If it is true that one can study the heart and mind of an artist through examining his work, it is equally true that one can learn about, and perhaps understand, a tycoon through his business.

The most general public knowledge of Najib Mikati, Lebanon’s prime minister designate as of January 25, 2011, is that he made a fortune as a telecommunications entrepreneur.

The Mikati corporate family, with older brother Taha at the helm, began their succes in a modest and traditional Lebanese industry — construction — but things started to take off in the 1980s, when the siblings invested in telecommunications and established Investcom Holding.

As the face of Investcom, Najib Mikati rose to prominence when the company became the junior partner to one of Europe’s best known telecommunications firms, France Telecom. The joint venture, in which Investcom held one third, was in ownership of the incongruously named FTML, a Lebanese company that has been defunct for some years now. In its heyday, however, FTML operated the Cellis mobile phone network. It was an effective money-making machine and key enabler in Lebanese economic growth.

A growing wealth

The FTML joint venture could only come into being with the support of the Lebanese prime minister and telecommunications minister at the time of its creation in 1994/95, the legendary Rafiq Hariri.

Investcom’s value was estimated at $30 million by the late 1990s, according to information on the website of parent company, M1 Holding. By 2000, Investcom and its subsidiaries had projects across the Middle East and Africa, in Ghana, Guinea Bissau, Benin, Syria, Liberia and Yemen, with Cyprus added in 2003. A decade after the establishment of FTML, the Mikatis’ telecommunications empire had expanded to five million subscribers in the Middle East and Africa.

After a profitable initial public offering in London and Dubai in October 2005 and a $5.5 billion cash-and-shares-transfer deal with South African telecommunications operator MTN in May 2006, the Mikatis were bona fide billionaires and emerged on the Forbes list of the ‘super-rich’ at $5 billion, or estimated net worth of $2.5 billion each.

They were no longer running telecoms in Lebanon but M1 Holding owned ventures such as travel and aviation, oil exploration, a finance company, a management company, luxury fashion chains here and there and real estate in countries including the United Kingdom, United States and Lebanon.

According to business information provider Zawya, M1 Group interests presently include a Luxembourg-domiciled oil exploration company called Avante, whose website identifies Columbia and Mexico as countries of operations, Swiss airline Baboo (formerly Flybaboo) and 10.33 percent in MTN, through the group’s Dubai arm, M1 Limited.

At the time when M1 and MTN structured the merger deal in April 2006, the cash component was said to be valued at more than $3 billion and the MTN stock was quoted at less than $10 per share. According to data from the Johannesburg Stock Exchange, MTN presently has 1.88 billion shares outstanding and a market capitalization of $33.2 billion, of which M1’s 190 million shares are worth $3.4 billion. The MTN stock traded at around $18 per share in January 2011.

While the MTN shareholding alone justifies the billionaire label for M1 and its four current family owners — Taha and Najib and their respective eldest sons, Azmi and Maher — other M1 business forays are harder to assess in value and some may not have been as profitable. Baboo, essentially an Alps-hopping service with a fleet of two aircraft, appears not to have fulfilled expectations. Neither Avante, nor the Swiss carrier, nor Faconnable, the French fashion brand which M1 acquired in 2007 for $210 million, have been releasing results for public scrutiny, making the group’s total economic worth and performance hard to gauge. 

The businessman through his business

However, real business success is no more about being a billionaire than art is about a sculpture’s price tag in a Sotheby’s catalogue. In this sense, success in art and business are both about making a lasting impact and about the authenticity of style. It is largely immaterial how rich Najib Mikati is from the first billion to the second or third. But what can be said about his style of business leadership or deduced from his corporate successes and failures?

First, the picture is one of keeping things in the family. M1 is a family business, owned entirely, but to undisclosed percentages, by the brothers and their sons.

The appearance of family unity and coherence are carefully maintained. The reporters are kept at bay and the laundry, if any ever got dirty, is kept in the basket. In this regard, the Mikatis have much more in common with the Hariris than with other politico-economic families such as the Berlusconis, the Bushes or the Sarkozys.

