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Report No. 49086-EG ARAB REPUBLIC OF EGYPT UPPER EGYPT: PATHWAYS TO SHARED GROWTH October 21, 2009 Social and Economic Development Group Middle East and North Africa Region The World Bank Document of the World Bank

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Page 1: ARAB REPUBLIC OF EGYPT UPPER EGYPT: …siteresources.worldbank.org/INTDEBTDEPT/Resources/468980...Report No. 49086-EG ARAB REPUBLIC OF EGYPT UPPER EGYPT: PATHWAYS TO SHARED GROWTH

Report No. 49086-EG

ARAB REPUBLIC OF EGYPT UPPER EGYPT: PATHWAYS TO SHARED GROWTH October 21, 2009 Social and Economic Development Group Middle East and North Africa Region The World Bank

Document of the World Bank

Page 2: ARAB REPUBLIC OF EGYPT UPPER EGYPT: …siteresources.worldbank.org/INTDEBTDEPT/Resources/468980...Report No. 49086-EG ARAB REPUBLIC OF EGYPT UPPER EGYPT: PATHWAYS TO SHARED GROWTH

(Exchange Rate as of June 19, 2009)

Currency Equivalents

Currency Unit LE 1

US$ 1

= = =

Egyptian Pound (LE) 0.1779 5.6203

F I SC A L Y E A R

JULY 1- JUNE 30

ACRONYMS AND ABBREVIATIONS AERI Agricultural Exports and Rural Incomes AFIS Agricultural Farm Income Survey CGE Computable General Equilibrium Models DHS Demographic and Health Survey ELMPS Employment and Labor Market Panel Survey ERF Economic and Research Forum FDI Foreign Direct Investment GAFI General Authority for Investment GDP Gross Domestic Product GEF Global Environmental Facility HDI Human Development Index HIECS Household Income Expenditure and Consumption Survey HIECPS Household Income Expenditure and Consumption Panel Survey IMR Infant Mortality Rate LFSS Labor Force Sample Survey LE Livre Egyptien (Egyptian pound) MARL Ministry of Agriculture and Land Reclamation MDG Millennium Development Goals PBDAC Principal Bank for Development and Agriculture Credit SFD Social Fund for Development SME Small and Medium Enterprises TFP Total Factor Productivity UE Upper Egypt UNDP United Nations Development Programme USAID U.S. Agency for International Development WDI World Development Indicators

Vice President: Daniela Gressani Country Director: Emmanuel Mbi Sector Director: Ritva S Reinikka Sector Manager: Farrukh Iqbal Task Team Leader: Ruslan Yemtsov

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A C K NOW L E DG E M E NT S

The report has been prepared by a team led by Ruslan Yemtsov (Lead Economist, MNSED). The team comprised Heba El Laithy (Professor at Cairo University and Consultant, MNSSD), who provided critically important inputs, as well as Sandra Schnellert (Consultant, MNSED), May Barghout (Consultant, MNSED), Samiha Ouda (Local Consultant), Claudia Nassif (Economist, MNSED), Sherine El-Shawarby (Senior Economist, MNSED). Hoda Selim (Research Analyst, MNSED) provided outstanding research assistance, with further help from Irina Shaorshadze (ETC, MNSED), Jeihan Abu-Tayeh (Intern, Voice program), and Taheya Sakr (Assistant, MNCO3). North South Consultancy Exchange, a research firm based in Cairo, conducted village case studies in Sohag, which constitute a core qualitative evidence to support quantitative analysis. Its team members, in particular Maghda Ghoneem (Principal Investigator), Zohra Merabet (Director), Don Ross (Senior Advisor), Claudia Marinaro (Researcher), Dr. Ahmed Radi (Field Researcher), and Hossam Hussein (Coordinator) contributed a lot to this study concepts and recommendations. Farruk Iqbal (Sector Manager, MNSED) provided critically important advice during the study finalization. Hilary Gopnik (Consultant, MNSED) thoroughly edited the report. The report was prepared with financial support from the Multi-Donor Trust Fund “Diagnostic Facility for Shared Growth”, which support has been crucial at all stages of the work. It is closely linked with the on-going poverty work in Egypt. Authors of the report are grateful to Spatial and Local Development Team at the World Bank which organized several brainstorming sessions and commented extensively on the report at various stages of its preparation, and to the World Development Report 2009 group for generously sharing ideas and materials. Chaitri N. Hapugalle (Consultant, MNSED) provided integrative links with WDR. Alexandre Kremer (Senior Economist, MNSSD), Franck Bousquet (Sr Financial Spec., AFTU2), Ayat Soliman (Senior Economist, MNSSD), and Pierre Rondot (Senior Economist, MNSSD) contributed to the work. The team benefited significantly from the advice and substantive outputs of scholars, think-tanks, international institutions, and donors working in Egypt. Special thanks go to Dr. Hanaa Kheir-El-Din, ECES Director, and principle author of Egypt’s poverty reduction strategy and studies on Upper Egypt. Mr. Tamer El-Meehy, president of the NGO “Entrust”, and a leader of the SME research project, Dr. Ahmed Dakrouri, head of the Agricom in Menia, kindly shared his views and experiences from the field. The team acknowledges help provided by Mr. Mohamed El Eraky, the IFAD Country Presence Officer in Sohag, village officials, representatives of the Horticulture Export Improvement Association (HEIA) and Farmer Associations formed under the USAID funded AERI project, who were interviewed during the preparation of the study. The team would like to recognize the significant leadership role of H.E. Dr. Osman Osman (Minister of Economic Development), and H.E. Dr. Mahmoud Mohieldin (Minister of Investment) who shared their vision and formulated the objectives for the study. The team would like to express its gratitude to many Egyptian officials for cooperation, particularly to Ms. Nevine El Shafie, Vice-Chairman of GAFI, Dr. Mohamed Fathi Sakr, Advisor to the Minister to Ministry of Economic Development, Dr. Lobna M. Abdellatif, Advisor to the Minister of Local Development, Dr. Hussein Soliman, Head of Livestock Department and Advisor to the Minister of Agriculture and Land Reclamation, Mr. Tarek El-Baez, consultant to the Ministry of Trade, Dr. Tarek Abdelfattah Moursi (Information and Decision Support Center IDSC), and to Mr. Ahmed El Ariny (Industrial Modernization and Center Business Development Services Support Project). The work has benefited from managerial guidance provided by Emmanuel Mbi (Country Director, MNC03), Miria Pigato (Sector Manager, MNSED), and Farrukh Iqbal (Sector Manager, MNSED). Peer reviewers, Marie-Hélène Collion (Lead Agriculture Services Specialist, LAC), Ken Simler (Senior Economist, PRMPR), and Vivian Hon (Senior Economist, Spatial and Local Development Team, SDN) provided quality assurance and advice. Amira Zaky (Program Assistant, MNC03) provided superb support to all missions, contacts with local counterparts and consultants, and Sheela Reddi (MNSED) performed desktop publishing of the report. Andrew Stone (Senior Economist, MNSED), Andrea Liverani (MNSSD), Julian Lampietti (Lead Economist, MNSSD) and Nicholas Minot (IFPRI) provided advice at various stages of the work.

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TABLE OF CONTENTS Preface.............................................................................................................................................. i Executive Summary ........................................................................................................................ 1

Poverty in Upper Egypt is concentrated in rural areas ............................................................... 1 Demographic factors are key to explaining the poverty gap between Upper and Lower Egypt 1 Excessive land fragmentation decreases the earning power of households in Upper Egypt ...... 2 Low and declining off-farm employment restricts the scope for income enhancement in rural Upper Egypt ................................................................................................................................ 3 Internal migration has played a limited role in reducing poverty in rural Upper Egypt ............. 4 The limited effect of increased public investment on rural poverty ........................................... 5 Targeted transfers are not adequately exploited as a poverty reduction instrument ................... 5 The outlook for Upper Egypt is worrying but not hopeless........................................................ 5

CHAPTER 1. Poverty in Upper Egypt ........................................................................................... 7 Upper Egypt: Geography, Economy, Welfare ........................................................................ 7 How Has Poverty in Upper Egypt Evolved over Time? ......................................................... 9 Upper Egypt is Lagging in Many Aspects of Development ................................................. 11 Where is Poverty in Upper Egypt? ....................................................................................... 12 Pockets of Poverty Persist in Upper Egypt ........................................................................... 13 The Social and Economic Fabric of Upper Egyptian Villages ............................................. 14

CHAPTER 2. Causes of Poverty: The Role of Demography ....................................................... 18 Causes of Poverty: Decomposition Approach ...................................................................... 18 The Source of Higher Rates of Dependency in Upper Egypt: .............................................. 20 Gender and Employment Outcomes ..................................................................................... 21

CHAPTER 3. LAND FRAGMENTATION LIMITS FARM INCOMES .................................................... 24 The Importance of Agriculture for Poverty Reduction ......................................................... 24 Shrinking Farm Size in Upper Egypt .................................................................................... 26 How Land Fragmentation is Affecting Farm Productivity ................................................... 27 Overcoming the Negative Effects of Land Fragmentation ................................................... 31

CHAPTER 4. LIMITED OPPORTUNITIES FOR OFF-FARM EMPLOYMENT ........................................ 35 Subsidized Credit is Not Sufficient to Stimulate the Development of Off-farm Activities . 40 A Lack of Human Capital is Constraining Off-Farm Activities ........................................... 42

CHAPTER 5. MIGRATION HAS ONLY A LIMITED EFFECT ON POVERTY IN UPPER EGYPT ............. 45 Migration Rates in Egypt are Low ........................................................................................ 45 Migration’s Effect on Changes in Poverty............................................................................ 46

CHAPTER 6. PUBLIC INVESTMENTS PROVIDE LITTLE TO THE POOR IN RURAL UPPER EGYPT ... 50 Poverty Impact of Infrastructure Investment ........................................................................ 51 Why was the Effect of Infrastructure on the Poor in Egypt below Expectations? ............... 53

CHAPTER 7. POVERTY IN UPPER EGYPT CAN BE REDUCED ........................................................ 56 The Outlook for Upper Egypt is Difficult but Not Hopeless ................................................ 56 Upper Egypt Can Generate and Sustain High Growth in Employment and Earnings.......... 58 Key Issue: Employment Generation ..................................................................................... 60 Better Social Services Can Help to Reduce Poverty ............................................................ 62 Targeted Transfers are not Functioning as a Poverty Reduction Instrument ........................ 62 Coordinated Targeted Policies Can Break the Poverty Cycle of Upper Egypt .................... 64 Challenges of Upper Egypt in a Global Perspective ............................................................. 66 How the Analysis Can Inform Policies? ............................................................................... 68

Data Annex ............................................................................................................................... 70 References ................................................................................................................................. 83

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PR E FA C E This study follows two earlier ones on related topics: the Poverty Reduction Strategy for Egypt (2004) and the World Bank Rural Development Report for Upper Egypt (2006). The findings of the earlier studies constitute the starting point for this report as they revealed that poverty is concentrated and most acute in Upper Egypt and argued that breaking the cycle of impoverishment of Upper Egypt is the key to resolving Egypt’s poverty problems.

Discussions between the Government of Egypt (GOE) and World Bank teams during 2006-2007 suggested three points of departure for a fresh approach to looking at the question of poverty in Upper Egypt.

• Lack of disaggregated regional data: Most economic statistics in Egypt are not broken down by regions, Governorates and urban and rural areas within the Governorates. Some data that are available at the level of Governorates are often not detailed enough or provide only a snapshot in time, not a dynamic picture.

• Need to re-evaluate policies and programs under implementation in Upper Egypt: Evaluation reports produced in Egypt tend to deal with particular projects. It is hard to derive implications for the whole country or region from this localized evidence, or to what extent the population of Upper Egypt as a whole, and the poor in particular, have benefited from these interventions.

• Prospects and forecasts (such as MDGs) typically stay at the national level: Since no consensus exists on expected poverty rates by regions, there are very different expectations regarding poverty reduction in Upper Egypt—from very optimistic to quite bleak. To judge future achievements one needs to have regional benchmarks and scenarios.

To address these issues, the World Bank launched the Upper Egypt Shared Growth Study with the support of the Multi-Donor Trust Fund “Diagnostic Facility for Shared Growth” in 2007. The study addresses three questions:

(a) Where is poverty concentrated in Upper Egypt and how has it changed over time? (Chapter 1)

(b) Why is poverty so high in Upper Egypt and why it persists? (Chapters 2-6)

(c) Is poverty in Upper Egypt amenable to government interventions? (Chapter 7)

The study features extensive statistical analysis based on data from multiple sources. First, the team assembled data on population and living standards from official sources-censuses of population, administrative data, public expenditures, representative household surveys conducted by CAPMAS over 1995-2008, poverty maps and the largest ever community survey (2005). Second, it used national accounts data to look at the structure of the UE economy. Third, data from farm surveys, enterprise surveys, and business climate assessment helped to assess the income generation prospects of the UE economy. Fourth, the study matched these various information sources to the household surveys to assess the causes of poverty. Fifth, the study relied on a number of in-depth case studies from villages in Upper Egypt conducted specifically for this report in 2008. The report also reviews a large body of existing literature.

The study complements previous analyses in several ways. First, it extends previous analyses to the most recent period (2005-2008). Second, it provides for the first time a decomposition analysis of the gap between Upper and Lower Egypt. Third, it forecasts the evolution of poverty under different development paths. Fourth, it incorporates lessons from a large set of regional development programs, reviewed in the new World Development Report 2009. Fifth, it uses village-level data matched with household survey—a combination that was not previously available—to identify characteristics of the main areas for the concentration of poverty.

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This report is composed of an executive summary, seven chapters, and supporting annexes. It is accompanied by two background studies: an analysis of the impact of improving social service delivery on poverty in Upper Egypt (written by May Barghout), and an in-depth case study of Sohag villages (produced by NSCE). Chapter 1 presents a profile of poverty in Upper Egypt in its key dimensions and looks in detail at the geographic concentration (pockets) of poverty. Chapters 2-6 discuss causes for the persistence of poverty in Upper Egypt and Chapter 7 presents an overview of policies that aim to develop Upper Egypt in the light of international experience of regional development.

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E X E C UT I V E SUM M A R Y

1. This report builds on four main observations. First, a sizable gap persists between poverty in Upper and Lower Egypt. Second, poverty in Upper Egypt is concentrated in its rural areas. Third, in recent years, poverty has declined sharply in the urban parts of Upper Egypt but stayed virtually unchanged in the rural parts. Fourth, this pattern has persisted despite the channeling of significant public investment to Upper Egypt. A key objective of this report is to examine the factors that lie behind these observations.

2. Upper Egypt continues to remain the poorest region in the country. While Upper Egypt is home to about 40 percent of Egypt’s population, it contains 60 percent of the poor and 80 percent of those considered extremely poor. The average poverty rate for Egypt was 18.9 percent in 20081

Poverty in Upper Egypt is concentrated in rural areas

; for Upper Egypt, it was 32.1 percent.

3. This is clearly seen from Table A which shows the poverty incidence rate by region in Egypt. While urban Upper Egypt had a poverty rate of 14.8 percent in 2008, rural Upper Egypt registered 40.2 percent poor, almost three times higher. In addition, community surveys show distinctions even within rural areas of UE. Not all villages are equally poor: smaller, more remote villages (called satellite or affiliated villages) tend to be poorer than larger, less remote ones (mother villages).

4. In recent years, poverty has fallen sharply in urban parts of UE but remained high in rural areas. Over the last three years, urban Upper Egypt has experienced the highest rates of growth of real household consumption in the country, while rural Upper Egypt has stayed stagnant. (Table A). Poverty in urban UE fell by 17.2 percent but that in rural UE fell by only 2.7 percent. 2

Table A: Growth and Poverty Reduction by Regions 2005-2008

Poverty rate in rural UE is more than two times higher than in rural Lower Egypt.

Regions Annual growth rate in consumption per capita (%)

Poverty rate in Feb. 2005 (%)

Poverty rate in Feb. 2008 (%)

Annual change in poverty (%)

Metropolitan 3.3 8.5 7.5 -4.2 Lower Urban 4.2 8.9 4.8 -18.5 Lower Rural 3.1 20.8 15.3 -9.8 Upper Urban 5.6 26.1 14.8 -17.2 Upper Rural 1.6 43.6 40.2 -2.7 Egypt 3.1 23.4 18.9 -6.8

Note: Poverty defined with lower poverty line. Source: World Bank 2009c. Staff estimates based on HIECPS survey 2005-2008.

Demographic factors are key to explaining the rural poverty gap between Upper and Lower Egypt

5. Differences in consumption per capita between groups of households at any given point in time can be decomposed into differences in dependency ratios (or the number of working age adults per household), differences in employment rates (or the number of income earners per working age adult) and 1 Latest available data from panel survey (HIECPS 2005-2008) conducted by CAPMAS, see World Bank 2009c. 2 As shown in World Bank 2009c for rural Upper Egypt this change is so small that one cannot claim with certainty that it was statistically different from zero.

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the productivity of employment (or the consumption per income earner). When such decomposition analysis is applied to rural households in Upper and Lower Egypt (using 2004/05 data) the results show that the dependency ratio is the main determinant of the consumption gap between them. Around 62 percent of the average consumption difference can be attributed to the fact that households in Upper Egypt have a greater number of dependents. For households in which farming is the main occupation, the importance of demographic composition is even higher: for such households, 95 percent of the consumption gap is due to differences in the dependency ratio. These findings are shown in Figure B. Further analysis reveals that it is not the type of living arrangement (i.e. the prevalence of multi-family households) that drives the difference in household size and composition between Upper and Lower Egypt but the number of children. While fertility is slowly decreasing in Upper Egypt it still represents a major long-term structural cause of poverty. Other things being equal an employed person in Upper Egypt must generate much higher income than in Lower Egypt to achieve a similar living standard.

Excessive land fragmentation decreases the earning power of households in Upper Egypt

6. Productivity, measured as the consumption-supporting or income-earning power per worker, is the second most important determinant of consumption differences among households in Upper and Lower Egypt, accounting for 32 percent of the gap in consumption per capita. What lies behind the productivity difference? The main factor appears to be the fact that employment in Upper Egypt is dominated by agriculture which, in turn, is conducted on such small plots of land that the income generated is insufficient to make ends meet. Most poor people in Upper Egypt earn their living through agriculture. But a growing population and the use of land as a de-facto social safety net has caused most land plots in Upper Egypt to shrink below an economically viable size to tiny garden strips (less than 0.5 of an acre). As Table B shows, just over three-fifths of farmers in Upper Egypt own less than 1 feddan of land. The coordination of the activities of millions of microfarmers into modern production chains poses a major organizational challenge. New land developments are easing this problem, but they are not enough to overcome the fundamental clash between a growing rural population and limits to available water and land. Agriculture will not offer a road out of poverty for the majority of poor people in Upper Egypt, though it may provide a springboard to increase off-farm income.

Table B: Land ownership distribution in rural areas, 2005 Lower Egypt Upper Egypt All Rural

Less than 1 feddan 47.0% 61.3% 52.9% 1-3 feddan 24.5% 22.3% 23.5% 3-5 feddan 9.9% 8.7% 9.5% More than 5 feddan 18.6% 7.7% 14.1% Total no of holdings 2,550,505 1,839,586 4,401,216 Average plot (feddan) 1.63 1.25 1.46

Note: data from muklafa – a register of land ownership and taxation. Source: CAPMAS Annual 2008, see Annex T6.

Figure B: Decomposing the gap in rural welfare between Upper and Lower Egypt by sources of livelihood, 2005

-25%

-20%

-15%

-10%

-5%

+0%

+5%

Onlyfarming

Farmingand off-

farmOnly farm

wagesOff farm

onlyAll

households

Gap

in c

onsu

mpt

ion

, per

cent

by

fact

or

Productivity

Employment

Demographicdependency

Source: staff estimates based on HIECS 2004/05, see Table 2.2 below.

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Low and declining off-farm employment restricts the scope for income enhancement in rural Upper Egypt

7. If agriculture will not provide a road out of poverty what about the potential of off-farm jobs? The rural economy in Egypt is already significantly diversified away from agriculture. At the same time, rural Upper Egypt defies global trends of increasing off-farm employment in rural areas. Since 1995 the rates of off-farm self employment have fallen in UE, and even though wage employment has increased, the overall share of employment outside of agriculture in rural Upper Egypt has remained stagnant. Over the past five years more jobs have been created in Upper Egypt (Figure C), but the employment has grown more slowly than the working-age population. In addition a large part of new employment was in the agricultural sector where there is already excess employment.

8. Labor markets in Upper Egypt villages feature excess labor supply and depressed wages. There is too little off-farm activity to absorb excess labor. Workers living in villages have poor skills and are therefore often not employable elsewhere. In addition, small rural firms bear the brunt of badly maintained or missing infrastructure, discrimination in access to finance, low skills, and depressed demand from poor customers. Non-agricultural investment and job opportunities are also spatially differentiated within the rural areas of UE. There are fewer jobs off farm in affiliated villages than there are in mother villages. The outlook for developing a dynamic SME sector in the absence of a powerful trigger is not very promising.

9. Combined high dependency rates, land fragmentation and lack of off-farm opportunities create a poverty trap for Upper Egypt small farmers. The report shows that even the most profitable modern crops in Upper Egypt are capable to generate annual revenue of about 8-10 thousand LE per feddan. With an average farming household size of 5-6 persons and assuming no off-farm income, the income for a typical farmer cultivating 0.5 feddan would put such a household in poverty (annual income below the poverty line of 1,200 LE per member).

10. We turn now to the observations made earlier that rural poverty in Upper Egypt has persisted in recent years despite strong economic growth in urban Upper Egypt (and elsewhere) and despite significant public investment in Upper Egypt. What accounts for this paradox? To answer this question, we look first at the role of migration or the access of rural residents to urban labor markets and then at the infrastructure that connects rural areas to urban markets.

11. With regard to migration, the study finds insufficient movement of people from growth poles to lagging areas. Both commuting and short-distance migration from rural to urban Upper Egypt are low, possibly reflecting issues of transportation and access to housing. Long-distance movements, including international migration, are based on networks, are geographically concentrated in specific villages which are not always poor, and have limited transformational effect on the local economy.

Figure C: Net change in employment by sectors and regions, 2003-2007, thousands

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Metro Lower Upper Frontier

Thou

sand

s

agriculture manuf., gas and electr. construction trade& transp oth. services

Source: CAPMAS Labor Force Survey, see annex Table T5b

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12. Regarding public investment, the study finds only a limited impact on rural poverty. This is due to both the spatial allocation of infrastructure investment (favoring mother villages against satellite villages) and the falling quality of infrastructure due to it poor maintenance and governance arrangement which undermine the incentives for UE communities to upkeep the local common asset base.

Internal migration has played a limited role in reducing poverty in rural Upper Egypt

13. Differences in living standards between Upper Egypt and the rest of the country create a powerful incentive for mobility. The 2006 Population Census, however, shows that only 6.5 percent (4.7 million) of the population of Egypt were migrants. Housing sector data also reveal little urban residential mobility, with Upper Egypt appearing particularly immobile. It appears that the potential of local cities as destinations for the surrounding population is underutilized in Egypt. There is little commuting between villages and neighboring urban settlements.3

14. Low measured migration rates are surprising given the extent of differences in living standards across regions. There are several explanations proposed for this peculiar phenomenon. A number of real barriers limit the extent of migration: housing in urban areas is unaffordable to the vast majority of rural residents and housing markets are partly dysfunctional. For most Egyptian families, the move to a new location is a once in a life-time decision, usually at the point of marriage; choices for destinations are determined by networks operated by kinship and family ties.

15. Some of the reasons for the low migration rates are statistical. Reported rates may not capture the phenomenon of circular migration. Circular migrants in Egypt often spend most of their working lives in Cairo, but retain family and socio-cultural bases in their home villages in Upper Egypt. The WFP found that in Upper Egypt survey sites between 20 and 50 percent of youth have left to find employment (WFP 2008). Unless surveys specifically target clusters of households included in migration networks, they may miss a significant part of this phenomenon.

16. The growth of most cities in Upper Egypt is severely limited by their geography; they are surrounded by highly protected agricultural areas and cannot expand. This limits the attractiveness of Upper Egypt for investment since land offered in industrial zones is typically quite far away from cities and presents logistical challenges to industry.

17. Nevertheless, although limited, migration did play a role in preventing even larger increases of poverty. Without migration poverty would have been much worse in the poorest governorates (table C).

Table C: Decomposition of the change in the number of poor between 1995 and 2005 Change in the number of poor (thousand) due to: Memo:

Population change

Change in regions’ poverty

Migration effect

Population growth effect

Total change in the number of poor

Metropolitan -954 +244 +12 -698 +1,936 Lower -1,204 +1,112 -82 -173 +5,414 Upper +2,589 +1,386 -180 +3,796 +6,004 Frontier +77 +23 +45 +145 +469

Source: World Bank staff estimates using data in Table 1a (CAPMAS and World Bank).

3 In some countries flows of remittances from abroad play an important role in poverty alleviation. In Egypt over 2000-04, workers’ remittances from abroad amounted to about 3.5 percent of GDP. However, micro-level empirical evidence suggests that the poor receive a disproportionately small share of remittances and their limited impact on off-farm development.

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The limited effect of increased public investment on rural poverty

18. The provision of better infrastructure and basic services to Upper Egypt has been a main pillar of development efforts in the last few years. The provision of essential social services such as primary schools, roads, and reliable water supplies has expanded rapidly in Upper Egypt.

19. New infrastructure has not had the expected impact on poverty. The expansion of services often stopped at the level of mother villages, leaving out satellite or affiliated villages where most of the poor live. There were also some critical gaps in connectivity that limited access of Upper Egypt to the external markets. The quality of services also suffers from a lack of incentives to properly maintain the infrastructure which is already there. The decision making process for allocation of public funds remains highly centralized and participation of the poor is low. Hence, the type of infrastructure built and the way it is used are not helping the rural poor in depressed satellite villages to partake in economic dynamism elsewhere.

Targeted transfers are not adequately exploited as a poverty reduction instrument

20. The potential of targeted transfers has not been adequately exploited. Overall, from 2004-2008, only 0.1 percent of GDP was spent on targeted social assistance—a fraction of total spending on subsidies (over 8 percent of GDP in 2008). Government transfers are not received by those most in need.

21. Targeted transfers can be a powerful anti-poverty instrument. Transfers can also trigger development in a chronically depressed region, and this report argues that they are both affordable and feasible in Egypt. But there are serious political and capacity constraints to implementing such a system. Without a significant expansion of the system coupled with rigorous monitoring and evaluation it would be difficult to convert this now weak instrument into an effective tool for poverty reduction.

The outlook for Upper Egypt is worrying but not hopeless

22. Projections using the rates of growth recorded in 2005-2008—a period which finally saw positive growth in rural areas of Upper Egypt—show that the region will still have too many poor, and the gap with the rest of Egypt might increase (figure D).

23. The population of Upper Egypt is growing faster than income. Given that the amount of available land is fixed, in order to reduce poverty agricultural productivity needs to dramatically increase. At the same time, people should be given opportunities to be gainfully employed outside of agriculture. Without a two-pronged approach that deals with the existing agricultural labor force and ensures that the next generation of workers will have productive jobs in and out of agriculture, Upper Egypt will not be able to emerge from poverty. Against the odds, urban Upper Egypt has shown signs of dynamism. Urban

Figure D: Change in the Number of Poor by regions of Egypt in Status-Quo Scenario

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2008 2009 2010 2011 2012 2013 2014 2015

Num

ber o

f poo

r (th

ous)

- Lo

wer

po

verty

line

Metropolitan Lower Urban Lower Rural Upper Urban Upper Rural

Source: Staff estimates based on population projections and GDP forecasts for 2009-2011 from IMF, relationship between all-economy GDP growth and regional growth rates is assumed to stay as in 2005-2008.

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areas in Upper Egypt have been star performers in the recent economic boom. If these growth poles are better connected to rural areas it will change the equation of poverty reduction. The report identifies elements of current policies that need strengthening to increase the beneficial impact of economic growth on the living standards of the poor: urban development, management of migration, targeted social protection programs, land management to overcome fragmentation, investment in high value chains.

24. Other countries have succeeded in reducing poverty in lagging regions. The report presents evidence from countries with densely populated poor areas which managed to achieve poverty reduction. South West China, North East Brazil Northern Thailand, the North Caucasus in Russia, the Eastern Islands of Indonesia, Northwestern Bangladesh, and Southeast Mexico over a period of time, in some case of decades, have successfully reduced poverty. Lessons learnt show that there is no standard solution to helping the poor in lagging regions to uplift themselves from poverty. Successes relied on a combination of sound macroeconomic policies to ensure the dynamism of the entire national economy, with adoption of specific policies aimed at developing lagging regions through government commitment to better services for all, transparent decision making, partnerships, demand-driven and outcomes-oriented approaches, monitoring and evaluation.

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C H A PT E R 1. POV E R T Y I N UPPE R E G Y PT

There has been a persistent and sometimes even growing gap in levels of poverty, and in economic and human development between Upper Egypt and the rest of the country. High poverty persists in Upper Egypt despite relatively moderate inequality. This chapter demonstrates that the statistics hide a sharp divide between urban and rural areas and between mother and satellite villages in Upper Egypt. Not all villages are equally poor; some locations have particularly high concentrations of poor people. The chapter also demonstrates that Upper Egypt is not a stagnant region: it is changing very rapidly, but not always in a direction of better welfare outcomes: urban areas are reducing poverty very rapidly, while rural poverty persists.

Upper Egypt: Geography, Economy, Welfare

1.1. Statisticians and policymakers divide Egypt into regions: Metropolitan (comprising the capital and major ports), Lower Egypt (the densely populated Nile Delta that is home to most Egyptians), Upper Egypt (UE) (the rest of the Nile valley south of Cairo), and a very sparsely populated Frontier region (see Box 1.1 for a map).

