Egyptian Army's Pervasive Role In National Economy

Members of Egypt's armed forces display canned tomatoes, roasted onions, and other food products manufactured by military factories. Image: David Degner.

Introduction

The Egyptian army has been firmly in control of Egypt since 1952 with a single exception – the presidency of Mohammad Mursi, 2012-2013. It has often exercised considerable influence on the political development of the country for six decades. This paper, however, has a relatively limited scope of focusing primarily on the wide and diverse role of the Egyptian armed forces in building an economic empire which they jealously preserve, nourish, expand and protect.

In theory, the magnitude and diversity of this economic empire are shrouded in secrecy: heavy legal restrictions are imposed on the Egyptian national media against exploring any aspect of this empire. Indeed, in the words of an Egyptian observer, the role of the military establishment in the national economy "remains of the major taboos in Egyptian politics."[1] Ironically, however, we found an official government website which provides a comprehensive but not necessarily a complete listing of the key companies and industrial enterprises that form the main body of economic activities carried out by the armed forces of Egypt. This list appears as an Annex to this paper. We also encountered a list of products produced by the armed forces issued by al-jam'iyyah al-masriyyah lil-taghyir (the Egyptian Association for Change) as an object for a boycott.[2] Based on available information elsewhere, the list of the products is accurate and many of these products are woven into the text of this paper.

As a point of reference, the Egyptian army is considered one of the largest in Africa and the Middle East, with two million officers and enlisted men, of whom one million are in reserve, 500,000 men in the army, and 300,000 in various national security agencies, in addition to the Republican Guard and the coast guard.[3]

The Growth and Evolution of the Role of the Military in National Economy

The involvement of many armed forces in the national economies of their countries is not uniquely Egyptian; there is a vast literature on the subject, particularly the cases of China and Pakistan. Common to all these cases is that the military involvement in national economy remains partly disguised within the confines of the shadow economy. Such involvement may also take the form of institutionalized corruption linked to a broad spectrum of government procurements. In this regard, Egypt is no exception. The correspondent of the French daily Le Monde Claire Tallon writes that the Egyptian army is "an economic giant in the shadow."[4] While the publication of any information regarding the military activity in the national economy is strictly prohibited, on the flimsy argument that such information is related to national security, many military-operated companies have extensive websites that take pride in advertising their products (such as the second image below on the quality of factory's macaroni.)

The significant role of the Egyptian armed forces in the national economy must be evaluated in the context of two significant historical events: the 1952 military coup and the 1979 Camp David Peace Agreement with Israel.

Gamal Abd Al-Nasser, the leader of the 1952 coup, launched a massive program of nationalization within the context of socialist economy, state capitalism, and central planning. This policy was eventually enshrined in the 1964 constitution, which stipulates that "the people control all the means of production."[5] In the years following the 1952 coup, industrialization was the central focus of the economic planners in Egypt while at the same time, the country was increasing military might in order to support her claim for leadership in the region.

The drive for industrialization was carried out by strong-arm methods such as confiscating, sequestrating, and nationalizing foreign companies, either temporarily or permanently. The armed forces were engaged in "import substitution industrialization" and other statist policies pursued by the Nasser regime. Army officers with little or no proper qualifications quickly installed themselves as the new captains of the nationalized industries and managers of businesses. As Dr. Zeinab Abul-Magd points out, "corruption and mismanagement soon proliferated throughout the public sector, [and] Nasser's project ultimately failed to deliver the promise of economic prosperity."[6]

By the late seventies, inefficient industries and dysfunctional managements could no longer be ignored or disguised. In keeping with his pro-Western political orientation, Nasser's successor President Anwar Al-Sadat decided to discard the Soviet-style economic model established under his predecessor and to engage in a process of privatization, and to introduce a neo-liberal economy. The army reluctantly accepted to share economic power with a newly emerging capitalist class, despite the fact that no serious attempt was made to encroach upon its economic domain. The Camp David Agreement gave the military economic power a new lease on life and the opportunity to expand its economic role far in excess of the situation prevailed to this point.

Peace Treaty With Israel

The peace treaty with Israel (1979) reduced the need for a large standing army and caused the release of thousands of young conscripts and army officers. With an already high rate of unemployment, particularly in the 18-24 age group, releasing a large number of conscripts and non-commissioned officers as well as junior-ranked officers into the labor market of a limited absorptive capacity would not have been either practical or politically sound.

