Egypt. The Army’s Cheap Dodges

The Egyptian army has its finger in every aspect of the country’s economy, not just the armaments industry. Few sectors have escaped its voracious appetite. An unprecedented study reveals the damages wrought by a system marked by low productivity, opacity and collusion schemes.

Washing machine assembly line of the Helwan Company for Metallic Appliances, owned by the Ministry of Military Production

How did this come about? Founded some seventy years ago to consolidate the country’s recently acquired independence by that national hero, Colonel Abdel Nasser, the military industry has become, over the years, an obstacle to the country’s social and economic development and a cancerous growth on society as a whole. Yazid Sayigh, a scholar of Palestinian origin, working out of the Beirut Carnegy Centre, in his Ownership of the Republic, An Anatomy of Egypt’s military, tells of the rise of an “officers’ Republic” which has greatly accelerated since Abdel Fattah Al-Sissi’s military coup on 3 July 2013. His magisterial study runs over 250 pages and is freely available on the Internet. It offers a stark contrast with the reports issued by international financial institutions which ignore the subject completely, but also those of the regime’s critics who overrate the system’s economic weight and underrate its disastrous role in the inner workings of the economy.

Officially, the military industry is under the authority of the Ministry of Defence (MOD) and the Ministry of Military Production (MOMP), to which must be added the Arab Organisation for Industrialisation (AOI), an agency created in the seventies with the help of the Gulf monarchies. It is thought to be worth anywhere between 3 and 6 billion dollars (2.28 to 4.5 billion pounds), i.e., 1 to 2% of the gross domestic product (GDP). On the pretext of putting to work its idle production capacities, the system produces just about everything, from foodstuffs to household appliances. The military themselves have become gold prospectors in the desert, farmers on the West Bank of the Nile, land use planners, tradesmen, importers, security personnel…

Opacity and incompetence

Is all this production profitable? No one knows, legality checks are circumvented, independent accountants are kept at a distance and there simply is no objective information. This deliberate opacity ill conceals the inefficiency of these activities, their poor added value production and the incompetence of those in charge of them. Far from being the super-managers praised by the propaganda, these are generally second-rate industrialists and mediocre economists. The competitiveness of these military firms is even worse than that of the civilian public sector, their workforce is mainly composed of young conscripts deemed unfit for active service and the technical failures outnumber the successes. The plans for a “people’s car”, the Nasr, 100% Egyptian, promised over 50 years ago by the “Free Officers”, has never left the drawing board; the assemblage of fighter planes provided by the U.S. as part of their military aid had to be abandoned and the planes imported directly.

A social base for the regime’s survival

Ever since Marshall Abdel Fattah Al-Sissi took power, thousands of retired officers working in the military sector of the economy have come to be among the indispensable mainstays ensuring the survival of the regime. The president has to win their favour with financial, fiscal and social rewards. These high-ranking officers supplement their meagre pensions with jobs that will last them a lifetime or almost.

Ensconced in every sector of the Egyptian economy, they constitute a huge network of complicities which duplicates the official circuits, facilitates connections with managers in every sector and allows the generals and admirals to do just about anything that comes into their heads in a country where the law is approximate, the bureaucracy omnipresent and complexity a second nature for civil servants.

The military have at their disposal everything they need to discourage competitors, deprive them of subsidies, bar them from public procurement contracts—as with the construction of the new side channel for the Suez Canal which the Marshall-President entrusted directly to the army—or increase customs duties to penalise overambitious importers. And above all they have one indisputable advantage: an overwhelming priority of access to land for their different projects, a precious asset in a country as overpopulated as Egypt.

Privileged beneficiaries of public expenditures

The khaki-coloured sector is no longer a carefully limited enclave as it was under Hosni Mubarak (1981–2911), controlled by the President’s cronies, foreign investors or those who profited from the privatisations, all of whom were the military’s bête noire. Today it is the latter who are the preferred recipients of public funds; a quarter of the infrastructure budget was allotted to them for the digging of a second Suez canal or the hasty construction of a vast housing project outside the Nile Valley, a scheme dear to Sissi’s heart because of his obsession with the overpopulation problem. Nearly half the debt incurred by the regime since 2013 has been spent on projects run by the military!

Even more than public finances, it is the economy as a whole that is handicapped by this military sector and its abnormal relationships with the private sector. Naturally, both sides profit by this, but the ongoing military inroads in areas which have long been dominated by private firms such as the media, cement production or the steel industry have game-changing consequences. The entrepreneurs who have connections with the khaki establishment enjoy decisive advantages over those who do not, for overcoming bureaucratic obstacles or using defence facilities, as in Alexandria, where merchant ships are serviced in a naval dockyard.

Conversely, the officers have recently been authorised to create joint ventures with private interests by contributing land, which is an enormous advantage, and while contracting out the actual production to their partners they take a sizeable cut of the profits, thereby putting further pressure on the consumers’ purse.

If the current trend continues, Yazid Satigh is no doubt correct in fearing institutionalisation of the military grip on the civilian economy and the transformation of a group which is already sizeable and powerful into a market maker or even the conceptor of the country’s economic policies. But since their conceptions remain resolutely “statist” they know nothing of the workings of the market and it is likely that the course of the economy will be more incoherent and unpredictable than ever despite the officers’ boastful slogan: “We are building Egypt, we are feeding Egypt, we are Egypt!”