Box 1. Upper Egypt: Geography and Administrative Divisions Egyptian law identifies different levels of local units: governorates, cities, markaz (a local city-center, surrounded by its neighboring settlements) or hai – districts for larger cities, kism or districts, and villages (corresponding to shiakha in urban areas), some of which are considered principal or mother villages, while others are smaller satellite or affiliated villages, extensions, and helmets (kafr or ezba).

Figure1. 1: Governorates of Upper Egypt

Figure 1.1 shows the 26 governorates of Egypt in 2008 (two more governorates have since been added); they comprise 199 cities and urban districts (hai), 249 predominantly rural markaz or kism, in turn comprising 4617 villages. Upper Egypt is defined geographically as the territory of the governorates along the Nile valley above (to the south of) Cairo. In turn it is divided into the southern region (Aswan, Luxor, and Qena), the middle region (Sohag, Assiut, and Menia), and the northern region (Beni Suef, Fayoum, and Giza). Rural Upper Egypt has 267 mother villages, about 1400 affiliated villages, and 8000 hamlets (kafr and ezba). In fact a large part of the city of Cairo lies in Giza. Since it is more accurate to treat this area as a part of the metropolitan area, some tables in this report will present results for Upper Egypt taking out data for Giza.

Sources: CAPMAS, UNDP, NSCE and General Organization of Physical Planning

Upper Egypt

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1.2. Upper Egypt is predominantly rural (with caveats –see Box 1.2). With the exception of the small Frontier region, Upper Egypt has experienced the fastest population growth in the country (table 1.1). Even though there are fewer people in Upper Egypt than in Lower Egypt, they are crowded into a relatively narrow Nile valley, creating very high population density.

Table 1.1: Population growth and urbanization by region 1996-2006 Total, thousand Change, percent Urbanization rate 1996 2006 Period Per year 1996 2006 Metropolitan governorates 11,042 12,979 17.5 1.63 100 100 Lower Egypt governorates 25,819 31,232 21.0 1.92 28 27 Upper Egypt governorates 21,437 27,080 26.3 2.36 30 32 Upper Egypt w/o Giza 16,653 20,807 24.9 2.25 23 24 Frontier governorates 818 1,286 57.2 4.63 58 65 Egypt 59,117 72,579 22.8 2.08 43 43 Source: CAPMAS Census, see Table T1b for population and urbanization rates by governorates

Box 1.2: Rural or Urban?

The definition of what is rural or urban settlement in Egypt is the subject of controversy. The Egyptian countryside is a dense fabric of hamlets, affiliated or satellite villages, “mother villages,” and small towns (photos 1 and 2). The statistics distinguish urban and rural according to an administrative definition which excludes from urban much of the development at the periphery of large cities. Moreover, many mother villages in dense rural areas throughout Egypt have grown well beyond 5,000 inhabitants (a normal threshold for a city in most countries), and their economic functions have shifted away from purely agricultural activities to providing services to surrounding extensions. Their appearance, type of housing, and lifestyle are also clearly urban (photo 1). If Egypt adopts the same definition for urbanism as used by other countries (5,000 or more inhabitants) then 86 percent of Egypt’s total population would be classified as urban (Bayat and Denis, 2000). According to the WDR 2009, which adopted a definition based on GIS-based data on density of population and proximity to agglomerations (using a one-kilometer grid), Egypt’s population is over 90 percent “agglomerated”—one of the highest levels in the world.

Photo 1: Mother village: a typical street (Sohag) Photo 2: A street in a satellite village (Sohag)

The heterogeneity or what is considered rural in Egypt and the sharp contrast between “mother” and “satellite” villages is a theme that will appear many times in this report. Sources: Bayat and Denis, 2000, WDR 2009 (World Bank 2009b), and NSCE (2008) background study.

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1.3. While Upper Egypt accounted for approximately one third of Egypt’s population in 2005, it was home to nearly two thirds of the country’s poor. While 37 percent of Egyptians live in UE, the region accounts for 61 percent the country’s poor and as much as 76 percent of its poverty severity (table 1.2).

Table 1.2: Population and poverty in Egypt 1994/5-2004/5 by regions (thousand and percent) Number of poor Poverty rate, % Poverty by region % Poverty severity% 1994/95 2004/05 1994/95 2004/05 1994/95 2004/05 1994/95 2004/05 Metropolitan governorates 1,388 712 13.1 5.7 12.7 5.2 15.8 3.7 Lower Egypt governorates 4,545 4,355 18.3 14.6 41.7 31.9 34.0 20.1 Upper Egypt governorates 4,862 8,368 23.6 32.3 44.6 61.2 50.0 76.0 Upper Egypt w/o Giza 4,692 7,951 28.9 39.0 43.1 58.2 47.9 68.8 Frontier governorates 100 238 12.6 19.3 0.9 1.7 0.2 0.2 Egypt 10,894 13,673 19.4 19.6 100.0 100.0 100.0 100.0

Notes: The poor in Egypt are those with consumption is below the lower poverty line of 1,400 LE/year in 2005 prices (the actual calculations are complex, depending on regions, level of local prices, household composition). Poverty severity is the gap between consumption of the poor and the poverty line weighted so that it is sensitive to the extreme poverty. Sources: HICES as reported in El Laithy and in World Bank 2007a.

1.4. Over time the rates and severity of poverty have worsened in Upper Egypt compared to the rest of the country. Excluding Giza from UE totals makes this trend even more dramatic. In 1994/1995 the poverty rate in UE was slightly below 25 percent (29 when Giza is excluded); by 2004/05 this figure had topped 30 percent (39 percent excluding Giza), seven times the poverty incidence in metropolitan areas of Egypt.

1.5. Alternative data sources and methodologies strongly confirm the disparities between Upper Egypt and the rest of the country. Arndt and Simler (2007) used household survey data collected by the International Food Policy Research Institute (IFPRI) in 1997 to construct utility-consistent poverty lines that were independent from the official definitions. The findings show that rural UE is the poorest region in the country with a poverty rate of 33.6 compared to 26.4 percent for Egypt as a whole. Haddad and Ahmed (2002) find that Upper Egypt is not only the poorest region in the country, but it is also the region with the highest share of chronic poverty (70 percent of all poor were chronic poor in contrast to 50 percent for Egypt as a whole). Moreover, the World Food Programme (WFP) surveys conducted in 2005-08, found that 30 percent of UE households were in “very high” vulnerability status versus about 20 percent on average for the country (WFP 2008).

How Has Poverty in Upper Egypt Evolved over Time?

1.6. Despite steady growth in Upper Egypt there remain persistently higher poverty rates than in the rest of the country. Figure 1.2 summarizes all data available from household surveys from 1980-2008. For each year regional rates are expressed relative to that year’s national average. Rural Upper Egypt has persistently suffered from higher poverty rates of about twice the national average.

Figure 1.2: Regional Poverty Divide in Egypt: 1990-2008 (regional poverty rates expressed as a ratio of the national poverty rate =1.00)

0.00

1.00

2.00

3.00

Metropolitan Lower Egypt Urban

Lower Egypt Rural Upper Egypt Urban

Upper Egypt Rural

1990/91 1994/94 1999/2000 2004/2005 2008

Sources: See Table 1.3; 1990/1 –El Laithy (1999), using methodology as in the World Bank 2007; 2008 – World Bank (2009)

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1.7. Even as recently as 2008 Upper Egypt continued to rank as the poorest region in the country. Table 1.3 shows poverty and near-poverty over time by regions using two alternative lines. With a higher poverty line (to identify the near poor), Upper Egypt continues to rank as the poorest.

Table 1.3: Poverty and near-poverty by Region 1994-2008, percent of population Regions

Poor as percent of population Poor and near poor 1994/95 1999/00 2004/5 2008* 1994/95 1999/00 2004/05 2008*

Metropolitan 13.1 5.1 5.7 7.5 35.6 19.6 18.0 18.8 Lower Egypt Urban 8.3 6.2 9.0 4.8 33.5 27.7 27.2 13.6 Lower Egypt Rural 21.5 11.8 16.7 15.3 57.1 42.0 41.1 34.6 Upper Egypt Urban 10.8 19.3 18.6 14.8 44.0 48.9 38.0 36.6 Upper Egypt Rural 29.3 34.3 39.1 40.2 65.3 63.5 64.6 59.4 All Egypt 19.4 16.7 19.6 18.9 51.4 42.6 40.5 35.7

Note: Absolute poverty used is LE 1,423 LE per year per adult in constant 2004/05 average prices. The near poor are those above the national poverty line but below the upper poverty line of 1,850 LE/year. Frontier governorates are omitted due to small sample size. * 2008 is for one-month sample, not fully comparable to whole 2004/05 –see below figure 1.3. Source: The World Bank (2007) based on HIECS by CAMPAS; 2008 data -World Bank 2009c, based on HIECPS 1.8. There is a striking difference within Upper Egypt between urban and rural areas. In rural Upper Egypt a staggering 60 percent of the population is either in poverty or very close to poverty. With the near poverty line being just 1 LE per day higher than poverty, 20 percent of the population is on the verge of poverty in addition to 40 percent who are poor. In 10 years spanning 3 different surveys this percentage of near-poor hardly moved. That 20 percent of near poor occurs in rural and urban UE. So even though the poor are fewer in cities now, there is still a steady 20 percent of near poor across the region.

1.9. When older data (from 2005) are made comparable to the data from 2008, it becomes clear that urban Upper Egypt has made some progress in reducing poverty in the past few years (Figure 1.3). But in rural Upper Egypt this change was not statistically significant (World Bank 2009c).

1.10. In 2005-2008 growth in rural Upper Egypt was slower than in the rest of the country (table 1.4) with an annual rate of only 1.6 percent per capita, half of the national average. Moreover, panel data show that 25 percent of people in rural Upper Egypt remained poor between 2005 and 2008. And 17 percent of the population fell into poverty—the highest vulnerability score in the country (World Bank 2009c).

Figure 1.3: Poverty Rates by Region, 2005-08, Using Comparable Samples

8.5 8.9

20.8

26.1

43.6

23.4

7.54.8

15.3 14.8

40.2

18.9

0

5

10

15

20

25

30

35

40

45

50

Metropolitan Lower Urban Lower Rural Upper Urban Upper Rural Total

February-05 February-08

Note: using lower poverty line. Source: Staff estimates based on HIECPS 2005-2008 World Bank 2009c.

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Table 1.4: Growth and Poverty Reduction, by Regions 2005-2008 Regions Annual growth rate (%)* Annual change in poverty (%)** Metropolitan 3.3 -4.2 Lower Urban 4.2 -18.5 Lower Rural 3.1 -9.8 Upper Urban 5.6 -17.2 Upper Rural 1.6 -2.7 Total 3.1 -6.8

Note: * Growth of real per capita consumption corrected for regional price differences and changes in household composition. ** Using lower poverty line. The frontier regions are included in national averages. Source: World Bank 2009c. Staff estimates based on HIECPS survey 2005-2008.

1.11. Inequality was not the main driver of poverty changes between 1995 and 2005 (Table 1.5). Poverty can remain high even under economic growth if distributional changes towards greater inequality impoverish the poor. The Gini index of inequality in real per capita consumption for Upper Egypt as a whole in 2005 was about 29, primarily driven by large differences between urban and rural areas and by inequalities within urban areas. Rural Upper Egypt however has the lowest Gini among all regions remaining steady at around 24-254

Table 1.5 Inequality indices for real per capita consumption, 1995-2005

. The Theil index which is more sensitive to inequality at the bottom of the distribution shows a similar trend. Other things being equal, lower inequality normally means that each percent growth will generate more poverty reduction than in a region with higher inequality (Bourguignon, 2002). And this is just the opposite of what is observed in rural Upper Egypt. Therefore economic growth and its effects, not inequality per se, should be the focus of our examination.

Gini Theil 1994/95 1999/2000 2004/2005 1994/95 1999/2000 2004/2005 Metropolitan 34.7 37.0 36.0 0.268 0.308 0.266 Lower Egypt Urban 28.2 25.7 27.0 0.180 0.154 0.150 Lower Egypt Rural 22.8 21.1 20.9 0.145 0.113 0.087 Upper Egypt Urban 37.2 36.8 35.0 0.301 0.370 0.270 Upper Egypt Rural 24.7 24.0 24.1 0.128 0.137 0.116 Overall Egypt 34.5 36.1 32.1 0.234 0.295 0.228

Source: Poverty Assessment Update (World Bank 2007) based on HICES

Upper Egypt is Lagging in Many Aspects of Development

1.12. The slow pace of development in Upper Egypt has been identified as one of the main reasons that Egypt has not attained its development goals (MDG report by the Ministry of Economic Development – Arab Republic of Egypt, 2008). In rural Upper Egypt, only 55 percent of deliveries are assisted by medical personnel—compared to over 70 percent nationally—resulting in higher risk of maternal deaths (El- Zanaty, F. and A. Way, 2006). Results from the 2008 Egyptian Demographic and Health surveys (DHS) show that the nutritional status of young children worsened at an alarming rate during 2005-08, especially in Upper Egypt (Table 1.6). The percentage of children under age 5 who are experiencing acute lack of proper nutrition is particularly high in Upper Egypt, where close to nine percent of children are underweight, levels not experienced since the 1990’s.

4 2008 data show some increase in inequality, but it remained below levels observed in 2000 (World Bank 2009c)

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Table 1.6: Percent of children under 5 undernourished (low weight for age), 1992-2008

Regions 1992 1995 1998 2000 2003 2005 2008* Upper Egypt Rural 13.8 17.8 14.2 6.8 12.4 7.8 8.9 All Egypt 9.9 12.5 10.4 4.0 8.6 6.2 6.0

Source: Egypt Demographic and Health Surveys (http://www.measuredhs.com); figures are for children of EDHS respondents under age five. Children are classified as undernourished if their z-scores are below minus two from the median of the reference population standard deviation established by WHO. *preliminary. 1.13. The gap in the Human Development index between Lower and Upper Egypt has narrowed, and even the governorate with the lowest HDI in Upper Egypt has moved closer to the national average. The Human Development index (HDI) calculated by the UNDP combines GDP per capita, education (enrollment and literacy) and health (life expectancy and child mortality). The lowest value of HDI observed in Egypt at the governorate level was always in one of the governorates in UE (figure 1.4). Growth in the adult literacy rate was also much slower—around 40 percent of adults in Upper Egypt remain illiterate. Among the 1.2 million girls who drop out of school nationwide, 65 percent are in rural Upper Egypt, and 20 percent of the 6-15 year-old Upper Egyptian rural girls were not enrolled in school in contrast to just 8 percent nationwide.

1.14. Approximately half (13) of the governorates of Egypt have already met the national MDG target of reducing the poverty rate to 5 percent or less (table 1a). Meeting the target in the other half is compromised due to underdevelopment in Upper Egypt. If Upper Egypt achieves the level and distribution of poverty rates and human development indicators now present in Lower Egypt, Egypt will reach both its MDG poverty reduction target for 2015 and the target poverty rate for 2012, according to the sixth five-year plan (Arab Republic of Egypt. Ministry of Economic Development 2008).

Where is Poverty in Upper Egypt?

1.15. There are large variations in poverty across governorates in Upper Egypt, but across regions and through time poverty is lower in urban areas than in rural areas (table T1a). Urban Giza (which is a part of Greater Cairo) has particularly low poverty rates; without the data from Giza, the average measures for poverty in Upper Egypt would be significantly higher. From 1995-2005, some governorates (Fayoum, Luxor) reduced their poverty rates. But poverty increased in the poorest governorates (Assiut), and the gap within Upper Egypt has widened to result in a stunning 50 percentage points difference in poverty between the rural areas of Fayoum and Assiut in 2005.

Figure 1 4: HDI for the country, for Lower and Upper Egypt, 1990-2006

0.3

0.35

0.4

0.45

0.5

0.55

0.6

0.65

0.7

0.75

1990 1992 1994 1996 1998 2000 2002 2004 2006

HD

I at g

over

nora

te le

vel

Overall Egypt Lower Egypt GovernoratesUpper Egypt Governorates Lowest value of HDI

Source: Institute of National Planning (INP), EHDR, various years, including 2007.

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1.16. Poverty in Upper Egypt is densely concentrated in its poorer parts: Governorates with the highest number of poor are also those with the highest poverty rate. The highest densities of poor people are in rural Sohag, Assiut and Menia (over 1 million), followed by only one governorate in Lower Egypt, Sharkia (table T1b). Looking at the last column of table 1b one sees that these areas also had the largest increase in the number of poor. Across the world, poorest areas of the countries are typically sparsely populated, and high population density in the lagging regions is found only in a few countries (see Chapter 7 for international comparisons).

Pockets of Poverty Persist in Upper Egypt

1.17. The distribution of the human development index (HDI) by region reveals some overlap between districts in Upper and Lower Egypt. But even the poorest parts of Metropolitan areas and Lower Egypt have higher HDI values than a typical (modal) district in Upper Egypt, and many districts in Upper Egypt fall below that level (figure 1.5). The peak in Upper Egypt occurs at levels below those observed in Lower Egypt, which in turn is distinctly below the Metropolitan region. But the distributions overlap: there are many districts in Upper Egypt which have as high HDI as better off districts of Lower Egypt (this remains the case even when Giza is removed from the graph).

1.18. It is illustrative to focus on one Governorate in Upper Egypt and to see the type of spatial disparities which exist across its districts. The Sohag Governorate as a whole is characterized by low outcomes in key dimensions, although there are islands with better outcomes surrounded by poorly performing districts (figure 1.6).

1.19. The level of HDI is strongly affected by the literacy. There are large differences in literacy rates between locations in Upper Egypt. While most of the lagging is concentrated in rural areas, many of the urban districts and small cities in Upper Egypt are characterized by extremely low achievements. For

Figure1. 2: Distribution of districts by HDI in 2001 (by regions)

0.0

05.0

1.0

15.0

2.0

25de

nsity

500 600 700 800 900HDI in 2001

Figure 1.6: Distribution of HDI among Sohag’s districts.

Source: Egyptian Governorate Human Development Report – Sohag, 2005

Upper E.

Metrop. Lower E.

Frontier

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example, the lowest literacy rate of just 29.5 percent was recorded in the city of Dar El Salam in Sohag governorate, in the city of Sohag in the same governorate the literacy rate is 86.7 percent.

The Social and Economic Fabric of Upper Egyptian Villages

1.20. The community survey of 2005 (see data annex) covered a large random sample of villages and districts across Egypt (see Data annex table T2). The data of the integrated questionnaire covered economic environment, access to social services, and key projects implemented in villages. They offer an unprecedented level of detail in describing the situation of villages

1.21. Upper Egypt is relatively disadvantaged in terms of access to markets. An important indicator of economic opportunities is the presence of weekly markets (Souks) in a community. Only 40 percent of residents of rural Upper Egypt live in communities where markets are held. Although the main economic activity in rural UE is agriculture about 30 percent of communities do not have agricultural cooperative societies in their communities and do not even have markets that can be accessed within 30 minutes.

1.22. Poor sewerage is a major environmental and sanitary problem in the villages of Upper Egypt. About 85 percent of communities in rural areas in 2005 were not connected to a sewerage disposal network and drain their wastewater directly into watercourses. Even in communities in UE where there was wastewater drainage system there were often obstructions or superabundance of sewerage. Only 22 percent of rural UE residents have a proper means of garbage disposal. In addition over one half of communities suffer from the damage caused by groundwater to the walls and buildings of their houses. Overflows of groundwater have also affected agricultural land in these communities. About 70 percent of the residents of the poorest rural communities suffer from overflows of wastewater drainage; respondents associate these overflows with the spread of disease.5

1.23. The poor in rural Upper Egypt are not equipped to face emergencies. In 2005, over 80 percent of families in UE did not own phones. More than 80 percent of individuals did not have phone booths in their community, and it took them more than 15 minutes to access a phone. In addition around half of the population did not have police stations or post offices and 93 percent did not have fire-fighting stations close by. Similar difficulties were encountered for emergency medical assistance, leaving close to a third of the population in poor villages without access to qualified medical help within 30 minutes of their homes. Such delays can make a difference between life and death in cases such as snake bites or bleeding during deliveries.

1.24. There are large differences in poverty and evolution of living standards between villages within Upper Egypt. No survey data are available to measure poverty at the village level, but statistical estimation techniques called poverty maps6

1.25. The most typical (modal) poverty rate for a village in Lower Egypt in 1996 was about 25 percent. By 2006 this mode radically shifted to less than 10 percent; the shape also became “thinner,” suggesting more uniformity across locations; there were very few villages with poverty in excess of 50 percent. In Upper Egypt in 1996 the predominant mass of population lived in villages where poverty rate was about 60 percent. By 2006 it had split into a bimodal distribution with two peaks—one at about 50 percent poverty rate and another at about

provide estimates of poverty indicators at this level. Figure 1.7 shows how the distribution of poverty in villages and urban districts of Upper and Lower Egypt changed between 1996 and 2006 for over 5,000 locations in total.

5 All data reported in this paragraph are from the 2005 community survey, see Barghout 2009 6 The term “poverty map” is also used in Egypt to identify any geographically disaggregated data on living standards. The first attempt to develop such a database by the Social Fund for Development (SFD) goes back to 1993. The second attempt in 2003-04 by UNDP estimated a “Human Development Index” at the local level The poverty maps used here are different and based on methodology described in Elbers et al. (2002). Poverty maps for 1996 and 2006 were produced by Heba El Laithy and May Barghout with CAPMAS in 2007 and immediately put to use by policy makers.

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20 percent. The right tail had also extended all the way to 100 percent poverty; there are still many villages with poverty rates of above 50 percent. Urban districts have experienced a more uniform shift towards lower poverty rates, but again many more locations in Upper Egypt have persistent poverty rates above the mode. Indeed, the majority of the poorest urban districts in Egypt are also in UE.

1.26. The simple comparison of services provided in poor and rich communities shows that poor communities are not excluded from services, e.g. education. By combining data from poverty maps and community surveys, villages can be classified into “poor” and “non-poor” (see table T2 in the Data Annex). This “poverty” indicator can be used to see to what extent services available to poor and better off communities are different. And this comparison presented in Table 1.7 is quite telling. There is no systematic bias against poor communities. Primary schools are available or can be accessed in almost all communities whether urban or rural, poor or not poor (table 1.7). But only 50 percent of residents in rural Upper Egypt communities can reach school in 15 minutes and it takes more than half an hour for 25 percent of them. There are also villages where only primary and preparatory stages of education are provided. However, the nature of poverty maps masks some serious spatial differences in the access to services. 1.27. The spatial differences in living standards are strongly associated with the size and administrative status of a settlement. There is no data on poverty differentiating between mother and satellite (affiliated) villages. Poverty maps stop at the level of mother village which is grouped with its affiliated villages.

Figure 1.7: Distribution of villages and urban districts by poverty rate in 1996 and 2006

Villages

02

46

0 .5 1 0 .5 1

Lower Rural Upper Rural

kdensity P0_96 kdensity P0_06

Freq

uenc

y

Poverty rate (1=100%)

Graphs by reg

Urban Districts

02

46

0 .5 1 0 .5 1

Lower Urban Upper Urban

kdensity p0_96 kdensity p0_06

Freq

uenc

y

Poverty rate (1=100%)

Graphs by reg

Note: the graph shows k density or kernel density, which is similar to a frequency as depicted by histograms, but is continuous. The height of the curve at a certain poverty rate reflects the number of villages or urban districts with the corresponding poverty. Source: staff estimation based on unpublished poverty maps estimates for 1996 and 2006 produced by Heba El Liathy and May Barghout with CAPMAS.

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Table 1.7: Availability of Governmental education facilities in Upper Egypt, 2005

Percent of population in communities with access, by poverty status Poverty status of

community Primary Preparatory Secondary Illiteracy

Program Technical

Upper Urban Egypt Wealthy 97.5 97.3 95.6 81.6 79.4 Moderately poor 100.0 100.0 88.1 77.6 86.0 Poor 100.0 100.0 100.0 80.3 100.0 All 98.9 98.9 93.7 79.9 86.2

Upper Rural Egypt Wealthy 87.1 68.5 28.4 70.0 12.1 Moderately poor 83.9 70.4 18.7 69.2 0.2 Poor 91.7 80.8 42.2 70.7 6.7 All 87.3 71.8 29.0 69.9 7.8

Source: Bargout (2009) based on Community Survey 2005 Note: In rural regions, the category “poor” comprises all the sampled communities that fall within the poorest 500 rural communities of Egypt , while the second category “moderately poor” consists of the sampled communities that are not among the poorest 500 but are among the poorest 1000. The remaining communities form the third category “wealthy”. Urban sampled communities were categorized in the same manner with cut points of 50 and 300. See annex Table T2 for details. 1.28. The Community survey of 2005 included and identified mother and satellite villages in the sample and included some indicators of the quality of life. These data are used to build table 1.8 presenting a summary comparing Lower and Upper Egypt for services available in satellite and mother villages. These figures suggest that there is more spatial variation in poverty distributions than is discernable in even the most disaggregated poverty data – poverty maps. In most cases, affiliated villages are underserved compared to mother villages. Even though Upper Egypt affiliated villages seem to be relatively better covered than villages in Lower Egypt by health education and even road facilities, the distances between satellite and mother villages or other population centers are larger in Upper Egypt. It means that Lower Egypt residents of underserved village can get a service within a reasonable reach, while in Upper Egypt they will remain excluded. This is illustrated by case studies from Sohag.

Table 1.8: Availability of services in mother and satellite villages in Upper and Lower Egypt, 2005 (percent of population)

Lower Egypt Upper Egypt Affiliated v. Mother v. Total Affiliated v. Mother v. Total Primary School 53 98 82 55 94 87 Secondary & tech. school 3 27 18 9 12 11 Illiteracy training 38 74 61 52 76 69 Health Unit 18 65 48 29 70 54 Family planning center 19 67 49 24 60 46 Ambulance 0 3 2 1 5 3 Pharmacy 33 93 72 33 79 61 Road is paved 15 17 16 25 24 25 Road is not paved and not flat 26 22 23 18 19 19 Road is lit 65 91 82 81 95 89

Note: Service is available if it exists in the village. Source: CAPMAS community survey (2005) matched with HICES.

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1.29. To complement the community survey of 2005 an in-depth study of two mother villages and two associated (satellite) villages in Sohag was conducted in mid-2008. The location of this study was deliberately selected from one of the poorest areas of Upper Egypt—Dar Al Salam district. The villages were selected based on the data from poverty maps of 1996 and 2006. Mother villages were chosen so that one represented a community that remained poor in both maps and was characterized by low quality of life in the 2005 community survey, and the other a community that moved from high poverty to low poverty and had better than average quality of life indicators. Case studies revealed that satellite villages are characterized by dramatically reduced availability of services compared to mother villages (table 1.9). Differences in the quality of services are even sharper. Moreover, there is evidence that improvements in living standards over the last 10 years were often limited to the mother village, with no progress in living conditions in affiliated villages.

Table 1.9: Services available in mother and satellite villages, 2008

Al-Salam Mother Village

Al-Khyam Mother Village

Al Naghameesh

Satellite Village

Al Qauasa Affiliated to

Satellite Village Primary school (no) 4 1 2 1 Preparatory school (no or distance) 2 1 1 2 km Secondary school (no or distance) 1 1 5 km 10 km Health unit (no or distance) 1 1 1 4 km Ambulance (no or distance) 1 1 3 km 1 km Post (no or distance) 1 1 3 km 4 km Police station (no or distance to) 1 1 5 km 10 km Youth center (no or distance to) 1 1 3 km 10 km Fire station (no or distance to) 1 3 km 5 km 25 km Village bank (no or distance to) 1 1 1 10km Co-operative 1 1 1 4 km Veterinary unit 1 1 1 20 km Market (no or distance to) 1 1 1 3 km NGOs 3 2 0 0

Source: NCSE background paper for this report in Sohag (NSCE 2008); Note: km- distance in kilometers to the nearest outpost.

1.30. Non-agricultural investment and job opportunities are fewer in affiliated villages than they are in mother villages. Mother villages have several advantages over their affiliated villages. Since they are the home for the local governing body, mother villages receive more attention from planners and have better infrastructure as well as social and agricultural services. The inhabitants of affiliated villages face additional difficulties and expenses in order to transport products and reach service sites and markets. Moreover, social awareness decreases in affiliated villages while rates of overpopulation and average family size increase.

1.31. Since a significant share of the population lives in satellite villages, the preponderance of mother villages in the 2005 community survey may embellish the real picture regarding poverty and inequality. 6F

7 Similarly, this evidence suggests that poverty maps that combine data from mother villages with their affiliated villages into a single data point may underestimate the true extent of the variation in living standards in Upper Egypt. This may be a serious issue since poverty maps are used to target interventions (e.g., the program of developing 1000 poorest villages, or Municipal Initiative for Strategic Recovery (MISR) program). Despite determined efforts to collect better information on poverty in Upper Egypt, a significant part of the picture may still be missing.

7 Often even in the cases when the main sample of HIECS survey was in satellite village, the Community survey 2005 covered only the corresponding mother village – because there was no transportation available, or it was judged that collecting data in satellite village will cost too much.

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C H A PT E R 2. C A USE S OF POV E R T Y : T H E R OL E OF DE M OG R A PH Y

Summary: High dependency, low productivity and low employment are three root causes for the high levels of poverty in Upper Egypt. These forces combine to handicap Upper Egypt. The largest portion of the gap between Lower and Upper Egypt can be accounted for by demographic dependency. The lower level of earnings per worker (or productivity) is the second largest factor of the difference after dependency. Gender difference is the key factor which explains lower employment rates in Upper Egypt, the third factor of its handicap.