The downside of the family business’ gleaming facade lies in shortfalls of transparency. Mikati stressed that he did not retain business interests in Lebanon when assuming the premiership in 2005, but one would wish for more disclosure on holdings and goings-on related to the family empire. 

Another practice of the Mikati family, which also has parallels to the Hariris, is early grooming of the sons to take responsible roles in the family enterprise.

Najib Mikati, by way of the Investcom business success, gives the impression of a mind that is able to see a need and turn it into an opportunity even if the risk might scare others, and do so to considerable personal advantage. From the way in which Investcom and M1 have evolved there is, moreover, reason to assume that as a business leader he resisted the impulse to micromanage and instead developed the ability to entrust and relinquish control, to a notable degree. 

What seems evident is that the Investcom philosophy attributed priority values to the corporate interests that were conducive to Mikati family interests. As many of the M1 and Investcom decisions were presented to the public through the second-generation executives, Azmi and Maher, while at the same time some of the decisions represented by Najib Mikati were reportedly driven by his older brother, Taha, a twofold picture suggests itself wherein Najib Mikati exhibited no fundamental objections to either frequently remaining in the background for the sake of family interests nor accepting a frontline position in representing interests that were said to have been decided primarily by others. Fear of risk, by the way, was not part of the Investcom mindset at any time.   

More Rafiq than Saad

The names Hariri and Mikati stand for two Lebanese families whose fortunes have risen in the second half of the 20th century in cities where the communal leadership had for many generations resided in the hands of other, more entrenched clans. Although he was born half a generation later than Rafiq Hariri, Najib Mikati’s ascent and ambitions have perhaps more points of similarity with the elder Hariri than between Hariri father and son.

When Najib Mikati walked into Lebanese politics as minister in the 1998 cabinet of Prime Minister Selim Hoss, he did so with presence and personality but not with an overwhelming aura of charisma.

When he was appointed prime minister last month, a German news magazine falsely labeled him “Hezbollah’s billionaire.” He is “not Hezbollah and not Iran,” was the perspective offered more aptly by an editorial writer at the Israeli daily Haaretz.

The historic track record of Hezbollah shows an unbroken political priority on protecting its assets — its people, security and military hardware — at any cost.

In matters of policy making, the organization and its political wing have demonstrated no inclination to impose changes, and they have also expressed few perspectives that would suggest ambitions to do so.  

Community leaders from his hometown who say they know Najib Mikati said that he foresees an opportunity to found a political heritage for his family and his northern city of Tripoli, long neglected by the capital. 

He may want to bank on his business experience of successfully navigating concessions to formal and informal partners while still achieving his own objectives. However, Mikati is likely to find that every move of his will be scrutinized much more closely, on the basis of a host of opposing agendas, than any past business decision.

The events of the last two months have touched the lives of every Tunisian, regardless of class or position. Executive spoke with several of them to hear, first hand, the story of how this tiny nation sparked the fire now raging across the Arab world.

By New Year’s Day 2011, Rafik Rezine had heard plenty about the violence in Sidi Bouzid. Everyone in Tunis had. 

At first the reports had come by circuitous means: through Facebook messages, phone calls and hushed conversations. Those lucky enough to have access to illegal Internet servers shared outside news reports with those who didn’t. The story was compelling, even if its details were unclear: a poor student turned street vendor, Mohammed Bouazizi, had set himself on fire after being humiliated by the police, and the quiet desert city of Sidi Bouzid had erupted against the government in response. 

Like most Tunisians, Rezine expected the protests to dissipate in a few days. Previously, unrest had risen only to fall, quashed by the police and by the president’s much-feared “Black Tigers,” special security forces named for the shade of their riot gear and the brutality with which they suppress dissidents.

Yet despite reports that police had used tear gas, batons and even live ammunition to disperse the crowds, the protests did not die out. On the contrary, when a private Tunisian television station, Nessma TV, finally aired footage of the protests it was clear that they had escalated and spread to the nearby cities of Kairouan, Sfax and Ben Guerdane. By this time the unrest had been boiling for 12 days and showed no signs of cooling.