To address the newly emerging economic reality, Egypt, under President Hosni Mubarak established an economic body known as the National Services Projects Organization (jihaz mashru'at al-khidma al-wataniyah) which proceeded to create industrial, manufacturing, financial, and commercial entities that were able to absorb at least some of the released conscripts. More importantly, the new military-industrial complex provided ample opportunities for generals and colonels to occupy the many managerial positions created. Some of the retired senior military officers who were deemed loyal to the regime were gradually co-opted into the presidential system of Hosni Mubarak's twin attributes of "privilege and patronage." In the words of one analyst, Yezid Sayigh, the officers' corps did not depart from the scene but, rather, "became invisible by virtue of its ubiquity." Sayigh adds that the officers' role in the civilian sphere "became as pervasive as to be deemed normal and natural, not only by others but also, crucially, by its members." Egypt, in Sayigh's words, has become an "officers 'republic."[7]

The military-industrial complex enjoyed tax holidays and tax exemptions, cheap government land, often cheap labor drawn from the young army conscripts particularly in farming projects, and other privileges not available to the private sector. As a result, in the words of one observer, "the military transformed itself from a fighting force to hiring force."[8] It has begun a new phase of being heavily involved in the production of consumer goods in lieu of military hardware."[9]

The Scope Of Economic Control By The Military

Estimates of the size the Egyptian economy controlled by the army range from 5 percent to 40 percent. Former trade minister Rashid Mohammad Rashid (who is exiled and whose property has been confiscated) claims the military controls approximately 10 percent of the economy.[10] Most analysts estimate that control between 25-40 percent.[11]

Khaled Fahmi, head of the history department at the American University in Cairo, calls the military industrial complex "a very grey economy," in the sense that there is little knowledge about it and it is not subject to any parliamentary scrutiny. The Egyptian government auditing office has no control over it or knowledge about it; in any case, the office is headed by a former general.[12] In a telegram sent to the U.S. State Department in 2008 (and released by WikiLeaks on December 14, 2011), U.S. Ambassador to Cairo Margaret Scobey wrote: "We see the military's role in the economy as a force that generally stifles free market reform by increasing direct government involvement in the markets."[13] In the same cable, the embassy points out that the Egyptian minister of defense can suspend any trade agreement for "security reasons." Perhaps for the same reason, the army opposed in 2011 the loan package with the IMF, which demanded the introduction of a serious privatization program. Instead, as a demonstration of its economic prowess, the army lent $1 billion, in December 2011, to the central bank of Egypt.[14]

While there are no accurate figures about the revenue-generating activities encompassed by the military's vast economic empire, the range of these activities are diverse and extensive, covering all major sectors of the economy. They range from consumer goods such as laptops, flat-screen televisions, sewing machines, refrigerators, pots and pans, plastic table covers, butane gas bottles, olive oil, and bottled water to medical equipment, tourism, real estate, and gas and energy.[15] The military owns and operates no fewer than nine factories for macaroni which provide 40 percent of the domestic market demand.

Advertisement for Queen Macaroni, owned by the Armed Forces (see Queen Macaroni website)

The military also operates Wataniyyah gas stations, maritime transport, heavy equipment leasing, and Queen cleaning services. In the agriculture sector, where young conscripts are often employed, the military grows what are known as "strategic crops," such as barley, corn, wheat, and clover, as well as mango trees, oranges, and lemons, and runs dairy and livestock farms and even a modern slaughterhouse.

Partnerships With Foreign Investors And Multinational Corporations

Apart from its complete ownership of a wide range of enterprises, businesses, and trading companies, the army has entered into partnerships with overseas firms for the purpose of diversifying its range of economic activities. These partnerships have focused on sectors on which the military has significant influence and which have great profit potential. A study done by Marshall and Stacher identifies these sectors as "maritime and air transport, oil and gas, and industrial-scale environmental projects like wastewater treatment and renewal energy and generation." One example is the partnership in 2001 with Mohammad Abdul-Mohsen Al-Kharafi, a Kuwaiti businessman and one of the wealthiest men in the Gulf, to build computers and laptops using technology from a Taiwanese company for an investment of $140 million. The two parties also established the International Pipe Industry Company—the largest manufacturer of oil and gas piping in the Middle East. [16]

Another partnership is with the Chinese national oil company (Sinopec) for the drilling and production of oil, and with two Italian companies – Breda and ETI – for petroleum services and gas stations. The army has also entered into partnership with German and Danish companies for wind power technology and with Chrysler for the assembly of the Jeep Wrangler. In the latter case, the military uses U.S. funding for production of its Jeeps as part of a military aid package. It also produces Jeeps for sale in the private sector on a parallel production line. This is probably a larger revenue earner than any of the other ventures.[17]

The army is heavily engaged in real estate, owning large tracts of lands. Under the law, the army is allowed to seize any public land for the purpose of defending the nation; it has often done so, however, for commercial purposes. According to Al-Magd, an agency known as the Armed Forces Land Projects has launched a variety of projects, including residential buildings, on public lands taken over by the military. The army also owns choice real estate such as the Sharm el-Sheikh resort as well other resorts and numerous military clubs which can be rented by private groups for special occasions, such as weddings. The army also recently completed the construction of a comprehensive sports city in eastern Cairo with a stadium that can accommodate 30,000 spectators.[18]

Retired Military Officers Occupy Key National Positions

In addition to key management positions in military-owned or -operated enterprises, senior retired officers are in control of enterprises that fall under the category of "commanding heights." This includes the Suez Canal Authority (one of the biggest source of foreign exchange in the country) as well air and sea transport companies (including all sea ports), electricity, water and sanitation projects. During the Mubarak regime, 21 of the 29 Egyptian provinces were governed by retired military officers. Former army officers are placed at all levels of the vast Egyptian bureaucracy and in the diplomatic corps.[19] A reporter for the French daily Le Monde observed that should you seek an appointment with a manager of a sports club, a public swimming pool, poultry plant, sugar factory or any of the 29 provincial governors "you will find yourself facing an aging officer who does not cease talking about his heroics against Israel."[20]