Causes of Poverty: Decomposition Approach

2.1. The Poverty Reduction Strategy for Egypt8 identified four groups of variables linked to lower living standards in Upper Egypt: it has the highest proportion of population in low-productivity agriculture, worse access to markets, social, and basic services, the highest proportion of dependents (children and elderly), and in terms of human capital, the highest illiteracy rate, and the lowest proportion of university graduates. But what part of the excess poverty in Upper Egypt is accounted for by each of these variables? Regression analysis shows that an (observationally) identical rural household would have 14 percent lower consumption if it was moved from Lower to Upper Egypt in 2005, a gap which grew to 20 percent in 2008.9

2.2. The sources of livelihood in rural Upper and Lower Egypt are not radically different. But the risk of poverty is greater for every employment group in Upper. A majority of households in rural Upper Egypt maintain close links to agricultural production: for 32 percent of them farming is the main occupation (the share of such families in Lower Egypt was lower at 28 percent), and another 28 percent has some income from agriculture (table 2.1).

This regional fixed (unexplained) effect accounts for 80 percent of the observed regional difference in consumption. What are the causes of this mysterious curse that make anyone in Upper Egypt poorer regardless of his or her human capital, age and employment? This chapter adopts simple decomposition techniques to sources of livelihood in order to identify the household- level causes of such disadvantage.

2.3. The dominant role of agriculture in Upper Egypt cannot directly explain its higher poverty. The 22 percentage points difference in poverty rates between Upper and lower Egypt would be reduced by only 2 percentage points if Upper Egypt exactly replicated the livelihood structure of Lower Egypt. For the 40 percent of household members in rural Upper Egypt who by 2005 had moved entirely out of agriculture, the poverty risk remained a full 20 percentage points higher than in Lower Egypt (33 percent).

8 World Bank (2004) “A Poverty Reduction Strategy for Egypt” Report No. 27954-EGT. 9 The way to verify the relative role of human capital, location and endowments in determining welfare is by running a regression which has the following form: Log Ci= βXi+ єi, where the dependent variable Ci is the log of consumption divided by household -specific poverty line; β is the vector of parameters and Xi is a range of characteristics of the household i, and є is an error term. Estimated parameters reveal the relationship between each of the household characteristics and consumption, taking the effect of other characteristics into account. Annex Table T3 reports results from such regressions for 2005 and 2008 estimated by El Laithy et al (2009).

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Table 2.1: Rural households by type of livelihood in Lower and Upper Egypt, 2004/05

Types of Households by the Main Source of Incomes

Region

Farming is the main occupation of HH members

Farming is an income source, but not the main one

No farming, but agricultural wages

as income*

Non-farm activities

only* All

households

Population distribution across types, percent Lower Rural 28% 23% 6% 43% 100% Upper Rural 32% 20% 8% 40% 100%

Poverty rates, percent of group under the lower poverty line

Lower Rural 20% 14% 37% 13% 17% Upper Rural 38% 38% 71% 33% 39%

Note: * some livestock income (poultry) in cash or in kind is reported, but no land and crop incomes. Source: Staff estimates based on HIECS 2004/05

2.4. Poverty in Upper Egypt is the result of more dependents, lower participation in the labor market, and lower earnings (lower productivity) of those who participate in the labor market. But family-based (demographic) factors play the largest role in widening the gap between Upper and Lower Egypt. Different poverty rates can be expressed as differences in mean consumption (Box 2.1). This measure is driven by differences in the capacity of a household to increase its income through productive employment and the number of mouths that need to be fed with that income.

Box 2.1: What Accounts for the Differences in Living Standards? To understand the observed differences between groups in consumption per capita the measure can be broken down into three factors: demographic dependency (“working age adults/households size”), labor market economic activity or employment rate (“employment to the number of adults”), and consumption per worker (“productivity”), as the following equation shows: Gap dependency employment productivity

=sizeHousehold

nConsumptio∗

sizehousehold

adults#∗

adults

ersincomeearn

#

#

earnersincome

nconsumptio

#

This equation can be transformed into logs to determine the share each factor contributes to consumption. The difference in mean consumption between different regions—Lower and Upper Egypt—will be equal to the sum of the difference of the means of each factor. A negative value for a factor means that it contributes to widening differences, while a positive value means that the mean value of that factor was higher for the poor region and it thus contributed to narrowing the differences. Source: World Bank (2000)

2.5. The gap between Lower and Upper Egypt in mean consumption for all households is 18 percent (table 2.2). Since elasticity of poverty with respect to consumption is about 3 in Egypt (table 7.1), this gap is fully consistent with the observed more than 50 percent (18*3) difference in poverty rate. Out of this 18 percent gap, 11 percentage points difference (62 percent of the total gap) can be accounted for by demographic dependency. Even for non-agricultural households the higher rates of dependency in Upper Egypt accounts for 46 percent of the difference in mean consumption. Evidently, the role of demographic factors will be reduced once economies of scale in household consumption go beyond per capita standard (Lanjouw et al 1998). But most of consumption in poor households is represented by food. This limits an ability of larger household to benefit from reduced per capita costs of some common goods (e.g. lighting, alliances, housing…). Hence, the assessment presented here is sufficiently robust to measurement issues.

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2.6. The productivity (lower level of earnings per worker) is the second largest factor in the difference in mean consumption between the two regions. For farmers, it accounts for 20 percent of the gap, more than offsetting the positive effect of higher employment rates in Upper Egypt. A lower rate of employment is the third factor contributing to the lagging of Upper Egypt for all groups except agricultural households. Farmers in Upper Egypt, in fact, actually benefit from a higher rate of employment than their counterparts in Lower Egypt.

Table 2.2: Decomposing the gap in per capita consumption between Upper and Lower Egypt, by type of livelihood for 2004/5

Types of Households by the Main Source of Incomes

Farming is main occupation of HH

members

Farming is an income source, but not the main one

No farming, but agricultural

wages as income

Non-farm activities

only All

households Total gap, % -13 -19 -23 -21 -18 of which: of which: of which: of which: of which: Demographic dependency -12 -13 -11 -9 -11 Employment +2 -3 -5 -7 -1 Productivity -3 -3 -7 -5 -6

Percent of total gap Demographic dependency 95 67 46 46 62 Employment -15 16 22 31 6 Productivity 20 16 31 23 32 Notes: For size of each group – see Table 2.1; definitions - see Box 3 Source: staff estimates based on HICES data 2004/2005.

The Source of Higher Rates of Dependency in Upper Egypt:

2.7. Rural Upper Egypt traditionally had larger households. In 1995 average household size in rural Upper Egypt was 5.59 as opposed to 5.41 in rural Lower Egypt. By 2005 this figure had fallen to 4.88 in Upper and 4.51 in Lower Egypt; dependency rates, however, continued to be 50 percent higher than in Lower Egypt (table 2.3).

Table 2.3: Average household size and number of dependents in Upper and Lower Egypt, 2005

Region Average Number of children <15

Average Number of adult males 15-

60

Average Number of adult females

15-60

Number of elderly

>=60

No of household members

Average Household Lower Egypt Rural 1.23 1.32 1.31 0.27 4.13 Upper Egypt Rural 1.90 1.37 1.33 0.29 4.88

Poor Household Lower Egypt Rural 1.82 2.20 1.83 0.25 6.09 Upper Egypt Rural 2.49 1.84 1.64 0.26 6.23

Notes: This table presents the structure of an average household, some of which may not be complete families. Source: World Bank 2007a 2.8. In an average household in Upper Egypt there are more children, but comparable numbers of working-age adults—fewer among the poor) Among families with children, the difference between Upper and Lower Egypt is striking: the average number of children in Lower Egypt is close to the national average of 3 children in a family, whereas in an Upper Egyptian family the average is 4. It is therefore not the type of living arrangement (i.e., the prevalence of multi-family households of relatives) which drives the difference in household size between Upper and Lower Egypt, but the number of children.

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2.9. Higher fertility rates are the cause of the higher numbers of children per household in Upper Egypt. Although fertility rates in all of Egypt fell dramatically between 1988 and 2005, the historically higher rates in Upper Egypt have meant that the present average number of children per woman still remains higher than in the rest of the country (table 2.4). The analysis of Casterline and El-Zeini (2005) suggests that the reproductive regime in rural areas of Upper Egypt is fundamentally different: 4 births per woman are still preferred in rural Upper Egypt, as opposed to 3 in the rest of the country.

2.10. Partly this outcome is a reflection of unequal access to family planning services (figure 2.1). Expanding these services to fill the unmet needs may reduce the dependency rates in Upper Egypt. Indeed, the DHS of 2008 shows further slight decline in the fertility rate for rural Upper Egypt. The decline over 1988-2005 in this rate was very similar in Upper and Lower Egypt (table 2.4). This factor also has diminishing impact: 72 percent of women in Upper Egypt already assess their access to family planning as adequate. So even though the gap in fertility between Upper and Lower Egypt is now 1 child, and not 1.5 as it was 20 years ago, it should be expected that Upper Egypt will continue to have higher number of dependants per household.

Gender and Employment Outcomes

2.11. Employment and participation rates combine to result in fewer gainfully employed people per household in Upper Egypt. Lower participation in the workforce depresses incomes in Upper Egypt, and this is only partially compensated by higher employment of those who are active in the labor force pushing incomes slightly higher (table 2.5). In addition, a larger share of employment in Upper Egypt is accounted for by unpaid family workers.

Table 2.5: Participation and employment by region, 1999/2000 and 2004/05,% Labor Force Participation Employment rate Paid employment rate* 1999/2000 2004/05 1999/2000 2004/05 1999/2000 2004/05 Lower Rural 50 54 95 95 76 77 Upper Rural 46 48 97 97 72 74 All Egypt 45 47 94 95 80 81

Note: labor force participation is the sum of employed and unemployed looking for jobs (labor force) divided by population in the working age. Employment rate is all employed to labor force. * Paid employment includes wage workers, employers and self-employed, the rate is to the labor force Source: El-Laithy (2008) based on HIECS.

Table 2.4: Trend of the total fertility rate (average number of children per woman)

1988 2005 Decline, % Metropolitan 3.0 2.5 -17% Urban Lower 3.8 2.7 -29% Rural Lower 4.7 3.0 -36% Urban Upper 4.2 3.1 -26% Rural Upper 6.2 3.9 -37% Total 4.4 3.1 -30% Source: El- Zanaty, F. and A. Way, 2006 based on Egypt 2005 and 1988 Demographic and Health Surveys.

Figure 2.1: Percentage of married women with unmet family planning needs, 2005

0

2

4

6

8

10

12

14

16

18

Metropolitan Urban Lower Rural Lower Urban Upper Rural Upper Frontier Total

Source: El- Zanaty, F. and A. Way, 2006 based on Egypt 2005 and 1988 Demographic and Health Surveys.

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2.12. Gender difference is the key factor that explains lower employment rates in Upper Egypt (table 2.6). While the participation of men in the workforce is stable and similar for both regions, there are differences in female participation rates. In the five years from 2000-2005 Lower Egypt achieved a sizeable increase in the participation of female workers: from 51 percent to 56 percent. In Upper Egypt female participation in the workforce has increased by less than one percentage point. There are large differences however within Upper Egypt. The poorest and most populous governorates10

2.13. A large share of employment in Upper Egypt is sporadic and non-permanent. According to LFSS occasional employment accounts for 22 percent of total employment in rural Upper Egypt, versus 11 percent in rural Lower Egypt. This ratio has increased in Upper Egypt by 7 percentage points since 2003, while the increase in Lower Egypt was just 3 percentage points. Demand for daily wage labor in agriculture remains highly seasonal and lasts only five months in a year (April-June, September-October). Excess supply of labor in Upper Egypt is evident in the variation of wages during the peak season when the demand for hired labor grows: in Lower Egypt the daily wage goes from 15 LE to 25 LE in the peak season, suggesting a much tighter market than in UE, where it moves only from 12 to 15 LE (Barghout 2008).

have a female labor force participation rate of only 40 percent— a full 10 percentage points below the average for Upper Egypt.

2.14. The income earned by women in rural areas of Upper Egypt remains extremely limited, but there are opportunities to increase it. Women mainly provide additional agricultural labor during the harvest season, while their role otherwise still revolves around attending household chores and the rearing of children. Farm labor provided by women is largely unpaid, with most having no individual income source at all. In the villages visited during case studies in Sohag women mainly worked in the fields adjacent to their houses, and children provided the seasonal labor at the agricultural land more distant from the settlements. Off-farm activities such as the operation of micro-enterprises (gas stations, flour mills, wooden workshops) as well as trading in local markets and public sector employment (teachers) are mainly carried out by men.

2.15. While culturally still sensitive, income-generating activities, carried out by women’s groups, and supported through micro-finance, can be expected to have critical benefits beyond raising incomes. Activities such as handicraft making, poultry raising, or sewing shops provide important opportunities to generate income for women directly. Creating such additional sources of income is critical since there is little incentive to pay women/wives for farm labor, even if farm incomes were to rise. Income earned by women also has a higher impact on human development, improving children’s nutrition, education, and health.

2.16. It is unrealistic to expect immediate pay-off from efforts to promote gender inclusion through income generation programs. Forming women’s groups and moving them into income generating activities will need to be a slow, carefully nurtured process, to ensure that it is socially acceptable and productive in the long term. It is not a magic solution to the problem of poverty in Upper Egypt, but a necessary element in efforts to include the poor in economic development. To have maximum impact on poverty, income-generating activities for women must be targeted towards areas were poverty is highest and concentrated by supporting several activities simultaneously in a community. While one key constraint women face in increasing their

10 Assiut, Menia, Beni Suef, Sohag and Fayoum – see also Annex Table T1b.

Table 2.6: Participation rates in 1999/2000 and 2004/05 by gender and region

1999/2000 2004/5

Male Female Males Females

Lower Egypt 83.5 51.3 83.5 56.3

Upper Egypt 83.6 50.0 83.0 50.9

All Egypt 83.5 51.2 83.3 53.9 Note: Table includes both rural and urban areas. Source: El Laithy 2008 based on Household Income and Expenditure Consumption Survey of 2004/05, (CAPMAS).

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incomes (or having any in the first place) is culturally determined and depends on the overall level of development of the village, others factors are important as well, including access to small start-up capital, services, and capacity building. Particular emphasis must be placed on adequate access of women to support services (e.g., microcredit, extension advice in livestock production, and marketing of handicrafts). Finally, the ownership of land by women is limited through inheritance provisions and the lack of title registration, both of which affect women’s ability to obtain micro-finance. Again the importance of institutions—the bedrock of successful regional convergence policies—cannot be over-emphasized (World Bank 2008c).

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C H A PT E R 3. L A ND F R A G M E NT A T I ON L I M I T S F A R M I NC OM E S

Most poor people in Upper Egypt earn their living through agriculture. But the potential of agriculture to serve as a road out of poverty is limited by the limited availability of new arable land and the difficulty of consolidating existing plots into economically viable production units. A growing population and the use of land as a de-facto social safety net has caused most land plots in Upper Egypt to shrink below an economically viable size to tiny garden strips (less than 0.5 of an acre). The coordination of the activities of millions of microfarmers into modern production chains poses major coordination and collective action problems. New land developments are easing this problem, but they are not enough to overcome the fundamental clash between a growing rural population and limits to available water and land. Agriculture will not offer a road out of poverty for the majority of poor people in Upper Egypt, but it may provide a springboard to increase off-farm income.

The Importance of Agriculture for Poverty Reduction

3.1. The expansion of agriculture has had a large impact on poverty in many parts of the world (World Bank 2008c). Under certain conditions agriculture can become the main engine of a poverty reduction strategy (see Box 3.1).

Box 3.1: World Development Report (2008): Agriculture as a Pathway out of Poverty.

According to the classification proposed in the WDR 2008, Upper Egypt belongs to a group of transforming economies that are making a shift from agriculture to other sectors; agricultural-based growth in this type of setting can move many people out of poverty.

For example, much of the expansion of Chile’s agricultural GDP can be attributed to a labor-intensive agroexport boom over the past two decades. The rural poor benefited indirectly through their employment by large-scale farmers and agro-processors. The poverty-reducing impact has been substantial: each percent expansion of agricultural and agro-processing output is estimated to have reduced national poverty by 0.6–1.2 percent.

But success in agriculture does not always directly reduce poverty. Brazil experienced dramatic growth in agriculture during the 1990s, following trade liberalization and an improvement in price incentives. But agricultural employment declined and shifted to higher-skilled wage workers as production became more capital intensive. The reduction in rural poverty was largely the result of income transfers and employment in the rural nonfarm economy.

The challenge of using agriculture for development in urbanized countries is to create opportunities for smallholders to supply modern food markets. Reforms in macroeconomic policies, trade regimes, and marketing policies create better incentives for farmers to invest, more active private traders and agro-processors, and higher returns to public and private investment. But institutional innovations are also needed to create more efficient mechanisms for access to land, financial services, and inputs, and more effective producer organizations. New biological and information technologies offer the potential for significant productivity gains. Better approaches to natural-resources management are needed to enhance sustainability.

The WDR 2008 identified five areas for agriculture-based shared growth policy agenda: The first is establishing efficient markets and value chains, leading to the diversification of rural economy. The second is accelerating smallholder entry to agricultural markets and raising smallholder innovativeness and competitiveness. The third is improving livelihoods and food security in subsistence agriculture and low-skilled rural occupations through diversification and better social protection. The fourth is enhancing skills to allow the rural poor to seize new opportunities and to successfully migrate. To engage fully the potential of agriculture and off-farm businesses to reduce poverty through upstream and downstream linkages a favorable climate for SMEs is needed. Together these elements drive the three pathways out of poverty— farming, rural off-farm employment, and migration.

Source: World Bank World Development Report 2008 (World Bank 2008 c)

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3.2. Over one half of all people employed in rural Upper Egypt are engaged in agriculture (54 percent, versus 46 percent in Lower Egypt, Table 3.1).11

Table 3.1: Structure of Employment in rural Upper and Lower Egypt, by sector, 2007

It is reasonable to expect the largest poverty reduction to come from agricultural expansion. Moreover, a growing population and the natural advantages of Upper Egypt in early growing seasons seem to ensure both internal and external demand for agricultural output.

Lower Rural Upper Rural Egypt Agriculture 46% 54% 31% Water 0% 0% 1% Manufacturing, electr., mining 11% 6% 13% Construction 7% 11% 10% Trade 7% 6% 11% Catering 1% 1% 2% Transport 6% 4% 7% Finance 0% 0% 1% Communication 1% 1% 2% Administration 8% 6% 9% Education 9% 6% 10% Health 2% 1% 3% Other 2% 2% 2% Total 100% 100% 100%

Source: Staff estimates based on LFSS 2007. For Census data and LFSS see Annex Table T2a

3.3. A number of detailed studies in Egypt have demonstrated that agricultural growth could have the largest effect on poverty for those already employed in the agricultural sector. Most of these studies followed methodologies proposed by Ravallion et al (2004). For Egypt Löfgren (2001) used a CGE model and found that compared to pro-manufacturing policies, pro-agricultural policies have a larger impact on household welfare in general, and on the poor in particular. Kheir El-Din and El-Laithy (2007) using governorate-level observations, classified income into farm and non farm income.12

11 The data are based on LFSS, other sources of information, e.g. HIECS 2005 gives even higher employment share in agriculture for Upper Rural Egypt (63 percent) versus Lower Egypt (52 percent).

They show that the growth of value-added in the agriculture sector has a far higher impact on poverty (almost double) than in non-farm incomes. At the same time, they show that improvements in yields alone do not affect the incidence of poverty, and suggest that the benefits of higher yields do not accrue to the poor but rather to those above the poverty line. Moreover, it appears that output growth, in addition to being relatively slow (2.5 percent per year on average in agriculture over 1990-2005) has not significantly contributed to agricultural employment growth (1.1 percent on average). Elasticity of agricultural employment with respect to growth in agricultural value added has been estimated over this period at 0.287. These results suggest that growth in agricultural output in Egypt is not likely to create new agricultural employment, but it is likely to help those who are already employed there to get out of poverty.

12 Impact of changes in incomes on poverty is estimated using the dynamic equation for changes 1990/91 to 2004/05:

iiYiSiYiSiP επππ +∆+∆+=∆ 2ln221ln1100ln , where ∆Pi is change in poverty in governorate i , is1 and

is2 are the income share from agricultural and non agricultural activities in governorate i iY1 and iY2 are average incomes from

agricultural and non agricultural activities in governorate i , and iε is the error term.

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Shrinking Farm Size in Upper Egypt

3.4. Land fragmentation is the key reason for low agricultural incomes in Upper Egypt. Over the past 50 years there has been an ongoing process of land fragmentation throughout Egypt—a process that takes particularly acute forms in Upper Egypt.

Table 3.2: Evolution of Land Tenure Structure in Egypt

Categories of Farm Area (Feddan)

1950 Census 1990 Census 2000 No. Of

Holders (% and x000)

Area (% and x000

Fed.)

Average Farm

(Feddan)

No. Of Holders (% and x000)

Area (% and x000

Fed.)

Average Farm

(Feddan)

No. Of Holders (% and x000)

Area (% and x000

Fed.)

Average Farm

(Feddan)

No land - - - - - - 18.1% 0.0% 0

< 1 21.4% 1.8% 0.52 26.9% 6.5% 0.48 35.6% 8.6% 0.45

1-3 57.1%

21.3%

2.29

40.1%

42.4%

2.13

30.8% 27.0% 1.62

3-5 7.6% 14.5% 3.53

5-10 12.2% 13.3% 6.69 5.1% 15.9% 6.28 5.2% 17.1% 6.15

10-20 5.2% 11.5% 13.43 1.6% 10.1% 13.03 1.8% 12.4% 12.87

20-50 2.6% 12.9% 29.89 0.7% 9.8% 28.22 0.7% 10.9% 27.48

50-100 0.8% 9.4% 68.94 0.1% 3.7% 63.91 0.1% 4.1% 63.04

100+ 0.6% 29.7% 280.97 0.0% 11.6% 568.63 0.1% 5.3% 194.40

Total 1,003 6,144 6.13 3,910 7,849 2.01 4,538 8,410 1.85 Source: Calculated by the author from data gathered from CAPMAS, 1954-2004, Statistical Year Books and MALR, 2002, Agricultural Census 2000 Note * Data in 1950 and 1990 were aggregated in these two categories into one category 1-<5 One feddan is equivalent to 1.038 acres or 0.42 hectares

3.5. The share of land holders with less than one feddan (0.42 hectares) increased from 21 percent in 1950 to 35 percent in 2000 (table 3.2). If landless farmers are included, this figure rises to 53 percent.12F

13 The average plot size between 1990 and 2000 fell from 2 feddans to 1.85. There are no consistent data by regions on average farm size—partly because the definition of what is a “farm” differs across sources. Data from the land registration system (table 3.3) records legal titling rather than the productive use of land, but these data can nonetheless reveal important trends (see also Annex table T6).

Table 3.3: Land ownership distribution in rural areas, 2005 Lower Egypt Upper Egypt All Rural Less than 1 feddan 47.0% 61.3% 52.9% 1-3 feddan 24.5% 22.3% 23.5% 3-5 feddan 9.9% 8.7% 9.5% More than 5 feddan 18.6% 7.7% 14.1% Total no of holdings 2,550,505 1,839,586 4,401,216 Average plot (feddan) 1.63 1.25 1.46

Note: data from muklafa – a register of land ownership and taxation. Source: CAPMAS Annual 2008, see Annex T6.

3.6. According to land registration data for 2005 the average size of land holdings in Egypt was 1.46 feddan (down from the 2000 estimate of 1.85), and 53 percent of all holdings were below 1 feddan (up from 35 percent in 2000). Upper Egypt is strikingly more fragmented: its average land plot is only 1.25 feddan, and 61 percent of all registered plots are less than one feddan. This represents more extreme

13 The introduction of a new category “no land” in table 3.2 is a reflection of tenure reform law. After a five year grace period, Egypt's 904,000 tenant farmers became subject to a 1992 law allowing landowners to charge market level rents and denying tenants the right to pass rented land on to their children.

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partitioning of land than reported by the 2005 UE Rural development study: in that study plots smaller than one feddan were reported to be 47.2 percent of tenure in Upper Egypt (World Bank, 2006).

3.7. In spite of the extremity of the figures, the reality may be even worse. The numbers reported above are extracted from registers. Often tenure remains under the name of one single individual (mostly the father), but the land is used by a number of siblings. Often several households of relatives exploit land that is registered as a single parcel. This means that official data on land ownership do not adequately reflect the situation on the ground. Formal and informal rules and regulations protect access to land as a safety net but have also created a number of obstacles to new modes of operation (World Bank 2009a).

3.8. This striking partition of land affecting the poorest in the villages of Upper Egypt is confirmed by other data sources. The community survey in 2005 revealed that a unit of agricultural land in Upper Egypt supports 46 percent more people: there is 0.17 feddan per capita in an average Upper Egyptian village and 0.32 feddan in Lower Egypt. At the same time, according to the community survey, an average farm in Upper Egypt measures 1.57 feddan, in line with CAPMAS data on registered land holdings. But each Upper Egyptian farm is operated on average by two households.

3.9. HIECS, which is a survey of households not of farms, conducted in 2004/05 finds that the de-facto average size of user-owned land used by agricultural households is even smaller than reported by registration statistics: 0.87 feddan per household, with large differences between the rich and poor. Table 3.4 provides unique data matching average land plot to overall living standards of rural households (quintiles of consumption per capita). Both the small average land plot among the poorest 20 percent (0.45 feddan in Upper Egypt), and the clear difference between the poor and the better off are obvious.14

Table 3.4: Average used land in feddans per agricultural household, 2004/5

Quintiles* Rural Lower Egypt Rural Upper Egypt All Rural 1st – poorest 0.72 0.45 0.57 2 0.80 0.66 0.74 3 0.68 0.86 0.79 4 0.76 0.88 0.85 5th – richest 1.14 1.34 1.25 Total 0.85 0.80 0.87

*Quintles of per capita consumption. One feddan is equivalent to 0.42 hectares Source: El-Laithy (2008) based on HICES

3.10. The in-depth case studies of villages in Sohag revealed very similar land distribution patterns (NSCE 2008). In the village of Al-Khyam the overall cultivated area 933 feddan distributed among 1026 owners. Sixty-nine percent of farmers own less than one feddan with an average of plot size of only 0.2 feddan.

How Land Fragmentation is Affecting Farm Productivity

3.11. It is critical to distinguish between productivity of labor and productivity of land. An in-depth analysis of the rural economy of Upper Egypt identified three causes for its low agricultural productivity (World Bank 2006): dependence on low-value crop production; weak transport links with domestic and foreign markets; poor supporting services in water and in agriculture extension. These

14 Compare this with AFIS survey conducted by MARL and used as main data source in World Bank (2006): average size of farm in Lower Egypt reached 4.4 feddan in 2000/2001, average farm in Upper Egypt was exactly one-half of average farm size in Lower Egypt, equal 2.2 feddan.

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factors work against the superior natural endowments of Upper Egypt: better quality soils, better availability of water and earlier harvesting season compared to Lower Egypt.

3.12. Table 3.5 shows that indeed net income per unit of land is higher in UE. Yields per unit of land for the same crops are roughly comparable (Lower Egypt has higher yield for wheat, cotton and potato, while Upper Egypt has higher yields for sugar, onion and beans). Crops also often fetch higher price in UE.15

Table 3.5: Cost and Income per Feddan for Plant and Animal Production, 2000/1 (LE)

Plant Animal Plant and Animal Lower Upper Lower Upper Lower Upper 1. Total Income 2403.38 3106.27 798.32 1571.13 3201.71 4677.41 2. Total Cost 1029.24 1337.82 378.39 891.42 1407.64 2229.24 Labor 360.70 465.71 73.61 153.63 434.31 619.34 Other Inputs 668.54 872.11 304.79 737.79 973.33 1609.90 3. Net Income (1-2) 1374.14 1768.45 419.93 679.71 1794.07 2448.16

Note: One feddan is equivalent to 1.038 acres or 0.42 hectares Source: Mours et al (2004) using Ministry of Agriculture Farm survey (AFIS, 2000/1).

3.13. There are some differences in the use of heavy machinery in favor of Lower Egypt, but they are at least partly compensated by the widespread use of light machinery and animals (almost half of farms in Upper Egypt own light machinery as opposed to one third in Lower Egypt) (table 3.6). Upper Egypt has not missed out on the industrialization of agriculture: early evidence from 1980 and 1990 suggest that some Upper Egyptian governorates were ahead in terms of moving to the new agricultural practices associated with the green revolution. 16

Table 3.6: Percent of farms owning light, heavy machinery and farm animals by size 2000/01

Farm size

Light machinery Heavy machinery Farm animals L. Egypt U. Egypt L. Egypt U. Egypt L. Egypt U. Egypt

Small (< 1 fed) 34 52 25 10 41 38 Medium (2-3 fed) 34 51 26 13 41 37

Large (> 3 fed) 32 37 41 25 27 38

Overall, all sizes 33 47 31 16 36 38 Note: L. is Lower, U. is Upper. Source: GEF 2003, weighted by farm employment.

3.14. Some studies (World Bank 2006 and Moursi et al 2004) argued that Lower Egypt has already moved to the production of highly profitable non-traditional crops for export and internal consumption, while Upper Egypt is stuck in traditional unprofitable agriculture—even though it seems to be doing it well. Table 3.7 uses data from MARL to assess to what extent cropping patterns are different.

3.15. The differences in crops patterns on old lands

15 For example in 2003, farm gate price for sugar cane from Upper Egypt was 41 percent higher than in Lower Egypt; they were also higher for corn, onions, potato, and beans.GEF data 2003. Community survey of 2005 revealed higher corn, fruit, sugarcane, beans and potatoes prices in Upper Egypt, equal prices for onions and wheat.

between Upper and Lower Egypt agriculture should not be overstated. Wheat, corn and berseem (clover) are the most common crops cultivated in Egypt everywhere. Cotton, potatoes, beans, and rice are in general more common in Lower while corn, sorghum, sugarcane, onions, tomatoes and grapes are more common in Upper Egypt. Field crops are

16 Graham Dyer “Class, state, and agricultural productivity in Egypt” Franck Cass, London 1997.

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estimated at about 66 percent of the total crop production value, and vegetables and fruits at 17 percent and 15 percent respectively (MARL 2007). Table 3.7 also demonstrates striking variations of revenue per crop over time, and suggests that not all non-traditional crops offer stable and high returns. Moreover, for some new crops the variation of returns over time is very high. The sensitivity of planting decision to crop prices is further discussed in Box 3.2.