Mixed feelings on the eve of a revolution

Though the country had experienced strong economic growth over the past several decades — at an average annual rate of 4.7 percent, according to figures from the World Bank, the highest in the Arab world outside of the Gulf — that growth has not been felt uniformly across all regions or demographics of this small country.

After Tunisia declared independence from France in 1956, industrial development occurred primarily in and around the coastal areas of Tunis, Sousse and Sfax, while the economies of smaller coastal cities were buoyed by money flowing from the millions of European, Libyan and Algerian tourists who visit each summer. By contrast, citizens residing within the interior of the country subsisted largely as they have for generations, tending goats, sheep and olive groves.

These interior regions exhibit a significantly lower standard of living than is enjoyed on the coast. On average, income is lower in rural regions and joblessness is higher. Although education is mandatory for all children, only 67 percent of rural children are enrolled in school, as opposed to 82.2 percent in urban areas, according to a World Bank estimate.

Because of these disparities, citizens of the interior — young people in particular — have streamed into the coastal cities. In a striking illustration of the country’s rapid demographic transformation, the population of Tunis has more than doubled since 1990. And when the economic downturn reached Tunisia in 2009, it was the interior of the country that suffered the most from dropping export values and rising food prices.

Rezine, an engineer working for a private company in Tunis, struggled to reconcile his own feelings as he watched the events unfold. On the one hand, he felt strong sympathy for the citizens of Tunisia’s marginalized core at the heart of the protests and could see why they were angry. At the same time, he felt a certain apprehension at the prospect that the riots could spread. Though he had no love for Tunisia’s autocratic government or its president of 23 years, Zine el-Abidine Ben Ali, he had done well for himself in the stable climate of the country’s capital — he had a good job, a family and prospects for advancement.

Authoritarian though it may be, the government protected the measure of security he had attained. Civil unrest meant civil instability. And so Rezine watched and waited. Then came the spark that set him alight.

On January 8, six protesters were killed in clashes with police in the provincial town of Tala, near the Algerian border. They were not the first protesters to die since Bouazizi’s act of desperation, but the scale of the killing infuriated Rezine and much of the citizenry of Tunis.

“For me, that was unacceptable,” he said in a recent interview, speaking by phone from Tunis. “We accept that, if there are protests, the police will act to disperse them; if there are riots, the police will use force. But people getting killed… it was another matter. It was our duty to go out on the street and say ‘stop!’”

“Once we were out, there was no stopping us. It was like a dream: Marching down the avenue, singing ‘Freedom! Work! Ben Ali Out!’”

Civil unrest comes to the capital

At 9 o’clock on the morning of January 14, Rezine joined around 100 other Tunis residents for a peaceful demonstration of civil dissent. It was largely spontaneous, spurred by the deaths of the previous days, though it was organized and communicated through Facebook.

They gathered in the downtown Passage neighborhood, near the Ministry of Interior and began to file towards Avenue Habib Bourgiba, a tree-lined thoroughfare in the center of the city named for Ben Ali’s predecessor. 

As the crowd grew close, Rezine could see that the avenue was empty and surrounded by a cordon of police. By now, however, the protesters’ numbers had swelled. What had begun as a hundred had grown to thousands. They encountered a police barrier at the entrance of Avenue Bourgiba and broke through it.  “That was the police’s mistake,” Rezine recalled. “If they had used more force to break us up before we got to Bourgiba, they could have held us back. But once we were out, there was no stopping us. It was like a dream: Marching down the avenue, singing ‘Freedom! Work! Ben Ali Out!’ We marched to the Ministry building and stayed there for hours.”

As the protests continued, the police realized the situation was growing beyond their control and advanced on the protesters with batons and canisters of tear gas.

Meriem Agrebi, a lawyer, was among the crowd when the police attacked. It was not the first time she had encountered the police in recent weeks.  Tunis’s lawyers had been among the first to pressure the government in the capital. On December 28, roughly 300 lawyers had gathered outside the President’s palace in Tunis in solidarity with the protests elsewhere, with lawyers marching in other cities as well. They were dispersed by police wielding batons, but reconvened to demonstrate again three days later. On January 6, an estimated 95 percent of the country’s 8,000 lawyers went on strike in opposition to police brutality.

Now Agrebi found herself running for cover. As gas canisters bounced in the street around her, she ducked onto a side street where, by prior arrangement, a friend was waiting in a car. They sped away. Doctors cited by BBC News would later report that 13 people were killed during the day’s clashes.  Those clashes would not be the last.

The next day, in the face of new demonstrations and riots, President Ben Ali imposed a state of emergency and promised new legislative elections within six months. That night, he fled by plane — first to Paris, where French President Nicholas Sarkozy reportedly refused him entry, and finally to Saudi Arabia, where he was granted asylum.

The first steps toward democracy

Ben Ali’s abrupt abdication was a massive victory for the protest movement, which quickly moved to capitalize on its gains, appointing members of its own leadership to key government posts. When Prime Minister Mohammed Ghannouchi announced on January 17 that the new parliament would contain former members of Ben Ali’s now-disbanded Constitutional Democratic Rally (RCD) party, it was met with sharp criticism from the protests’ emergent leadership, which was spearheaded by the Tunisian labor union. Not satisfied by Ghannouchi’s promise of sweeping reforms, the unions staged fresh demonstrations around the country calling for all members of the previous government to step down.

That demand struck some Tunisians as far-fetched. Feres Yaiche, 22, an engineering student from the inland city of Kairouan, was among the first of his friends to join the protests. Still, he said in a recent interview, he thinks the movement may now be reaching too far.

“I don’t think a new start is necessarily the best solution,” he said. “I think that we can’t refuse everyone from [the previous] government because we need some balance to protect Tunisia socially and financially. We need experienced people in government to work on the situation going forward — otherwise there will be no forward, only chaos.”

“Everyone feels the corruption.. but you get used to it. You fall asleep… Bouazizi woke us up”

From the outside, looking in

And what exactly are the interests that will need to be ‘balanced’ in the new government? Tunisia is largely homogeneous in its religious composition, with 99 percent of its population Sunni Arabs; economic and geographic disparities, however, run strong.

Amr Hamzawy, a Senior Researcher at the Carnegie Middle East Center and an expert on social protest movements in North Africa, said in a recent interview that if divisions emerge in the new government, they would likely run along rural-urban fault lines.

“It’s important to understand that this wasn’t simply a conflict of Tunisia against the government,” he said. “It started out as a case of remote regions speaking out against the capital city. Even a new government won’t solve the underlying problems of inequality that exist between urban and rural areas of the country. If there is to be stability, there is going to have to be a significant reallocation of resources to the center of the country.”

While there clearly remains an economic split between rural and urban Tunisia, Hamzawy said that the protests had revealed a split among the ranks of the educated and elite as well. “Previously, most experts took it for granted that organizations like the national labor unions and the Bar Association were allied with the government, and by default, corrupt,” he said. “What we’ve seen, by the leading roles these groups took in the protests, is that even among their ranks there were divisions — a kind of two-class society where the administrators at the top received large cuts and distributed favors, but where the vast majority of participants suffered from the same corruption that plagued the rest of the country.”

Statistics from the World Bank’s Human Development Report support the theory. According to the report, Tunisia’s inequality gap is greater than those of India, Indonesia and Jordan, with 10 percent of the population in control of more than a quarter of the country’s wealth. That upper class has also held a monopoly on political power — an imbalance that, according to Hamzawy, may be evening itself out.

“Political forces like the labor unions and the lawyers’ associations didn’t exist in the form they [do] today, unified and powerful, but suddenly they’re playing a crucial role in sustaining street pressure on the government,” he said. They will likely continue to play a significant role in shaping the country’s future and could add a much-needed voice to the national discourse, he added.

From the outside, looking in

An ocean away, Leyla Chaibe, 19, watched her childhood home transform from authoritarian state to emergent democracy in what seemed like an instant. “When I go back to my country, I won’t even recognize it,” she said in a recent phone interview.

