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More than Money on their Minds: The Generals and the Economy in Egypt Revisited

[President Abdel-Fattah Al-Sisi at a military gathering in December 2014. Source: Official Facebook Page of the Spokesperson of the Egyptian Armed Forces.] [President Abdel-Fattah Al-Sisi at a military gathering in December 2014. Source: Official Facebook Page of the Spokesperson of the Egyptian Armed Forces.]

Following the July 2013 power takeover by Defense Minister and later President Abdul-Fattah al-Sisi, the economic activities of the Egyptian military have been reportedly on the rise. For many, that trend only meant that the military under Sisi was preparing to do what it has long done under previous leaders, namely use its political privileges to make money and run easy profits.

Indeed, the military establishment has always been a major player in Egypt’s economy. Its leaders have traditionally sought to use their institution’s economic interests to enhance the military’s resources and access to patronage. Yet the military’s more recent intervention in the economy has been at odds with the conventional view of the generals as rent-seekers who exploit their positions for personal gain and the distribution of patronage. Rather, some of the economic initiatives the military has taken on in recent months are poised to yield little to no profits and will likely impose considerable costs on the army. That the military is willing to incur losses and devote substantial resources to national economic recovery plans (however poorly conceived these plans may be) reflects the extent to which the military is trying to legitimize Sisi’s regime. The generals have deepened their investment in the political status quo to a level not witnessed in decades. 

The Evolution of Military Economic Behavior

Throughout the rule of President Hosni Mubarak, which lasted from 1981 until the uprising of January 2011, the military’s engagement in the economy centered primarily on financially lucrative activities. On some occasions however the military undertook initiatives that were seemingly driven more by public interest—as understood by the generals—than by the logic of profit maximization. A case in point was its involvement in the distribution of subsidized bread in 2008 amid a mounting food crisis that had begun to stir up social unrest. Another example is the military’s reported opposition to the privatization of electricity production and distribution on national security grounds.

Otherwise, the military’s economic activities have followed a more profit-oriented approach, especially during the long tenure of Field Marshal Mohamed Hussein Tantawi as general commander of the armed forces (1993-2012). Under his leadership, the military was not forced to grapple with the onerous task of re-establishing state authority and reinstating public order, as is the case at the moment.

Since mid-2013, however, the circumstances changed drastically, and so did the military’s economic behavior. Thus, today the military is deeply involved in many infrastructure, energy and construction projects, including the New Suez Canal, that do not promise a clear economic return for the military. These initiatives, this article argues, can be better understood as efforts to enhance the legitimacy and the popularity of the current regime.

Funding the 2015-2016 Electric Power Plan

The military has reportedly been heavily engaged in efforts to overcome chronic power outages. The Military Engineering Authority (MEA) has initiated and signed a deal with General Electric establishing twelve turbines–eight in Asyut and four in West Damietta–for the generation of 1200-1300 megawatt over the coming year.

To ensure the plants would be operable within a year, the military handed General Electric a substantial down payment, which according to unconfirmed information, amounted to twenty-five percent of the total cost. That development signifies a clear break from past practice. Under Mubarak, the government mainly relied on development loans from the World Bank or the African Development Bank to pay off such contracts. Whereas in this particular case, the military, eager to find a quick solution to chronic power outages, went ahead and directly financed the first phase before transferring the financial burden to the treasury. It is not clear whether the treasury is expected to repay the military back for the down payment it has made.

Additionally, the military handed over the management of the deals it signed with General Electric to the Ministry of Electricity. In effect, that means it ceded the right to any revenues the new electricity plants might generate. In other words, the military has actually provided short-term financing to the state treasury instead of acquiring resources from it.

The New Suez Canal Development Project

The military, through the MEA, has played a central role in the so-called New Suez Canal project since its launch last summer. The project is scheduled to dig a seventy-two kilometers two-way passage for ships. According to official estimates, this project will allow for a 259 percent increase in the Canal fees by 2023, which would raise annual revenues from five to around thirteen billion USD. Since its launch a year ago, the government has portrayed the project as a national endeavor. The military role in that particular project encompasses the execution, coordination, and supervision of the digging process. With time the military ceded some of its share of that project to the private sector firms to benefit from their expertise and to ensure the timely completion of this politically significant initiative. More than seventy private sector companies were brought onboard, including construction giants Orascom and Ayubco.

Interestingly, the military followed a similar approach in the aforementioned power plants project. It brought on the privately owned Al Swidi and Orascom as partners in efforts to build turbines in Asyut and Damietta.

Rather than crowding out private competition, then, the military ceded part of its share–and thus potential economic return—to the private sector. It did so in order to secure the successful advancement national projects that are seen as essential to the legitimization of the Sisi regime.

The One Million-Unit Housing Project

In March 2014, shortly before Sisi ascended officially to the presidency, the MEA signed a preliminary agreement with the Emirati urban developer ARABTEC to build one million housing units for middle-income classes over five years.

According to the agreement, the military was supposed to provide ARABTEC with land at no cost for the construction of one million housing units in thirteen Egyptian cities. However, the project came to a halt not long after due to disagreements between the two parties. On March 1, 2015, the MEA head General Kamel al-Wazir said that ARABTEC failed to meet necessary conditions. “If the investor wants to enter the Egyptian market,” he said, “they should bring their money from abroad and not from Egyptian banks. The project has to be executed by Egyptian labor and with Egyptian material. These conditions were not there and that is why the project has been temporarily put on hold.”

By the end of 2014, the Ministry of Housing replaced the military as the Emirati company’s main interlocutor. Thus, the one million housing unit initiative exemplifies a second case of the military handing over projects the civilian bureaucracy, the first being the aforementioned electricity program.

In April 2015, the minister of housing announced that a final agreement would soon be signed with ARABTEC after the Egyptian cabinet issued official approval for the project.

Despite a dearth of information about the specifics of the project, the available evidence suggests that the military launched it out of an imperative to boost the regime’s popularity rather than out of a quest for profits. Specifically, profitability was subordinated to the need to both attract foreign capital and appeal to middle-income groups, a politically significant constituency for Sisi. 

Putting Its Money Where Its Mouth Is 

The military’s economic behavior in Sisi’s Egypt has shown that the widespread view of the military as an actor that is cynically seeking to extract rents from the economy and run easy profits no longer holds. Evidence suggests that the military today is willing and able to subordinate economic gain to political goals.

In fact, one could argue that the military toppled the Muslim Brotherhood-backed president Mohamed Morsi in July 2013 in spite of the considerable concessions given to it by the Brothers in the 2012 constitution. That Brotherhood sponsored political framework granted the military considerable autonomy from civilian bodies, and complete financial independence from parliamentary oversight. In other words, the Brotherhood did not directly challenge the rent-seeking endeavors of the military establishment. Ultimately, however, more significant political considerations trumped these myopic economic concerns in defining the military’s stance toward the Brotherhood during the summer of 2013.

Since the fall of 2013, the military has sought to leverage its considerable economic power for the purpose of stabilizing Egypt under Sisi’s rule. That pattern is mirrored in the way it has catered for the needs of certain social groups, and its efforts to advance national developmental mega projects in a timely manner. That by no means validates the regime’s propaganda claiming that the military’s economic engagement is aimed solely at the public good and national interests. Rather, it simply demonstrates the extent to which the military is now completely vested in the success of the Sisi government and is acting accordingly. The military is gradually abandoning its long-standing role as a partner to ruling establishment, as was the case under Sadat, Mubarak, and Morsi. Instead, it is becoming an active participant in the construction of a new authoritarian order.

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