Table 3.7: Crop area (in percent), Net revenue (LE/fed) and Components of Cost Crop area, percent Net revenue by region Revenue/cost, all Egypt

Lower Egypt Upper Egypt Lower Egypt

Upper Egypt

Net revenue

Labor cost

Land rent

2001/2 2005/6 2001/2 2005/6 2001/2 2001/2 2005/6 2005/6 2005/6 Wheat (Winter) 28.5 22.9 26.1 27.7 6213 6844 1830 400 800 Maize (Summer) 4.7 15.0 25.2 25.2 5586 5871 1821 416 600 Clover* 18.1 20.3 12.8 11.0 1189 1253 3643 120 720 Rice* 25.6 20.3 0.5 0.5 979 1230 2149 485 979 Cotton* 9.0 7.1 3.6 3.8 5848 5327 2057 700 1000 Beans* 2.9 2.3 0.7 0.6 3378 2397 1380 460 780 Potato* 3.9 1.8 1.3 1.0 3157 3342 1900 590 700 Sorghum* 0.0 0.0 8.8 0.4 n.a. 4004 1143 426 594 Barley* 0.8 0.7 1.9 2.0 2832 2855 517 300 650 Sugarcane 0.6 0.0 7.9 8.4 n.a. 1501 3827 900 1280 Peanuts* 0.7 0.6 0.6 0.7 17417 20718 1607 400 550 Garlic* 0.1 2.0 0.2 4.7 3469 3763 6738 790 730 Tomato (winter) 1.2 1.0 3.0 3.2 3124 4442 8022 960 699 Tomato (summer) 1.9 1.5 1.0 1.1 3387 4287 3869 804 650 Tomato (nili) 0.2 0.2 0.9 1.0 3733 4656 8415 550 560 Chickpeas* 0.0 0.0 0.4 0.4 5133 4177 1020 370 600 Sesame* 0.2 0.2 0.8 0.9 4817 8842 1007 386 550 Soybean * 0.0 0.0 0.3 0.5 258 229 798 340 600 Sunflower * 0.1 0.1 0.6 0.6 57 247 636 338 340 Melons * 0.1 1.0 1.3 0.5 n.a. n.a. 3468 613 560 Onion (Winter) 1.0 0.8 1.9 3.9 508 599 3380 655 740 Palm dates* 0.1 0.4 0.2 0.6 23122 24511 n.a. n.a. n.a. Mangoes 0.1 1.4 0.3 0.6 7110 6450 9912 950 840 Grapes 0.2 0.5 0.6 0.8 5992 6872 7532 1000 1285

Note: *All seasons; Area is calculated as % of total sown areas (in all three seasons), some cultures are excluded for the lack of comparable data, but about 95 percent of cropped area in UE and LE is covered by this Table. One feddan is equivalent to 1.038 acres or 0.42 hectares. Source: 2001- unpublished data from the MARL. 2005/6 – MARL annual bulletin, in two volumes “Study of the Indicators of Agricultural Statistics”, June 2006, MARL, Economic affairs. 3.16. Access to land and cropping patterns are key factors in poverty in Upper Egypt. Table 3.7 reports along with the net revenue some components of the cost for main crops. The labor of the farmers and income on their own land are costs of small farming households, but constitute their revenue. Combining these with the net revenue will result in the revenue of about 8-10 thousand LE per feddan (assuming 2 cropping season for plant and one for fruits and sugarcane) for “profitable” crops or just half of it for “unprofitable” crops. With an average farming household size of 5-6 persons and assuming no other income, the income from crops from 1 feddan of land would put a household close to a median income level in 2005 (1800 LE per year per capita in 2004/05), above the poverty line of 1200 LE. But halving the land available for this household to just 0.5 feddan (average land plot of poor farmers), or making the wrong decision and planting unprofitable crops would result in poverty for the same household (income below the poverty line of 1,200 LE per member).

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Box 3.2: Prices and cropping decisions Production decision of farmers is based on the previous year prices; many producers follow it in the next season, which leads to a significant over-production, drop in prices and great losses for producers. These cycles over last years in Upper Egypt affected growers of onions, beans and garlic. But they had the largest effects in wheat and sugarcane. Wheat The area planted to wheat (a winter crop) competes with other crops, in particular berseem (Egyptian clover used as fodder) and modern export crops (e.g. tomatoes). Farmers’ decision making on crop area planted is determined by the previous season’s purchase price or by a purchase price announced by Government prior to the planting season, in addition to requirements for own consumption (which changes according to prevailing market prices). The acreage planted to wheat in 2007-08 (7 percent higher than in 2006-07) was influenced by the purchase price for the 2006-07 marketing season, which stood at a favorable LE 220 per ardeb (up from 165LE/ardeb a year before, one ardeb =0.15ton). Then, following soaring international wheat prices in late 2007 and early 2008, the Government increased its purchase price: in April 2008 it offered LE 380 per ardeb – a double of 2005-06 prices, implying net revenue per feddan of 4630 LE – higher than many modern crops. This allowed Egypt to increase the domestically procured wheat quantity from 1.8 million MT in 2006/07 to 2.5 million MT in 2007/08, but limited its export capacity in modern crops. Given that the GoE is the largest buyer of the locally produced wheat (normally about a third of total production) the government procurement price influences prices in the wheat market. Since the substantial fall in international market prices for wheat from mid-2008, the GoE has not clarified its pricing policy for wheat. The domestic purchase price for wheat had not been announced by the end of November 2008 – end of planting season, and farmers were disoriented (Sohag village case studies 2008). Sugar cane. The main advantage for planting sugarcane, which has a long growing season is a guaranteed price and facilitated access to some inputs. Cane is supplied to the sugar industry in accordance to a three-party contract between the farmer, PBDAC and the sugar company; where the farmer receives funding for the production process that is directly deducted by the company from the crop revenues. It is noteworthy that sugarcane, in particular, needs external financing due to its high production cost and late return, as its growth takes a long time. Typically farmers are able to calculate the costs and returns, thus making informed production decision. There are minimum volumes required by such contracts so only farmers with sizeable land plots can participate. Now however, there is an increase in risks: unprecedented leaps in fertilizers' prices. Producers can't raise the price to compensate for this development. 2008 Prices illustrate this problem, since last year's prices as specified in the contract with the Sugar Company amounted to EGP 142/Ton, which was hardly enough to cover costs. Actual market prices for small shops selling crushed sugar juice reached EGP 400 per ton. These examples shows how sensitive farmers in Egypt are to expected prices and how GoE de–facto influences key decisions. Hence, policies which are aimed at self-sufficiency in wheat have direct implications for other crops and limit the prospects for expanding higher value added varieties. Sources: Government of Egypt, FAO, WFP, World Bank, IFAD and NEPAD Inter-Agency Assessment Mission (17 November – 4 December 2008) Working Paper 3 Increasing Productivity in the Agricultural Sector and NSCE.

3.17. This link between crop pattern and poverty is further illustrated by the GEF survey conducted in Egypt in 2001/2. Table 3.8 presents the distribution of farms by size and dominant crop rotations. It is clear that the main crop rotations in Upper Egypt are chosen because they offer better welfare outcome. But even the optimal choice cannot overcome the limitations of land size.

Table 3.8: Poverty for farmers by size of land plot and rotation type in Upper Egypt

Farm Type

Wheat-maize rotation Clover-maize rotation Sugarcane Other rotations

% Poverty indicator %

Poverty indicator %

Poverty indicator %

Poverty indicator

Small (< 1 fed) 42 0.30 26 0.16 6 0.00 26 0.41 Medium (2-3 fed) 59 0.12 24 0.13 10 0.08 7 0.10

Large (> 3 fed) 59 0.03 16 0.07 20 0.13 5 0.20 Source: GEF 2001/02 Note: The calculated farm net revenue was divided by household size to generate a poverty indicator when per capita farm net income lower than 1400 L.E.

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3.18. Egypt has a vast literature that challenges the idea that small land plots can be a source of lower productivity. 17In fact, many studies show that smaller plot sizes are characterized by increasing returns in terms of physical output per unit of land. 18

3.19. Income per unit of land may be higher for large farms if high value crops are grown, while small farms cannot diversify away from the less remunerative traditional crops. In UE, given the disguised underemployment in agriculture and the fact that agriculture functions as a social safety net or last recourse employment, productivity per unit of labor of small farms is lower than on a large farm. Small farmers also face constraints to diversification into high value crops, which may prevent them from improving their farm income. Once economic considerations enter into the picture, there are clear reasons why after a certain threshold the size of land plot itself becomes a limiting factor for increasing productivity. The production of holders of micro plots is mostly dedicated to self-sufficiency: either grains for family supply or fodder for animals. This is especially true for wheat, which is the main food in Upper Egypt. Small farmers have a relatively low capacity to diversify and to identify advantageous market outlets.

Comparing the output for the same crops, and everything else being roughly equal, productivity per unit of land is higher in small farms than in large farms, especially with high value horticultural crops which require a lot of careful labor and are not easily mechanized. This is what the study by Moursi et al (2004) showed in the case of UE, and it is confirmed in a number of other settings. Productivity per unit of labor of small versus large farms is a different story.

3.20. Small-scale landowners have limited access to credit and the landless are mostly excluded from formal credit channels. Tenants, the poorest producing category, are almost entirely excluded from the PBDAC dealer circle. Micro land owners are excluded from the bank's dealer circle as the bank refuses to deal with land-owners who own less than 0.25 feddan. This category is now increasing in number with the increase in the fragmentation of land tenure. Many small landowners cease to deal with the bank due to the increasing credit cost that renders it impossible to repay the loan; increasing numbers of debtors are unable to repay loans because even a few days' delay in payment resets the dealer's interest rate from 7 percent to 14 percent.

Overcoming the Negative Effects of Land Fragmentation

3.21. Accessibility of land for cultivation is the major binding constraint to agriculture-based poverty reduction in Upper Egypt. The shrinking availability of land in densely populated rural settlements is analyzed in detail in the most recent study of rural development which described how agricultural land is being lost to urban construction (Alterra 2008). Reversing this trend however, does not change the fundamental equation driven by population growth. ‘New’ lands in desert areas are developed to alleviate this constraint. In the last 20 years Egypt’s desert land reclamation efforts had added 2.5 million feddans of land under cultivation (this represents one quarter of its arable land now), although most of these lands have not achieved the same high productivity of the “old lands,” and they are in Lower Egypt. Large scale agricultural development on desert land usually uses relatively capital-intensive irrigation, farming, and harvesting techniques, which are all biased against the use of labor.

3.22. Long awaited activation of the Toshka mega-project19

17 Reviewed Graham Dyer “Class, state, and agricultural productivity in Egypt” Franck Cass, London 1997.

as well as other large projects will add an additional 3 million feddans by the year 2030 (MARL). It is estimated that new developments will create

18 Moursi et al 2004 mimeo. 19 The largest ever irrigation project in the Middle East. The projects creates a new river out of Nasser lake in Upper Egypt, expanding Egypt’s irrigated land by 7 percent (540 thousand feddans) and settling some 3 mln. residents on

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4 million new jobs by 2030. The current five year plan (2007-2012) prioritizes construction of 400 new villages in the desert planned as new agro-processing centers. However, to put these figures in perspective, the working age population will expand in rural Egypt by 17 million before 2030, of which one half will be in Upper Egypt (IIASA 2008).

3.23. Ultimately the key constraint for developing new land is the availability of water. Development of new land is ultimately limited by the hard constraint of total water resources available to Egypt. Limited water and land resources and a rapidly growing population call for continuous intensification of production of a limited natural resource base. To increase water availability, the government is planning to improve efficiency through improved water management practices, changed cropping patterns towards less-water consuming crops (e.g. reduce production of rice), improved irrigation systems, as well as reuse of drainage water and treated sewage water. All these interventions also require very large investments, which would make capital intensity in agriculture comparable to other sectors of the economy. Moreover, new lands have a type of soil that is only suitable for horticulture (MARL, Public Expenditure review).

3.24. Policies to refocus on food self-sufficiency of Egypt will most likely work against growth and poverty reduction. Renewed calls for food self-sufficiency are understandable following last year’s spike in food prices or even the upward world price trends since 2003. The Government of Egypt wishes to increase the self-sufficiency ratio in seven major staple crops to 80 percent on average, including wheat (from 55 to 75 percent), maize (from 65 to 80 percent), faba bean (from 44 to 80 percent), lentils (from 2 to 40 percent) and edible oil (from 8 to 30 percent). Plans to increase food self-sufficiency in Egypt will put a tremendous pressure on old lands to sustain traditional crop cultivation and hence will constraint the development of new value chains.

3.25. In response to these challenges, Egypt has developed national agricultural policies and plans to improve and sustain production. The Agricultural Strategy to the year 2017 has recently been updated to a strategy for the year 2030. It stresses the need for an efficient use of natural resources in an environmentally sustainable manner. The revised strategy deals with potential sources and constraints to agricultural growth and identifies land fragmentation and increased population pressure on ‘old lands’ as a key challenge. It also admits that development of ‘new lands’ in reclaimed desert regions is not occurring rapidly enough to keep pace with population growth. The potential of agriculture to increase incomes in rural areas depends on radically new methods for increased productivity and efficiency in the food and agricultural sectors. They also require a change in the institutional framework of the sector.

3.26. With extremely small land holdings such as in Upper Egypt, there are two ways one can reach economy of scale which the buyers will require. The key problem of agricultural production system with extremely fragmented land holdings in Upper Egypt is the need to consolidate micro plots to achieve a minimum economic size and to coordinate among hundreds of thousands of small farmers in each governorate. Currently this problem is being dealt with by existing extended family structures and public coordination mechanisms (e.g. cooperatives), but these are increasingly insufficient. The alternative approach is contract farming usually between small farmers and a larger farmer who aggregates the products of the small holders. The large farmer can also be the exporter or own an agroprocessing facility. The second approach is through an organization of small farmers (i.e. the AERI project—see Box 3.3). Both approaches require technical assistance to small farmers in the beginning, but the second one requires more intensive capacity-building for farmers to be able to efficiently manage their organization. The study of modern value chains (World Bank 2009a) addresses two constraints to increasing the productivity of agriculture: land fragmentation and poor coordination. It demonstrated that

new lands into integrated industrial and agricultural communities. The project has started in 1997, already absorbed 7 bln LE (over 1 bln US$), attracted international investors and is planned to come to being in 2017.

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Upper Egypt has high potential to produce and market high-value commodities. Modern developments of value chains in agriculture rely on a core of large modern commercially operated farms that hire labor or develop contractual relationships with small farmers (World Bank 2009 a).

Box 3.3: Modern value chains Upper Egypt: experience of AERI. The government of Egypt, in cooperation with donors and the private sector, has launched several initiatives over the past five years to encourage the development of new value chains in Upper Egypt. The flagship projects are the Agricultural Exports and Rural Incomes (AERI) project and the interrelated El-Shams project. Both were designed to bootstrap commercially oriented farmers and to provide self-help competitiveness enhancement for horticulture exports. The projects have realized impressive achievements in a relatively short time. Indeed, they have induced significant changes in the overall agribusiness landscape of Upper Egypt, including the emergence of some highly competitive value chains. Through a combination of grants, micro-credits, technical assistance, and marketing activities, the AERI/El-Shams projects helped to organize 103 growers’ associations over the past four years into profit-oriented businesses, coordinating production of 20,000 small farmers. For instance, El-Shams offered extension and technology transfer services that demonstrated production techniques to emerging growers’ associations and thus enabled them to cultivate and harvest uniform, high-value crops (notably, grapes, melons, and green beans). The subsidy provided for technical assistance, but the cost of this assistance was very large—averaging 1,000 USD per farmer, raising doubts about the model’s sustainability. New, more sustainable models are being proposed but are not yet tested. Their development is limited by major institutional weaknesses. Sources: AERI and World Bank 2009a.

3.27. The effect of farm associations (FAs) on income depends on well coordinated measures and policies. The income increases that can be realized by farmers depend not only on the types and yields of the cultivated crops, but also on the extent and quality of the services provided by the FAs. Many conditions have to be met in order for a farmer to capture the value added of the production and marketing of agricultural produce. Increasing income from agriculture requires of the integration of the agro value chains, which would require that buyers (exporters, supermarkets, agroprocessors), currently located mainly in LE, move into UE. This may happen anyway because of the difficulties in expanding production of high value crops in LE (essentially an issue of water availability). The GOE can facilitate this move by improving infrastructure—in particular roads or cooling facilities—and by providing better incentive structures (World Bank 2009 a).

3.28. The level of participation of the poor in farmers associations will determine the extent to which income increases translate into poverty reduction. While FAs have already proven their ability to help increase incomes of farmers from cultivating non-traditional crops (Box 3.3), the composition of the Farmer Associations is critical for their effects on poverty. On the one hand only if a substantial share of the FA members are poor, the spreading of FAs also reduces poverty. On the other hand participation of the richer or at least some richer farmers is needed, particularly at the beginning, as they play an important role in demonstrating the benefits of higher risk crop cultivation which they are more likely to experiment with. And financial sustainability of the FAs also depends on the viability and income levels of its members; a balanced composition is required. Hence, before the establishment and strengthening of FAs can be proposed as a suitable, replicable tool for poverty reduction, it must be ascertained to what extent the poor participate and benefit from them, which constraints they face in accessing them, and what needs to be done to overcome these constraints.

3.29. Livestock and poultry production are less constrained by land availability, but they face similar fundamental physical constraints. Poultry production systems in Egypt are quite diverse ranging from traditional household poultry to highly intensive commercial cage systems. The size of the labor force in the commercial poultry sector is about 1.5 million permanent workers and about 1 million temporary workers—a sizeable fraction of all agricultural employment. Moreover, about one quarter of all

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Egyptian families are involved in household poultry production. Poultry production makes an important contribution to supplying local populations with additional income and high quality protein. (Croppenstedt, 2006). For the poorest group (bottom 20 percent) livestock income is more important than crop income (Croppenstedt, 2006, El Laithy 2008). Participation in poultry production brings rural women out of their isolation, bolsters their self-confidence and leads them to other activities if they are successful in the small-scale poultry production projects.

3.30. Poultry production is ridden by risks and does not reduce the vulnerability of households. Following the outbreak of avian flu in February 2006 (preceded by rumors which had widespread effects on demand and supply), poultry production declined in Egypt to one half of the 2002 production levels (WFP 2009). About 30 million birds were culled (10 percent of the total), of which as many as 10 million birds culled without compensation were from the traditional poultry sector and unregistered poultry farms, and a lot of these were in the poorest households of Upper Egypt. Larger farmers, on the other hand, have benefited from both the compensations and the subsequent price boom due to shortages. They also ensured a remarkable recovery of the poultry sector in 2007, leaving household production even more marginalized (MALR Food Security Information Centre, Hosny (2009). More recently, a rise of animal feed prices forced about one third of small scale livestock holders to abandon keeping animals altogether.

3.31. Climate change will have an effect on livestock production. High temperatures will constrain agricultural production in Egypt and will also affect water resources. Raising livestock will not be an effective alternative to cope with climate change due to very high projected temperatures. Egyptian farmers have already noticed a change in temperature and rainfall patterns (Eid et al, 2007). At the economy–wide level the limiting factor for growth of livestock and poultry production is an increasing demand for animal feed and water to compete with other uses—including plans to increase food self-sufficiency.

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C H A PT E R 4. L I M I T E D OPPOR T UNI T I E S F OR OF F -F A R M E M PL OY M E NT

The “rural economy” in Egypt is significantly diversified. Commercial agriculture is not a major employer for landless villagers. But opportunities for rural residents for self-employment off the farm are limited and have shrunk over time because of the poor investment climate in rural areas, weak demand from the impoverished population, and bureaucratic red tape. The outlook is poor for developing a dynamic SME sector in the absence of a powerful trigger.

4.1. The traditional image of rural households in Egypt is that they are mainly engaged in farming and animal husbandry activities. This view has come under increased scrutiny in recent years. Rural households are diversified in their activities, with non-agricultural sources contributing in a major way to household incomes. The “non-farm sector" includes all economic activities in rural areas except agriculture, livestock, fishing and hunting. It is not a homogeneous sector, but comprises different roles in manufacturing, trade, services and public sector employment.

4.2. Upper Egypt has a surprisingly diversified economy for a predominantly rural region. The economy of Upper Egypt is dominated by production activities based on its comparative advantages in resources: agriculture, extracting industries, construction, and tourism. Despite some disparities with the rest of the country, all economic sectors are present in Upper Egypt to some extent (Table 4.1).

Table 4.1: Value added by sectors, Upper Egypt in comparison to Egypt as a whole, percent, 2007

Upper Egypt Other Egypt Agriculture, Irrigation & Fishery 22.3 12.3 Extraction industries 10.6 7.9 Manufacturing industries 16.3 20.8 Electricity 1.6 2.0 Water 0.1 0.6 Construction & Building 7.2 4.2 Transportation & Storage 4.8 5.3 Communication 2.5 2.4 Wholesale & Retail Trade 11.7 12.0 Financial sector, including real estate 5.8 11.5 Restaurants & Hotels 4.1 3.4 General Government 9.4 9.1 Education, Health & Personal Services 3.7 3.2 Suez canal 0.0 3.7 100.0 100.0

Source: own estimates based on data from MoED on value added by sectors and CAPMAS data on employment by regions.

4.3. Despite diversification economic activities with the lowest value added per worker (e.g., agriculture and construction) represent a disproportionately high share of total employment in Upper Egypt. More than three times the difference in productivity per worker between agriculture and manufacturing goes a long way in explaining low earnings in Upper Egypt (figure 4.1).

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4.4. Lack of diversification is evident in household level data for rural households. The HICES data analyzed by El-Laithy (2008) reveal that, on average, 42 percent of rural Egyptian households earn income from self-employment. This share is higher in rural Upper Egypt, where about 45 percent of income comes from self-employment, compared to about 40 percent in rural Lower Egypt (Table 4.2). Agriculture in rural Upper Egypt comprises 40 percent of household income compared to 36 percent from off-farm activities.

Table 4.2: Structure of incomes in rural areas, Lower and Upper Egypt: 1994-2005, percent. Source 1994/5 1999/2000 2004/5 1994/5 1999/2000 2004/5 Lower Egypt Upper Egypt Income from farm-self employment 42.2* 29.96 28.59 50.26* 35.29 34.33 Agricultural wages na* 4.62 4.33 na* 4.68 5.45 Non-farm wages 28.5 30.76 32.13 20.3 25.29 26.97

Non-farm wages in Public Sector na

18.91 19.32 na

14.49 15.01 Non-farm wages in Private Sector 11.84 12.81 10.79 11.96

Income from non-farm self employment 13.2 12.69 12.16 13.2 12.99 10.68 Income from property (rent) 5.1* 10.75 12.86 4.4* 9.32 11.21 Income from financial assets 0.7 0.49 0.46 0.7 0.49 0.32 Income from transfers 10.2 10.73 9.48 11.1 11.94 11.04 Total Income 100.0 100.00 100.00 100 100.00 100.00

Note: * 1994/95 farm incomes also included agricultural wages and agricultural land rental income; na- not availbale Source: El Laithy (2008) using HICES. 4.5. In international comparisons, Egypt has one of the lowest shares of agricultural wages, off-farm self-employment income and transfers as sources of livelihood for the rural population. It is informative to compare Egypt’s rural populations to those of Latin America, East Asia and Eastern Europe (see Davis at al 2008; see also Lanjouw and Feder 2001). Egypt’s share of income from non-farm wage employment, on the other hand, is one of the highest in the world, but its growth is not sufficient to compensate for the falling role of off-farm self-employment (table 4.3).

Figure 4.1: Values added per worker by sector, current LE, 2007

05,000

10,00015,00020,00025,00030,00035,00040,00045,00050,000

Source: Staff estimate based on CAPMAS data on value added and LFSS.

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Table 4.3: Structure of employment by job type, 1995-2005 (percent)

Lower Egypt Upper Egypt 1995/96 1999/2000 2004/05 1995/96 1999/2000 2004/05 Wage worker in agriculture 13.0 7.9 7.2 13.7 8.4 9.5 Wage worker in non agriculture 40.8 36.6 35.9 28.0 26.6 28.5 Self employed in agriculture 19.9 27.3 29.1 26.5 31.2 30.9 Self employed in non agriculture 10.1 8.6 8.2 10.0 8.8 8.0 Unpaid worker in agriculture 14.6 18.2 18.4 20.2 23.7 21.9 Unpaid worker in non agriculture 1.5 1.4 1.2 1.7 1.4 1.2 Total 100.0 100.0 100.0 100.0 100.0 100.0

Note: Urban and rural areas. Source: El Laithy 2008 using HIECS 1995/6, 1999/2000 and 2004/5 (CAPMAS).

4.6. The share of off-farm self-employment income is falling in Upper Egypt (Table 4.3). Self-employed in non-agriculture, together with working family members, represents less than 10 percent of all employment, and this share is shrinking in both Upper and Rural Egypt. This is in striking contrast with the global trends.

4.7. Farm income dominates, and its level per recipient is higher in Upper Egypt (Table 4.4). Between 1999/2000 and 2004/05, the average income from farming increased faster in Upper Egypt than in Lower Egypt, overcoming the negative effect of slower non-farm income growth. Agricultural wages in Upper Egypt are low, but the wage gap with Lower Egypt has not widened. However, in Upper Egypt, the average self-employment income is 15 percent lower than in Lower Egypt. This gap has increased over time. Self-employment activities require the least capital and are accessible to most rural citizens, yet they are shrinking over time.

Table 4.4: Nominal incomes by source and region, 1999/2000 and 2004/5 for rural areas, LE

Monthly per

recipient 1999/2000 Monthly per

recipient 2004/5 Change, 2004/5-

1999/2000 in percent

Lower Egypt

Upper Egypt

Lower Egypt

Upper Egypt

Lower Egypt

Upper Egypt

Agricultural wage 231 203 305 267 32 31 Farm self-employment income 319 329 386 421 21 28 Non-farm self-employment 470 447 628 535 34 20 Transfers 198 171 246 214 25 25

Note: Average for those who received income. To assess the magnitude of change, it is useful to compare the change in nominal monthly wage with inflation between 1999/2000 and 2004/05. Overall level of prices (CPI) increased by 28 percent on average for the country. Source: El Laithy (2008) and World Bank (2007).

4.8. Off-farm employment competes with agriculture for workers. Several studies looked in detail at the evolution of agricultural wages in Egyptian villages. 20

20 See Commander 1987 for an earlier attempt to understand demand and supply in a village labor market. Datt and Olmsted (1998) looked at the differences in dynamics of agricultural wages across governorates in 1976-1993. They report that agricultural yields did not affect agricultural wages but that growth in total cropped area did, but only weakly. With regard to non-agricultural sources of labor demand they found that increases in industrial output per-capita at the governorate level have a positive impact on agricultural wages.

The level of real wages in rural Egypt has been determined by a variety of factors, in which labor supply and remittance payments from urban workers play a significant role. Opportunities for off-farm employment drove real wages higher in the 1980s, a trend that reversed in the late 1980s with increased labor supply and a tapering-off of remittances, coupled with accelerating inflation. More recently, agricultural wages increased at pace with

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the rest of the economy. It remains to be seen, however, whether wages were affected by the food crisis of 2008.

4.9. Why the development of non-agriculture activities is limited in Upper Egypt? As argued above, Upper Egypt has already critical mass of industries grouped around its natural resources and infrastructure. By 2007, there were 6,000 large and medium firms registered with GAFI in Upper Egypt and over half a million small firms according to the Establishment census (Annex table T4). There are 44 industrial zones in the governorates of Upper Egypt out of a total of 90 for the country as a whole (including totals from the Red Sea and New Valley districts in Upper Egypt). Table 4.5, however, qualifies this success story: in terms of the economic weight of these entities, Upper Egypt continues to lag behind the rest of the country. Excluding Giza, which is part of greater Cairo, the governorates of Upper Egypt accounted for less than 10 percent of private investment in registered firms in the last 20 years.

Table 4.5: Industrial profile of Upper Egypt Fayoum Beni Suef Menia Assiut Quena Sohag Aswan Luxor

Main industries

Ceramics, refrigerators, paints, textiles, carpets, sugar, sunflower oil

Cement, clay, paper, metals, spare parts, food, textiles, carpets

Food processing, weaving, chemicals, sugar

Fertilizers, phamaceutic., cement, chemical, glass, carpets, wood, ivory

Cement, aluminum, sugar

Chemical, oil, textiles, food processing, sugar

Energy, cement, metals, tourism,

Tourism

Number of companies est. 1996-2007*

318 416 476 813 203 402 192 133

Capital of new companies % Egypt 0.7% 0.9% 1.1% 1.8% 0.5% 0.9% 0.4% 0.3%

New industrial zones

3

2

1

7

7

Note *Under Law 1981/159; many companies registered in Giza de-facto work in greater metropolitan Cairo area, and are excluded from this insert. Source GAFI and Min of investment http://www.investment.gov.eg/MOI_Portal/en-GB/Information+Center/Press_Media/News/upper+egypt15-05-2008.htm

4.10. Upper Egypt is seriously lagging behind in the development of export industries. Data on industrial production and exports by manufacturing firms are available by governorates for 2005 and 2006 only as reported in Table 4.6. While it is clear from this table that manufacturing in Egypt remains heavily concentrated in metropolitan areas, Upper and Lower Egypt have similar levels of production for export.