Chaibe, who was born to a lower middle-class family in the city of Monastir, now attends Wellesley College in Massachusetts on a full scholarship. She said that although the revolution had been abrupt it was not unforeseeable. “I remember when tensions started to build over government censorship a year ago,” she said. Her friends in Tunisia would refer to the Internet censors as ‘Amar 404,’ – a tongue-in-cheek reference to the default error message displayed by Internet Explorer when an Internet page cannot be found.

Although the economy slowed in 2009,  government officials continued to hound business owners for bribes. When Chaibe’s mother tried to start a day-care center in their community, a representative from the local ministry told her point blank that she would have to pay him a bribe if she wanted to see her business licensed.

“Everyone feels the corruption, and it wears on you, but you get used to it. You fall asleep,” she said. “Bouazizi woke us up.”

There were few signs preceding the protests that began on January 25 that they would push the regime of Egyptian President Hosni Mubarak to the brink of collapse, leaving Cairo, Alexandria and much of the rest of the country in a state of chaos. Over the course of Mubarak’s 30-year-long reign, different groups of Egyptians have tried many times to openly oppose the regime in the streets, with any movement deemed threatening to the regime crushed under the truncheons of heavy-handed security forces.

This time, it was different. Within days, the ruling National Democratic Party (NDP) headquarters were in flames, gutted and charred carcasses of police vehicles littered Tahrir Square in central Cairo and vigilantes, armed with everything from kitchen knives to samurai swords and baseball bats, had set up checkpoints in the streets to protect their neighborhoods in the absence of the state security apparatus.

In short, revolution was in the air.

“Up to a week ago, I would not have believed it,” said Sarah Sirgany, deputy editor of The Daily News, Egypt’s English-language newspaper. “I did not think that people had it in them to go out in mass protests and call for one thing… [the resignation] of Mubarak.”

The Tunisian revolution earlier in the month didn’t plant the idea of the revolution in the heads of the Egyptians — it had long been there. Rather, Tunisia showed Egypt that change was possible. Still smarting from the November 2010 parliamentary elections where Mubarak’s NDP won an overwhelming majority of the seats, Egyptians were angry; opponents alleged that the election was even more rigged than previous ones.

Such political frustrations, which have pervaded Mubarak’s 30-year tenure, have been compounded of late: Egypt’s economic growth of recent years has lavished wealth on the socioeconomic elite connected with the regime and spurred inflation, while leaving nearly half of Egypt’s 80 million people in dire poverty.

The country was nearing breaking point, yet Mubarak showed no sign of reforming or giving up power. Demonstrations quickly turned into clashes on January 25, with riot police firing tear gas canisters and water cannons at first and later rubber bullets and live ammunition — but the protests did not end.

“The most extraordinary thing I’ve seen is that the protesters are relentless, or they have been [so far],” said Ahmed Moor, Executive’s correspondent in Cairo.

“People I talk to are surprised… that this kind of organic, spontaneous uprising is happening around the country,” said Matthew Cassel, a freelance journalist and photographer on the ground in the Egyptian capital.

In a pre-recorded television address in the early hours of January 29, after protesters had driven his security forces from the streets and fires raged at police stations and NDP offices across the country, President Mubarak said: “These demonstrations would not have taken place without the freedom of expression that was given to the Egyptians.” He said he empathized with Egyptians’ “suffering” and announced he was dismissing his cabinet. The sentiment, more or less, was that he was not going anywhere — at least not yet.

Foreign Affairs

While the United States government has actively pushed and encouraged protests demanding democratic reform elsewhere in the region, the Obama administration was slow to give any response to what was happening in Egypt. This is, perhaps, to be expected, as the US has long considered Mubarak a strong ally and a “force for stability” in the Middle East, as President Barak Obama described him in a 2009 BBC interview. As part of the payment for continuing to maintain the 1979 peace treaty with Israel, the US currently provides Egypt with $1.3 billion in direct military aid per year, an amount second only to the $3 billion or so the country is expected to provide Israel in 2011.

