Background:
The regularity and richness of the annual Nile River flood, coupled with semi-isolation provided by deserts to the east and west, allowed for the development of one of the world's great civilizations. A unified kingdom arose circa 3200 B.C. and a series of dynasties ruled in Egypt for the next three millennia. The last native dynasty fell to the Persians in 341 B.C., who in turn were replaced by the Greeks, Romans, and Byzantines. It was the Arabs who introduced Islam and the Arabic language in the 7th century and who ruled for the next six centuries. A local military caste, the Mamluks took control about 1250 and continued to govern after the conquest of Egypt by the Ottoman Turks in 1517. Following the completion of the Suez Canal in 1869, Egypt became an important world transportation hub, but also fell heavily into debt. Ostensibly to protect its investments, Britain seized control of Egypt's government in 1882, but nominal allegiance to the Ottoman Empire continued until 1914. Partially independent from the UK in 1922, Egypt acquired full sovereignty following World War II. The completion of the Aswan High Dam in 1971 and the resultant Lake Nasser have altered the time-honored place of the Nile River in the agriculture and ecology of Egypt. A rapidly growing population (the largest in the Arab world), limited arable land, and dependence on the Nile all continue to overtax resources and stress society. The government has struggled to ready the economy for the new millennium through economic reform and massive investment in communications and physical infrastructure.

Economy - overview:
Lack of substantial progress on economic reform since the mid 1990s has limited foreign direct investment in Egypt and kept annual GDP growth in the range of 2-3 percent in 2001-03. Egyptian officials in late 2003 and early 2004 proposed new privatization and customs reform measures, but the government is likely to pursue these initiatives cautiously and gradually to avoid a public backlash over potential inflation or layoffs associated with the reforms. Monetary pressures on an overvalued Egyptian pound led the government to float the currency in January 2003, leading to a sharp drop in its value and consequent inflationary pressure. The existence of a black market for hard currency is evidence that the government continues to influence the official exchange rate offered in banks. In September 2003, Egyptian officials increased subsidies on basic foodstuffs, helping to calm a frustrated public but widening an already deep budget deficit. Egypt's balance-of-payments position was not hurt by the war in Iraq in 2003, as tourism and Suez Canal revenues fared well. The development of an export market for natural gas is a bright spot for future growth prospects, but improvement in the capital-intensive hydrocarbons sector does little to reduce Egypt's persistent unemployment.

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