Table 4.6: Industrial production and industrial exports, by regions - FY05/FY6

Contribution to Egypt’s total, FY06/FY06

Growth rates, 2006-2005

Total production Export Production Export

natiloporteM 45.4 66.3 50.6% 118.4% ygE rewoLtp 20.9 16.7 0.6% -1.1%

tpygE reppU 14.3 15.4 -0.3% 1.3% Upper Egypt w/o Giza 4.9 10.1 0.2% 0.0%

reitnorF 19.3 1.5 0.0% -0.2% Egypt 100 100 20.3% 65.5%

Source: CAPMAS covers industrial production for government, public and private sector. Note: In current prices.

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4.11. Upper Egypt is mostly attracting capital-intensive investments and not labor-intensive industries. The data from GAFI on the investment by governorates can be used to assess trends in investment over time. Figure 4.2 shows a clear spike in Upper Egypt’s share of capital of registered firms after the new 1998 incentives (Law 8) were put in place. After the spike, Upper Egypt’s share of capital remained relatively stable into the 2000s. A comparison of Upper Egypt’s share of capital (over 20 percent) with its share of industrial production (about 15 percent, table 4.6) indicates that the region is attracting mainly capital intensive industries.

4.12. Very little is known about the investment climate in rural Upper Egypt and about likely ways to improve its prospects in attracting labor–intensive industries. The recent Investment Climate Assessment for Egypt looked at regional differences in several key dimensions of investment (World Bank 2009d). It shows that Upper Egypt does not have – for existing firms – worse business climate than Cairo or Alexandria. The most notable difference in Upper Egypt is the most obvious; its great distance from markets and ports poses transport challenges. Upper Egyptian firms sell a smaller percentage of their output as direct and indirect exports, relying more on domestic sales. Moreover, the urban investment climate in the central cities of governorates, such as Assiut, is much superior to that of smaller cities and rural areas.

4.13. Labor intensive sector of SMEs is underdeveloped in Upper Egypt, and this affects the opportunities available for residents. A further look at the development of SMEs is offered by Figure 4.3, which is using census data of 2006. Upper Egypt has the lowest density of “micro firms” -- those employing 1 to 4 workers – with only 21 per 1000 inhabitants compared to 50 in metropolitan areas, and 35 in Lower Egypt. This underdevelopment is more pronounced for small and medium enterprises: one per 1000 in the category 5-9 workers, compared to almost two in Lower Egypt, and in the category 10 to 99 workers, 0.2 versus 0.4 in Lower Egypt.

Figure 4.2: Distribution of Capital Stock in New Firms, 1990-2007 by Region (Cumulative from 1990, percent of total for Egypt)

0%

20%

40%

60%

80%

100%

1990 1992 1994 1996 1998 2000 2002 2004 2006

Border Governorates Metropolitan Lower Egypt Upper Egypt

Source: GAFI, Note: Sum of capital of companies registered under two laws: 159 for 1981 and 8 of 1997. The latter provided over 20 investment incentives in several specified activities. Companies (foreign or domestic) established under this law benefited from tax holidays reduced custom duties, and guarantees until 2005. Law 159 for 1981 is the non-incentive law. Excluded from this data are companies registered under the Commercial Law (partnerships, partnerships and sole proprietorships), which are typically small.

Figure 4.3: Number of firms per 1000 population, by workforce categories

0

10

20

30

40

50

60

Metropolitan Lower Upper Upper w/oGiza

Frontier

firm

s pe

r 10

00 p

opul

atio

n

0

1

2

3

4

5

6

firm

per

100

0 pe

ople

1-4workers,left axis

5-9workers,right axis

10-99workers,right axis

Source: Census 2006 (CAPMAS), see Annex Table T4 for underlying data by governorates.

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4.14. Specialized studies conducted by UNIDO reveal structural weaknesses of SMEs that operate in Upper Egypt. Out of the 109 clusters of SMEs mapped by UNIDO in 2003, only 15 were found in Upper Egyptian governorates. The main constraints on SME development in Upper Egypt (El Meehy 2004) are: poor access to capital, high taxes, and lack of demand. 21

4.15. The development of SMEs is constrained by a heavy-handed bureaucracy and red tape. Starting a SME in Egypt takes between 13 and 91 administrative steps, representing between 52 and 232 days of work. To declare bankruptcy, 53 steps are required, involving 41 entities, taking up to 635 days. Bribes add 50 percent to the administrative costs (El Meehy 2004). More fundamentally, according to the UNIDO report, “a striking feature is the low degree of inter-firm cooperation within clusters” due to the lack of trust among entrepreneurs.

Due to stagnant economic conditions in the rural areas and the associated poverty, demand for goods or services is often limited to essentials. To grow, SMEs need to be competitive in external markets, which is difficult due to poor access to information and lack of transportation. Weak infrastructure (water, sanitation, communications) takes its toll on SMEs that depend on public networks.

4.16. Remittances and return migration are not fueling non-farm economy in rural Upper Egypt. Throughout most of the world, savings of returning migrant workers play a very important role as a source of investment in the SME sector. This is not happening in rural areas of Upper Egypt. Using data from a special round of the Labor Force Survey for Egypt, McCormick and Wahba found that although the number of returnees to rural and urban areas is similar, the savings of urban returnees are higher. Moreover, returnees to urban areas are much more likely to create new enterprises. In Upper Egypt, remittances are more often used to compensate for losses in agricultural production and continue micro-farm operations (NSCE Background Study, 2009). These findings suggest a hitherto under-appreciated mechanism of widening urban-rural inequality linked to international migration.

4.17. Public investment programs have only recently started to prioritize Upper Egypt and it cannot compensate for lack of dynamism in private investment. Figure 4.4 shows that until recently the per capita public investment in Upper Egypt was just 30 percent of the level in Metropolitan areas. But between 2001 and 2008 new programs began to significantly increase public investment in Upper Egypt. The first goal was to achieve parity with the rest of the country in per capita allocation under the current 5-year plans—in 2005-2007 Upper Egypt received 40 percent of public investment, close to its share of population (MoED Reports), and then to massively shift resources in favour of Upper Egypt.

Subsidized Credit is not Sufficient to Stimulate the Development of Off-farm Activities

4.18. The government of Egypt has put high hopes in the development of SMEs and is continuing to promote SME growth in Upper Egypt. Since it was believed that the main constraint for SME development is access to credit, policy planners favored a program of subsidized credit. This program

21 Limited local demand due to market fragmentation is the most pressing constraint for rural firms globally, even though they face more severe supply-side constraints than urban firms (Rijkers et al 2009).

Figure 4.4: Redressing the Bias against Upper Egypt in Public Investment 1998-2012

Average per capita public investment (Metropolitan=1.0)

0.30.3

1.0

6.4

1.31.001234567

Metropolitan Low er Egypt Upper EgyptAverage FY98-FY00 Planned FY08-12

Source: Calculated from Governorate level data Min of Finance, Note: actual investment differs from the planned investment.

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took shape in the Social Fund for Development (SFD, Box 4.1), and a creation of a specialized bank, PBDAC, to channel it to rural residents. Other funds, such as the Local Development Fund, are much smaller and not discussed here.

Box 4.1: Egypt: Social Fund for Development (SFD) The SFD was established in 1992 as a social safety net to urgently address the needs of the population most adversely affected by the structural adjustment program in Egypt. It is considered one of the oldest and largest SFDs worldwide, in terms of size of finance and number of donors. It is focused on creating employment for vulnerable groups, especially in the rural non-farm sector, by providing access to credit to those excluded from the banking system. Its main activities include the Small Enterprise Development Program, promoting employment and income-generating opportunities in the small micro-enterprises sector. In 2002 alone, the program granted more than 14,300 loans averaging LE 24,000 (US$5,100) and 32 per cent of the beneficiaries were women. The SFD activity aims to strengthen partner agencies’ capacities to carry out community development programs, create income-generating employment opportunities for low-income groups and encourage local participation in productive activities. The SFD also implements a public works program through 27 regional offices in all of the country’s governorates. The SFD has an impressive record of involvement in a variety of operations. Over time, the SFD expanded both strategically and organizationally to provide an integrated package of services geared at promoting sustainable poverty reduction measures, economic development, and non-financial services, including technical assistance, training and product marketing. Since its inception in 1991, the SFD has disbursed an aggregate of 11.4 billion LE ($2.5 billion) in different sectors. It is estimated that between 1992 and 2008, slightly more than one third of the Egyptian population (25.0 million) has benefited from SFD interventions, and about two million jobs have been created. Source: Arab Republic of Egypt, Upper Egypt: Challenges and Priorities for Rural Development, Policy Note, World Bank, June 2006. SFD; Impact evaluation – Presentation by El Azony and El Laithy (2008).

4.19. Remarkable progress has been achieved in providing better access to credit, but it is not very well targeted to the poor. The first achievement was raising awareness. In a recent community survey, more than 92 percent of Upper Egypt communities declared that they are in need of micro-credit, but less than 70 percent actually benefit from these loans (Community Survey 2005, Barghout 2009). The targeting assessment of SFD (El Azony and El Laithy) found that by 2005 in both urban and rural areas, micro-credit, health and potable water interventions targeted poorer communities. But education, wastewater and paving of roads micro projects targeted wealthier communities, away from the poorest areas. When it comes to target individual households the outcomes were worse, especially in Upper Egypt: while 54 percent of the poor households in Beni-Suef benefited of at least one SFD intervention, only 26 percent of the poor in Assiut (the poorest governorate) were reached by any SFD intervention.

4.20. SMEs are traditionally thought of as well-positioned to respond to increased demand by creating jobs. Their base employment is very large, highly labor-intensive, and depends on local communities for labor and other inputs. Furthermore, they have low capital requirements and offer opportunities for female employment and entrepreneurship. Gavian et al. (2002) looked at the effect of agricultural incomes on the development of rural SMEs. They found that rural SMEs are not likely to expand employment in response to increased demand because they have excess capacity. SME jobs created through enterprise expansion are more likely in urban areas. The SMEs that had the highest ability to generate employment were the least labor-intensive and had the highest average annual capital growth rate. In particular, the services sector had the highest ability to generate employment, but the weakest links to agricultural base. Authors argued that economic diversification away from agriculture was a pre-condition for job creation.

4.21. Current projections and plans for employment generation rely on SMEs to generate jobs. GOE estimates that the Social Fund for Development (SFD) can generate 200,000 jobs annually. It is estimated to have created two million jobs between 1992 and 2008, about 125,000 annually. Suffering

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from high underemployment rates – primarily due to the lack of sufficient demand to keep people fully employed – these enterprises will not generate additional jobs until their capacity has been fully utilized.

4.22. Less effort is focused on programs that address regulatory obstacles and capacity for off-farm employment in micro enterprises. SME development is too far removed from the realities faced by the rural population, and particularly the poor (El Meehy 2004). Different constraints for development apply to micro businesses than for SMEs. It is more a question of access to finance than of skills and marketing channels. There are several micro-finance programs (USAID, CIDA BDSSP) that overcome general institutional weaknesses: very decentralized, close to potential clients and service-oriented. Most effective may be a combination of institutional reform, and capacity building to take advantage of new business opportunities with subsidized credit (see Box 4.2).

Box 4.2: Eco-tourism in Fayoum: Nazla Village. Most visitors to the Fayoum tend to come for the day and do not make use of overnight accommodation. The lack of poor marketing and communication, complicated and burdensome security procedures for foreigners, as well as missing signage, interpretation and infrastructure facilities make that the number of visitors at cultural, natural geological and archaeological sites is low. Most visitors do also not get a chance to spend money on locally produced merchandise, such as food and handicrafts, and/or to employ the services of local guides and service providers. Yet, El Fayoum is an attractive destination for nature and culture based ecotourism given its proximity to Cairo. The availability of camel trekking services, bird watching guides, traditional rural life itineraries, antiquities etc. enhances Fayoum’s appeal. To mobilize resources and establish the proper conditions in the local public and private sector to initiate a planned series of ecotourism projects in the Fayoum, the Royal Dutch Embassy in Cairo has agreed to finance a project called “Preparatory Phase for Ecotourism in Fayoum Project”. Objectives of this initiative were to secure the effective commitment of the Fayoum governorate, other governmental agencies, donors and the private sector in the long-term implementation of ecotourism in Fayoum, to mobilize new and additional resources, and to operate a series of demonstration ecotours, which would stimulate future ecotourism development. The project implemented in 2003-2004 focused on one village (Nazla) and through the awareness raising, training, promotion of private investors, contacts with the authorities and tour operators showed that it is possible to develop local, community-based services and activities for ecotourism and that there is a real market demand for such services.

Source: Merabet (2009)

A Lack of Human Capital is Constraining Off-Farm Activities

4.23. Skills limit the potential for off-farm employment. Indeed, 55 percent of the labor force of the villages in the Upper Egypt is illiterate, versus 40 percent of Lower Egypt (Barghout 2009, Figure 4.5). While it may not be the key factor for development of agricultural productivity, there is a significant negative effect of low education on the ability to attain employment outside of agriculture (El Laithy 2008). A characteristic feature of the labor market of Upper Egypt is an abundance of unskilled labor. The community survey (Fig. 4.5) shows a noticeable difference in the educational attainment of the labor force. This difference is especially large between poor Upper Egypt and Lower Egyptian villages.

Figure 4.5: Education Attainment of the Labor Force by Poverty Status of Villages

0

10

20

30

40

50

60

LowerEgyptNot

Poor

UpperEgyptNot

Poor

LowerEgyptPoor

UpperEgyptPoor

LowerEgypt

UpperEgypt

Illiterate

Only Basic Education

Only Secondary Eucation

Source: CAPMAS community survey (2005) matched with HICES. See Table 1.7 for definition of “poor” and “not poor” villages.

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4.24. There is a sizeable portion of children who do not attend school or who learn very little in school. Most of them concentrated in Upper Egypt, and most are girls from poor families. As many as 26 percent of girls aged 13–19 in rural Upper Egypt either received no schooling or dropped out after just one or two years in school (Box 4.3). Social norms dictate that as girls reach adolescence, they should be closely supervised until a husband can be found, especially if they are not in school. Arranged and early marriages are far more likely for these girls, followed rapidly by successive pregnancies, thus perpetuating the cycle of illiteracy and poverty. This perpetuates lower female employment rates in Upper Egypt compared to Lower Egypt.

4.25. When schools are available, there is still a need to improve the quality of the services they provide. Government school classes are too crowded, do not have enough teachers and are unequipped. Private schools, however, are too expensive and also suffer from a shortage of teachers, but to a lesser extent than government schools. The most worrying for local villagers are large classrooms sizes --exceeding 60 students per classroom in many areas (especially in affiliated villages) -- and schedules that divide the day into morning and evening classes. This compares to averages of 40 students per class in governorates of Upper Egypt (UNDP), and suggests sharp differences between urban and rural areas, and among mother villages and associated villages within rural areas. The number of teachers is insufficient: in Sohag governorate, the deficiency in teachers reaches 11,000 teachers, 2,200 in Dar-El Salam directorate alone (NSCE). School books are also delivered late: two months passed since the beginning of the school year, and many subjects were not taught either because of the lack of teachers and/or books, as a background study in Sohag in 2008 revealed (NSCE, 2008). Moreover, many teachers are unqualified to teach, due to their background and specialization.

Box 4.3: Ishrak program Caritas, CEDPA (Centre for Development and Population Activities), the Population Council, and Save the Children created the pilot intervention, known locally as Ishraq (“enlightenment”), in 2001 in four rural villages of Al Minya governorate in Upper Egypt. It sought to transform girls’ lives by changing gender norms and community perceptions about girls’ roles in society, while bringing them safely and confidently into the public sphere. Moreover, Ishraq sought to establish girl-friendly spaces in the communities for girls to meet, learn, and play. Through a combination of literacy classes, a life skills program, and sports, Ishraq provided girls with new and valued skills and changed the way girls see themselves. The program, like most NGO programs, covered a tiny group of 277 girls. Even though it operated on such a small scale, it made important contributions. The program increased literacy levels and knowledge of critical reproductive health issues and transformed gender norms and attitudes. Parallel changes also occurred among governorate and national-level ministry officials, who have become enthusiastic supporters of Ishraq. 92 percent of Ishraq participants passed the government literacy exam; 69 percent of participants who completed the program entered or re-entered school. Ishraq girls expressed a desire to marry at older ages and to have a say in choosing a husband. Attitudes of parents and male peers were also altered through programs designed for them. Sources: Brady et al 2007

4.26. Educational expenses are the main factor excluding the poor from education. These include official costs (such as uniforms and books and tuition) and transportation costs, but also private lessons, made essential as a result of the deterioration of the schools. A student in the primary phase requires 50 LE to 100 LE for private lessons, depending on the year and phase of education. Current policies seem to encourage more private lessons. For example, new jobs for educated unemployed people are created by appointing them as teachers in their villages, regardless of their field of education. They obtain low salaries (the contracted primary teacher salary is 97 LE per month) and often lack the required qualification. To complement meager salaries, teachers make private lessons semi-obligatory. Students are discouraged because of low quality of education and high unemployment rates among educated

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people. Hence many enroll in vocational schools; these schools are not reputed to be of good quality, but they have the most lax attendance requirements; students are able to graduate while regularly working.

4.27. Field studies question the accuracy of official statistics regarding dropout rates and indicate that educational problems in Upper Egypt may be harder to solve. For example, in Al-Salam village (researched in the field study of Sohag villages in 2008), the number of students in the preparatory phase represented 50 percent of the students previously enrolled in the primary phase. The number of students in the secondary phase represented only 13 percent of the students previously enrolled in the preparatory phase. Also, the number of girls in school decreased with the advancement of educational phases. The number of girls in the primary phase was 51 percent, decreasing to 45 percent in the preparatory phase and to 38 percent in the secondary phase.

4.28. Can this system that discourages children and parents to seek education for their children be transformed to modern vocational education that responds to market needs? This is a strategic objective of the government reform in education. Assessing its implementation goes beyond the scope of this report. But education reform is fundamentally important to change the social dynamics of Upper Egypt.

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C H A PT E R 5. M I G R A T I ON H A S ONL Y A L I M I T E D E F F E C T ON POV E R T Y I N UPPE R E G Y PT

Migration of population out of poor areas is a powerful factor that reduces the disparities between regions and connects poor areas to growth poles. Differences in living standards between Upper Egypt and the rest of the country create a powerful incentive for mobility. But it has a limited effect on migration flows in Egypt and a small impact on poverty. This is due to policies that tend to slow migration to overcrowded metropolitan areas and to institutional constraints – primarily underdevelopment of key markets, such as land, housing - which make migration costly and difficult. These policies also constrain migration within Upper Egypt, and limit the adequate development of local urban agglomerations.

Migration Rates in Egypt are Low

5.1. Egyptian statistics rely on a limited set of census indicators to measure population movements. According to the 1996 census, only 6.3 percent Egyptians were migrants. In the 2006 census, just 6.5 percent (4.7 million) responded that they did migrate.22 As pointed out in the investigations of Egypt’s housing sector,23

5.2. Upper Egypt population stands out as particularly immobile. Those who reported themselves as migrants in the latest 2006 census in all Upper Egypt governorates were a mere 280,000 compared to 4.7 million for Egypt as a whole.

there is little urban residential mobility. More recent data and especially data from a panel survey tracing individuals over time suggest that migration, especially internal, is not as low as census data suggest, but still lower than one would expect. According to panel data from 1998 to 2006, the share of movers from rural to urban areas increased five-fold compared to 1990-1998, but remained at 1.5 percent. Urban to urban migration was slightly larger, at 1.6 percent, and urban to rural dominated the picture at about 4 percent (Whaba 2007).

5.3. External migration estimates depict rather low migration flows. CAPMAS estimated the number of Egyptians abroad to be 2.7 million (Zohry 2002) based on reports from Egyptian embassies, records of cross-border flows from the Ministry of the Interior, work permits from the Ministry of Manpower and Emigration, and other sources. These statistics are considered over-estimated because they may count individuals several times. For example, the number of Egyptian migrants in Italy estimated by an Egyptian source is more than twice the estimate made by the Italian government (Zohry 2002).

5.4. Low migration rates and the prevalence of urban-to-rural migration are surprising, given the extent of regional differences in living standards. Both trends defy world-wide patterns. There are several explanations for this strange phenomenon (Whaba 2007). Firstly, it is believed that some of this migration represents a movement of urban residents to suburbs, which only nominally count as rural areas. Secondly, much of the increase in urban–rural migration since 1986 was explained by return migration of retired migrant workers to their home villages. Third, some experts suspect that most rural laborers in Cairo are not officially registered by the census and are therefore excluded from sample 22 It is important to make explicit the way migration is measured in Census: migration is recorded by comparing present residence with a place of birth. Hence the move could have taken place one year before the census date or twenty or more years; in the latter case the same persons are likely to be recorded as being migrants across successive censuses, until they die. 23 World Bank, 2007c, and USAID: Housing Demand Study for Greater Cairo, June 2006,

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surveys, including the panel survey cited above. These rural–urban migrants may escape census counts because of their “hidden” residence as squatters (Zhory 2002).

5.5. The reported rate may not capture the phenomenon of circular migration (or temporary work). “Circular” migrants spend most of their working lives in Cairo but retain family and socio-cultural bases in their home villages in Upper Egypt. Even though only 10 percent of the residents in greater Cairo were born in rural areas (Whaba), it is estimated that over a quarter of the Egyptian population are migrants to the places where they currently live, and a majority have had an experience of extended stays in other governorates, or have gone abroad to work (Whaba). Some regions, especially the south, have many of these “absentees”. World Food Programme in its recent study found that in Upper Egypt between 20 and 50 percent of youth have left to find employment (WFP 2008). The field work in Sohag conducted for this study revealed that migration is considered an important means of income for many families. It may be the main source of income to finance living costs directly or indirectly through funding agriculture. The participants in focus groups in four villages almost unanimously agreed that 30 to 40 percent of households have a member who resorted to migration (internal, external, permanent or temporary).

5.6. To get a more accurate picture of migration, table 5.1 uses the results of the two most recent censuses and data on fertility by governorates from 1996 to 2006. It estimates the “expected” population by governorates (urban and rural areas) in 2006, and compares them with actual population numbers in 2006. The difference between “expected” and “actual” represents the net change (saldo) of population movements across governorates and across urban and rural areas. Rural Upper Egypt was a major source of out-migration.

Table 5.1: Population growth and estimated migration saldo by region, 1996-2006 Population (thousands)

Change in population 1996-06

of which:

Regions 1996 2006 Natural increase

migration saldo

Metropolitan 11,042 12,978 +1,936 +1,806 +130 Lower Egypt Urban 7,138 8,504 +1,365 +1,286 +79 Lower Egypt Rural 18,681 22,730 +4,049 +4,579 -529 Upper Egypt Urban 6,466 8,597 +2,131 +1,266 +865 Upper Egypt Rural 14,972 18,483 +3,512 +4,551 -1,039 Frontier 818 1,287 +469 +241 +228 All Egypt 59,117 72,579 +13,462 +13,729 -267

Sources: Calculations based on CAPMAS census results and published annual statistics on demographic movements by governorates and urban/rural areas.

Migration’s Effect on Changes in Poverty

5.7. The migration flow from higher poverty areas to lower poverty areas has an impact on poverty rates. Following Chatti, R. and A. El Lahga (2008) table 5.2 presents simple decomposition of the changes in the number of poor between 1995 and 2005, taking into account population growth and migration effect. Assuming that the governorates’ poverty rates would be the same if migrants would stay where they were born,24

24 In fact impact is likely to be larger than presented on table 2.16: most often migrants are poorer than others in their places of origin. Zhory in his filed study (survey and in-depth interviews) of migrants from Upper Egypt in Cairo finds that an absolute majority of them are young men (20-24). They also come from large families (on

the table clearly shows limited importance of migration as a driver of changes in the regional poverty incidence.

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Table 5.2: Decomposition of the change in the number of poor between 1995 and 2005 Change in the number of poor (thousand) due to: Population

change Poverty risk

change effect Migration

effect Population

growth effect Total change in the

number of poor Metropolitan -954 +244 +12 -698 +1936 Lower -1204 +1112 -82 -173 +5414 Upper +2589 +1386 -180 +3796 +6004 Frontier +77 +23 +45 +145 +469

Source: World Bank staff estimates using data in table 1.12. 5.8. Effects of migration are visible, but not a significant factor of poverty changes in Upper Egypt. Without migration, poverty would have been much worse in the governorates where the poverty increased: Assiut would add 150,000 more poor people to its population, and Menia, Beni Suef and Sohag, 50,000 more each. At the level of the region instead of 3.8 million new poor between 1995 and 2005, Upper Egypt would have 4 million new poor. Thus, migration played some role in preventing even larger increases of poverty, but only to a limited extent. Population growth pressure was similar in Upper and Lower Egypt, and their very different paths of poverty change were not driven by the differences in population growth rates, fertility, or propensity to migrate. Lower Egypt added more people to its population, but achieved a reduction in the absolute number of poor, while Upper Egypt with similar increases in population saw almost doubling of people below the poverty line.

5.9. In some countries, flows of remittances compensate for the weaknesses of the agricultural economy as a source of income for the poor. In Egypt over the period 2000-04, workers’ remittances from abroad amounted to about 3.5 percent of GDP. That was US$4.4 billion in 2004/05 and as a share of GDP less than Jordan, Tunisia and Morocco, but comparable to Pakistan – (Bougha-Hagbe 2006). Remittances’ contribution to the balance of payments has been close to that of tourism in recent years, and their impact on Egypt’s external position has historically been significant. The analysis of remittance flow shows that they are associated with changes in agricultural value-added, increasing at the time when incomes in rural areas fall, thus playing a stabilizing role for incomes (Bougha-Hagbe 2006), and probably reducing incentives to migrate. However, micro-level empirical evidence presented in chapter 2 of this report suggests that the poor receive a disproportionately small share of remittances. Therefore, remittances do not reduce poverty in Egypt.

5.10. Housing in urban areas is unaffordable to the vast majority of rural residents. For most Egyptian families, the move to a new location is a once-in-a-lifetime decision, usually at the point of marriage.25

5.11. It is surprising to see how little migration there was to Cairo and other metropolitan cities that boast better living standards. This paradox is analyzed in several studies, showing that choices for destination are determined by family kinships and ties, and each village has its own destination (see box 5.1). Migration is typically not permanent: Youth migrate to achieve certain financial goals, and then

But there are also various impediments to migration. The Iraqi war, which forced Upper Egypt migrant workers to return home, was a major factor contributing to reducing the migration abroad and particularly affected Upper Egypt. The return from Iraq has increased pressures on existing services, contributed to the rise in unemployment and increased competition for jobs.

average 8 members as opposed to average in Upper Egypt of 5.9), 60 percent of them are from landless, and further 24 percent – owning less than 1 feddan. 25 According to the Census (special volume on internal migration, December 1998), “marriage” was the reason for changing residence for 30.4 percent of cases, and “accompanying others” 29.0 percent of cases. “Work” was the reason in 22 percent of cases. Similar distribution has been observed in 2006 Census (CAPMAS) with work representing 23 percent of cases, accompanying others increased to 36 percent and marriage slightly fell to 29 percent.

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return to their place of birth. What does not seem to happen is any significant narrowing of the income gap between Upper and Lower Egypt. This implies that the rural–urban labor transfer is not an equalizer for wage differences. Instead it is a fundamental structural element of the geographically-divided dual sector economy, where the urban and rural economies remain functionally apart yet connected by migration channels.

Box 5.1: Against the odds: migrants from Upper Egypt in Cairo. Zohry conducted an in depth research on migrant workers from Upper Egypt, their motivation, type of living arrangement, household profiles and employment. The main conclusion from his study is the reliance of migrants on social networks that play a determining role in migration decision. He noted a unique type of hiring that prevails among migrants who have solid family and social networks in Cairo. For some villages – or a group of villages – in Upper Egypt there are well-known permanent focal points representing a concentration of old migrants. They live pretty much as if they are in their villages, keeping the same customs, norms, daily lifestyles, and traditions. It is an example of a kind of “urban ruralization”, with many parallels in the squatter barrios of recent migrants around Latin American cities orthe shanty-towns of Istanbul and Ankara, where “peasants without plows” bring elements of rural life into the city. In Cairo, newly-migrated unskilled laborers live together in these urban suburbs and districts, which facilitate their accommodation and the finding of work opportunities for them. The most noteworthy examples of these migrant suburbs are Imam Shaf'i and Bassateen in southern Cairo. Thousands of families who have migrated from two village groupings in Souhag governorate – mainly Seflaque and Sawam'a villages – have settled and resided in these areas near the Mokattam and then established and expanded these two suburbs as a kind of model of slum areas in Cairo. About half of these families live in cemeteries (the infamous “city of the dead”) and other areas with no access to public services. Employers or contractors are usually old migrants from these areas – but who have now become permanent residents. They select the number of workers that they need and confirm with them their job for the following day(s). One employer stressed the economic importance of unskilled Upper Egyptian laborers in the construction sector: “These very poor people are the backbone of the construction sector in Cairo. Before, they were the backbone of the construction sector in Arab countries, especially Saudi Arabia and Libya. Now, they are very important to us in this sector. We use newly-developed machines and equipment but also we use Upper Egyptian laborers.” Source: Zohry (2002)

5.12. Even more than long-distance migration, the potential of the local cities as point of attraction for the surrounding areas is greatly under-utilized. Short distance movements (within the same governorate or agglomeration) dominate in the overall migration flows (Whaba), but remain small. Rural areas also show increasing commuting rates, i.e. working in a different administrative location compared to the place of residence, but the rates remain less than one percent (Whaba). A very important impediment to commuting is the high cost of transportation, and barriers to entry to local labor markets.

5.13. The growth of most cities in Upper Egypt is severely limited by their geography – they are surrounded by highly protected agricultural areas. This limits expansion and growth and opportunities for investment. Industrial zones located far away from cities offer logistical challenges.

