The Egyptian army’s economic juggernaut

The military plays a major role in Egypt’s economy, even owning child-care centres.

Fault Lines - Battle for the Sinai
The scope of Egypt's army - the largest in the Arab world - extends far beyond military operations [Reuters]

Cairo, Egypt – “From needles to rockets” is a common Egyptian phrase used to describe a business offering a wide range of merchandise, and is always used in exaggeration. But when referring to the economy of the Egyptian army – which ousted the country’s first civilian president last month – the expression is spot-on.  

As political turmoil pushes Egypt’s economy into its worst slowdown in more than two decades, only its well-heeled army can afford to construct bridges, offset bread shortages, raise herds of cattle and chicken, manufacture home appliances and even provide child-care.

“The question isn’t what sectors do they invest in, but rather: is there a sector that they don’t invest in?” said Robert Springborg, an expert on Egypt’s armed forces and a professor in the department of national security at the Naval Postgraduate School in California.

The Egyptian armed forces, headed by Defence Minister Abdel-Fattah El Sisi, who is supervising a roadmap encompassing early presidential elections and the drafting of a new constitution, runs scores of manufacturing and service-providing companies, through which it controls a significant stake of the nation’s economy.

The Ministry of Military Production manages at least 14 such companies – producing merchandise varying from tank shells and ammunition to fertilisers, sports equipment, cement, pasta and cars.

‘Limited stake’

“Very little is known about how big is [the army’s] economy, as very little is released about it,” explained Springborg. He said estimates have said the army accounts for between 10 to 40 percent of Egypt’s entire economy. “The range is too vast,” he added.

An Egyptian military spokesman rejected that statistic, saying “there is no proof whatsoever regarding this percentage, which was circulated by currently detained Islamists”. He added that the military’s stake in the economy was “very limited”.

Propelled by thousands of under-paid conscripts, the army’s economic empire dates back to the 1960s, shortly after Gamal Abdel Nasser’s arrival to power and the establishment of the Egyptian Republic.

With about 450,000 active personnel, the largest military in either Africa or the Arab world has daily demands that need to be met, motivating generals to achieve self-sufficiency when the military’s industries were launched, decades ago. Not long after, the military’s economic empire expanded to provide civilian products.

The most recent war fought by Egypt took place in 1973, and afterwards hundreds of retired officers and thousands of soldiers needed jobs, homes and privileges. This gave all the more reason for generals to expand their projects to include real estate, housing, tourism, healthcare and education. The emergence of sprawling cities across Egypt where soldiers reside is one sign of the massive entity the army has become.

One such area is Nasr City, where thousands of pro-Morsi protesters continue their month-long sit-in, seeking to reinstate the former president, a protest which has triggered the contempt of the district’s many army-related residents. The cabinet has authorised the Ministry of Interior to take “all necessary measures” to disperse the crowd, following massive demonstrations on July 27, mandating the army to combat “violence and terrorism”.

However, “lands in certain areas that are not owned privately, are only technically controlled by the army, for national security purposes,” said the military spokesman, who asked not to be named. Giving an example, he said that areas around the Cairo International Airport, at which military jets also land, are such titles that come under the “technical control” of the army.

“Media automatically rush to wrongly report that the army is eyeing these plots of lands, when in fact the army is watching out for its and the public’s interest.”

‘Regime stability’

In a September 2008 State Department cable published by WikiLeaks, then-US ambassador to Egypt Margaret Scobey said: “The military helps to ensure regime stability and operates a large network of businesses, as it becomes a ‘quasi-commercial’ enterprise itself.”

Other documents published by WikiLeaks quoted former Minister of Military Production Sayed Meshal as saying that the ministry’s revenues from the private sector were about 2bn Egyptian pounds ($286m) a year, and that it employs 40,000 civilians.

“It is clear that the army penetrates the civilian economy in various ways: it undertakes civilian contracts in areas such as construction and infrastructure, and military-owned companies increasingly start joint ventures with domestic or foreign companies,” said Yezid Sayegh, a senior associate at the Carnegie Middle East Center.

“The army additionally gets involved whenever major government programmes or private-sector projects involve land, so there is a large and possibly growing area of military commercial activity that is not transparent or fully accounted for,” he added.

Aid beneficiary

Egypt’s army is also considered to be the region’s second-largest recipient – after Israel – of US aid money, reportedly receiving around $1.5bn annually. Following Morsi’s ousting, a bill in the US Senate to block aid to Egypt because of the military coup was rejected with only 13 votes in favour, versus 86 opposed.

The possibility of cutting aid, however, sparked concerns of additional financial hardships. Egypt’s economy remains anaemic following the 2011 revolt that ousted Hosni Mubarak. During the five years before Mubarak’s downfall, Egypt’s economy grew by an average rate of 6.2 percent, according to the International Monetary Fund. But growth is predicted to drop to two percent this year, compared with 2.2 percent in 2012.

“The army’s economy must have been affected by the shrinking economy,” Stringborg said. “Everyone in Egypt has been affected by the negative events. The pie has been shrinking, and the army’s share must have shrunk too.”

Sayegh disagreed, saying the military’s economy did not appear to have been affected since 2011. “But there were instances in which the army and the Morsi administration disagreed over major economic investment programmes,” he explained. “The army insisted on having a role and veto power, suggesting that it felt challenged by the Morsi presidency. This may have been a factor – but only one of several – leading it to conclude that it had to remove him from power.”

Keeping information on the army’s finances away from civilians has been of paramount importance to the generals. In December 2011, when the army was under fire for allegedly derailing Egypt’s transitional period, the government attempted to pass a constitutional declaration shielding the army’s budget from civilian oversight. But this army-driven attempt was decried by the public, and was foiled.

“You cannot speak of a democracy when there is an institution above scrutiny,” Springborg said. “It is of utmost importance for Egypt that the army and its economy comes under civilian control. However, I don’t think that is happening any time soon, since there is no group of civilian activists at the moment capable of achieving this.”

A spokesperson for Egypt’s military denied that there was any wrongdoing in the army’s commercial enterprises.

“Many of these companies, including the Arab Organization for Industrialization for instance, [are] state-owned, but only technically affiliated to the army,” he told Al Jazeera.

“All of the projects, may it be agricultural, services, industrial, or others, are subjected to taxation and the monitoring of the Central Auditing Organisation, like any other company in Egypt.

“It is very essential to differentiate between the Ministry of Defence and the Ministry of Military Production, for they are two different natures and duties, although they share the same minister.”

Commenting on the confidentiality of army assets and budgets he said “soldiers’ salaries, many of the arming expenses, the budgets of companies are just some of what is known to the public. Naturally, there are certain issues that are not disclosed, like in any other part of the world.”

Getting back to “ordinary Egyptians”, Nadia Shaheen, a 64-year-old pharmacist, maintained that it was essential for the army’s finances to be disclosed.

“What was a norm for decades won’t be accepted nowadays by younger generations,” she said. “They demand clarity and transparency, and won’t accept the same set of rules we did.”

Source: Al Jazeera