British Financial Imperialism and Capital Controls in 19th Century Egypt

Egyptian history is replete with power vacuums and control changes that often reshape the way the country operates with respect to the rest of the world. This often occurs without the approval or even direct understanding by the Egyptian populace. The impetus for the change in control derives from a catalyst of some kind that forces that control away from the party in power at the time. Opportunism drives the motivation to seize power and assert one’s dominance. This opportunism defines the British relationship with Egypt towards the middle to the end of the 19th century culminating in  the total control over the country by the British Empire. Before the British Empire was able to seize control of the national assets of the Egyptian nation in the late 19th century, they attempted to assert their financial dominance in the country indirectly through capital controls and financial imperialism.

This historical narrative is often downplayed by deferring to the 1882 Anglo-French invasion of Egypt as the transitional point of European dominance in the nation. In reality, it began much earlier than that in the European investment banks of the 1850s. Sa’id Pasha, the ruler of Egypt during this time, sought to modernize the nation through the building of many large public works. The largest of which and the most expensive was the Suez Canal which was financed using loans from European (primarily French) investment banks (Landes). Unbeknownst to Sa’id Pasha the completion of the Suez Canal would incur massive additional costs that resulted from unforeseen circumstances during its construction, including worker revolts incited by the British Empire (defended as a moral crusade against the use of forced labor in the construction of the canal). Eventually, the external debts to these European investment banks became too much for Egypt forcing Isma’il Pasha, Sai’d Pasha’s successor, to sell the Egyptian shares in the canal to the British in 1875 (Rifaat). Here begins the story of British capital controls in the international financial system that signaled their eventual control over the nation’s finances and political capabilities.

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Britain and France did not invade Egypt and force protectorate status until 1882, long after they had begun to assert their dominance in the region. By forcing the Egyptian government into debt, the British had allowed exorbitant international interest rates on currency exchanges fueled by an appreciation of the British pound sterling to make the repayment of the debt nearly impossible by the Egyptian authorities. It is likely that the English anticipated this which is why the Bank of England made the loans in the first place. Between 1875 and 1882 the British Pound Sterling appreciated by about 10 percent due to the controls over the global financial capital by the European traders in the commodity market and the power of the European banks to alter exchange rates. This kind of control forces countries without the resources to combat it into a degree of subservience when dealing with loan repayments. More directly, this failure to pay heralded the creation of a joint debt control commission within the Egyptian government by the urging of the Europeans. The purpose of this commission was to protect the French investors in the canal project by legally binding the debt repayments. This was the beginning of the capital controls over the Egyptian government (Landes). It allowed the British to exercise such authority over the decisions happening in the country that they were able to install the Khedive Tewfik Pasha as the new ruler in Egypt after the British urged the Sultan to depose Isma’il Pasha. This request came in response to Isma’il Pasha refusing to appoint Europeans to the joint debt control commission. Perhaps this could be seen as a way to stem the tide of foreign encroachment on Egyptian autonomy setting the basis for anti-European sentiment among the Egyptians. Finally, Ahmad Urabi revolted against this implicit Western control over Egypt in 1882 prompting the British and the French to formally invade the country to protect their financial and now newly minted political interests in the country. Britain now established the protectorate, installing Lord Cromer to oversee the restructuring of Egyptian finances by bolstering the commodities market and natural Egyptian industry (Rifaat).

This further strengthened British control over both the financial capital and the industrial capital present in the nation, only this time they also had a strong degree of political and military control. It was clear to everyone now that the British controlled the canal and controlled Egypt. In reality, it was a carefully orchestrated transition beginning in 1875 with the repayments on the loans issued on foreign investment in the canal project from the 1850s. When it became clear that canal revenues could not sustain the growing public debt held by the Egyptians, the British seized the opportunity to further constrict the Egyptian financial position with artificial deflationary policies strengthening the Pound Sterling in the global financial market. We are able to observe the actions of the British from a historical perspective that allow us to say they successfully manipulated the system for at first their own financial gain and then subsequently their political dominance in Egypt (Landes).

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These subversive actions by the Europeans were not lost on the Egyptian revolutionaries in the coming century. This initial domination by the European powers on the financial matters of the Egyptian state led to an immense backlash as the Egyptian nation began the process of self-definition. Gamal Abdel Nasser, Egypt’s charismatic first president specifically referenced a work by David Landes entitled Bankers and Pashas which outline the process by which the European banks leveraged control over Egyptian autonomy through financial tools (Perlmutter). Nasser decries the “capitalistic democracy of bankers and pashas”  claiming that “the dictatorship from which we have suffered under the name of democracy was the dictatorship of capital, feudalism under the name of parliament.” These preliminary capital control mechanisms set the tone of Egyptian-European relationships well into the collective memory of today’s revolutionaries. There exists an inherent distrust of the West, the beginning of which defines itself in this period of Egyptian history.

 

References:

http://www.measuringworth.com/ukcompare/ appreciation calculation of the pound sterling

Landes, David S. Bankers and Pashas: International Finance and Economic Imperialism in

Egypt.Cambridge: Harvard UP, 1958. Print.

Rifaat, Mohammed. The Awakening of Modern Egypt. London: Longmans, Green, 1947. Print.

Perlmutter, Amos. Political Roles and Military Rulers. London: F. Cass, 1981. Print.