Some facts about the Middle-East

It is often said that Egypt is “the gift of the Nile” and the satellite image I linked above bears this out. However the “upstream” states such as Sudan, Somalia and Ethiopia have indicated that they want to take more of the water that flows into the Nile for their own use. This can only worsen Egypt’s situation.

I do not think there is any doubt that food prices are headed upwards. How will Egypt finance ever growing food imports? It used to be an oil exporter but is now a net importer of oil. It does have some LNG exports but these have been flat for some time.

To understand the magnitude of Egypt’s failure look at geography. It is almost next door to the EU, one of the richest markets in the world. Europe sources many of its imports from Asia, notably from China but also from Vietnam, Malaysia, Thailand, Philippines and many others.

But it sources little from Egypt on its doorstep.

Why not ? Egypt has a large unemployed and under-employed and young labour force. Why aren’t factories springing up to supply the European market?

There are of course no simple answers but two factors stand out. The first is that Egypt is not exactly a business friendly environment. According to the global “Ease of doing business” rankings, Egypt comes in at a lowly 94. (Singapore ranks 1, Australia 10 and China 79. The most business friendly country in the Middle-East is Saudi Arabia ranking 15)

The second factor is that the labour force may be young and plentiful but it is ill-educated. 29% of the population is actually illiterate. Female Illiteracy is 40%.

If Egypt had an industrial base it would be able to trade goods for food. As it is I do not see how Egypt can either increase food production or finance rising food imports fast enough.

Egypt looks like a train smash waiting to happen.

SAUDI ARABIA

Another country that looks interesting is Saudi Arabia. Since the 1970s Saudi Arabia has been self-sufficient in wheat. But it’s pumped its underground aquifers dry. 2012 will likely be the last year Saudi Arabia grows wheat.

From 2013 onwards Saudi Arabia will depend on imports for 100% of its wheat requirements. Unlike Egypt Saudi Arabia can afford to pay for imported wheat. However this means a rapidly growing population of 30 million will now be competing for a limited supply of wheat driving prices up.