In Egypt, el-Sissi’s Economic Vision Falls Flat

By: Hilal Khashan

Since the 1952 military coup that overthrew the Egyptian monarchy, Egypt has had a long tradition of rule by military officers.

The first three presidents from 1954 until 1981 (Mohammad Naguib, Gamal Abdel Nasser and Anwar Sadat) were members of the Free Officers movement, which carried out the 1952 coup.

After Sadat’s assassination in 1981, air force commander and vice president Hosni Mubarak took office.

In 2012, however, the election of Mohammed Morsi, a civilian with links to the Muslim Brotherhood, ended decades of military leadership.

The Egyptian military viewed Morsi with disdain; from its perspective, having a civilian president, especially one hailing from the Muslim Brotherhood, was unacceptable.

And so, a year after Morsi’s election, he was ousted in a coup that involved the chief of General Staff and current President Abdel-Fattah el-Sissi, restoring the military’s prominent role in the country’s political affairs.

Since then, el-Sissi has allowed the military to assume an ever-larger role in Egypt’s economy and introduced two massive projects that he promised would revive the country’s stagnant finances. These projects, however, have fallen flat.

A Legacy of Suspicion and Betrayal

El-Sissi has tried to avoid his predecessors’ mistakes. In 1953, Gen. Mohammad Naguib abrogated the monarchy and declared Egypt a republic. He believed the mission of the army had ended with the overthrow of King Farouk and wanted it to surrender political authority to civilians. Naguib’s preference for a civilian government did not suit Nasser, who overthrew him in 1954 and placed him under house arrest.

Nasser also attempted to dismiss the chief of the General Staff, Marshal Abdel Hakim Amer, whom he blamed for the 1961 coup in Damascus that led to the dissolution of the United Arab Republic, a unified state consisting of Egypt and Syria. Nasser accused Amer of negligence and mistreatment of Syrian army officers. Amer, who enjoyed the full support of the Egyptian army, threatened to stage a coup and overthrow Nasser.

The two men reached a compromise according to which Amer would not seek to oust Nasser from office, provided that he stayed out of military affairs. This arrangement worked until the 1967 Six-Day War, when Nasser finally decided to get rid of Amer after the humiliating military defeat. When Amer attempted to launch a coup, Nasser had him arrested and eliminated him with a lethal dose of cyanide.

Sadat, who took over after Nasser’s death in 1970, had no tolerance for sharing power with political and military competitors. In May 1971, he launched what he called the Corrective Revolution and purged all rivals. After the 1973 war with Israel, Minister of Defense Gen. Ahmad Badawi, whom Egyptians admired as a war hero and a man of good intentions, disapproved of Sadat’s decision to turn to the U.S. and downscale Egypt’s political and military ties with the Soviet Union.

Many Egyptians claim that Sadat orchestrated Badawi’s death in a helicopter crash that also killed 13 ranking officers in March 1981. Following Sadat’s assassination in October 1981, his successor, Hosni Mubarak, immediately discharged 18 ranking officers because he had suspicions about their loyalty to him.

The Army Shifts Gear

In 1954, Nasser introduced sweeping social, political and economic reforms. After his adoption of socialist reforms in 1962, he appointed army officers as bank and plant managers, in part because he thought they cared about the well-being of fellow Egyptians but also to dissuade them from seeking political power.

But Nasser did not transform the army into a political or economic player. Under Amer’s command, the military retained its autonomy and generous financial allocations.

The military’s shift in focus to economic matters occurred soon after Mubarak took office and Israel completed its withdrawal from Sinai following the Camp David Accords. Mubarak was worried that, after Egypt’s disengagement from the Arab-Israeli conflict, the Egyptian Armed Forces might refocus its attention from war to domestic politics. He understood the implications of the army perceiving itself as the guardian of society and the instrument of social change.

Mubarak built on Sadat’s 1975 infitah (open-door policy) and adopted neoliberalism. The implementation of the new economic orientation relied on an alliance between a small group of businesspeople close to Mubarak and the top military brass.

Preparing the Egyptian Armed Forces to assume an economic role required adding civilian lines of production to existing military industries. The strategy of the Ministry of Military Production that Nasser founded in 1954 needed revision.  
During the Cold War, Nasser was unsuccessful in securing weapons from the West because he refused to join the anti-Soviet Baghdad Pact. To achieve a modicum of self-sufficiency in military procurement, he launched a modest weapons industry program. Signing the peace treaty with Israel and adopting neoliberal economics created new opportunities for the EAF.

