In the early years of the 20th century, a group of British entrepreneurs in Egypt wanted to build a textile factory to process Egyptian cotton.
Lord Cromer, the British proconsul in Egypt at the time, opposed the idea. When the businessmen built the factory anyway, he imposed a tax on textile products equivalent to the customs paid on imported items in order to deny local production tariff protection.
Cromer’s reservations about a local textile industry stem from his colonial mindset and desire to use the resources of the country under his control in a way that would make it dependent on the colonising country due to its lack of national industries.
In other words, Egypt was considered as a cotton farm that would provide textile factories in England with needed inputs. It was not seen as able to have industrial capacity in its own right.
The British exploitation of Egypt’s resources and the foreign capital that controlled the local economy together with the effects of World War I on the country’s economy sowed the seeds of the agitation that led to the 1919 Revolution against British rule.
The dynamics determining the economy in this period stemmed from the start of the British occupation in 1881 and clearly indicate that any claims that the occupation helped in developing the Egyptian economy are false.
In 1910, Theodore Rothstein, a correspondent for several British newspapers, wrote a book called Egypt’s Ruin, an analysis of Egypt’s systematic exploitation by the British based on British government documents and correspondent reports from London newspapers regarding Egypt.
The book, quoted by Al-Ahram daily columnist Taha Abdel-Alim in his series on the causes of Egypt’s 1919 Revolution, points out that in the 70 years preceding the occupation Egypt made the kind of progress that other nations would only realise in centuries.
During the reign of the khedive Ismail between 1863 and 1875, the Suez Canal was dug in addition to 112 trenches of a total length of 8,400 miles.
This period was also called the age of the railways in Egypt as the length of the country’s railway network almost tripled to reach 1,185 miles.
The first railway lines for the transport of goods and passengers between Cairo and Alexandria were completed in 1856.
In the period between 1850 and 1880, the value of Egypt’s cotton exports increased by almost 10 times, and the value of its foreign trade increased by about four times.
The irrigation network expanded, and the cultivated area doubled. The period also witnessed the laying of more than 5,000 miles of telegraph lines, the building of the Alexandria port, and the construction of 430 bridges, 15 lighthouses, and 64 sugar factories, as well as the building of much of modern Cairo and other cities.
The value of Egypt’s imports jumped by 270 per cent, but this was offset by a 310 per cent hike in the value of exports, mainly cotton.
While the length of the major railway lines in Egypt nearly doubled during the two decades following the British occupation to reach 2,953km in 1913, these were designed to provide only the necessary transport for the export of cotton from Egypt to factories in England.
The area cultivated with cotton increased from 4,762,000 feddans in 1879 to 7,712,000 in 1913.
However, Egypt never established a cotton-based industry, and the percentage of Egyptian cotton used in ginning locally did not exceed 10 per cent of the overall harvest until 1913.
While the scope of the khedive Ismail’s reforms, implemented in a very short period of time, burdened the state coffers and pushed the country to borrow heavily from abroad, the British commentator Sir George Elliot, whom Ismail called upon to scrutinise Egyptian finances in 1876, confirmed that the country’s resources were enough to cover its debt obligations and there would be a surplus to spend on needs.
In fact, it was not Ismail’s spending on needed infrastructure that burdened the economy. Rather, it was the conditions attached to the foreign loans. In 1875, Egypt’s foreign debt reached LE68 million, half of which was in the form of interest payments and commissions for creditor agents.
The protection of creditors’ rights was one of the main pretexts behind the British occupation of Egypt in 1881.
Moreover, according to Rothstein the foreign contractors building the Alexandria port and extending the railway lines as well as the sugar factories exploited the khedive by asking for double and sometimes triple (in the case of the Alexandria port) what these developments should have cost.
Ginning of the cotton crop
When the National Bank of Egypt was established in 1898, things did not get better.
Co-founded by three British businessmen who had a track record of unfair loans, the Bank played a vital role in finalising loans taken out after the occupation, especially the loan that the government was forced to take out to compensate foreigners living in Alexandria for the destruction to their property caused by the British artillery when it invaded Egypt.
The value of capital outflows from Egypt between 1862 and 1914 has been estimated at LE270 million in the form of interest payments on public debt, the profits of foreign commercial houses, and the returns on shares of joint-stock companies mainly controlled and administered by foreigners.
Acting as the Central Bank at the time, many of the monetary and credit policies of the National Bank cost Egypt dear. The best example was its decision to issue Egyptian banknotes, with instructions from the Bank of England to cover the expenses of British forces and their allies in Egypt during World War I, a move that fuelled domestic inflation.
One of the main features of the Egyptian economy in the years following the British occupation in 1881 and preceding the 1919 Revolution was weak spending on investment, with total foreign direct investment in industry and construction up to 1914 being less than LE11 million.
The net inflow to Egypt from public loans reached LE77 million between 1884 and 1914, while the cost of constructing the first Aswan Dam, which represented the most important item of public investment in the period, amounted to LE3 million, or less than four per cent of the value of the loans.
World War I then exposed the vulnerability of the Egyptian economy, which was totally dependent on the export of raw cotton.
In the first year of the war, the Egyptian government faced a crisis.
"Nearly a quarter of Egypt’s cotton exports had gone to countries which were now enemies of Great Britain or would be in a position to supply Britain’s enemies. Since the British prohibited cotton exports to these countries, the demand for Egyptian cotton declined abruptly. The price paid in the markets also fell,” writes US historian Robert Tignor in his book The Middle Eastern Economy.
