the suez canal -- 7/1/15

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Today's selection -- from The Fortunes of Africa: A 5000-Year History of Wealth, Greed, and Endeavor by Martin Meredith. The financing of the Suez Canal in Egypt followed a pattern followed again and again, both before and since. First, an African ruler puts forward ambitious development plans. Next, eager western lenders finance those plans, but inevitably in an amount and scale beyond the means of that country to repay. Then, when that country finds itself unable to pay, Western governments in support of their lenders take over the financial mechanisms of that country and impose measures of austerity. Which all results in unrest and rebellion among the population. And so it was in Egypt:

"Once in operation [in 1869], the Suez Canal rapidly became a commercial success. Britain, which possessed the world's largest and most modern merchant shipping fleet and had by far the largest share of Europe's trade with Asia, gained huge benefits. British ships were soon producing the bulk of the company's business and profits. Between 1871 and 1895 British tonnage passing through the Canal was never less than 70 per cent and remained above 50 per cent until after the Second World War. Egypt fared less well. It lost the transit trade across the Isthmus; and it was also compelled to pay compensation of more than £3 million to the Canal Company to rid itself of the obligation of providing labour for the project.

The original Suez Canal, which opened in 1869, took 10 years to build.

"The Suez Canal was but one of the grand projects that [Egyptian ruler] Ismail [Pasha] hoped would transform Egypt into an imperial power. He shared the same ambition for modernisation as his grandfather, Muhammad Ali. After succeeding Said in 1863 at the age of thirty-three, he ruled first as pasha but managed to persuade the Ottoman sultan to accord him the title of khedive, a Persian-Turkish title meaning viceroy, signifying a higher status for Egypt in the Ottoman domain. Educated in part in France, a graduate of the French officers' cadet school at Saint-Cyr, Ismail acquired an admiration for European methods and sought a partnership with European powers to propel forwards his plans for modernisation.

"The speed of change was dramatic. Ismail commissioned railways, roads, harbours, irrigation projects, sewage systems and electricity plants. With the help of French planners, he began to transform Cairo into a modern capital with all the trappings that European cities enjoyed: boulevards, plazas and public gardens, an opera house, a national theatre, a national library, a national museum. He installed himself in a vast rococo palace at Abdin where he devoted his time to producing ever more plans, welcoming a stream of foreign visitors with courtesy and charm. Europeans were encouraged to take up residence and to participate in Egypt's great revival. By 1876, more than 100,000 Europeans lived there.

"Ismail's attempts to carve out an empire for Egypt in north-east Africa were equally ambitious. He recruited European and American military advisers, expanded his army to 93,000 men and embarked on no fewer than ten military campaigns in the region. But the cost of all this served as a huge drain on Egypt's resources.

"Both Ismail's grand projects and his military adventures were financed by a borrowing spree. A cotton export boom during the American civil war provided a boost to revenues but also encouraged Ismail to embark on yet more borrowing. European financiers and their agents in Egypt seized on the opportunities with relish, charging exorbitant rates of interest. On average, Ismail's government received no more than £7 for every £10 of nominal debt that it incurred. The national debt rose from £3.3 million in 1863 to nearly £100 million in 1879. The cost of servicing the debt by then amounted to £5 million a year, nearly two-thirds of the government's annual revenue. Each new loan was swallowed in an ocean of borrowing.

"In desperate straits, Ismail was obliged in 1875 to sell Egypt's shares in the Suez Canal Company in an attempt to keep up interest payments. The British government, seeing a bargain on offer, snapped them up for less than £4 million. But for Egypt the funds raised brought only temporary relief.

"Egypt was now facing the calamity of being at the mercy of European financial interests. European creditors, mainly banks, appealed to their governments for help in recovering their loans. European governments responded in 1876 by establishing an international commission, the Caisse de la Dette Publique, with the power to take charge of Egypt's revenues. In 1878, they went further. In return for a new loan, they stripped Ismail of his autocratic powers and forced him to accept the role of constitutional monarch. His personal revenues and estates were placed under the control of a new administration headed by Nubar Pasha, an Armenian Christian. Two European ministers, one French and one British, joined the cabinet, enabling France and Britain to exercise what was called 'Dual Control'. The British nominee, Charles Rivers Wilson, was a taxation expert given charge of running the Ministry of Finance.

"European intervention produced a groundswell of resentment among Egyptians. Within the military, there was mounting anger over European insistence that the size of the army had to be reduced to a token force of 7,000 men. In February 1879, a group of army officers and cadets facing dismissal staged a demonstration outside the Ministry of Finance protesting about their arrears of pay and demanding payment in full. As the prime minister, Nubar Pasha, passed by in his carriage, he was ambushed and assaulted."