Given this relationship, past and current US administrations have been reluctant to slap the Egyptian leadership’s wrist when it comes to human rights violations and rigged elections. When asked about Mubarak while appearing on PBS’ NewsHour show on January 27, American Vice President Joe Biden said: “I would not refer to him as a dictator,” before adding that he hoped Mubarak would “respond to some of the legitimate concerns that are being raised.”

Anger on the Egyptian street against American support for Mubarak’s repressive regime has only been further inflamed by the spent teargas canisters security services have fired on protesters which are labeled “Made in USA.”

But US diplomatic language does seem to be shifting. The White House announced on January 28 that it was “reviewing” its military assistance to Egypt, which has been interpreted by some as a veiled warning to the Egyptian Army that it must act with restraint when dealing with the protesters. In a January 30 address, US Secretary of State Hillary Clinton also said: “I want the Egyptian people to have a chance to chart a new future.”

While the reorientation of American rhetoric may be seen as significant within the US administration, it has had scant resonance on the Egyptian street. Speaking to a crowd of tens of thousands gathered at Cairo’s Tahrir Square on January 30, Egyptian opposition figure Mohammed ElBaradei said that the US is “losing credibility by the day.”

However, the slogans and chants that define protests continue to focus solely on deposing Mubarak. Dealing with the Americans’ management of the situation may have to wait until after the tear gas disperses and the last shots have been fired.

Revolution’s economic roots

Before the protests began, Egypt enjoyed strong gross domestic product growth — between roughly 4 and 8 percent over the last decade — and a boom in foreign investment over the past few years. The country’s large population, which made it an ideal place for investors given the sheer number of potential consumers, also helped feed socio-economic unrest. With an estimated 40 percent of the population living on less than $2 per day, poverty in Egypt has always been much more apparent than in most of the rest of the Middle East and North Africa.

While the country’s official unemployment figure was a manageable 9.4 percent in 2009, approximately 80 percent of that figure was comprised of people between the ages of 15 and 29. According to Egypt’s Central Agency for Public Mobilization and Statistics, the labor force today stands at approximately 26 million and is expected to grow by 20 million people over the next 25 years. To avoid massive unemployment the country will need to accelerate its rate of job creation — currently about 400,000 jobs per year — to approximately 750,000 jobs per year.

That may not be easy to do if the current protests continue to have a negative effect on the economy, particularly on tourism. Cancelations of cruise stops and tours have been immediate; this is worrisome in several regards. According to international labor studies, tourism employs, albeit often not well-paid, substantial numbers of low-to-medium skilled people. Moreover, inbound tourism in Egypt is a strategic development sector and has seen greater growth than the economy at large, with 8 to 9 percent increases reported even during the economic stress years of 2008 and 2009.

It would be imprudent at this stage to project the impact of the January revolution on 2011 tourism earnings. However, in 1997, terrorist attacks on tourists in Luxor were linked to a drop in Egypt’s international tourism receipts of more than $1 billion in 1998. 

While a long-term downturn in tourism revenue has not been observed after limited terrorist attacks in countries such as Egypt and Turkey, the role of tourism in the Egyptian economy has expanded significantly, suggesting a potential amplification of economic detriment from even a one-year contraction. According to Euromonitor, tourism receipts in Egypt were estimated at $12.8 billion in 2010, with a significant medium-term gain from $9.3 billion in 2007.

Tourism aside, two other of Egypt’s main sources of income should not be threatened, unless all-out war is declared. The income from the Suez Canal, another one of Egypt’s key hard currency earners, is vulnerable to global economic issues but insulated from the local economy. However, while a shut-down of the canal at the moment looks like a super-long-shot threat, it would deprive the country of billions. In concrete terms, the revenue of the Suez Canal rose from $3.45 billion in 2005 to more than $4.5 billion in 2010.

Remittances — money sent home by Egyptian workers abroad — might be more likely to see a boost than a reduction. For fiscal year 2009/10 (FY09/10) which, in Egypt, ends on June 30, Egyptian central bank numbers put the amount of private inbound transfers — remittances mostly — at $9.5 billion.

