Egypt’s ‘Military Inc’ Expands Its Control Of The Economy

In the shadows of a harsh political crackdown, the military that overthrew Egypt’s first democratically elected president last summer is positioning itself to become the country’s uncontested economic power.

Egyptians have focused in recent months on the likely ascent of military commander Abdel Fatah al-Sisi to the presidency in the nation’s first post-coup election this spring. But already the generals have used their July power grab to slip their allies into key economic posts and expand their authority over government development deals, including a lucrative Suez Canal project.

The industries owned by the military have always been a powerful force in the country’s economy, though their profits and scope have never been disclosed to the public. In the years before the 2011 revolution, the military and its businesses sometimes competed for economic policymaking power with the family of ousted autocrat Hosni Mubarak and a handful of oligarchs.

Now, experts say, the Egyptian economy is increasingly shaped by the opaque desires of the ruling generals. And the military’s business activities appear to be expanding – from the manufacture of basic items such as bottled water and furniture into mega-infrastructure, energy and technology projects, analysts say.

“We’re dealing with a brand new economy that’s now run by ‘Military Inc’,” said Joshua Stacher, an Egypt expert at Kent State University in Ohio who has studied the military economy. Three years after Mubarak was toppled during massive demonstrations, Egypt’s endemic corruption hasn’t changed, Stacher said – just the order of who you do business with if you want to succeed in the Arab world’s largest state.

“In every government authority now, there is a military officer. You deal with him,” said Abdel Wahab Mustafa, who imports satellite receivers through the country’s ports, where he said military control – and corruption – has come to permeate every aspect of the bureaucracy.

Under Mubarak and Islamist president Mohamed Morsi, who was ousted last summer, it was common to pay small bribes to cut through red tape, Mustafa said. But to get a recent shipment released, he said, he was forced to pay thousands of dollars in bribes to military officers working in co-ordination with the Suez Canal Authority, a state enterprise that controls the strategic waterway connecting the Mediterranean and Red seas.

Much about the Egyptian military’s role in the economy is unknown – its budget is secret, and its industries are unaudited and untaxed. Economic experts estimate the military’s holdings at anywhere between 5% and 60% of the economy. A high-ranking military officer, who spoke on the condition of anonymity, said revenue from military industries totalled less than 1% of GDP last year.

The officer insisted in an interview that the armed forces are not engaged in corruption. He agreed that the military appears to be getting more infrastructure contracts than it had previously, but he said that is because “the people trust the final product from the military”. Recently, he said, the military took control of a highway project that a public-private venture had failed to finish on time. “You can go look at it now and see how fast it’s moving,” he said.

The military has shown a particular interest in the development of the Suez Canal, which is partly a military zone and has long been managed by former military officers. The Suez Canal Development Project stands to bring in billions of dollars in annual revenue through the expansion of ports to accommodate additional cruise and cargo ships and a vast new industrial zone, said Mounir Fakhry Abdel Nour, the minister of industry, foreign trade and investment.

Egypt has been planning to develop the canal, its biggest money-maker, for years. The plan also formed a key component of the economic “renaissance project” championed by Morsi and his backers in the Muslim Brotherhood.

When Morsi was in power, the Brotherhood was generally careful not to trespass on the military’s privileges. But the group’s plan for the canal may have crossed a line. Morsi’s administration appeared poised to negotiate with a major foreign investor, wealthy Gulf state Qatar, over development of the canal zone in a way that didn’t directly involve the military.

“Economic sovereignty then would have been controlled by the Brotherhood,” said Robert Springborg, an expert on the Egyptian military who recently retired as a professor at the Naval Postgraduate School in Monterey, California. “The Qataris would provide the funding, and then the Muslim Brotherhood would have been setting up the companies, and the military would have been cut out.”

Anti-Brotherhood media outlets quickly howled that Morsi was “selling” the canal to a foreign country. The military amplified its presence along the canal after Morsi’s ouster.

“Sisi portrayed it as a national security [decision], but I think there was no question that it was economic,” Springborg said.

In January, the Suez Canal Authority – headed by Vice Admiral Mohab Mamish, a former member of the military council that assumed control in Egypt after Mubarak’s departure – named 14 Egyptian-foreign joint ventures eligible to bid on the project’s master plan. It will award the contract in October.

But experts say the military’s interest in the project makes a fair bidding process unlikely.

Only one of the companies is listed on the Egyptian stock market – the state-owned Arab Contractors, which the country’s new military-backed prime minister, Ibrahim Mahlab, headed for 11 years. Another, the Maritime Research and Consultation Centre, has a board of directors that consists almost entirely of military officers and is chaired by the minister of transportation.

Almost all of the others have previously contracted with the military’s Gulf allies, Saudi Arabia and the United Arab Emirates – which, along with Kuwait, have pumped billions of dollars into Egypt since the coup. Three companies told the Washington Post that they had no relationship with the military; others declined to comment.

Mamish did not respond to phone calls seeking his comment. The military officer said the Egyptian armed forces have no financial stake in the canal’s development.

“We as a military just protect the Suez Canal from two sides,” he said. “That’s it.”

Egypt’s GDP grew at a healthy rate during the Mubarak era. But growing unhappiness with corruption and gross inequality motivated thousands to join the 2011 uprising that toppled him. Many analysts say that a stronger military hand in Egypt’s economy could deepen corruption, stoking a fresh tide of popular anger. The economy is in tatters, and strikes over unfulfilled promises of reform and unpaid wages are common.

“Egypt cannot achieve social peace if the one-sided growth policy of the late Mubarak era is simply continued,” Middle East expert Stephan Roll wrote in a policy paper for the German Institute for International and Security Affairs in September.

Economists say the military’s industries create unfair competition for non-military businesses. The military, for example, uses conscripted labour and pays no taxes, allowing it to price projects far below private-sector firms and even state-run enterprises.

Rashad Abdo, an economist at Cairo University, said that when the university needed a new building to accommodate a growing student body, administrators “met with many construction companies”. But each provided rates that were too high.

“So we contacted the military,” Abdo said. They offered to do it for half the price.

In November, Egypt’s military-appointed president quietly decreed that in “emergency” cases, government ministries could skip a bidding process and instead award development contracts to the company of their choosing.

At least six major infrastructure contracts for roads, bridges, tunnels and apartment blocks – worth more than $1.5bn – went to the military between September and December, according to local news reports.

And this month, Sisi signed a $40bn deal with Emirati construction giant Arabtec to launch a project to build a million homes for “Egypt’s youth”. The land was provided free, though officials at Egypt’s housing ministry told a local newspaper that they had not been aware of the plan.

The generals “consider Egypt a battlefield”, said Abdel Nour, the government trade minister. “That gives the military the right of first refusal on every piece of land.”

The military officer, who is close to Sisi, said: “It’s just Egyptian land. They chose some area in the desert.”

Last month, the military stepped in to cripple a strike by Cairo’s public transport workers – a sector beyond its usual control – by providing 500 buses and drivers to keep the system running.

The military’s supporters argue that such actions are necessary and that only a strongman such as Sisi can restore the stability needed to revive Egypt’s economy. To others, it only spells more unfairness.

“We are like Zimbabwe now,” said Mustafa, the Cairo businessman. “Sisi controls everything.”

Source : theguardian