Economic policy

Infitah: How Sadat’s Open Door Economic Policy Lasts

Infitah: How Sadat’s Open Door Economic Policy Lasts

Henry Kissinger with Egyptian President Anwar Sadat in Alexandria, August 25, 1975. Photo credit | David Hume Kennerly White House Photographs/Kissinger Papers at Yale University

It was an iconic moment in contemporary Egyptian history, as President Anwar al-Sadat chaired on victory in the 1973 Arab-Israeli war. Sadat has become an iconic figure, now granted the title batal al-ubur (“the hero of the crossing”); he awakened a reinvigorated sense of duty and unity that had begun to dissipate for years.

Sadat’s military victory had restored national pride, however, public expectations of the state of Egypt’s flagging national economy began to emerge. The war effort could no longer be considered a valid excuse for economic ills suffered by all segments of Egyptian society.

During the 1960s, Gamal Abd El-Nasser, in an effort to emulate the Soviet Union, had created a huge public sector and an over-regulated state economy. All essential food items and major infrastructure investment projects have been control and centralized, this amounted to widespread shortages and waste. The economy was characterized by low levels of productivity, a lack of educated labor and a declining agricultural sector.

Nasser was able sustain this economic structure by raising tax levels and printing more money to fund government spending, known as deficit financing.

However, Nasser’s defeat in the 1967 Arab-Israeli War further exacerbated the problem, incur “colossal military and economic losses” that would require an extraordinary feat to improve. Sadat had inherited a political and economic system that desperately needs salvation.

Sadat’s response was al infitah – or openness – an open door policy of economic liberalization that would encourage foreign investment and enhance private sector growth. These policies would coincide with some political relaxation and democratization, but never sufficient threaten Sadat’s hold on power.

Sadat began courting the United States and the Gulf States, signage a rapid evolution of regional alliances and the rejection of close ties with the Soviet Union. Infitah policies strengthened ties with Western leaders, ushering in a new era of liberalization.

Egypt secured “the largest US economic aid program in the world”, and began to undergo a series of reforms to improve productivity and attract foreign investment. Until today, Egypt remains a top recipient of US financial aid, with over $81 billion (EGP 1.4 trillion) in bilateral foreign aid between 1946 and 2020.

Sadat encouraged the adoption of new investment regulations. According “The experience of foreign investment under Infitah” by Hadi Salehi Esfahani, these regulations “provided incentives and included a promise to refrain from nationalization and confiscation of invested capital except through judicial proceedings”.

economy show promising signs of growth since “the rate of GDP rose from 8 to 10% per year during the 1970s and the balance of payments evolved favourably”. Remittances rose from nothing in 1971 to over 2.2 billion USD (40.4 billion EGP) in 1979, according at the World Bank, representing about 12% of Egypt’s GDP.

The International Monetary Fund (IMF) and World Bank have begun to push for deep cuts in public spending and an end to basic food subsidies, seen as a major cause of persistent budget deficits.

Sadat’s announcement of the price hikes would spark unrest and cause mass riots across the country – in what later became known as the Al-Khobz Intifadet – or the Bread Intifada.

Although public rage forced Sadat to restore food subsidies, clashes between the army and rioters had succeeded in 800 wounded, 80 dead and more than 1000 imprisonments. The chaos of the Bread Intifada had exposed the many shortcomings of Sadat’s open door economic policy, in particular his failure to bring prosperity and stability to the working classes of Egypt, slowly signage the rapid decline of his presidency.

Infitah policies have become too ambitious, failing to recognize the complexities of Egypt’s socio-economic structure, it was moving at an unrealistic pace that was destined to disappoint the very people it was meant to serve.

More than four decades later, Cairo appears to be following a similar economic trajectory.

An overreliance on debt-financed growth and poorly targeted government subsidies have resulted in difficult economic conditions for Egypt’s lower and middle classes. Cairo has continued to neglect serious structural economic reforms that would help foster growth, rather than current policies triggering insecure like those of Sadat decades earlier.

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