The Egyptian army’s invisible hand

ByJOSEPH MAYTON/THE MEDIA LINE
January 16, 2012 14:01

Its vast business interests hold economy in tight grip and deter it from ceding power.




Egypt military leader Tantawi promises safe polls

Tantawi 311. (photo credit:Reuters)

CAIRO - Mahmoud Yussif runs a mobile phone shop here in the Egyptian capital. He fields customers in rapid-fire succession explaining his products thoroughly, answering questions quickly and efficiently, and locating in seconds a cellphone or anything else in his small but crowded shop.

Started five years ago, it is a prosperous business, but a very small one. Yet even a tiny store like Yussif’s isn’t beyond the long business arm of Egypt’s army. The owner of the space that he rents is a general, who is also his creditor, and between those two roles takes a big chunk of the store’s profits.

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“I don’t own the shop itself,” Yussif told The Media Line as the afternoon rush hour frenzy of customers comes to an end. “The owner of the space, who really just gave me a loan, takes 20% of my earnings every month.”

The unnamed general dabbles in real estate and lending as a private sideline. But it illustrates the extent to which Egypt’s army is engaged in business as the owner and operator of a vast empire of factories, tourist resorts and real estate developments.

No one knows the extent of the Egyptian military’s economic holdings because successive authoritarian regimes have made sure it was kept secret. But since the military came to power in Egypt as the Supreme Council of the Armed Forces (SCAF) almost a year ago after a popular uprising ousted President Hosni Mubarak, the armed forces role in business has come under increased scrutiny.

For people like Yussif, the grip of the army-dominated economy’s invisible hand has also become tighter.

“They haven’t let me sell any Sim cards without their first being registered, which has hurt business because the ones from former clients were cheaper. I get calls weekly to know how my shop is going,” he said.

Concrete information on the extent and holdings of the army’s business operations is difficult to come by. The armed forces are secretive but have portrayed themselves and the government generally as poor and hemorrhaging money. In the case of the government, that is certainly the case, but in the case of the army that is less evident.

In one of the most unusual intra-government transactions of the year, the military loaned the central bank $1 billion to help support the sagging Egyptian pound last month. The transaction not only pointed up the relative wealth of the two institutions but also the extent to which the army has access to money beyond the reach of the civilian authorities to whom it is supposed to be reporting.

Amr Hamzawy, a political analyst and newly elected member of parliament, estimates that the military controls as much as a third of Egypt’s economy. Paul Sullivan, a US National Defense University professor and expert on Egypt’s military, told Time magazine last year that the military accounts for some 10% to 15% of the economy.

Mohamed Kadry Said, a retired general and a military analyst for the Al-Ahram Center for Political and Strategic Studies in Cairo, puts the figure at 8% of gross domestic product, a seemingly small percentage but, in Egypt’s $180 billion economy, one that puts the annual turnover of Egyptian Army Inc. at more than $14 billion.

As Egypt moves on its rocky road toward democracy, observers say the army’s efforts to preserve its business interests are likely to be a  major barrier. More democracy will almost certainly entail more accountability and perhaps a direct assault by the country’s civilian politicians and economic reformers on the military’s economic power and privileges.

Many doubt that the generals will relinquish power so quickly. Among those is Mohamed ElBaradei, who announced over the weekend that he had dropped out of the presidential race, saying he saw no hope that the election due by the end of June would bring a real end to the military's rule.

“They use their businesses to maintain their power now more than ever. They own restaurants and tourism companies, so for the leadership today, stability and crushing the opposition to their rule is paramount to maintaining their wealth,” Ahmed, a former general who asked that his name not be used, told The Media Line.

Army-owned factories first sprang up in the 1820s to produce uniforms and small arms as Muhammad Ali, the founder of modern Egypt, sought to transplant Western technology to the country. The army’s role expanded when Gamal Abdul-Nasser created a state-dominated economy in the 1950s and 1960s.

The military’s businesses enjoyed another spurt of growth after the 1979 peace treaty with Israel led to a smaller army and the need to find jobs for demobilized soldiers. In 2008, as bread riots exploded across the country, the government ordered the giant network of army bakeries to supply hungry consumers.

The military in Egypt “has a long history of running business, and they are stronger economically than any other institution in the country,” the former general says. “Don’t be fooled by their power, it is now political and economic and they like it this way.”

The reach of the military’s wealth and influence over business extends beyond its formal holdings to a vast cadre of retired officers who move into influential positions in government and companies. “Retirement here in Egypt from the military is never final,” the retired general said.

According to Jane’s, the Egyptian military’s budget is some $5 billion annually, supplemented by $1.3 billion of American financial aid – far more than the country receive in economic assistance - as well as more in the form of budgets for joint training and  excess military hardware. But Ahmed says the army’s spending is probably higher, thanks to revenues gleaned from its far-flung business.

“It’s a fine line between what is legal and what is not, because there are no laws here that prevent the government, the military and others from owning and running businesses at the same time,” the former general said.

As an institution, the armed forces own and run much of the food industry, including plants manufacturing olive oil, milk, bread and bottled water – all of which are subsidized by the very government of which they are in charge.

They also run a number of cement factories, gas stations and refineries, clothing and kitchen facilities, vehicle production factories – one local newspaper reported the military is in partnership with Jeep to produce Cherokees and Wranglers – as well as resorts and hotels.

Since February last year, the role of the military and business has become more visible and controversial. All these industries, says economic analyst Gamal Abdel-Salam of CS Securities in Cairo, lead to a conflict of interest.

“The military runs all these companies, factories and tourist destination spots, and now is in charge of the government, so it means they are giving money out and supporting industry that in essence they are already in charge of,” he said.

Topping it off, military businesses are free from government oversight and are not required to pay taxes, which Abdel-Salam said means that as the government gets poorer, “the military and its leaders are getting wealthier, so why would they want to leave power if they are winning on all sides?”

Abdel-Salam contended that the generals “see an opportunity to push forward without fear of government oversight, because they are the oversight and that is why they are silent  on their role in the economy.”

Yussif, the shopkeeper, said he sees the military controlling all aspects of society, from political to the everyday functioning of businesses with a tighter grip than the former Mubarak regime.

“At least before there were places that they couldn’t get to and didn’t control, but now, if you argue or fight for your rights, they can arrest you and charge you with crimes against the government,” he said. “I don’t like it. My friends don’t like it.”

He recounts the story of a fellow shop owner who was sent to jail because he refused to continue paying the officer a share of the profits. “It had been 10 years and their contract was supposed to be finished,” said Yussif. “It’s a tough time we live in.”

Overcoming wealth and power in Egypt may be difficult to achieve, even if a new constitution – which the military wants to ensure contains no oversight over its budget and income – is established in the next few months. Indeed, for the former general the revolution that toppled Mubarak is starting to look like the one that toppled King Farouk in 1952 and inaugurated nearly six decades of military rule.

“What we are seeing,” he said, “is Egypt’s military taking a very Soviet-style approach to things and one we have seen before, in the 1950s with Nasser, and look how that turned out for the country.”

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