Burdened by the expense of the war, the British were unable to purchase Egyptian cotton with gold, a fact that left Egypt’s landowners in a difficult situation since while they could no longer sell their produce at good prices, they still faced high taxes.
The value of the cotton crop declined from LE34 million in 1913-14 to LE20 million in 1914-15, prompting bitter complaints from Egyptian landlords against the British policies.
The British reacted by declaring a moratorium on debt payments, but later the British Treasury guaranteed a loan of five million sterling to be used to purchase cotton from smallholders and enable the Egyptian banks to make advances to large landowners.
While the crisis stirred the anger of cotton cultivators against the government, what happened in the last year of war fed an equally furious popular reaction.
One of the National Bank of Egypt’s old buildings
Cotton prices declined in 1914-15, but with some reduction in the area cultivated they quickly recovered and rose to record highs.
The 1916-17 harvest sold for LE42.5 million, 22 million more than in the previous year.
However, in 1917-18, transport problems due to developments in the war caused cotton to accumulate inside Egypt and reduced prices.
According to Tignor, the British were concerned about Egyptian cotton supplies reaching enemy countries, and the British Treasury agreed to purchase the entire cotton crop in 1918 at a fixed price above the pre-war price in addition to a reasonable profit.
However, Egypt’s small farmers, squeezed by rising inflation, felt that the price offered would barely cover their expenses, triggering a storm of protest.
The Egyptian Chamber of Commerce in Cairo filed a formal complaint with the cabinet, claiming that the costs of production had gone up some two or three times and the prices offered were far too low.
However, Egypt’s cotton-growers had no real alternative but to accept the price on offer since their main crop was cotton and the trade was totally controlled by foreign interests.
The banks that bought the crop for overseas shipments, the ginning firms in Egypt, and the import-export houses in Alexandria were all controlled by Europeans.
Grading was managed by a select group of brokers known as the Alexandria General Produce Association, which was again foreign-controlled.
The inflation that came from the government’s decision to increase the currency in circulation at a time when commodity supplies were limited due to a reduction in imports on the back of the war made the lives of small landowners and farmers particularly miserable.
A Supply Control Board was established to regulate prices and to make sure that British troops were properly supplied. However, it failed to make the lives of the Egyptian population easier. As a result, the poorer classes, especially in the cities, were unable to afford basic necessities.
Protests also took place when the British commandeered peasant livestock to serve in military campaigns in Palestine.
An important feature of the Egyptian economy at the time, according to Tignor, was that while most of the land was owned by Egyptians much of it was mortgaged to European banks.
These were either branches of European banks or banks headquartered in Egypt but funded and administered from overseas, a technique that made most of the gains of selling cotton, whether at high or low prices, go to these banks in the form of loan repayments.
Meanwhile, the British claims that Egypt had made gains during the war and that it had emerged from it a much more prosperous country were based on the fact that in the first year of the war the value of Egyptian exports had declined significantly, but that these losses had been compensated by the expenditure of British troops garrisoned in Egypt.
“By the third year of the conflict, rising cotton prices and vastly increased British military expenditures in the country caused the favourable financial balance of trade to total LE35 million. The wealth of the large landed magnates was clearly on the rise,” Tignor writes.
Yet, such benefits only added to already existing inequalities, and they had little impact on the lives of the poor. The landed debt of Egyptians had declined from LE40 million to LE28 million, during the war, while private deposits in the banks had increased from around LE6.5 million to LE35 million.
This was dramatic evidence that substantially increased wealth was circulating in the Egyptian economy, though in unequal terms.
It was the country’s large landowners and foreign-owned companies that reaped most of these gains.
With wealth accumulating in the hands of large landowners, these started to fund activities in commerce and industry, even as most of the joint-stock companies in Egypt under the British occupation were owned by foreigners, as has been shown by a study that indicated that out of the LE100 million in paid-up capital of joint-stock companies in Egypt in 1914, LE92 million was controlled by foreigners.
The war was a boon to companies monopolising the manufacture and distribution of necessities. Tignor highlights two of these in the shape of the Salt and Soda Company and the Egyptian Sugar Company, both of which were administered and financed by Europeans and monopolised the supply of strategic products.
While the companies did not realise leaps in profits during the war, restrictions in imports during the four-year conflict fed their balance sheets.
Criticisms of these two companies’ monopolistic practices were made by the Egyptian Chamber of Commerce, which pointed out that as the Salt and Soda Company monopolised the production and distribution of soda, used in soap production, its pursuit of profits was affecting public hygiene.
The chamber published the two companies’ financial results, showing how they had gained despite rises in the cost of production. While the articles published by the chamber were unsigned, they bore the mark of the banker and industrialist Talaat Harb, who called for the emergence of locally financed Egyptian industrial companies.
According to Tignor, the local press shaped Egyptian thinking about the exploitative nature of the foreign businesses, and as Egyptian national aspirations began to be expressed after World War I it was inevitable that the nationalists should call attention to the overwhelming economic power of foreigners in Egypt and demand a more genuinely national economy.
The economic impact of the war thus fired revolutionary enthusiasm and aroused public concern about the country’s economic well-being, with Talaat Harb notably demanding that political independence should be accompanied by economic independence as well.
* A version of this article appears in print in the 7 March, 2019 edition of Al-Ahram Weekly under the headline: Revolutionary economy