The flow of foreign direct investments (FDI) and bond investments into Egypt warrants a measure of concern because of the economic importance of each, with FDI reported at $6.8 billion and foreign portfolio investment at $7.9 billion in FY09/10. Investments in the private sector economy as well as the operations of some major companies could face uncertainty; according to reports by Al Jazeera, protestors singled out government figure and tycoon Ahmed Ezz, whose Ezzsteel Group is described as the largest independent steel producer in the Middle East and North Africa and Egypt’s market leader.  

The institutional stability of Egypt’s ministry of finance and central bank will be watched carefully by international ratings agencies over the coming months. Monetary stability and the value of the Egyptian pound are among the concerns, while public sector finances could easily come under stress from attempts at appeasing social discontent through expansion of already massive cost-of-living subsidies, Moody’s warned on January 31. 

Street value

In the end, the durability of the current protests may actually depend on how long the poorest Egyptians can afford to stay on the street.

“You have to bear in mind that a lot of Egyptians are employed in the informal sector, which means that they work on daily wages,” says Sirgany. “In demonstrations they risk their lives, they risk being shot at, but they know for sure that they won’t have what will feed them on this day… But they’re still going on.”

Hot on the heels of an international wheat shortage, the world cotton market is facing a similar supply crisis due to adverse weather conditions. The resulting record prices are a boon for Egypt’s dwindling cotton farmers, but have thrown the domestic textile industry, which relies nearly exclusively on cotton imports, into turmoil. 

India, the world’s second largest cotton exporter, instituted export controls in May, triggering a price rise which was further exacerbated by flooding in China, the world’s leading producer; Pakistan, the fourth largest supplier, was also affected. By December, cotton prices had reached an all-time high of more than $1.68 per pound, a near 80 percent hike on prices earlier in the year.

Normally accounting for around 40 percent of the world’s cotton production, China’s production is expected to fall 17 million bales below scheduled output in the 2010-2011 season. Also the world’s leading user of cotton, the Asian nation is now looking to purchase up to 20 million bales on the international market to meet demand from its large textile industry. 

This supply shake-up has naturally spread to the rest of the world — in Egypt, cotton farmers are counting their blessings while local textile manufacturers are relying on the state for assistance. To head off a crisis, the Egyptian government has exempted imported yarn from customs duties, while increasing subsidies for manufacturers using local raw materials by 50 percent. In addition, 280 million Egyptian pounds ($48.2 million) in aid money has been dispersed to spinning and weaving factories. 

Egyptian cotton has been a household name since the 19th century, when it was first exported around the world for use in bedding and haute couture. Its high quality long-staple cotton is still a niche market for Egypt, but it is the domestic textile industry, which requires cheaper cotton, that the government has opted to support.

Bringing in around $2.13 billion in 2009, textile exports are a major revenue earner for Egypt and account for around a quarter of total exports. Cotton was subsidized until the 1990s, with production peaking at 529,000 tons in the 1980-1981 season. The state scaled back its support of the industry, liberalizing sales in 1994 and removing protectionist tariffs in 2004, and production reached a low of 109,000 tons in 2008-2009. 

But with the global shortages, cotton is suddenly enjoying another day in the sun. After witnessing an uptick in prices, farmers increased the share of land dedicated to the crop at the beginning of 2010. An April report on cotton production in Egypt by the United States Department of Agriculture’s Foreign Agriculture Service predicted: “In 2010-2011, cotton area is expected to total about 160,000 hectares, or about a 34 percent increase [over] the area planted in 2009-2010.”

The gambit looks to be paying off: the Alexandria Cotton Exporters’ Association reported in January that its cotton contracts were $344.39 million for 2010-2011, compared to $117.3 million at the same time the previous year. Moreover, ongoing floods in Australia, another major cotton exporter, are a strong sign that prices will remain high for the remainder of the season. 

For Egyptian textile exporters, however, the cotton crisis could not have come at a worse time, having recently started to make inroads to the US and European Union textile markets where they face stiff competition from Chinese products. With China prepared to shoulder the high costs of cotton in a time of international shortage, Egypt’s government may need to take extra measures to protect its breadwinning industry.