5.14. Egypt addressed this challenge by developing desert areas as “new cities”, the world’s largest such program. In 20 years, Egypt has built 20 new cities and is preparing 45 more. Large industrial zones were created and generous tax incentives were given to the private sector. The performance of the six cities created 30 years ago suggests a mixed record (Stewart 1996). Cities closer to Cairo have attracted

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business and people, though much fewer than anticipated. Cities distant from Cairo remain unattractive for skilled labor due to a lack of amenities and transport links. The new cities have no more than one million inhabitants (1 percent of Egypt’s population), compared with the five million target. The program was also costly: 22 percent of the Ministry of Infrastructure’s investment under the 4th Plan (1997-2001) was spent in these new towns.

5.15. The GOE (MHUUD) has recently launched a new concept in desert reclamation called “the desert backyard” (el zhahiir el saharawi). The aim is to exploit desert areas within 5 km distance from the cultivated Nile Valley (mostly in Upper Egypt) by land reclamation combined with the construction of new villages and small towns. The rural communities facing such desert backyards would be encouraged to expand into these areas. The scheme recognizes for the first time the dynamic of “close-by” small-holder reclamation, which has been going on informally for decades along Egypt’s desert fringe. It aims to mobilize nearby rural community solidarity to advance into this backyard in a better coordinated way. However, the experiment is still in its infancy, with 21 villages said to be planned or under construction (World Bank 2008 b). This plan highlights the tension of a lack of clear definition of cities and village boundaries; only a quarter of villages in Egypt have boundaries approved by the authorities.

5.16. Migration can have much larger positive effect on poverty at the national level and in the lagging regions, as various examples around the world suggest. But its potential is severely underutilized in Egypt. Instead of facilitation, most government policies explicitly seek to erect barriers to greater migration flow, raising its cost and reducing its flow. The lagging development of Upper Egypt is, to a significant extent, the flipside of “success” of policies to limit the growth of metropolitan centers.

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C H A PT E R 6. PUB L I C I NV E ST M E NT S PR OV I DE L I T T L E T O T H E POOR I N R UR A L UPPE R E G Y PT

Provision of better infrastructure and basic services to Upper Egypt has been a main pillar of development efforts in recent years. They have dramatically expanded their coverage, to the point that on many counts Upper Egypt is no longer lagging behind Lower Egypt. But this expansion has often stopped at the level of mother villages, leaving out the satellite or affiliated villages where most of the poor live. Quality also suffers from lack of incentives to properly maintain the infrastructure which is already there. Infrastructure to address poverty is weakened by a failure to balance investment in new construction with maintenance, through the involvement of communities in creating and supporting the infrastructure. There has also been a bias in allocation of investment in favor of wealthier communities over the poor.

6.1. Development efforts in Egypt aimed to provide better infrastructure and basic services by the State and private firms. These efforts have paid off in the form of exceptionally good coverage for some infrastructure services. Except for some singular cases of extreme poverty or remoteness, electricity is available in all villages and houses. The fastest progress, however, occurred in the areas covered by private providers, and even more spectacular progress has been achieved in telecommunications. Telecommunications have greatly improved access to information by farmers and workers in Upper Egypt, providing employment opportunities to laborers; mobile phones became the most important means for linking employers with jobseekers. They also strengthened ties among migrating family members, thus reducing negative consequences of both internal and overseas migration.

6.2. The vast majority of people in Upper Egypt have access to water from water networks (Table 6.1). This does not necessarily mean that water reaches all houses; there is still a fluctuating percentage of the population forced to fetch water from main taps, neighbors, or places of worship.

Table 6.1: Quality and Access to Public Utilities for Poorest and Richest Communities, 2005 Percent of population

Water Electricity Sewerage Connected coverage quality Connected coverage quality connected Coverage quality Urban Upper Richest 20% 100.0 100.0 61.6 100.0 100.0 100.0 61.5 79.3 62.2 Poorest 20% 100.0 96.4 71.0 100.0 100.0 86.4 9.5 >2 >2 Total 100.0 92.7 48.2 100.0 100.0 88.5 41.7 71.5 42.9 Rural Upper Richest 20% 98.4 91.3 34.5 98.4 94.5 77.8 10.2 56.0 58.8 Poorest 20% 99.0 91.9 42.8 100.0 97.6 92.3 >2% >2 >2 Total 98.7 91.0 34.7 99.3 97.2 81.9 3.9 52.4 49.1 Note: The quality indicator is the percent of communities with ‘good’ service. Water is considered good if the system is stable, with strong water pressure, well maintained, and the water has no color, taste or smell. If the electric current is stable and there is good maintenance, the quality of electricity was considered good. The sewerage system is of good quality if there is no obstruction or superabundance in the system and the system drains in a drainage system. Source: Barghout (2008) based on Community survey 2005 (CAPMAS). 6.3. Sewage systems haven’t yet reached most of rural Upper Egypt. Sanitation there depends on establishing drainage tanks in which waste is collected and then drained by drainage cars. Table 6.1

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shows the percentage of communities with access to the main public utilities as well as the quality of services. The connectivity indicator shows whether communities are connected; the coverage indicator shows what percentage of the population of communities is benefiting from these connections; and the quality indicator shows what percent of these services are considered good. Even though there is an impressive connection to water and electricity, for sewage the access for poor communities is close to zero.

6.4. Field studies show a general agreement on the positive effects of water networks on quality of life, hygiene, and personal health (NSCE 2003 and 2008). Today, however, these effects are very much in doubt; the majority of the population believes that the spread of infectious liver and kidney diseases is due to severe pollution of water wells, whether from primitive domestic wells or from water networks. Pollution intensity increases due to the fact that sewage wells are formed close to the surface of the earth from which potable water is drawn; they are therefore subject to pollution via vertical leakage from drainage wells.

Poverty Impact of Infrastructure Investment

6.5. The importance of infrastructure in supporting the expansion of the non-farm economy has been well established by many studies throughout the developing world. Rural infrastructure is generally viewed as an essential requirement for growth of the rural non-farm economy: inadequate and poor-quality infrastructure imposes serious costs on virtually all economic activity, and private investment tends to occur where infrastructure is of a reasonable standard. In addition to lowering costs, good infrastructure, through means such as transport links, is essential if non-farm enterprises are to break away from dependence on the limited demands in local markets and orient their marketing to the outside world.

6.6. Good infrastructure is a critical determinant of private firms’ productivity, and promotes private-sector led growth. Upper Egypt faces important constraints in terms of market access, notably for its fresh products, which are perishable and highly sensitive to transport conditions. It is estimated that up to 20 percent of UE fruit products and 40 percent of vegetable products are wasted during transportation from the farm to the wholesaler. Estimates of tomato losses are as high as 60 percent. Operating costs for trucks are 30-50 percent higher in Egypt than in countries such as Lebanon and Jordan (World Bank 2009a).

6.7. In Egypt there is evidence that infrastructure investment and better management of existing facilities can have large effects on productivity, incomes, social conditions and poverty reduction. But the scale of this effect is not clear. Investment in roads in rural areas has clear impacts on the rural economy: lower transportation costs will reduce input and marketing costs, and enable farmers to shift land use from traditional crops to higher value, but more perishable, crop and dairy products, thereby increasing the revenues from their limited assets. The Upper Egypt Rural Development study identified infrastructure bottlenecks, primarily local feeder roads and trade logistics, as key binding constraints to growth in rural incomes and productivity (World Bank 2005). In a similar World Bank-funded project in Vietnam, it has been demonstrated that the establishment of new roads in villages raised the per capita income of households by 30 percent (van de Walle). The NEDA evaluation of water sector projects in Fayoum produced strong evidence that there are direct economic benefits in terms of increased incomes from infrastructure investment, which are complemented by gains in social outcomes (Impact Evaluation of the Netherlands Cooperation in Water Management in Egypt on Poverty Reduction. NEDA and GOE, prepared by NSCE, 2003). However, there were no precise estimates of the returns to that investment in terms of poverty reduction.

6.8. Yet there is also contrasting evidence from rural development projects which fail to achieve a significant impact on poverty. Sohag Integrated Rural Development Project (SRDP) designed in 1997

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(effective since 2000 and completed in 2008) is a case in point. It was designed to support the sustainable development of Sohag, one of the poorest governorates, through the participatory approach initiated by the SHROUK. The sub-projects financed under the Sohag RDP improved the quality, availability and accessibility of rural infrastructure and services. The SRDP provided financing in the amount of 302 million EGP for a total of 446 projects. These covered ten different sectors, including among others education and health facilities, roads, sanitation, irrigation, veterinary units, and post offices. Among the projects financed, roads and bridges absorbed a very large part of funding. On the one hand, they had positive effect. As claimed in ICR, they benefitted approximately 2 million rural citizens, or 65 percent of rural residents of Sohag. However, poverty rates in Sohag increased despite the implementation of this project.

6.9. A recent IFRPI study of public investment at the district and governorates level found significant average effects, but little evidence of trickle down to the poor. The study adopted a multi-level analysis approach to assess the effects of government spending on growth and poverty reduction. The study estimated three dynamic models for each region of Egypt, linking per capita total income with different types of public investment from 1980 to 2000 (IFPRI 2006). Benefits-cost ratio in terms of increased population incomes for public investment in roads was estimated to stand at 2.84, and in education it is as high as 4.86. These ratios are higher in Egypt than in India or China (where they are estimated to hover around 1), both countries investing massively in rural infrastructure. Micro-level analysis at the household level, however, revealed a strong effect on poverty only from the availability of telecommunication services, with roads, water networks, and social facilities being conspicuously insignificant (ibid). This suggests that even though the average region-level effects of infrastructure investment in incomes might be large, the poor have lower capacity to benefit from them.

6.10. Even though Upper Egypt is characterized by higher returns to investment, these returns are still small for the poor. For each million that LE invests in rural roads, an estimated 368 people will move permanently out of poverty (IFPRI 2006). This marginal poverty reduction effected by this investment is only slightly higher than the result of massive technical assistance spending in an AERI project to boost rural economy, which was judged largely unsustainable (see chapter 3). Most importantly, these impacts are estimated based on data spanning a period of 20 years during which there was a constant under-investment in Upper Egypt. The marginal returns therefore are higher than one would expect now after a reversal of the bias. More recent estimates reflecting the situation now are not available, but they are likely to be lower.

6.11. Simulations of potential improvement of the water network and roads using 2005 community data show that the potential to reduce poverty by better water and sanitation is rather low. The background study for this report (Barghout 2009) used a different, community-level approach to determine the effect of different infrastructure investments on poverty. Small-area estimation techniques (also known as poverty mapping) (e.g. Kijima and Lanjouw 2003) are applied to matched household survey-community survey datasets to capture the community environment effects on

Figure 6.1: Estimated Percent of Individuals Lifted Out of Poverty by Governorates by Covering all Communities by Water and Sanitation

Percentage Lifted Out of Poverty (Provision of Infra Structure Services)

-4%-2%0%2%4%6%8%

10%12%

Giza baniseuf

Fayoum Menia assuit Sohag Qena Asw an Luxor region

extreme poor poor nearly poor

Source: Barghout 2009

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households’ well being, and then simulates in a semi-parametric way the effects on poverty from extending services and infrastructure to under-serviced communities. Since the study has not controlled for selectivity and omitted variable bias, its results are only illustrative of the maximum possible effect. The impact seems to be more pronounced in the poorest parts of Upper Egypt: the highest percent lifted out of extreme poverty, 6.8 percent, is in Assuit. Almost 11 percent of the poor in Beni Suef are expected to be lifted out of poverty if these irrigation water and water network services are provided. Sohag comes in second place with more than 9 percent lifted out of poverty. On the regional level around 3.3 percent of extreme poor and 7.9 percent of the poor can be lifted out of poverty.

6.12. Providing better road networks shortens travel times to markets, bakeries, NGO’s, fire-fighting stations, ambulances, agricultural co-operative societies, and local phones. The estimated percent of those who can be lifted out of poverty if roads provide better access to these public services are shown in figure 6.2. In most cases effects are hardly larger than standard errors on poverty rates (Barghout 2009), meaning that their potential effect on poverty may not even be detectable in the data.

6.13. It is evident that provision of better roads to access public services could have only a relatively small impact on poverty. This applies to the whole region and to each governorate. The percent of poor population which could be lifted out of poverty ranges from about 6 percent in Assuit to less than 1 percent in Luxor. On the regional level, slightly more than 2 percent and 4 percent of the extreme poor and poor respectively are lifted out of poverty.

Why was the Effect of Infrastructure on the Poor in Egypt below Expectations?

6.14. Following the increase in public investment in Egypt, there was a spectacular increase in the density of both main and feeder roads, and a boom in the construction of roads and bridges. Road networks have expanded, linking districts to highways, linking main villages to districts, and linking villages to each other. This was followed by the expansion of water infrastructure, which is now a key priority of the government in its stabilization efforts in response to the global crisis (2009).

6.15. Investments have greatly impacted the availability, quality, and accessibility of critical public goods and services in rural areas, improving human development (including education and health) and contributing to the development of on- and off-farm activities. Due to expansion of infrastructure, the premise that Upper Egypt is significantly disadvantaged in terms of availability of government services and infrastructure is no longer true. The roads now seem to be in better condition in Upper Egypt than in Lower (see Table 1.8 in Chapter 1).

6.16. Already in 2005 24 percent of the population of villages of Upper Egypt has access to paved roads - compared to only 16 percent of the population in Lower Egypt. Share of poor villages in Lower Egypt where the roads are neither paved nor flat is 23 percent, while this share is only 19 percent for Upper Egypt (Table 1.8). Roads in the villages of Upper Egypt are also more likely to be lighted – 89

Figure 6.2: Percent of Individuals Lifted Out of Poverty by Covering Communities by Roads and other Community Services

Percentage Lifted Out of Poverty (Provision of Public Services)

-4%

-2%

0%

2%

4%

6%

8%

Giza baniseuf

Fayoum Menia assuit Sohag Qena Asw an Luxor region

extreme poor poor nearly poor

Source: Barghout 2009

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percent of villages in Upper Egypt have most of the roads lighted, versus 82 percent for Lower Egypt. Therefore, lack of good roads does not seem to explain why poverty is entrenched in Upper Egypt.

6.17. It is noteworthy that so much of the resources aimed at Upper Egypt have been directed to the roads construction. Doubtless, establishing roads and the increasing means of transportation have positive, influential developmental effects, most important of which are: better access to health services, increased school enrollment especially for girls, mobility of the labor market, allowing for more job opportunities, especially for laborers, increase in the transportation of goods. But there are some specificities of this expansion which are telling

6.18. There was neglect for maintenance of paved roads as opposed to their construction and first-time paving. As well documented by Sohag Rural Development project (World Bank 2008d), there are deeply engrained causes of neglect for O&M, and it estimated that at the level of this governorate only 40 percent of most basic requirements for O&M are met. There was a real failure, discussed in some detailed below, to increase participation of communities in maintenance and providing incentives for better planning. Instead, the incentives to spend allocated funds into large construction projects override other government policies.

6.19. Experience of community-based projects in Egypt show that it is hard to succeed in enhancing community participation in local decision-making and planning. For example, the participatory elements of the SRDP project, which were from the very beginning limited, were further diminished during project implementation. There was too much influence of the local authorities in the micro-project selection. Actual participation and involvement of the community members is rather low, particularly in the most important area were the project design had foreseen the focus of villagers’ involvement, i.e. the selection of sub-projects addressing community needs. As the Figure 6.3 reveals, the extent of involvement of the local government (line ministries) in the selection of sub-projects is the highest. In the next two steps of the micro-project cycle, namely the procurement and actual project implementation, the perception of the government’s role is much lower and varies substantially – and exactly this is where it is missing to ensure good practices and control corruption. In the supervision of the works/contractors the authorities again play a more significant role, and there is also a high degree of involvement of central authorities in operation and maintenance (with poor outcomes) – quite contrary to the idea that local ownership will ensure better and more adequate O&M.

6.20. Citizen participation has not yet become a guiding principle for decision-making in local development in Egypt, which remains highly centralized. Even though 100 percent sub-projects ought to be selected by the community in Sohag RDP, in only 68 percent this indeed happened. Overall these results are not surprising and must be viewed against the continued highly centralized nature of decision-making prevailing in Egypt.

Figure 6.3: Involvement of Line Ministries in Micro-Project Activities (%)

62

3439

4850

19 1820

1719

7

17

118 8

12

31 3027

23

0

10

20

30

40

50

60

70

Project Selection Procurement Implementation Supervision O&M

Involvement of Line Ministries in Micro-Project Activities (in %)

High

Medium

Low

No

Source: World Bank 2008d

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6.21. The community survey reveals serious gaps in traditional forms of social capital and political influence of communities in Upper Villages. Some indicators presented in Table 6.2 show that satellite villages have particularly low voice. In the current system of decision making at the local level this inevitably creates a bias against them in the allocation of public investment.

Table 6.2: Indicators of connection to power for population in mother and satellite villages in Upper and Lower Egypt, 2005 (percent of population)

Lower Egypt Upper Egypt Affiliated v. Mother v. Total Affiliated v. Mother v. Total Political representation at some level 41 76 64 42 69 58 at the Ministerial level 0 5 4 3 4 4 member of parliament 4 14 10 5 16 11 local council member 19 32 27 20 33 28 local public official 1 26 17 1 23 15 owner of a firm 7 22 17 10 10 10 political party representative 5 11 9 1 7 5

Source: Staff estimates based on Community survey 2005 Note: table shows percent of population living in villages which have different channels of connection to political structures. 6.22. Ultimately, limited effect of infrastructure investment on poverty is a reflection of poor integration between the improvement of infrastructure and social services, agricultural development and participation. There is a need to redress the balance between investment and maintenance in order to improve service quality and provide maintenance, renovation and replacement. This is vital since the disintegration of the current infrastructure would have more negative socio-economic and health-related impacts than even absence of it, and its eventual rehabilitation may entail large costs.

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C H A PT E R 7. POV E R T Y I N UPPE R E G Y PT C A N B E R E DUC E D

Even in the best possible scenarios, projections for current pattern of growth indicate that it will not be sufficient to fill the gap between Upper and Lower Egypt. To break poverty cycle of Upper Egypt more is needed. The persistent poverty of Upper Egypt is not a unique case in the development experience. There are many examples of such densely populated, chronically poor regions: China’s western provinces, Mexico’s southern states, Italy’s South. Some managed to break the poverty cycle. Upper Egypt’s economy has provided opportunities for development. Urban areas in Upper Egypt have been star performers in the recent economic boom. Rural areas, though lagging behind, have also progressed economically and socially. The translation of this progress into poverty reduction requires an integrated multi-sectoral approach. The opportunities for off-farm employment, migration, and commuting need to expand in urban areas to absorb more new entrants from rural areas and to relieve pressure on a narrow resource base of rural economy. To address local causes of stagnation, communities need to be empowered with resources for investment and tools to manage local development.

The Outlook for Upper Egypt is Difficult but Not Hopeless

7.1. Egypt is not the only country with densely populated lagging poor regions. Persistently poor areas have been a concern in many countries, including those undergoing sustained aggregate economic growth. Most countries have geographic concentrations of poverty; examples include Southwest China, the North Caucasus in Russia, Eastern islands of Indonesia, Northern Thailand, northwestern Bangladesh, northern Nigeria, southeast Mexico, and northeast Brazil.

7.2. Many of these regions were suffering (and some still suffer) from a self-perpetuating cycle of low economic development, low investment and high poverty. But some of them made a decisive break with poverty (Box 7.1). Each of such cases shows different type of policies and economic processes which contributed to that outcome. It means that there is no standard solution to lagging poor area problem, that would simplify the choices for policies, but it also shows that the array of possible tools to choose from is rich and growing.

7.3. Changes in poverty can be described by linking three factors: the rate of growth in real consumption, rates of inequality, and population movement. These three variables were analyzed in the chapters. It was demonstrated that economic growth plays a key role in poverty reduction. Elasticity of poverty measures the impact of growth on poverty reduction (table 7.1). Each percent of growth in consumption per capita in Upper Egypt will produce poverty reduction by about 2 percent.

7.4. Over 2005-2008 Upper Egypt achieved 1.6 percent growth in per capita consumption (see table 1.4). Under constant elasticity, by 2017 poverty in UE should fall from 40 percent to 26 percent. But if other regions of Egypt also grow at the pace observed over 2005-2008 they will reduce poverty by 2017 to almost zero; relative to other regions Upper Egypt will comparatively look even poorer than now.

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Box 7.1: Poor Areas can Break the Poverty Cycle

China. Poverty eradication in Southwest provinces of China (Guangxi, Chongqing, Sichuan, Guizhou, Yunnan, Tibet)–the poorest densely populated part of China interior-required a significant mobilization of project funds and efforts over the medium term (1995–2001). In 2001, 148,131 villages, or 20.9% of all villages in China, were designated to participate in the integrated rural development program targeted to poor areas. According to official guidelines, poor villages were selected according to a weighted poverty index based on eight indicators: grain production per capita, cash income per capita, percent of low quality houses, percent of households with poor access to potable water, percent of villages without reliable access to electricity, percent of villages without all-weather road access to the county center, percent of women with long-term health problems, percent of eligible children not attending school. Interventions included investments in infrastructure, better provision of services and targeted transfers. The program largely achieved its objectives: mean income growth was faster in poor villages (6.7% per year) than in non-poor villages (4.8% per year), and faster in poor villages with investments based on village planning (7.8% per year) that in poor villages without plan investments (6.1% per year). The sizable real rural income increases of the early 2000s did reduce poverty. Using the official poverty line, from 2001 to 2004, the poverty headcount rate fell from 15.6% to 10.3% in designated poor villages compared to a fall from 2.8 % to 2.5% in nonpoor villages. Results include improved consumption in targeted areas which continue to have positive long-term impact even after completion of the project. The key to success was allowing educated non-poor households in target areas to take advantage of the project funding, which had a positive spillover effects on the poor. The ability of governments and community organizations to overcome the tendency for under-investment was critical to the success.

North-East Brazil. Over the last three decades, poverty alleviation efforts have been under way in the Northeast region of Brazil - long constituted the single largest area of rural poverty not only in Brazil, but in all of Latin America. The region covers 9 states (Alagoas, Bahia, Ceará, Maranhão, Pernambuco, Paraíba, Piauí, Rio Grande do Norte and Sergipe) and part of a tenth (out of country’s 23 states), and accounts for 30 percent of Brazil’s 148 million people. In the early 90’s the region had over 20 million people who lived in extreme poverty. In 1999, the poverty rate, measured by per-capita income and the indigent poverty line, in the Northeast was about 44 percent compared to 22 percent elsewhere and just 9 percent in the richest State, São Paulo. Even though these are high rates, they were much lower than in the late 1980s, when poverty rate in NE was above 60 percent (compared to national average of 30 percent). Several factors contributed to the reduction of poverty in NE Brazil: macroeconomic stabilization, lower fertility and introduction of universal coverage of social security (pensions) for rural population. There were also specific targeted interventions which helped to achieve faster poverty reduction. Rural Poverty Alleviation Program (RPAP) by 1996 emerged as a decentralized, community-based development project for the states, municipalities, and communities. The mainstay of the strategy was a massive public investment which complemented private investment by providing goods, or overcoming other market failures. Certain type of infrastructure investments, which lower local cost of production in the region (i.e., electric power, and water supply) were associated with increased private investment. However, some public infrastructure investments (i.e., transportation, and communication), have had mixed effects. In addition to building local capacity, it has reduced the role of government agencies and eliminated unnecessary costs. Overall, the RPAP through use of an integrated approach to social and economic development financed 42,750 community associations, enabling local involvement in decision-making. By targeting the poorest communities, the program began to have significant impact on poverty. Agrarian reform was the second key tool to arrest poverty. Since 1995, the Government has redistributed land to about 372,500 families, as part of a Federal program, administered by the Ministry of Agrarian Development, in partnership with 14 States (9 in the Northeast, 2 in the Center-East). The community-based approach has proven cost-effective and non-conflictive. Today poverty has declined both in absolute and actual numbers, yet poverty alleviation continues to be a key priority of the government.

Sources: Chen, Mu, and Ravallion (2006); Fiess and Verner (2004) World Bank 2007d.

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Table 7.1: Elasticity of poverty indices with respect to growth in per capita consumption in 2008: by regions Stable inequality Inequality reduction* Inequality increase** Headcount Depth Severity Headcount Depth Severity Headcount Depth Severity Metropolitan -8.6 -3.7 -3.9 5.4 -4.5 -5.1 -1.7 4.1 -4.1 Lower Urban -4.2 -4.4 -5.4 -4.5 -4.4 -11.0 0.0 -3.8 -4.3 Lower Rural -5.4 -6.9 -8.0 -7.7 -7.3 -7.4 -6.1 -6.6 -8.5 Upper Urban -1.9 -3.8 -3.3 -3.0 -3.8 -3.9 0.0 -3.3 -3.7 Upper Rural -2.3 -3.1 -3.9 -3.0 -3.3 -4.1 -2.0 -3.0 -3.7 All Egypt -3.2 -3.9 -4.2 -4.3 4.0 -4.6 -2.7 -3.6 -4.2 Notes: Elasticity show the percentage reduction in poverty measures in response to 1 percent growth in consumption per capita. *2 percent reduction in Gini, ** 2 Increase in Gini Source: Based on table 2.25 from World Bank 2009c 7.5. To see what these elasticities and outlook for growth imply, the authors constructed a baseline scenario projecting these trends into the future assuming stable inequality (table 7.2). All regions, including urban Upper Egypt show that the continuation of the trends observed over 2005-2008 (with a temporary slowdown due to the global economic crisis over 2009-2011) will result in a sizeable reduction in the poverty rate and in the number of poor. But in rural Upper Egypt a combination of slower than average growth rates, high initial poverty, and rapid population growth will result in a much slower pace of poverty reduction and a very small decrease in the absolute number of poor. This will lead to a further concentration of poverty in rural Upper Egypt.

Table 7.2: Status quo scenario: poverty rates and number of poor by regions 2008- 2015 2008 2009 2010 2011 2012 2013 2014 2015

Poverty rates, percent Metropolitan 7.5 6.8 5.9 4.2 3.0 2.2 1.5 1.1 Lower Urban 4.8 4.5 4.1 3.4 2.8 2.3 1.9 1.6 Lower Rural 15.3 14.5 13.3 11.1 9.2 7.7 6.4 5.3 Upper Urban 14.8 14.3 13.6 12.1 10.8 9.7 8.6 7.7 Upper Rural 40.2 39.7 39.0 37.6 36.2 34.9 33.6 32.3

Number of poor, mln. Metropolitan 995 915 798 575 414 299 215 155 Lower Urban 415 395 365 302 250 207 172 142 Lower Rural 3,593 3,452 3,222 2,710 2,280 1,918 1,614 1,358 Upper Urban 1,331 1,313 1,271 1,160 1,059 966 881 804 Upper Rural 7,677 7,718 7,712 7,557 7,405 7,256 7,110 6,968 Source: Staff estimates based on population projections and GDP forecasts for 2009-2011 from IMF, relationship between all-economy GDP growth and regions growth rates is assumed fixed from Table 1.

7.6. A decisive jump in the growth rate or redistribution in favor of the poor are needed to achieve closer cohesion between rural Upper Egypt and the rest of the country. Such a boost is very difficult to achieve. Due to the constraints described above it is highly unlikely that the growing population will be easily absorbed into existing sectors, especially agriculture; employment prospects outside of agriculture are a key determinant in poverty reduction.

Upper Egypt Can Generate and Sustain High Growth in Employment and Earnings

7.7. The Egyptian economy grew very quickly between 2004 and 2008; on average the GDP expanded by 7 percent per year. Unfortunately there is no economic data on regional or governorate performance in Egypt. For this report, new methods were applied to estimate regional GDP for 2000-2007 (see Box 7.2 and figure 7.1).

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Box 7.2. Data on Regional Economic Growth Egypt does not have regionally disaggregated national accounts. The dearth of information on sub-national economic performance motivated earlier attempts to construct estimates that will fill this gap. The UNDP constructed GDP per capita by governorate starting in 1990, and this attempt remains the only systematic effort to measure economic performance at the sub-national level in Egypt. The method relied on the HICES survey mean per region scaled up by a constant factor so that the mean for Egypt is equal to what is estimated from the national accounts. This method has a number of shortcomings and produces a series of inconsistencies. First, it assumes that the gap between GDP and survey estimates is the same across all regions. Azzoni, Menezes-Filho and Menezes (2003), compare the official state GDP figures provided by the Brazilian Census Bureau (macro data) with the income data available in the household surveys conducted by the same Bureau (micro data). They find that the survey income numbers correspond to about 50 per cent of GDP (as in Egypt), but for the poorer states it can get close to 80 per cent. Second, any measure derived from surveys already captures all processes of redistribution through government budgets and private transfers, which may affect different regions in a very different way. Third, between the surveys (every 5 years), regional GDP is assumed to grow at a uniform rate equal to national GDP, a serious over-simplification. In 2005 the survey in Cairo suddenly recorded an unexplained drop in incomes that was not matched by consumption—most likely related to an unwillingness of respondents to cooperate. This produced a drop in UNDP estimate of GDP per capita for Cairo from $7622 in 2004 to $5700 in 2005 (in PPP) amidst economic growth. To avoid such paradoxes, this study relies on a different method. It takes detailed national accounts data of value added per worker in different sectors and sectoral employment by governorate from the labor force survey—a very large and consistent source of data. To assess value added per governorate, employment in each sector is multiplied by the corresponding value added per worker in that year for Egypt. This method assumes that there are no regional differences in the productivity within a sector— and hence may underestimate regional differences. UNDP relied on a variant of this method when estimating GDP per capita at the district level in the 2003 HDR. It is clear that this method too is not a substitute for real regional data on the output of the economy, but it is less influenced by the peculiarities of surveys than the previous approach. Sources: Azzoni, Menezes-Filho and Menezes (2003); UNDP, CAPMAS LFS, SNA data on value added per sector for 2001-2007 and staff estimates.

