country introduced the conditional cash transfer program Takaful & Karama to protect the poor from the expected short-term impacts of macro-economic reforms.But, in addition to scaling up social safety nets, protecting the poor will also likely require fostering growth and employment through sector-specific policies and investments.Agriculture and related agro-industries are potential candidates for fresh policy attention and focus.

Key QuestionsHow different (or similar) is Egypts economic transformation from the regional/global story?What role do agriculture and agro-industries play in Egypts economy and for trade and employment, and how have those roles changed?What is the role of agriculture at the household level, and how is it affecting household welfare?Going forward, what are the opportunities and challenges for expanded agriculture and agro-industries development?

Egypts Economic Transformation

What is economic transformation?Transformation entails structural change, which is defined as the reallocation of economic activity across the three broad sectors (agriculture, manufacturing, and services) that accompanies the process of modern economic growth (Herrendorf et al. 2013).It is commonly measured by:Value-added shares by sectorEmployment shares by sectorFinal consumption expenditure shares

Agriculture and manufacturing still play a relatively important role for Egypts economyThe importance of agriculture in GDP and total employment in Egypt seems to be declining more slowly compared to other countries.The share of manufacturing in GDP declined during the 1980s, has since then increased. It is now higher than in many other comparable countries.Source: Elaborated by Nin Pratt (2016) based on World Bank (2016), ILO (2016) and UNSD (2016).

A comparison with other middle income countries confirms the relative importance of agriculture in EgyptFor two indicators of structural transformation the group of MICs started out with higher shares than Egypt in 1980, but showed much lower shares than Egypt in 2014.Source: Authors illustrations based on World Development Indicators (2016).

One reason is that agricultural labor productivity and yields (until recently) have been growing in EgyptThis could be an explanation for the continued relatively important role of agriculture in Egypts economy. Yet, yields have stagnated in recent years.Source: Authors illustrations based on World Development Indicators (2016).

and agriculture is a stable contributor to economic growth, but agro-industries (unexpectedly) have been decliningSource: Authors calculations based on World Bank (2016).Source: Authors calculations based on CAPMAS, Annual industrial production statistics for the public and private business, various years.

Agriculture and agro-industries are important contributors to trade Source: Authors illustration based on Al-Riffai et al. (2016).

Fruits are Egypts largest agricultural export, while wheat is the largest importSource: Authors illustration based on Al-Riffai et al. (2016).

The Role of Agriculture & Agro-industries for Employment and Household Welfare

Employment in agriculture and agro-industries has been declining in Egypt Despite the sectors relatively stable growth rates, the role of agriculture in employment in Egypt has declined both in relative and absolute terms.Source: Authors calculation based on ELMPS (2012).

Still, in Upper Egypt, agriculture tends to play a more important role for employment, while agro-processing employment is laggingSource: Authors calculation based on ELMPS (2012) and Ministry of Planning (2016)

About 40 percent of rural Egyptian households report agricultural employmentBut only 22.9 percent of rural households were agriculture-only households in 2012, compared to 33 percent in 1999.Source: Authors calculation based on HIECS, several rounds.

Agricultural households tend to be older, poorer and with lower levels of educationAgricultural households heads are more likely to be older.Mixed households are more likely to have more members and a higher number of earners.Agricultural households have lower educational attainment levels.

Non-Ag households are less likely to be poor compared to only-Ag and Mixed households (define poor are household belongs to the lowest 3 deciles of per capita expenditures).Only-Ag households are more likely to be found in Upper Egypt than are non-Ag households.

Rural Upper EgyptOnly Ag MixedNon AgAge of head, years (mean)48.551.043.5Age of spouse, years (mean)39.742.934.9Household size (mean)5.06.35.2Number of income earners in households (mean)1.42.61.6Highest level of education in household (%)None34.110.314.0Primary/Lower sec28.624.515.9Secondary32.446.744.6Post-secondary1.32.96.2University3.515.119.0Postgrad0.00.40.3

Source: Authors calculation based on HIECS (2012/13).

The future of agriculture and agro-industries

Opportunities for accelerating agricultural growthThere are potentially several broad avenues through which agricultural growth in Egypt may be sustained or even accelerated:a)Increases in productivityImproved agricultural practices, technical efficiencies, irrigation efficiency, etc.b) Land expansionThrough protecting the old lands and sustainably reclaiming new lands.c) Structural changes within the sectorBy cultivating more horticultural crops which generate higher value added, employment and export earnings.d) Reducing agricultural wasteE.g. improving fruit and vegetables preservation and processing technologies.e) Revisiting agricultural and related policies E.g. price policies, subsidies.

Source: Elaborated by authors based on FAOSTAT (2016).

Given the rapidly growing domestic and international demand, there is huge potential for agro-industriesThe decline in agro-processing is mainly driven by the textile and leather sector.Food processing sector became more important in relative and absolute terms.How to promote it?Egypts competitiveness have improved after the floatation of the Egyptian pound.Promoting cluster-based development will require local governments to play a facilitating role by providing necessary basic public goods and services.Providing a conducive macroeconomic and business environment.Source: Authors calculations based on CAPMAS, Annual industrial production statistics for the public and private business, various years.

Key messagesAgriculture still plays a relatively important (if declining) role for development in Egypt.There is still room for accelerating sustainable agricultural growth and job creation, especially through structural change within the sector.There is huge potential for the agro-industries sector, especially for food processing, including in Upper Egypt.

More research neededReviewing agricultural policiesDecomposing agricultural growth by componentsAssessing climate impacts on agricultureReviewing rural public investments effectsAssessing agri-business opportunities and constraints in Upper EgyptStudying labor market dynamics

Thank you

The role of services in the economy has increased - partly due to a relative decline in industry - but remains relatively low by global comparisonThe role of services in the Egyptian economy has constantly increased since 1971.In the 1980s, industry in Egypt seem to have played a larger economic role compared to other countries. However, in the following decades, the role of industry in the economy declined.