Who Will Pay for the Rafales Delivered to Egypt?

The announcement of the sale of 30 Rafale warplanes to Egypt caused something of a stir. That was partly because of the country’s disastrous human rights record, but also because of the questions raised by a delivery for which people might wonder whether it is the French taxpayer who will pay.

A. Pecchi/Dassault Aviation

On 3 May, the investigative website Disclose revealed the sale of 30 more Rafales to Egypt by the French company Dassault Aviation. The following day, Defence Minister Florence Parly barely congratulated herself on this “export success … crucial for our sovereignty and the preservation of 7,000 manufacturing jobs in France for three years.” And the day after that, her spokesperson, speaking on France Culture radio, justified it in the name of the war on terror, and by the absence of “conditionality in civil and military exchanges” adopted by the President of the Republic, Emmanuel Macron, in December 2020 during a visit to Paris by Field-Marshal Abdel Fattah al-Sisi. On the Egyptian side, the news was confirmed by a terse communiqué from the Armed Forces ministry.

There are good reasons for this restraint, born of embarrassment all round. The Egyptian regime, which has still not vaccinated its 100 million citizens, would rather not remind people that it is going into heavy debt to buy weapons whose usefulness is far from clear. Always quick to denounce abuses of human rights in China, Russia, Turkey or Syria, Paris is deaf and blind when it comes to what is going on on the banks of the Nile, where several tens of thousands of political prisoners are incarcerated, while the National Assembly is discussing a bill on international solidarity and France’s contribution to the reduction of social inequality in the world. In case of default, France will pick up the tab

The financial structuring of the deal testifies to the embarrassment. One hundred percent of the €3,950 bn is borrowed over ten years from the four biggest French banks (Crédit Agricole, BNP, Société Générale et CIC). Whatever happens, Dassault Aviation is sure to be paid. The rate of interest is not known, but is certain not to be less than that on State Guaranteed Loans which is 3% annually, amounting to a liability of €131 bn. The French bankers have won assurances that 85% of the €3,950 bn (= €3,357 bn) will be covered by insurance.

In case of non-payment, France will provide for

The deal was put together by BPI France-Assurance-export, a junior subsidiary of the last French public bank, BPI. But indicative of its importance in the military-financial arena, despite its modest stature—a société anonyme with simplified shares and a capital of just €30,000—it is headed by the BPI boss in person, Nicolas Dufourcq. At the time of the sale of the previous 24 Rafales in 2015, only 65% of the sale price was insured. Moreover, at the time, Egypt’s financial situation on the eve of a drastic austerity package with the IMF was worse than it is now.

No doubt the bankers are more risk-averse now than they were six years ago. In case of non-payment, they will turn to another state company, the Local Finance Society (SFIL), 75% owned by the state and 20% by the Postal Bank, which among other things is responsible for refinancing big export contracts. After the French state, it is the biggest issuer of bonds, for example €7 bn in 2017, the last year for which there are figures. If an “accident” should befall the Egyptian contract, SFIL would discreetly extend the repayments by a year or several, without anybody apart from the parties involved knowing about it. Given the situation of the financial market, flooded with monthly injections of funds from the European Central Bank, SFIL can happily take on debt and the refinancing would pose no problem at all. The opaque nature of military contract financing prompted a report by two deputies, Jacques Maire and Michèle Tabarot, who argued for the imposition of parliamentary control over arms sales, as happens in neighbouring European countries such as Germany. Despite Maire’s political closeness to Emmanuel Macron—he is a member of Macron’s République en Marche Party—the report was buried.

And for good reason. From the outset, the Fifth Republic aimed to preserve its strategic independence by manufacturing its arms programmes for the army, navy and air force at home, without any parliamentary control. France’s military production capacity is €20 bn a year. But the French armed forces need only €10 bn a year of various armaments at most. So, it is necessary to look abroad for customers to keep the arsenals and factories in full employment and to keep the French defence industry alive.

And that is what is happening. On average, France—third-biggest arms exporter after the US and Russia—sells €10bn worth a year. It is rare to find customers in the EU, where US military influence predominates. So, it is necessary to turn to Africa, the Middle East and Asia. It is often perilous—the scandals over commissions on sales to Pakistan and Taiwan are not forgotten. But it has been a must-do for every incumbent of the presidency since 1958.