Military Inc: Egyptian Army’s Control Over the Economy
The state of the Egyptian military’s involvement in politics is hidden from no one: the country has been ruled by members of the armed forces for almost 65 of 66-years post-independence history.
From the long, illustrious role of Gemal Abdel Nasser in the ‘50s to Hosni Mobarak leading the charge for 30 years until 2011, a non-military politician has been at the helm for a mere 12 months, only to be replaced in a coup.
It is no wonder that much is said about the media freedoms and the state of human rights in the country. But what’s less highlighted is how it has impacted the economy and the distribution of factors of production.
This is exactly what a recent report from the Carnegie Institute’s Middle East Centre discussed at length. In a comprehensive 360-page publication titled Owners of the Republic: An Anatomy of Egypt’s Military Economy, the think tank gives a detailed account of how the country’s armed forces have managed to enter the economic sphere, from the inception of the republic.
Starting from the days of Nasser, the military began expanding its footprint in economic affairs with the establishment of the Ministry of Military Production, setting up iron and steel plants as part of import-substitution drive. The military business (milbus) picked up pace during the reign of Anwar Saadat when Arab Organization for Industrialization was founded in 1975.
The years that followed saw major developments as after the Camp David Accords, the Egyptian Armed Forces led the rehabilitation and reconstruction work in the Suez Canal zone. It was further given a boost with the signing of the peace treaty with Israel, which was quickly reacted to by a pouring of US aid to the country.
As of now, the military exercises its influence both directly and indirectly: the former through a multitude of official agencies such as Ministry of Military Production, Ministry of Defense, Egyptian Armed Forces etc, each operating in some sphere of the business world, while the latter exerts through its network of veterans and the mandate to issue permits.
The more blatant involvement means the said agencies are undertaking production of a range of goods themselves, often under the pretext of maximising under-utilised factors. From fertilisers and steel to oil and electronics, the military spans across sectors.
On the other hand, the indirect control is exerted through retired personnel who take important positions in key industries and companies and use their influence to award hefty contracts to the military agencies.
“Compelled to deal with labyrinthine bureaucracy in order to do business, numerous private companies hire retired officers to deal with government agencies responsible for issuing permits and regulating contracts. Often labelled “public relations” or “government affairs” directors, their task is to clear bureaucratic hurdles and increase the chances of winning contracts. Fixers often deal with fellow retirees embedded in the state agencies with which they work,” the document says.
While many in Egypt perceive the extent of military control to account for exorbitant proportions of the national output, such a perception isn’t backed by evidence. The report suggests that their contribution to the GDP is between one and two per cent. However, in terms of value, that still yields around $3.32-6.64 billion, depending on the exchange rate as Egyptian pound saw a massive plunge in 2016.
But with Sisi in charge of the government, that trend is fast changing. The current president has extended the reach of the military, with a number of measures. “Sisi, who was elected president in May 2014, catapulted the military into a more central economic position. Since then, acting on his orders, it has managed roughly one-quarter of total government spending on a crash program of public infrastructure and housing projects, stepped in to resolve shortages of food commodities and medical supplies in civilian markets, intervened in productive sectors deemed strategic with the ostensible aim of stabilizing prices, and generally scrambled to generate revenue for the state treasury,” the report states.
“According to the EAF Engineering Authority, it implemented 473 strategic and service projects between 2012 and 2014. But in the next two years up to June 2016, it reportedly undertook 1,737 projects, an increase of 367 per cent,” it adds.
However, overreaching and powerful as it may be, the military’s business isn’t all that profitable. In fact, the minister for military production admitted that the majority of his ministry’s twenty companies were still making losses in 2018. As per the document: “The MOMP still needed annual subventions from the Ministry of Finance; according to the Central Accounting Organization, these amounted to approximately EP 3.6 billion ($190 million) between the 2010-2011 and 2014-2015 fiscal years. In June 2014, the Ministry of Finance wrote off EP 1.15 billion in cumulative debt from 1994-1995 and allowed the MOMP to carry remaining losses forward, but the latter ministry nonetheless built up arrears of EP 960 million over the next year.”
This is despite the armed forces enjoying a host of benefits, which can range from getting free land in strategic locations to employing cheap labour through a vast army of conscripts. In addition to that, the military’s control over permits further enables it to limit entry of competitive players as it can always prevent them on grounds of national interest.
Land is yet another integral part of the milbus: time and again, Egyptian leaders have come up with lofty plans of building state-of-the-art cities along the Suez Canal Zone, raking in millions of dollars in contract money.
Sisi announced in March 2014 that the MOD would cooperate with the UAE’s Arabtec construction to build one million residential units – partly aimed at youth and low-income groups – at a cost of $40 billion over five years.
“Presidential Decree 143 of 1981 expanded this requirement to include all “desert land,” that is, any area not previously registered in cadastral surveys as zimam – owned by legal persons or entities, public or private, and subject to real estate tax.17 This encompassed an estimated 90–95 per cent of Egypt’s total surface area, thereby expanding the military’s potential economic benefits significantly,” it reveals.