The Open Door Policy (After 1973) PDF

The Open Door Policy (After 1973) Summary of Problems Before the Open Door Policy 1. Real GDP growth decreased to 3%. 2. Unemployment increased especially in rural areas. 3. The policy of government employment for educated persons led to overstaffing, disguised unemployment, and more pressure on the...

The Open Door Policy (After 1973) Summary of Problems Before the Open Door Policy 1. Real GDP growth decreased to 3%. 2. Unemployment increased especially in rural areas. 3. The policy of government employment for educated persons led to overstaffing, disguised unemployment, and more pressure on the budget. 4. The rise in international food prices substantially increased the cost of imports (imported inflation). 5. The rising cost of imports caused a trade deficit that doubled in 1974. 6. The rapid increase in the cost of living forced the government to increase wages, which increased the budget deficit and inflation. 7. As a result of the rising budget deficit, internal and external public debt increased (to finance the deficit). It was clear that Egypt needed to attract external sources of finance and capital. 2- The Main Elements of Open Door Policy (1974-1981) A) Law No. 43 for Arab and Foreign Investments and Free Zones was to encourage the inflow of foreign capital to the Egyptian economy: ❑Most of the economic activities were opened to foreign investment. ❑Several guarantees were provided for foreign capital: e.g. guarantees against confiscation of capital, freedom to repatriate funds and profits. ❑Exemptions from some taxes. ❑The law regulated the establishment of Free Zones and Special Free zones for export-oriented companies (provided exemptions from customs and taxes). B. A new import-export law of 1975: Enabled private sector participation in imports of certain goods, raw materials and intermediate goods which encouraged private sector investments. C. Attempts to reduce direct subsidies: – Pressure from International Monetary Fund (IMF) to reduce food subsidies. – In January 1977, the government announced an increase in the prices of a group of basic commodities which resulted in violent riots allover Egypt. – The violence did not stop until the President cancelled the government’s decisions, and thus, the subsidies were not reduced. – Gradually, the government resorted to indirect measures to reduce the burden of food subsidies: for ex. the size of the loaf of bread was slightly reduced, prices were raised slowly, and brand names were changed. Questions 1- The open door policy focused on: a. Nationalization of private sector companies b. Privatization of public sector c. Attracting foreign investments 2- The Law no. 43 for Arab and Foreign investments a. b. c. d. Provided guarantees against confiscation of capital Established free zones Opened economic activities to foreign investments All of the above