7.8. Economic growth in Upper Egypt between 2004 and 2008 was strong enough to produce some convergence in economic output with the rest of the country, but so far it is limited to urban areas. Upper Egypt was growing a little faster than the national economy and the Metropolitan region over the entire period, suggesting that it may gradually catch up with the rest of the country (figure 7.1). At the same time, survey data which differentiate between urban and rural areas shows that while growth rates have been exceptionally high in cities of Upper Egypt, rural areas lagged behind with hardly any effect of economic growth (Table 1.4).

Figure 7.1: Value Added Per Capita by Region in Constant Prices, 2003-2007

0

1

2

3

4

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6

7

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9

2003 2005 2007

1000

LE

in 2

001

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es

Metropolitan Lower Upper Frontier

Source: own estimates based on LFS data on sectoral employment and value added by sectors (see Box 11)

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Key Issue: Employment Generation

7.9. The growing economy generates demand for labor. Employment in Upper Egypt expanded rapidly in recent years according to LFSS and HICES data, adding more than 1.8 million jobs—more than any other region (Figure 7.2).

7.10. Wages have increased in Upper Egypt at the same pace as economic growth. Between1998-2006 real mean wages for Rural Upper Egypt increased by over 50 percent—faster than in any other region (table 7.3).

Table 7.3: Real monthly wages by region and share of low-wage workers, 1998 and 2006

Median monthly real wages

in constant 2006 L.E. Share of low-wage earners

among employees, % 1998 2006 1998 2006

Metropolitan governorates 429 520 43 29 Urban Lower Egypt 353 433 53 40 Rural Lower Egypt 272 375 77 60 Urban Upper Egypt 372 493 47 33 Rural Upper Egypt 222 349 78 54 Egypt 311 415 62 45

Note: Low wage earner is defined as a worker earning less than a poverty line for the corresponding region multiplied by an average dependency rate for a corresponding region. For full time workers only. Source: Asasad (2007) and World Bank 2007

7.11. The share of low wage workers too has fallen significantly in Upper Egypt. By 2006 there was no disadvantage in comparison with Lower Egypt. The community survey of 2005 revealed slightly larger difference in agricultural wages between Lower and Upper Egypt: in off-peak season agricultural laborers wages are 12 LE/day in Upper Egypt versus 14 in Lower Egypt. In peak season the wages are 16 for Upper Egypt versus 19 for Lower Egypt.

7.12. The central issue for the future is how Upper Egypt’s economy will accommodate new entries into the labor market. Between 2000 and 2005 the working age population of Upper Egypt grew by 2.5 million people primarily due to high fertility rates of the 1980s and early 1990s. During the same period only 1.8 million new jobs were created (data are from HICES). Not surprisingly, by the end of the period there were 613,000 unemployed new entrants to the labor force who were willing to work but had no work experience (LFSS 2007). The pace of job creation was slower than the population growth.

7.13. Not all employment is equally helpful in reducing poverty; some patterns of growth lead to more poverty reduction than others. The type of growth which has maximum effect on the poor is the one that creates more demand for their main asset: labor. However, if growth in employment is achieved

Figure 7.2: Net change in employment by sectors and regions, 2003-2007

0

200

400

600

800

1,000

1,200

1,400

1,600

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Metro Lower Upper Frontier

Thou

sand

s

agriculture manuf., gas and electr. construction trade& transp oth. services

Source: CAPMAS Labor Force Survey, see annex Table T5b

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at the expense of earnings or productivity, it may have only a meager impact on poverty. Such a scenario is possible when the poor cannot move from low-productivity sectors to higher value-added activities (Gutierrez et al. 2007). Introducing a simple distinction between “good” and “bad” jobs, reveals a bleaker outlook for gainful employment for Upper Egypt’s growing labor force (table 7.4).

Table 7.4: Annual balance of the labor market in Egypt and regions, thousands per year Annual creation of good jobs (new and vacated non-agricultural non-sporadic employment)

Regions Supply: available

“good jobs” Demand: Annual

new entrants Metropolitan 50 300 Lower Urban 10 198 Lower Rural 138 558 Upper Urban 74 211 Upper Rural 145 467 Egypt total 428 1,753 ‘New lands” +150 Per year “4.5 mln jobs” plan +767 Per year

Source: Staff estimate based on LFSS annual data by governorate (2003-07), MARL and MoED 6th Five year plan. Note: Good jobs are defined as permanent jobs outside of agriculture (see Gutierrez et al. 2007).

7.14. Good jobs constituted only a small percentage of the 1.8 million jobs created in Upper Egypt (table 7.4). The new entrants to the job market who were not able to find these good jobs either moved to inactivity (mostly women) or to low productivity agriculture or seasonal occupations, creating a growing pool of underemployed. Even under the best case scenario of implementing plans for economic development (4.5 million new jobs in the 6th Five-year plans till 2012 over and above the job creation already in place.) and the reclamation of new agricultural lands, the creation of new jobs in Egypt as a whole will not be sufficient to fully absorb the number of new workers entering the labor force. But it will greatly improve the chances of at least the more highly skilled workers.

7.15. More disaggregated sector forecasts warn that some parts of the economy will not be able to provide new jobs as in the past. Gavian et al (2003) and Mellor et al (2001) estimate that under the assumption of accelerated technological and systemic changes, with agricultural productivity growth of 6 percent per year (double current levels), agriculture can create a total of about 1 million additional jobs in the Egyptian economy, predominantly in rural areas. One million new jobs can help to absorb some part of new entry in the labor market, but such projections do not take into account available land constraints on agricultural employment.

7.16. Addressing gender and youth issues is critical for rapid progress in ensuring higher employment rates. Specific measures to invest in marketable skills, and to promote better socialization of youth and more inclusion in the labor market -when combined with a favorable climate for job creation these measures - could result in a dramatic improvement in employment rates, without which it is unrealistic to expect to close the gap between Upper Egypt and the rest of the country.

7.17. The current slow-down in the Egyptian economy is likely to take a considerable toll on job creation (World Bank 2009e), creating a two-year hole in the demand for labor and putting even more pressure on the labor market. However, this setback also creates a window of opportunity that could be used for a massive program to upgrade the skills of the workforce. When combined with an incentives-compatible social protection program job training programs could also be an effective tool to mitigate the effect of the crisis on poverty. Such a response, however, is not yet envisaged by the current stabilization package.

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Better Social Services Can Help to Reduce Poverty

7.18. Investment in human capital was a key intervention proposed to overcome poverty in Upper Egypt in the Poverty Reduction Strategy for Egypt and in the Development Plan. ‘Equal and Free Education Opportunities for All’ is a principle enshrined in the 1971 Egyptian Constitution. This principle would ensure that every child, irrespective of economic or social background, would have access to quality education. Although not targeted specifically to Upper Egypt, expanding education was the thrust of action, which was also reflected in the high share of public spending on education (World Bank 2007b). Since Lower Egypt was relatively better served initially, these efforts favored Upper Egypt.

7.19. Government efforts have paid off in Upper Egypt in terms of expanding access to services. During the last 10 years, the gap in the availability of services is widening to the benefit of Upper Egypt for many kinds of facilities (schools, illiteracy programs, health units, reproduction planning centers, ambulance, dispensary, trained midwife, mobile medical units).

7.20. The existence of schools in villages contributed to decreasing illiteracy, raising public awareness and achieving positive social change. Primary schools are now found in mother villages and affiliated villages and will be followed by preparatory and secondary schools. The increase of female school enrollment highlights the positive change in circumstances and prevailing values. Furthermore, school meals are believed to contribute to improved health and nutrition of children (NSCE 2008).

7.21. Expansion of accessibility of health services resulted in better health outcomes. Infant and maternal mortality remain higher than they are in Lower Egypt, but they have been dropping at a faster rate than in Lower Egypt (figure 7.3).

7.22. Government efforts have paid off in Upper Egypt by expanding access to education services. Already in 2005 according to the community survey primary schools were within 15 minute reach for most rural children in Upper Egypt. In terms of availability of primary educational facilities, Upper Egypt lags only slightly behind lower Egypt (79 percent of villages in Upper Egypt have government primary schools, versus 82 percent in Lower Egypt). Illiteracy eradication programs, whether provided by the government, NGOs or the private sector, is available for about 95 percent of the illiterate in Upper Egypt communities (Barghout 2009).

Targeted Transfers are not Functioning as a Poverty Reduction Instrument

7.23. Transfers can play a role in overcoming the chronic disadvantage of a lagging region. Upper Egypt’s higher number of dependents per household means that even at a similar level of productivity, economic activity, and employment there will be a persistent gap in welfare with the rest of the country. Transfers can reduce part of this gap. But the current system of transfers is not designed to work in this way.

Figure 7. 3: Health Indicators Improved Dramatically in Upper Egypt

0

50

100

150

200

250

1992 2004 1992 2004 1992 2004

Infant mortality Under-f ive mortality Maternal Mortality

Lower Egypt Upper Egypt

Source: UNDP; Note: maternal mortality per 100,000, other indicators-per 1000 live births.

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7.24. Results from various simulations (reported in World Bank 2001a and El Laithy 2008) show that current transfers are so small and so poorly targeted that even their doubling would have a minor effect on poverty in Upper Egypt. These results, however, pertain only to cash transfers, a minor share of the overall safety-net spending in Egypt.26

7.25. High poverty in Upper Egypt persists despite good coverage of its residents by a subsidy system. The IFPRI study of 1997 (Akhter U. Ahmed et al 2001) found that Upper Egypt accounted for 37 percent of all food subsidies, and for 37 percent of the total population! The system was definitely not targeted to the poor, as Upper Egypt was home to 54 percent of the country’s poor at this time.

But in-kind transfers do not target the poor any better than cash programs. This is well illustrated by the food subsidy system— the mainstay of Egypt’ safety net. Because subsidies cover people from all parts of the distribution in approximately the same way, they do not favor the poor. Originally the subsidies were aimed at supporting the urban middle class and poor. Rural Upper Egypt was marginalized. But over time, the system expanded and by the 1990s rural Upper Egypt had been included.

27

7.26. There are some problems of coverage by existing subsidies programs in Upper Egypt. The WFP study found that the perception of people in Upper Egypt is that many poor families do not receive subsidized rations for all of their members. This is suggested by the situation in the city of Abu Tig in Abu Tig district, where 32,642 residents hold 8,487 full ration cards, a ratio of 3.8 people per card. There are also 10,357 people holding 2,434 partial ration cards, a ratio of 4.2 people per card. Both ratios are below the national average (WFP 2008). More than half of the villages in Giza said they had problems gaining access to subsidized baladi bread. The quantities are not sufficient, the quality is poor, and the breadlines are too long to accommodate everyone who needs bread (WFP 2008). Much of the flour is being sold on the black market for triple the price.

The situation has not changed since 1997, as demonstrated by a WFP study in 2005 (WFP 2005). Another form in which subsidies are provided in Egypt is ration cards. In 1997 the IFPRI study revealed that 83 percent of Egyptians lived in households covered by a ration card without large regional differences. Since then the coverage of population first fell, and then increased again to reach over 70 percent by 2008 (WFP 2008). Upper Egypt is covered on a par with the rest of the country. In the WFP field study in Upper Egypt, for example, 70 to 90 percent of villagers in the areas surveyed have ration cards.

7.27. There is scope for improving people’s welfare in Upper Egypt through better coverage of the subsidies system, but in its current design it will move them out of poverty. A simple calculation using the most recent survey illustrates this point: On average a person in Upper Egypt got about 4 kilos of subsidized baladi flour in a month, and another 2 kilos on the open market. At the same time they received on average 2 loaves of subsidized baladi bread per day. The benefit is about 5 LE per person per month. That is about 5 percent of total consumption per capita. Even though this is a real gain, it is not enough to bring an average poor person above the poverty line. More comprehensive assessment of all subsidies (including energy products) give an average benefit for a person in the lowest quintile of just about 14 LE per month—still way below the average poverty deficit in Upper Egypt of about 25 LE (World Bank 2005).

26 As shown in Poverty Assessment Update (World Bank 2007a), subsides account for 80 percent of the budget going to social assistance 27 Assiut, Behera, Beni-Suef, Fayoum, Menia, Quena, and Sohag, which accounted for 55.7 percent of total poverty, received only 29.3 percent of total food subsidies. Rural Upper Egypt accounted for 17 percent of all food subsidy allocations and for over 30 percent of all poor.

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Coordinated Targeted Policies Can Break the Poverty Cycle of Upper Egypt

7.28. Poverty can be reduced in Upper Egypt, but it will require a dramatic increase in productivity. A study of agricultural supply chains in Upper Egypt estimates that incomes of participating farmers could double by increasing farm gate prices for products that meet higher specification, reducing waste with better logistics (share of waste a spoilage for Upper Egypt averages to a staggering 40 percent), and by increasing yields (World Bank 2009a). In AERI participating livestock farmers increased their net income by a factor of 2 (Swanberg and Assem). Table 7.5 uses the decomposition framework introduced in Chapter 2 to show the potential impact on poverty from doubling various sources of income. No spill over or equilibrium effects are taken into consideration, hence figures are rough illustrations of the relative importance of different channels.

Table 7.5: Effects of doubling income sources on poverty in Upper and Lower Egypt

Farming is the main occupation of HH members

Farming is an income source, but not the main one

No farming, but agricultural wages as income

Non-farm activities mostly Total

Population Lower Egypt Rural 28% 23% 6% 43% 100% Upper Egypt Rural 32% 20% 8% 40% 100% Poverty rates- baseline Lower Egypt Rural 20% 14% 37% 13% 17% Upper Egypt Rural 38% 38% 71% 33% 39%

Poverty rates after crop income doubles Lower Egypt Rural 5% 9% 37% 13% 11% Upper Egypt Rural 14% 30% 71% 33% 29% -63% -21% 0% 0% -25%

Poverty rates after livestock income doubles Lower Egypt Rural 7% 8% 29% 11% 10% Upper Egypt Rural 19% 24% 64% 31% 28% -48% -37% -10% -6% -28%

Poverty after doubling self-employment off-farm income Lower Egypt Rural 19% 12% 33% 9% 14% Upper Egypt Rural 36% 33% 67% 25% 34% -6% -12% -6% -24% -13%

Poverty rates after doubling all wages Lower Egypt Rural 13% 2% 2% 2% 6% Upper Egypt Rural 29% 11% 11% 12% 18% -23% -72% -84% -64% -55% Source: See Table 2.1 for sources, using HIECS 2004/05. Note: assuming .89 marginal propensity to consume out of income increases (based on regression); poverty reduction is marked in italic

7.29. Doubling crop incomes will help to reduce poverty amongst farmers in Upper Egypt from 38 to 14 percent, but has little effect on other groups; income growth from livestock raising will however affect other groups. But overall these very optimistic scenarios produce just 10 percentage points in poverty reduction in rural Upper Egypt while leaving the gap between Upper and Lower Egypt largely unaffected. Boosting incomes by a factor of 2 or 3 through the participation in modern modes of production is the only possible solution for existing farmers. Doubling self-employment income outside agriculture, in contrast, has much less effect on poverty—for reasons discussed above (anemic off-farm sector of household enterprises and SMEs with only few households participating). Wage growth of the same magnitude, in contrast, produces much stronger effects.

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7.30. The presence of off-farm incomes, especially wage incomes, changes the equation of poverty reduction in Upper Egypt. El-Laithy (2008) used HICES data spanning the period from 1995-2005 to assess how additional increments of different sources of income affect the poor. The data suggested that non-agricultural incomes in Upper Egypt accrue more to households in the middle to lower quintiles of the income distribution than to those at the top. Increasing non-agricultural incomes received by such households would therefore reduce poverty and inequality.

7.31. When combined, wage and off-farm self employment effects considerably outweighs what can be achieved by income growth from agriculture. Interestingly, in other regions, non-agricultural incomes would appear to go primarily to the better off, so that raising non-agricultural incomes would lead to a widening of the distance between the rich and the poor. The most significant impact on poverty could be expected from efforts to relax constraints on access to the non-agricultural sector in Upper Egypt.

7.32. These findings confirm conclusions coming from Adams (2000) analysis of 1997 household survey data. Adams key findings were that policy makers in Egypt must pay more attention to non-farm income if they want to reduce poverty and improve income inequality. He finds that from an equity standpoint a focus on non-farm unskilled labor would be most effective. He shows that agricultural income is positively correlated to land ownership which is very unequally distributed while non-farm income is not linked to land ownership and therefore more important for the poor.

7.33. Boosting income from agriculture in Egypt is a way to start the engine of off-farm economies. Using a three-sector CGE model (agriculture, other tradable sector and non-tradable), Mellor and Ranade (2001) show that agricultural growth from improvements in productivity can boost the income of labor outside of agriculture. It does so through an impact on the demand for the goods and services of the rural non-tradable sector. But to sustain and spread gains triggered by increasing incomes from agriculture, it is vital to sustain the growth of the local off-farm production and to help those who are not able to take advantage of new opportunities through transfer policies.

7.34. Better targeted and more adequate transfers can contribute to overcoming excess poverty in Upper Egypt, but will not be sufficient to achieve the goal of parity. The World Bank report on poverty and the social impact of subsidy reform simulated possible effects on poverty from better geographic targeting of food subsidies and from transfers using proxy means test to identify the eligible beneficiaries (World Bank 2005). Using different scenarios the report estimated that poverty in Upper Egypt can be reduced by a full 10 percentage points (from 40 to 30 percent of the population) if increases in the social transfers budget to 3 billion LE (from less than 1 bln. at the time) are accompanied by improvements in targeting (Annex B to World Bank 2005). The same effect can be achieved by reducing energy subsidies by 50 percent and using one half of the savings for geographically targeted cash transfers.

7.35. It is affordable and feasible for Egypt to institute a transfer system that will narrow the gap between Upper and Lower Egypt. Given the effect of the high number of dependents per household in Upper Egypt, a transfer that targets families with limited landholdings and school age children might go a long way towards alleviating poverty. Each family would receive a transfer that amounts to bringing one of its children out of poverty and is equal to the upper poverty line for a child (about 150 LE per month in 2005 prices). This transfer would aim at eliminating the handicap of Upper Egypt versus Lower Egypt in dependency rates, not at eliminating poverty per se. There are 3.8 million households in rural Upper Egypt, and 24 percent of them will be eligible for such a simple transfer (42 percent of all farmers with higher than average poverty rates). This transfer system would cost 1.7 billion LE and would reduce poverty in Upper Egypt by 6 percentage points, closing one third of the gap with Lower Egypt. Even though a simple targeting scheme may leave out many poor, still it would have a noticeable impact on

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poverty while costing a fraction of the amount now spent on food subsidies ( 9 billion LE in 2007 and 16 billion in 2008) or energy subsidies (40 billion in 2007 alone). This transfer would be comparable in cost to the social solidarity pension managed by MoSS (about 1 bln. LE), which has little effect on poverty.

7.36. By adding up the effects of agricultural modernization, off-farm employment and transfers, the cycle of persistent poverty in rural Upper Egypt can be broken. As illustrated above, 10 percentage point poverty reduction from larger and better targeted transfers, 10 percentage points from higher incomes due to modern farming and 10 percentage points from off-farm growth (in the region or by moving elsewhere) is sufficient to completely overcome excess of poverty in Rural Upper Egypt. International experience shows that such combined effects can be achieved.

Challenges of Upper Egypt in a Global Perspective

7.37. What other countries have done to reduce poverty in their poor regions? Based on various examples spanning 200 years of development the 2009 WDR (World Bank 2009b) identifies three elements of successful spatial development:

(i) Deploying regulatory reform and social redistribution (“Institutions”), to harness the efficiency gains from economic agglomeration (“Density”), while mitigating spatial disparities in welfare.

(ii) Improving connectivity (“Infrastructure”) to improve connectivity and reduce cost of transactions (“Distance”), further enhancing the efficiency gains from economic agglomeration, especially when lagging regions are densely populated.

(iii) If there are persistent obstacles to the agglomeration (“Division”), taking measures to encourage private investment in lagging areas (“Incentives), especially in the lines of businesses which represent their comparative advantage.

7.38. The main message of the 2009 World Development Report is that economic activity should agglomerate while household welfare should spread. Based on global evidence that economic agglomeration (“density”) is inevitable and efficient and that economic agglomeration is accompanied initially by increased spatial disparities in household welfare, the WDR recommends that governments should aim to build density, reduce distance, and eliminate divisions. One of the keys to reducing poverty in Upper Egypt is sectoral diversification and greater integration between urban and rural areas. Over the long run, an increasing proportion of its population will have to be absorbed into activities where their labor can be used more productively.

7.39. First, looking at Upper Egypt with extremely high densities of poor people,28

7.40. Second, the focus of policy debate for interventions in Upper Egypt must move from special incentives to the need to build inclusive, spatially neutral institutions that are essential to integrate

there is no doubt that better connectivity through infrastructure investment is a key response. But the Government strategy has so far emphasized spreading economic activities, rather than concentrating them further, directing movement away from centers of agglomeration to new desert cities. Although it is becoming apparent that people are reluctant to move to the new towns and that not even a fraction of the population targets were being met, more new towns are being created. And the percentage of national infrastructure investment devoted to the new towns continues to increase.

28 On an arable land. Of course, if one uses the total areas including the land not suitable for life (desert) one may have a wrong impression that Egypt’s lagging region is sparsely populated.

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economic space. This is already one of the basic issues of Egypt’s overall economic development plan and would also be an effective response to the issue of a lagging region. Upper Egypt needs to deal directly with the problem at hand: the vast majority of its population is locked in a cycle of poverty based on subsistence agriculture. From that point of view the most basic institution is the land market. Upper Egypt also has the highest dependency rate, which attenuates the effect of income growth. An effectively targeted and adequate safety net that might help overcome poverty in Upper Egypt is still lacking. Such a system could help ensure a level playing field and at least partly remove the handicap of higher dependency rates in the region. It can be structured (e.g. through conditional cash transfers, CCT) to provide incentives to overcome the problems associated with the extreme fragmentation of agricultural land in Upper Egypt (Alterra 2008). And it should be enhanced by the provision of social services and investment in appropriate skills development.

7.41. The problem of poverty in Upper Egypt requires extraordinary and well coordinated efforts. Five-year plans prioritized the development of Upper Egypt starting with the Fifth plan (2001-2006). The sixth plan (2007-2012) contains a special component of spatial development which is aimed at Upper Egypt. The plan lays out a number of actions, which can be grouped into three clusters:

7.42. Institutions. The plan promotes changes to the budget architecture by giving responsibilities to the governorates in planning investment budgets. The conversion in fiscal year 2006/7 of the Chapter 6 budget of the Ministry of Local Development into “block grants” to Governorates has created a new opportunity to strengthen the quantity and quality of public investment in Governorates. These efforts are directed towards the promotion of a better business climate by establishing greatly simplified procedures for registering business through the provision of integrated services to investors (one stop shops) across all Upper Egypt Governorates. Finally, there is a plan to reform the safety net by moving away from expensive and poorly targeted subsidies. The plan also considers extending social services and prioritizing Upper Egypt in new initiatives such as universal health insurance. It proposes re-focusing housing policies to provide affordable housing to the growing urban population. There is a high priority given to strengthening social protection in Upper Egypt, extending the coverage of existing programs and improving targeting by introducing new programs, such as CCT in education aimed primarily at Upper Egypt’s very poor families. However, land market reforms have not yet become a focus of the reform efforts.

7.43. Infrastructure. New efforts are aimed at improving the proximity of Upper Egypt to growth poles. Enabling UE governorates to share the Red Sea coast might improve coordination of investment and development and create a single economic space in the south of Egypt. Significant government investment is already underway to develop the needed infrastructure:

• The construction of a highway from Upper Egypt to the Red Sea will connect the heartland of Upper Egypt directly to a rapidly developing Red sea commercial port (to be completed by September 2009, public investment of 640 million LE), and building other new “corridor” roads linking Upper Egypt to metropolitan areas will ease congestion on the existing motorways.

• Extending the gas pipeline network from the Mediterranean to Aswan, the southernmost point in Upper Egypt (third phase connecting Beni Suef to Menia to be completed by October 2009, costing 545 mln. LE).

7.44. Incentives. The current policies emphasize incentives more than any other component. These include creating an especially favorable regime for the industrial zones in Upper Egypt; Billions of LE are committed to building cement, fertilizer, and aluminum factories in the region. For the implementation of these programs, GoE established the Upper Egypt Investment Company (affiliated with GAFI) in 2007, which provides seed money for the new businesses by holding a 20 percent stake to be sold after 7 years

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(total fund of 1 billion LE). Some of the projects already under implementation include the extension of airports and the investment in cooling and packing facilities, organic fertilizer plants, medical centers, hotels, and a financial leasing company. There are large incentives associated with the Toshka irrigation project, but few incentives to target development of higher value-added agricultural production.

7.45. The interventions currently proposed are consistent with the framework of institutions, infrastructure, and incentives proposed by the WDR 2009. They form a coherent package, which has some missing elements in its conceptualization but in general is built on the right principle of better coordinated policies. This package has already been in place since at least 2001. Yet, the effects on poverty on rural Upper Egypt are not visible.

How the Analysis Can Inform Policies?

7.46. Upper Egypt continues to remain the poorest region, despite its economic importance. Over the last eight years, urban Upper Egypt has experienced the highest rates of growth of real household consumption in the country, while rural Upper Egypt was plunged in stagnation. Striking differences in the incidence and evolution of poverty between Upper and Lower Egypt are largely a result of key factors which continue to undermine the economic development of Upper Egypt, particularly its rural communities. The findings of this report show that the gap between Upper and Lower Egypt is largely a result of demography, land fragmentation, and limited off-farm employment opportunities. The lagging of rural Upper Egypt behind its urban areas has to do with limited migration, and lack of connectivity between poor rural areas and growth poles despite impressive public investment into Upper Egypt infrastructure and human capital.

7.47. The government is now focusing on an ambitious social plan in which programs to develop Upper Egypt play a large role. The strategy rightly emphasizes improving the well being of the poor by empowering them, giving them responsibility, and avoiding long term dependency on welfare and social programs. Overall, the objective of poverty reduction in Upper Egypt requires:

(i) Sustaining the level of effort aimed at developing Upper Egypt. Each episode of success in reducing poverty in lagging regions took time before it achieved better welfare outcomes. It typically costs more to provide services of comparable quality in a lagging area, requiring prioritization of lagging areas in public spending. It is therefore critically important to sustain efforts in on-going programs prioritizing Upper Egypt (better services, connective infrastructure, decentralization, agribusinesses, SME development).

(ii) Developing and implementing policies in a coordinated way. Many ministries and agencies develop their own programs for Upper Egypt, and they are not aligned at the local level. Coordination across agencies and programs is needed to ensure that measures are part of an integrated package

(iii) Targeting – engaging social protection as a tool of convergence. The potential of a targeted safety net to ensure socially acceptable minimums to all citizens of the country cannot be overemphasized. Currently the potential of this tool is not fully utilized and resources that could have gone into targeting Upper Egypt are absorbed by other forms of untargeted assistance (e.g. subsidies). There is a bias which favors physical infrastructure connecting Upper Egypt to the national economy, but neglects the potential of better management of integration through migration.

(iv) Overcoming institutional barriers for inclusion of the poor in Upper Egypt and barriers to greater mobility. Lack of impact from development projects in Upper Egypt

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on the poor are due to general weaknesses in governing public action (e.g. problems in achieving greater local participation, poor maintenance of infrastructure, contradictory land management). Lack of connectivity of the poor to new opportunities is a result of both poor planning of investment at the local level, failure to ensure good quality of education and health care across Upper Egypt and also a result of policies which aim to slow down migration.

(v) Providing closer monitoring and improving the impact evaluation for implemented programs. Despite emphasis on Upper Egypt in the current strategy, there is still very little data to judge the effects of these efforts. Economic data are especially thin: output indicators are not disaggregated by region, agricultural statistics provide less detail than in the 1980s or 1990s, and the fiscal data still do not allow an analysis of flows of resources and their utilization to the local level. These deficiencies are obstacles to implementing an effective strategy to combat poverty in Upper Egypt. Until now there was no systematic data collection across the country to ensure that the impact of development interventions on the poor is understood and timely feedback to policy makers is provided.

7.48. The report proposes an open process for discussing these findings and for developing policy recommendations. As a first step, it is proposed to discuss the methods and findings of this report in an open forum with key experts and stakeholders. It is hoped that this process will lead to a consensus view on the status and causes of poverty in Upper Egypt and its implications for government interventions. Initial discussion should be followed by a consultation process that would involve and inform the main agencies responsible for implementing polices aimed at Upper Egypt. The objective of these consultations will be to provide input to the design of policies and programs.

