Egypt's Promise of Peace

"Peace is not an abstract. It means a better life for people. We have shaken off prejudice. Now we must destroy poverty, ignorance, hunger."

That is what Egypt's President Anwar Sadat says his country must gain as a result of his bold decision to make peace with Israel. Now, two years after his flight to Jerusalem and nine months after the signing of the treaty ending hostilities, some changes are appearing. Tourists wearing yarmulkes are visiting the pyramids, new high-rises spike the Cairo sky line, and signs hawking familiar brand names reflect increased Western business investment. The reopened Suez Canal is earning rich transit fees, and Egyptian engineers have taken over Alma, the largest of the oilfields being given up by the Israelis in the course of their three-year withdrawal from the Sinai.

Yet Egypt's economy today is a mix of unexpected strength and too familiar decay. The muscle is almost all in the country's robust foreign receipts. Despite the aid and trade boycott mounted against Egypt by other Arab nations after the peace treaty signing, Cairo can easily meet its foreign exchange needs. The largest source of funds is the money sent home by Egyptians working abroad; this will total $2 billion in 1979, up from just $200 million six years ago. Suez Canal revenues will bring in $600 million and could rise to $1 billion a year by 1982, after the waterway is widened to allow two-way traffic. Another burgeoning source is tourism, which will yield $700 million this year.

Then there is oil. An exporter only since 1974, Egypt will sell $1.1 billion worth of crude this year, accounting for 40% of its trade income. Never a member of OPEC, the country doubled the price of its oil early this year and now charges a robust $34 per bbl., except for what is sold to Israel. Egypt reportedly agreed to sell oil to the Israelis at a price of roughly $27 per bbl. in the hope that this would encourage investment in Egypt by Jewish-American businessmen. Oil-exploration deals have been signed with a number of Western firms, and hopes are high that new strikes may be made in the Sinai, the Gulf of Suez and the Western Desert. Oilmen reckon that by 1982 Egypt may nearly double its production to 1 million bbl. a day, which would put the country almost in a class with Algeria.

Thanks to its foreign income, Egypt has not been hurt economically by the loss of the $800 million or so in Arab aid it used to get annually, or by the Arab countries' refusal to do business with Cairo; before the boycott, those states accounted for only 7% of Egypt's trade. Arab anger remains high; the Egyptians expect that all of their postal, telephone and telex links to other Arab countries, as well as the remaining airline flights, will be severed in March, when Egypt and Israel plan to open embassies in Jerusalem and Cairo. Still, some top Egyptians believe that the boycott will not last long, and may be softening already. In November, says one Sadat aide, the Saudis began sending "signals" that they would not undermine Egypt or the peace treaty; they would go on shipping oil through the canal and the Suez-Mediterranean pipeline, and the $2 billion that they and Kuwait have in the Central Bank of Egypt would not be pulled out. The reason, says the aide: "The Saudis shudder at what is happening in Iran. They are beginning to understand the meaning of peace."

Nonetheless, Egypt is now heavily dependent on Western and Japanese aid and investment. Cairo officials fear that the Arab irritation with Egypt may deter Western companies from seeking out the joint-venture projects with Egyptian partners that Sadat is encouraging. Though the oil companies have been involved in exploration for some years, the list of other major U.S. investors that have moved into Egypt or are seriously considering doing so is still fairly short. Coca-Cola, 7-Up and Xerox have set up operations there; Ford, General Motors and Union Carbide have investment projects in the planning stage. Yet Egypt has secured much Western financial assistance. This year it will get more than $1.7 billion in loans and grants, including $1 billion from the U.S. (which is also giving Israel $2.3 billion in aid in 1979). The U.S. assistance, which has totaled about $4 billion since 1976, is channeled to specific projects, such as the modernization of electric-power and water and sewer facilities. (These funds are in addition to the aid packages of $4 billion to $5 billion that Washington is giving to Egypt and Israel as part of the Camp David agreements.)

Egypt's domestic economy is a mess. Despite a growth rate of about 8% this year, the bulk of the country's 40 million people remain desperately poor, with an average income of under $300 (vs. $2,700 for Israel). In the past year, thousands of peasants have abandoned the land to jam into the already swollen cities in hope of sharing in a peace-bred boom. Thus unemployment is soaring at a time when inflation is hovering above 25%.

That is largely a result of out-of-control government spending, which this year will produce a deficit of $4.3 billion in a budget of under $10 billion. Sadat will not cut defense outlays ($1.4 billion this year) until the last of the Sinai is returned after 1982, so he must trim the huge subsidies ($1.7 billion) used to hold down the cost of food and fuel, a vestige of Nasser-era socialism. Despite big hikes in the cost of imported wheat (Egypt produces less than 30% of its needs), bread has been held to 1¢; a loaf, the same as in the 1930s and a fifth of the real cost.

In 1977, when the government last tried to raise food prices (bread went to 2¢), riots erupted that nearly toppled Sadat. But if the President is to get more foreign loans—he has said that Egypt will need $18.5 billion over the next five years—he needs the approval of the International Monetary Fund. The IMF has been pressing Egypt for economic reforms, particularly a cut in the subsidies, and it is sending a team to Cairo this month to see what progress has been made.
The crunch will come in January with the announcement of the 1980 budget, which will almost certainly contain some subsidy cuts. On that potentially explosive occasion, Sadat may need all of his considerable powers of persuasion to convince his people that the "better life" he has promised is still imminent.