No longer content with manufacturing light weapons, such as grenade launchers, rifles and machine guns, military plants expanded their lines of production to include consumer items. For example, Al-Maadi Company for Engineering Industries, which has links to the Ministry of Military Production, began manufacturing a wide range of civilian goods, such as culinary and electrical appliances, agricultural equipment and medical instruments.

Mubarak took advantage of the high social regard for the military and arranged for the establishment of lucrative joint ventures with the EAF. The military’s role in the economy grew at the same time that the EAF’s mission shifted from preparing for war against Israel to counterterrorism and special operations.

Still, Mubarak’s economic alliance with the military failed to protect his regime against a massive popular uprising in 2011 that led to his political demise.

El-Sissi Transforms the Military Into an Economic Driver

When el-Sissi assumed the presidency in 2014, he chose to cement his ties with the military establishment and gradually broke ties with the business elite. Egyptians had come to believe that the Mubarak government and its partners in the business world robbed the country blind. El-Sissi used this as an opportunity to give senior military officers a greater role in the country’s economic affairs.

He reasoned that the armed forces are more trustworthy and committed to the public good than greedy civilian entrepreneurs. The military’s commercial operations do play a social justice role by making strategic staple foods – such as meat, poultry, cooking oil and formula milk – available to the public at affordable prices, though not for noble reasons.

El-Sissi insists that the military’s commercial projects do not exceed 3 percent of Egypt’s gross national product, but in reality, they account for more than 50 percent. Since Morsi’s ouster in 2013, military sector companies have flourished.

El-Sissi has pushed to list army business establishments on the stock exchange, a sign of their growing role in the Egyptian economy. The move would have significant implications, establishing a firm link between the interests of the army and those of the people, and potentially preventing another uprising.

The army now owns 600 hotels and resorts, major asphalt and concrete batching plants, and organic fertilizer facilities. It also constructs roads and highways, bridges, sewage treatment plants, swimming pools and irrigation systems.

The range of civilian goods produced by the army covers nearly every part of daily life, from food to medicines and clothing. All 16 factories owned by the Ministry of Military Production likely are now involved in manufacturing civilian goods, and this number does not include many private companies run by the military.

Army businesses don’t disclose financial information to government agencies, so their finances are shrouded in secrecy. All army enterprises are exempt from import fees and income taxes, and those that build their plants on free land owned by the EAF are not subject to taxation.

Investors both at home and abroad therefore feel discouraged from investing in the economy.

Army companies are often awarded no-bid contracts for government infrastructure projects, allowing the military to increase its share of the Egyptian economy steadily. The Armed Forces Engineering Authority, an agency of the Ministry of Defense, has expanded its non-military projects to include psychological rehabilitation and supply of civil servants.

In addition to expanding the military’s economic role, el-Sissi embarked on two massive, controversial projects. Two months into his presidency, he ordered the construction of a parallel Suez Canal, which he claimed would more than double the canal’s revenue of $5.5 billion.

Government officials described the expansion, undertaken by seven foreign contractors, as Egypt’s gift to the world. One year after completing the controversial project, which cost more than $8 billion and depleted Egypt’s foreign currency reserves, revenue from the two parallel canals dropped to $5 billion.

In 2016, revenue started to rise modestly, not because of increased traffic but because of rising toll fees. After seeing the disappointing economic returns, el-Sissi changed the objective of the project from invigorating the stagnant economy into giving the Egyptian people a morale boost.

The second controversial project was a new administrative capital near Cairo at the edge of the Nile Delta. The army owns 51 percent of the shares of the company that is currently developing the new administrative capital at an estimated cost of $45 billion. In January 2019, el-Sissi inaugurated the largest cathedral in the Middle East and a large mosque, second only to the Grand Mosque in Mecca, in the new city.

Dubai Ports World was granted a concession to operate the Ain Sokhna transit port near the southern terminus of the Suez Canal, angering Egyptians who know that the UAE would never develop the port to the point that it could compete with Dubai’s Port of Jebel Ali.

El-Sissi compromised the economic development of the Suez Canal area in exchange for receiving UAE financial aid and recognition of his political legitimacy. For the same reasons, he also relinquished Tiran and Sanafir islands – seen as national icons because Egypt fought two wars with Israel in 1956 and 1967 over the Tiran Passes – to Saudi Arabia.

El-Sissi’s ambitions are personal. He has no economic vision that promotes investments. He is interested more in glorifying himself than in embarking on real economic development. He follows in the footsteps of Nasser but lacks his charisma.

Egyptians remember Nasser for nationalizing the Suez Canal and constructing the High Dam.

El-Sissi, on the other hand, has built two unnecessary projects and failed to defend Egypt’s vital interests in the waters of the Nile River.

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