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DATA ANNEX Annex I. Data Tables

Table T.1a: Poverty rates across governorates of Egypt (urban and rural) 1994/5-2004/5

Poverty rate (lower poverty line), percent of population

Rural areas Urban Areas Governorates 1995/95 1999/2000 2004/05 1995/95 1999/2000 2004/05

Metropolitan Cairo 9.4 5.0 4.6 Alexandria 23.2 6.2 8.0 Port Said 0.0 0.9 7.6 Suez 6.5 1.9 2.4

Lower Egypt Damietta 11.5 0.0 3.6 3.7 0.3 0.0 Dakahlia 10.5 17.6 7.3 1.6 7.8 6.5 Sharkia 17.8 13.7 31.1 10.5 9.1 18.3 Kalyoubia 34.1 9.1 14.1 13.6 6.1 7.2 Kafr El Sheikh 18.7 5.9 15.7 4.6 3.8 4.7 Gharbia 10.3 7.8 6.9 2.8 4.5 4.4 Menoufia 25.6 21.1 18.8 20.0 9.8 11.6 Beheira 37.6 8.4 22.3 13.8 6.2 15.2 Ismailia 8.0 11.1 8.2 2.0 0.9 4.6

Upper Egypt Giza 5.5 17.0 22.1 3.4 9.4 7.1 Beni Suef 33.0 51.7 49.1 17.4 32.4 33.2 Fayoum 32.1 34.3 13.4 6.6 19.8 7.0 Menia 27.6 24.0 42.8 14.7 9.1 25.0 Assiut 52.0 56.8 66.2 22.8 39.2 47.2 Sohag 26.8 41.1 45.4 18.0 35.6 23.6 Qena 33.7 24.9 36.3 14.2 13.3 23.3 Luxor n.d. 34.8 9.9 n.d. 25.4 1.9 Aswan 10.0 18.8 24.2 9.7 18.3 23.6

Frontier Red sea 0.0 12.2 0.0 0.0 7.5 2.0 New valley 5.0 10.9 27.8 0.0 4.9 0.0 Matrouh 4.6 26.2 38.2 3.8 5.4 0.0 North Sinai 0.0 36.5 48.3 2.9 0.0 1.3 South Sinai 42.5 2.7 0.0 15.1 0.0 0.0 Lower Egypt 21.5 11.8 16.7 8.3 6.2 9.0 Upper Egypt 29.3 34.2 39.1 10.8 19.3 18.6 Upper w/o Giza 32.7 36.8 41.8 15.4 24.2 26.3 Egypt 24.8 22.1 26.8 11.0 9.2 10.1

Notes: n.d. – no data, numbers in italics are based on sample sizes with less than 500 households in the table are marked in italic, as they may have large margin of error (plus-minus 5 percentage points for 90 percent confidence). Sources: Based on HICES of the corresponding years, published in Poverty Assessments for Egypt

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Table T1b: Number of poor across governorates of Egypt 1994/5 and 2004/5 Number of poor by urban/rural (thousand) Rural areas Urban Areas Total Change 1995/95 2004/05 1995/95 2004/05 1995/95 2004/05 95-05 Cairo 640 358 640 358 -282 Alexandria 775 329 775 329 -446 Port Said 0 43 0 43 +43 Suez 27 12 27 12 -15 Damietta 75 24 10 0 84 24 -60 Dakahlia 324 262 18 91 342 353 +11 Sharkia 587 1,279 103 225 690 1,504 +813 Kalyoubia 675 370 180 116 855 486 -369 Kafr El Sheikh 320 312 24 30 344 342 -2 Gharbia 242 196 30 51 272 248 -24 Menoufia 565 486 110 80 676 565 -110 Beheira 1,171 856 121 137 1,293 992 -300 Ismailia 27 41 7 20 35 61 +26 Giza 121 568 88 263 209 831 +622 Beni Suef 472 855 74 183 547 1,037 +491 Fayoum 492 263 30 39 522 301 -221 Menia 731 1,467 97 188 828 1,655 +827 Assiut 1,064 1,686 172 422 1,236 2,109 +872 Sohag 656 1,344 84 186 740 1,529 +789 Qena 650 861 73 147 723 1,007 +284 Luxor 0 25 0 4 0 28 +28 Aswan 55 160 42 123 96 283 +187 Red sea 0 0 0 4 0 4 +4 New valley 3 23 0 0 3 23 +19 Matrouh 5 32 4 0 9 32 +23 North Sinai 0 61 4 3 4 64 +59 South Sinai 14 0 3 0 18 0 -18

Source: Table T1 Notes: see Table T1

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Table T2 Distribution of census and HIECS communities and individuals by Region and categories Census survey

Communities percent of comm.

no of comm

percent of individ

number of individ

percent of comm

No of comm

percent of individ

number of individ

Lower Rural Egypt

not in 1000 poorest*

98.88% 2637 98.71% 22486705 99.41% 673 99.45% 63307

500-1000 poorest*

0.90% 24 1.08% 246553 0.59% 4 0.55% 350

in 500 poorest*

0.22% 6 0.20% 46469 0 0 0

Total 100.00% 2667 100.00% 22779727 100.00% 677 100.00% 63657

Upper Urban Egypt

not in 300 poorest**

39.90% 77 45.70% 3889706 22.06% 15 43.33% 10633

50-300 poorest**

38.34% 74 34.72% 2955154 42.65% 29 35.90% 8808

in 50 poorest **

21.76% 42 19.58% 1666872 35.29% 24 20.77% 5097

Total 100.00% 193 100.00% 8511732 100.00% 68 100.00% 24538

Upper Rural Egypt

not in 1000 poorest*

52.36% 909 52.69% 9686381 55.02% 263 51.67% 27124

In 500-1000 poorest*

24.77% 430 25.04% 4603882 27.41% 131 25.93% 13611

in 500 poorest*

22.87% 397 22.26% 4092594 17.57% 84 22.39% 11755

Total 100.00% 1736 100.00% 18382857 100.00% 478 100.00% 52490

Source: Bargout (2009) based on Community Survey 2005 Note: To categorize the communities three categories were defined within each region. In rural regions, the category “poor” comprises all the sampled communities that fall within the poorest 500 rural communities of Egypt, while the second category “moderately poor” consists of the sampled communities that are not among the poorest 500 but are among the poorest 1000. The remaining communities form the third category. “Wealthy”. Urban sampled communities were categorized in the same manner with cut points of 50 and 300.

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Table T3 Consumption Regressions in 2008 and 2005 Dependent variable is log of household consumption per equivalent adult, all values in constant prices. 2005 2008 Urban Rural Urban Rural Coef Se coef se Coef se Coef Se Household characteristics Log of household size -0.672*** 0.08 -0.572*** 0.06 -0.451*** 0.08 -0.422*** 0.06 Log of household size^2 0.025 0.03 0.029 0.02 -0.060* 0.03 -0.001 0.02 Share of children 0-6 … … … Share of children 7-16 -0.237*** 0.09 -0.082 0.05 -0.162* 0.09 -0.154*** 0.05 Share of male adults -0.407*** 0.09 -0.455*** 0.05 -0.369*** 0.10 -0.400*** 0.06 Share of female adults -0.328*** 0.10 -0.220*** 0.06 -0.311*** 0.10 -0.224*** 0.07 Share of elderly (>=60) -0.352*** 0.12 -0.290*** 0.08 -0.161 0.13 -0.277*** 0.08 Regions Metropolitan … … … … Lower Urban -0.134*** 0.03 … -0.073*** 0.03 … Lower Rural … 0.144*** 0.01 … 0.201*** 0.02 Upper Urban -0.287*** 0.03 … -0.217*** 0.03 … Upper Rural … … … … Borders Urban -0.058 0.07 … -0.129* 0.08 … Borders Rural … -0.193*** 0.05 … -0.100* 0.06 Characteristics of household head Log of household head's age 0.166*** 0.06 0.064* 0.04 0.209*** 0.07 0.145*** 0.04 Gender Female 0.113*** 0.04 -0.010 0.02 0.100*** 0.03 0.028 0.02 Education of the household head Illiterate … … … … … … … … can read and write _does not hold a degree 0.216*** 0.03 0.093*** 0.02 0.124*** 0.04 0.113*** 0.02

below average degree _primary or preparatory 0.234*** 0.04 0.124*** 0.03 0.230*** 0.04 0.128*** 0.03

average degree _secondary degree or equivalent 0.326*** 0.04 0.159*** 0.02 0.318*** 0.04 0.196*** 0.02

above average degree but below university degree 0.441*** 0.06 0.186*** 0.04 0.349*** 0.06 0.259*** 0.05

University degree 0.588*** 0.04 0.273*** 0.03 0.646*** 0.04 0.395*** 0.04 above university degree _masters or PhD 0.838*** 0.12 0.470** 0.22 0.943*** 0.11 0.858*** 0.24

Constant 0.736*** 0.20 0.610*** 0.11 0.494** 0.22 0.188 0.14 Number of observations 1,439 2,114 1,439 2,114 Adjusted R2 0.474 0.440 0.457 0.375 note: *** p<0.01, ** p<0.05, * p<0.1 … - dropped as comparison or omitted category

Source: staff estimates based on HIECSP 2005 and 2008

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Table T4 Number of operating establishments (excluding government) and the number of workers in accordance with the categories of workforce in Egypt, 2006

Governorate Total Number of workers categories

1-4 5-9 10-99 100-999 1000 and more

Egypt Establishments 2450903 2252550 152445 42538 3163 207

workers 7254033 4242805 911253 914256 762698 423021

Caio Establishments 355988 304340 39809 11287 525 27

workers 1298892 657863 239756 229930 117666 53677

Alexandria Establishments 174468 154927 14714 4509 288 30

workers 621220 321512 88440 94906 67065 49297

Portsaid Establishments 24735 22348 1767 541 64 15

workers 114124 47182 10550 10481 19297 26614

Suez Establishments 21554 20043 990 433 80 8

workers 88647 37057 5958 11708 18315 15609

Helwan Establishments 54164 48501 3837 1671 133 22

workers 259361 91372 23159 47460 31116 66254

6 October Establishments 81690 74703 4616 1913 451 7

workers 327529 139802 27556 48463 99938 11770

Damietta Establishments 88083 80913 6391 761 17 1

workers 237299 181857 35698 12786 3558 3400

Establishments 188584 178502 8217 1803 58 4

Dakhlia workers 424108 317443 48935 33252 14867 9611

El Sharkia Establishments 167018 157326 7016 2177 478 21

workers 532079 268804 41621 59515 125621 36518

El kalubia Establishments 149284 136287 9902 2862 214 19

workers 474446 258025 59690 64262 53757 38712

Kafr El Shikh Establishments 87609 84133 2821 631 23 1

workers 185476 150024 16662 12012 5318 1460

El Gharbia Establishments 154971 143634 8695 2528 104 10

workers 411433 261843 52607 50127 30245 16611

Monofia Establishments 94798 90288 3532 869 101 8

workers 236416 155120 20730 20721 24530 15315

El Behira Establishments 134867 129039 4772 1024 30 2

workers 295896 226541 27988 21477 6058 13832

Ismalia Establishments 35169 33131 1511 475 48 4

workers 98917 57494 9023 10972 14288 7140

Al Giza Establishments 136739 120371 12664 3562 138 4

workers 442744 258030 75914 74180 29481 5139

Beni Suif Establishments 53116 50144 2350 601 20 1

workers 117256 85350 14266 11783 4704 1153

El Faioum Establishments 60913 57819 2540 538 14 2

workers 136098 100590 15136 10681 3510 6181

El Menia Establishments 85852 81003 4075 742 26 6

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Governorate Total Number of workers categories

1-4 5-9 10-99 100-999 1000 and more

workers 195410 139416 24729 14722 6674 9869

Assiot Establishments 67855 63957 3109 751 35 3

workers 150965 105222 18632 14731 7278 5102

Suhag Establishments 74691 71929 2213 527 21 1

workers 147441 116987 12938 10455 6061 1000

Qena Establishments 64685 62278 1810 558 34 5

workers 151011 99778 10771 10180 9924 20358

Aswan Establishments 33249 31440 1416 368 22 3

workers 86041 58720 8417 7206 6896 4802

Supreme Council Luxur city Establishments 13468 12519 726 214 9 0

workers 34160 23338 4299 4344 2179 0

Red Sea Establishments 14149 12809 911 335 93 1

workers 64005 25359 5476 7936 23884 1350

El Wadi El Gidid Establishments 5438 5048 310 70 10 0

workers 14472 9343 1871 1531 1727 0

Mattroh Establishments 10161 9640 370 141 10 0

workers 24024 17364 2194 2751 1715 0

North Sinai Establishments 9508 8897 445 157 9 0

workers 25144 15758 2709 3534 3143 0

South Sinai Establishments 8097 6581 916 490 108 2

workers 59419 15611 5528 12150 23883 2247 Regions Total Number of workers categories

1-4 5-9 10-99 100-999 1000 and more

Establishments

Metropolitan 29.1% 27.7% 43.1% 47.8% 48.7% 52.7%

Lower 44.9% 45.9% 34.7% 30.9% 33.9% 33.8%

Upper 24.1% 24.5% 20.3% 18.5% 10.1% 12.1%

Upper w/o Giza 18.5% 19.1% 12.0% 10.1% 5.7% 10.1%

Frontier 1.9% 1.9% 1.9% 2.8% 7.3% 1.4%

Workers

Metropolitan 37.4% 30.5% 43.4% 48.4% 46.3% 52.8%

Lower 39.9% 44.2% 34.3% 31.2% 36.5% 33.7%

Upper 20.1% 23.3% 20.3% 17.3% 10.1% 12.7%

Upper w/o Giza 14.0% 17.2% 12.0% 9.2% 6.2% 11.5%

Frontier 2.6% 2.0% 2.0% 3.1% 7.1% 0.9% Source: Census 2006, CAPMAS

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Table T5 a: Structure of Employment by Sectors according to Census data: Governorates (2006)

Governorates

Agriculture And Hunting

Mining And Quarrying

Manufa cturing Electricity

Water supply sewage

Const ruction

Trade and repair

Transport and storage

Hotels and Rest

Financial interme diation

Real estate

Public services Total

Egypt Total 5209601 35580 2366839 195989 96826 1888206 2512546 1255417 400173 176426 180720 5,546,440 19,874,091 Cairo Total 8212 2484 306232 22157 12829 191899 419759 153309 52083 46221 41373 725,591 1,984,231

Alexandria Total 76590 990 227957 23275 10569 127830 226733 103530 25119 12773 14290 295,059 1,146,143

Port Said Total 18000 256 26558 2593 283 5787 22880 25023 2991 1388 2310 64,890 173,065

Suez Total 7428 712 31580 5328 371 13819 17753 18495 3330 1223 1330 36,751 138,199

Helwan Total 36039 1056 98317 6491 3687 57455 52827 30917 7640 7154 6184 140,020 448,407

"6 October" Total 128262 1214 119837 6455 8427 86667 116615 54871 13015 8599 5661 146,741 697,043

Damietta Total 63940 189 101278 2197 1382 26414 35894 20909 3919 1066 1739 76,980 336,046

Dakahlia Total 422837 546 134849 11896 5725 148340 149959 88698 14642 5083 8066 391,076 1,381,948

Sharkia Total 453829 1102 189644 13098 4417 89035 132477 77345 13504 5774 8137 410,741 1,399,280

Kalyoubia Total 127796 1210 254827 13172 9937 115999 156716 100571 25460 17145 10251 307,824 1,141,629

Kafr ElSheikh Total 343550 82 44856 3170 2771 43544 69173 36997 6895 2699 4122 181,292 739,288

Gharbia Total 243465 631 176172 7337 4984 89678 116440 74396 16598 5810 9138 352,384 1,097,254

Menoufia Total 288975 1026 111959 10427 4404 66907 99980 53233 17357 8185 7039 297,679 967,295

Behera Total 630949 298 106099 15823 6427 71722 124644 67368 12548 3763 5606 274,671 1,320,133

Ismailia Total 66764 215 29120 8352 594 24269 27206 25734 3581 2612 1863 79,617 270,086

Giza Total 9425 885 127512 8717 5166 93790 210980 69687 32983 24430 21343 308,559 914,610

Beni Suef Total 324186 1061 38875 3170 1913 77437 56126 27105 10418 2494 3329 163,780 709,984

Fayoum Total 309226 1063 50808 2583 1758 95317 52776 34219 9299 2272 3197 141,624 704,241

Menia Total 572194 9355 43851 5191 2570 72197 92563 41813 8551 3702 5089 288,772 1,146,009

Asyout Total 338222 370 40444 4804 1186 91245 78832 33724 7810 2523 5276 213,458 817,979

Suhag Total 347786 1699 34865 3125 2070 124355 85455 35322 8110 2300 4806 212,634 862,702

Qena Total 221046 1044 37159 4053 1591 107503 46765 28628 7015 2221 3776 172,786 633,642

Aswan Total 73808 1611 16428 6269 2351 27114 39331 16952 5727 1934 2817 83,727 278,118

Luxor city Total 17569 474 4641 640 344 15053 21668 9415 7929 730 1008 39,473 118,958

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Governorates

Agriculture And Hunting

Mining And Quarrying

Manufa cturing Electricity

Water supply sewage

Const ruction

Trade and repair

Transport and storage

Hotels and Rest

Financial interme diation

Real estate

Public services Total

Red Sea Total 5005 1497 3563 1224 150 6691 15340 7569 48407 1143 901 30,624 122,214

El Wadi Total 14634 960 1223 653 181 2114 2112 1715 484 995 498 33,646 59,220

Matrouh Total 30131 1486 2959 1270 328 7405 12914 6051 1938 807 501 20,073 86,057

North Sinai Total 27411 565 2819 1522 285 5594 8304 7785 563 880 578 37,935 94,265

South Sinai Total 2322 1499 2407 997 126 3026 20324 4036 32257 500 492 18,033 86,045

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Table T5b Data on structure of employment from HIECS and LFSS: 2006. HIECS

Agriculture Mining Manufacturing Electricity Construction

Trade & Hotels

Transp. And commun Finance Services Total

Metropolitan 72,626 18,875 796,017 57,034 405,805

894,083 491,561 158,383 1,207,977

4,102,361

Lower Urban 519,194 4,427 472,558 37,781 219,307

538,379 220,192 64,051 876,047

2,951,935

Lower Rural 4,979,652 9,104 769,251 57,352 471,565

735,568 398,736 66,456 1,614,973

9,102,658

Upper Urban 362,754 8,020 332,280 24,861 228,292

567,790 237,916 72,711 838,586

2,673,209

Upper Rural 4,112,269 5,280 359,023 35,638 491,017

519,396 227,029 33,658 816,382

6,599,693

All Egypt 10,123,830 46,274 2,737,907 218,518 1,827,842 3,285,489 1,599,041 401,046 5,468,102

25,708,050

LFSS

Agriculture Mining Manufacturing Electricity Construction

Trade & Hotels Transportation- Finance Services Total

Metropolitan 44,300 13,800 742,300 12,400 370,000

619,900 108,700 170,700 1,454,000

3,536,100

Lower urban 230,900 4,100 389,800 55,900 242,600

404,500 71,500 68,100 1,204,100

2,671,500

Lower rural 3,152,600 3,400 707,700 80,900 471,000

484,600 97,200 69,200 2,037,700

7,104,300

Upper urban 181,600 6,900 294,100 3,500 242,800

370,500 78,500 78,400 1,086,800

2,343,100

Upper rural 2,599,300 24,900 247,000 12,900 496,500

292,500 55,600 45,200 1,016,000

4,789,900

All Egypt 6,208,700 53,100 2,380,900 165,600 1,822,900 2,172,000 411,500 431,600 6,798,600

20,444,900

Census

Agriculture And Hunting Mining

Manufa cturing Electricity

Water sewage

Const ruction

Trade and repair

Transport commun

Hotels and Rest

Financial interm

Real estate

Public services Total

Metropolitan 274,531 6,712 810,481 66,299 36,166 483,457 856,567 386,145 104,178 77,358 71,148 1,409,052 4,587,088

Lower 2,353,130 4,273 1,036,845 75,045 36,237 609,001 812,509 492,018 97,147 43,952 48,922 2,074,585 7,685,664

Upper 2,213,462 17,562 394,583 38,552 18,949 704,011 684,496 296,865 97,842 42,606 50,641 1,624,813 6,186,243

All Egypt 5,209,601 35,580 2,366,839 195,989 96,826 1,888,206 2,512,546 1,255,417 400,173 176,426 180,720 5,546,440 19,874,091 Source: Sources, HIECS and LFSS

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Table T6 Distribution of agricultural land owners and area owned by governorate 2005

Less than one Fed. 1 - 2 - 3 - 4 - 5 - 10 - Total

Governorates Area No. of Mukhalfa Area

No. of Mukhalfa Area

No. of Mukhalfa Area

No. of Mukhalfa Area

No. of Mukhalfa Area

No. of Mukhalfa Area

No. of Mukhalfa Area

No. of Mukhalfa

Cairo 2,174 19,893 761 655 505 230 529 275 315 78 566 112 3,279 183 8,129 21,426 Alexandria 12,609 12,634 3,463 1,739 2,155 833 6,551 1,712 7,520 1,859 11,883 2,360 266,255 3,182 310,436 24,319 Port Said 26 26 147 147 235 230 156 156 173 173 451 451 427 427 1,615 1,610 Suez 1,366 4,663 1,174 970 931 479 987 318 719 235 1,830 242 3,168 128 10,175 7,035 Damietta 9,519 17,610 11,121 6,528 14,318 3,528 11,938 3,705 12,582 3,028 14,621 2,595 34,528 5,277 108,627 42,271 Dakahlia 80,326 165,084 71,224 55,940 67,307 30,268 53,650 22,681 41,174 12,519 81,960 14,045 252,686 20,274 648,327 320,811 Sharkia 106,580 226,421 93,427 74,742 81,604 45,828 83,608 28,088 69,843 21,094 68,026 14,316 203,704 22,380 706,792 432,869 Kalyoubia 48,983 139,490 30,166 39,673 26,953 18,452 23,089 9,703 23,517 9,168 26,029 9,203 71,437 18,221 250,174 243,910 Kafr-El-Sheikh 43,498 72,746 50,037 41,111 49,240 26,996 43,148 21,707 39,433 11,062 56,627 10,685 230,009 16,223 511,992 200,530 Gharbia 67,189 155,296 47,410 38,803 43,299 20,030 33,608 9,678 30,512 7,006 33,546 5,675 107,179 5,344 362,743 241,832 Menoufa 101,144 305,959 54,734 70,226 35,339 38,248 25,853 18,817 26,526 9,049 31,893 8,596 76,241 14,742 351,730 465,637 Behera 57,445 100,567 63,625 51,541 83,666 47,756 77,761 30,733 81,579 28,809 111,642 202,676 592,685 98,750 1,068,403 560,832 Ismailia 6,595 15,690 10,311 8,089 17,417 7,159 6,436 2,673 11,631 3,414 11,438 2,252 77,405 2,536 141,233 41,813 Giza 38,416 96,789 24,753 21,618 22,178 12,227 15,578 4,506 10,421 1,878 15,671 2,089 22,778 1,473 149,795 140,580 Beni-Suef 52,236 98,011 37,136 28,326 27,853 15,552 26,752 9,624 20,798 6,494 25,625 5,140 68,567 3,904 258,967 167,051 Fayoum 56,154 66,947 27,775 16,160 37,983 11,929 29,340 7,526 28,869 7,760 25,706 4,216 126,471 5,304 332,298 119,842 Menia 62,544 175,644 60,525 49,769 54,819 24,927 42,984 13,505 38,727 8,281 37,827 11,416 115,870 5,631 413,296 289,173 Asyout 66,616 292,555 38,569 31,410 32,961 15,501 32,951 17,106 29,282 8,251 35,734 5,982 88,934 9,581 325,047 380,386 Suhag 78,980 225,732 52,043 57,672 44,370 35,146 43,035 25,925 30,311 21,186 29,754 15,664 47,487 24,474 325,980 405,799 Qena 68,760 130,635 42,762 37,471 35,722 20,082 26,079 8,830 22,300 6,274 38,240 8,278 74,545 22,216 308,408 233,786 Luxur 16,924 31,529 18,576 15,523 24,749 10,937 21,322 6,604 13,337 2,960 6,012 3,682 18,761 9,773 119,681 81,008 Aswan 6,424 10,145 4,951 3,382 2,343 2,312 3,177 1,585 2,953 1,315 15,083 2,265 30,212 957 65,143 21,961 El-Wadi El-Gedid 1,502 743 1,470 621 1,587 991 3,489 1,442 8,908 3,404 8,724 3,607 2,172 317 27,852 11,125

Total 986,010 2,364,809 746,160 652,116 707,534 389,641 612,021 246,899 551,430 175,297 688,888 335,547 2,514,800 291,297 6,806,843 4,455,606 Mulkalfa is a register specialzed in proving the ownership data. It helps to determine mukalfa to perform tax of the agriculture lands, and registers the changes of pwnership.

Source: CAPMAS

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Annex II. Data Sources

The note relies on many source of information: population census, reports from projects, government statistics. Among these sources, three survey datasets provided a base for the new analysis and simulations. These are presented in detail below. HIECS The Household Income, Expenditures and Consumption Surveys have been the only source in Egypt for analyzing poverty and inequality at the national and regional levels. HIECS are conducted by the Central Agency for Statistics and Mobilization (CAPMAS), the official statistical agency in Egypt. Since 1957/58, the HIECS has been conducted first on an irregular basis (in 1964/65, 1974/75, and 19981/82), then every five years afterward (in 1990/91, 1995/96, 1999/2000 and 2004/05). The following round are used or referred to in this note: In 1981/82, the survey called the Household Budget Survey (HBS) was conducted on a sample of 17000 households distributed equally between urban and rural areas. In 1990/91, the name of household budgetary survey changed to income, expenditure and consumption survey (HICES). The survey was conducted on a sample of 15000 households distributed between urban and rural areas with the percentage of 60 percent for urban and 40 percent for rural. The entire sample was dived into 12 sub-samples, each was observed for only one month. This scheme was repeated in all subsequent surveys In 1995/96, the survey was conducted on a sample of 15090 households allocated between urban and rural areas such as 45.1 percent in urban and 54.9 percent in rural. In 1999/2000, the seventh survey was conducted on a sample of 48000 households (4000 household monthly) distributed between urban and rural areas with the percentage of 60 percent for urban and 40 percent for rural. The latest survey (the eighth in the series) was conducted in 2004/2005 on a sample of 48000 households (4000 households monthly) distributed in urban and rural areas with the percentage of 46.4 percent for urban and 53.6 percent rural. The sample structure follows administrative division of Egypt. Urban regions in Egypt are divided into districts, each called qism. Each qism is divided into several urban neighborhoods, called shiakha. On the other hand, rural regions districts are called markaz, and each markaz is divided into several villages (mother villages). These mother villages with their affiliated villages and shiakhas in urban areas each contain several smaller primary sampling units. They are drawn based on 1996 Population Census. For the survey CAPMAS selected 1223 primary sampling units, or census districts containing approximately 1500 households in urban and rural area. From each randomly selected PSU in turn 40 households are selected at random. This each selected locality (village or shiakha) is represented in the survey by 40 households – too small number to derive any precise estimate for that locality. This design overall covers about 1/6 of all corresponding administrative units in Egypt (mother villages and urban shiakhas), and the sample is stratified by governorates (26) and by urban and rural areas. The survey sample is representative at the national and governorate levels and for urban/rural populations.

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The HIECS reports information on household income and consumption expenditures, profile of employment of household members and assets belonging to a household. This information is used in this note. Household consumption expenditure is the value of consumer goods and services acquired, used or paid for by a household through purchases, own-account production, barter or as income in-kind for the satisfaction of the needs and wants of its members. Household Income consists of all receipts whether monetary or in kind (goods and services) that are received by the household or by individual members of the household at annual or more frequent intervals, but exclude servant income and windfall gains and other such irregular and typically one-time receipts. Community survey 2005 Integrated with HIECS, community data were also collected for all communities of primary sampling units, PSUs, in CAPMAS master sample of HIECS. The Community Survey was administered in all 1223 PSUs of the CAPMAS master sample. In rural areas, communities are basically mother villages. However satellite (or affiliated) villages were also considered as separate communities – if the actual PSU of the HIECS was located in that affiliated village. In this case community survey was administered both in the satellite and in a corresponding mother village. Since there is no clear distinction between sub-districts (shiakha) in urban areas, data were collect at a higher level - district (kism). This, while these is more records than PSUs for rural areas, there is less actual records in the community survey for urban areas than there are PSUs . The total number of communities in the survey dataset (urban and rural) is 1390. The Upper Egypt is represented by 478 sites (330 mother villages and 148 extensions), covering 20 percent of all local units - an unprecedented coverage. The community questionnaire covers the availability, accessibility, and quality of services in the community. The services are grouped according to the nature of the service. The main groups include public services such as police stations, banks, post offices; educational services such as schools, universities, illiteracy eradication programs; health services such as hospitals, health units; infrastructure such as public water, electricity, sewerage system; provision of loans and quality of agricultural land and main crops cultivated. GEF 2001-02 The data for the analysis was obtained from a survey done using a structured questionnaire in the winter season of 2001/02 (October to April) and the summer season of 2002 (May to September). Some farmers plant crops in a third season, which called the nili season. It starts from July or August to October or November (GEF, 2001/02). The survey was design to collect data, which reflected the substantial variation in the agro-ecological zones in Egypt. Moreover, the data reflected, as much as possible, all the major and minor crops and livestock production. Small-scale and large-scale production, as well as traditional agriculture and agricultural production based on improved technology. The survey covered most of the country's governorates. However, this analysis used only eight governorates located in Middle and Upper Egypt. Middle Egypt was represented by 4 governorates i.e. Giza, Fayoum, Beni Suef and Menia. Upper Egypt was represented by 4 governorates i.e. Assuit, Suhag, Qena and Aswan. A sample of 45 household was collected from each governorate with a total of 360 households. A farm household questionnaire was used to collect information from the selected households. The questionnaire attempted to capture information on pertinent variables required to calculate farm net revenue, as well as to explain the variation in farm net revenues, land values and income across representative sample districts.

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The questionnaire had two main parts and six sections. Five sections were used in our analysis. Part 1 focused mainly on crop production while part 2 was on livestock production activities. Sections 1 and 2 focused on household characteristics and employment of the household head. The questions in section 3 were with respect to the household’s land under farming activities (both crops and livestock), and farm labor used for different farm activities and respective costs. In section 4, detailed information were obtained on crop farming activities with respect to the type of crops grown, the size of land planted, amount harvested and sold, and other crop farming related costs such as, seeds, fertilizer and pesticides, and light and heavy machinery and farm animals. Parts of section 4 requested information on the type of livestock, poultry and other animals farmed, how many were purchased, lost and sold in the period of interest. It also required similar information on livestock and poultry products, such as milk, beef, eggs and wool. In section 5, the focus was on access to information for farming activities and the sources and cost of these information, while section 6 attempted to estimate the total income of the farm household (for both farming and non farming activities), taxes paid and subsidies received in the period of interest.

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