Poverty reduction is one of the key goals of development policy in Egypt. The country’s experience in this regard has been positive and between 1990/1991 and 1999/2000 the poverty rate fell from 24.3 to 16.7 percent (United Nations and Ministry of Planning, 2004).
The country is on-track to achieve its long-term goal of reducing the poverty rate to 6 percent by 2022. A number of factors make Egypt’s progress remarkable and will likely make continued progress towards the Millennium Development Goal (MDG) target increasingly difficult. In particular rapid population growth will mean that in 2050 127.4 million Egyptians will share already scarce land and water resources. The current population to arable land ratio of 7.5 is perhaps the highest in the world and water, at only about 926 cubic meters per capita of renewable freshwater available (FAO, 2001) is also a serious constraint.
It is very likely that the rapidly growing rural labor force will increasingly depend on off-farm employment and small-scale household enterprise activities for their income. Already non-agricultural wage and household enterprises account for about 41 percent, on average, of household income (from table 2). Furthermore, Mellor and Ranade (2002) report that 62 percent of the labor force is employed in the non-tradable sector, two-thirds of which are in the rural non-tradable sector while agriculture accounts for 23 percent of employment.
However, they, and Mellor and Gavian (1999), find that agricultural growth, through its impact on the demand for goods and services in the rural (and small-town) non-tradable sector, plays a fundamental role in employment growth. Indeed, they predict that zero agricultural growth will virtually eliminate any improvement in labor incomes, and increase income inequality and poverty. This result implies the continued importance of agriculture to future economic growth in Egypt.
In this paper I look at the related question of which agricultural policies will be most effective at reducing rural poverty in Egypt. Building on Adams (2002) I use the same 1997 household survey data to study the structure and the determinants of rural household income. Adams’ key findings where that policy makers 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. Finally he shows that agricultural income is positively correlated to landownership which is very unequally distributed while non-farm income is not linked to landownership and therefore more important for the poor. This study work complements Adams’ study on the one hand because I use different income source definitions, thus providing another angle from which to analyse the data. Moreover I extend Adams’ work on this topic by providing a more detailed econometric analysis of the determinants of wage employment participation and of household income per se.
The results show that poor households depend disproportionately on casual labor in the private sector (both agriculture and non-agriculture) and livestock, i.e. small animals and in particular small animals, for generating income. A longer-term strategy would also focus on enhancing formal sector employment as returns in this sector are higher and it is a crucial sector with regard to helping households move out of poverty. In this regard the finding that education is the key factor in participating and in securing higher returns in wage employment is important.
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