Investors' Preference For Partnership With The Military

In general, foreign investors, including large global corporations, prefer partnerships with the military to those with the private sector, for investors are aware that the military gets preferential treatment and can easily avoid (most likely ignore) bureaucratic red tape. Military-owned enterprises are often exempted from paying taxes. Further, the military has the means to protect jointly-owned property. For example, Al-Kharafi Company announced that Egyptian armored vehicles accompanied the transportation of the gas turbines for a new power plant in Dumyat.[21]

The Ministry Of Military Production

While many government agencies in Cairo are grown shabby with neglect, the ministry of military production, which is in charge of managing the military-owned projects, is described as having "lavish headquarters" with "golden handrails" and "fancy custom-made drink coasters"; it is described as being "awash with cash." The minister, Sayyed Mish'al, estimates that the revenues of the ministry from marketing consumer products were 2 billion Egyptian pounds ($345 million at the exchange rate in 2011) and that the ministry employs 40,000 civilians.[22] These workers are denied unionization rights.

The Post-Mubarak Interregnum

With the fall of President Hosni Mubarak, it was more important for the military to have a president who maintained the status quo of protecting the economic interests of the military than to have an individual who wore a uniform.[23] Some Egyptian observers would argue that the fall of Mubarak was welcomed by the military whose commanders were concerned that the ascendency of Mubarak's son Gamal Mubarak to the presidency and his drive for privatization could have jeopardized the economic supremacy of the military.[24] It is striking to record a statement made in a press conference by the assistant to the minister of defense major-general (liwaa) Mahmud Nasrr in 2011. General Nasr declared that the army would never surrender the military-controlled projects to any other authority because these projects are not assets owned by the state but are "revenues from the sweat of the ministry of defense and its own special projects."[25]

With the rapid deterioration of the Egyptian economy during the first few months of Mohammad Mursi's presidency, his prime minister, Dr. Hisham Qindeel, discussed the possibility of expanding the role of the armed forces given the availability of funds and resources under their control.[26] This may have been a disguised reassurance to the military the Muslim Brotherhood would not encroach on the military's economic domain.

Conclusion

It seems clear that the armed forces in Egypt are firmly in control of key economic assets, including enterprises that produce a varied range of consumer goods. Not only do these economic assets provide a stream of income for the military, but they also provide lucrative executive and management posts to retired military officers of all ranks. The military jealously protects these assets and for this reason it has been a consistent opponent to the introduction of privatization programs and neo-liberal economic policies that threatened their privileged position in the economy. Indeed, the question has often been raised whether the Egyptian military is an active army, a trading company, a contracting firm, an economic middleman or even a bank.

While this paper was being written, the Egyptian army and police were ordered by Egypt's new strongman, General Abdul-Fattah Al-Sisi, to fight what he termed as "violence and terrorism," a catch phrase for the Muslim Brotherhood, a well-knit organization singularly capable of challenging the army's dominance in many spheres of political, economic and bureaucratic life in Egypt. It is a struggle the army will conduct with ferocity and even extreme violence, if necessary, because it cannot afford to lose if it wishes to maintain the integrity, indeed the survival, of its economic empire as well as its dominant political role.

To quote a July 28, 2013 editorial in Jadaliyya: "The events of this last week are painful evidence of the tough road ahead. The January 25 [2011] Revolution now faces a fight for its existence in an environment in which power [of the military] and resistance [of the Muslim Brotherhood] are more convoluted than ever."

* Dr. Nimrod Raphaeli is senior analyst emeritus at MEMRI.

ANNEX

National Information Agency: The Armed Forces and Comprehensive Growth

1. National Service Projects in the Armed Forces

2. Plastic material for packaging and agriculture (established in 1992 and began production in 1994)

3. Victory (al-nasr) company for intermediary chemicals (primarily insecticide)

4. Arab World Company for Optics (including laser and precision electronic systems. Established in 1982)

5. National Company for Agricultural development in arid areas (established in 1999)

6. Supreme Egyptian Company for Agricultural Industrialization and Land Reclamation (including two plants for dairy products, two plants for salsa, two plants for livestock fodder. Established in 1998).

7. National Production for Nutritional Industry (comprises three inter-connected plants for the production of jams, juices and tomato paste; olive oil factory; and a pickle factory)

8. Egg Production Factory (completed between 1979 and 1986)

9. Food Security Sector (including production of agricultural products, food industry and honey)

10. Nasr Company for Services and Maintenance (including transportation, container leasing, tourism and hotels, garages, security and guard word, cleaning and beautification, sea services and training.)

11. National Company for Public Contracting and Imports (established 1993. Civil engineering and tourism)

12. National Company for Road Construction and Maintenance (the company may enter into partnership with similar companies both in Egypt and abroad)

13. Mining Sector (May 1987. Mines across the country, development of Sinai in collaboration with the Second Army, building of a stadium, sports facilities and farms).

Reference: sis.gov.eg, July 10, 2013.

Endnotes: