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1. Retain, Restructure, or Divest? Policy Options for Egypt’s Military Economy

Author:
Yezid Sayigh
Publication Date:
01-2022
Content Type:
Working Paper
Institution:
Carnegie Endowment for International Peace
Abstract:
The Egyptian military has been on a dramatic expansionary trajectory since seizing power in July 2013. Having previously been an economic backwater, the Egyptian Armed Forces (EAF) and other military agencies have spearheaded the enormous state-led investment strategy that President Abdel Fattah el-Sisi has pursued since he came to office in 2014. The military controls a vast economic portfolio. It manages a significant share of the overall volume of publicly contracted infrastructure and housing. It builds industrial zones and produces capital goods, consumer durables, transport and heavy goods vehicles and parts, and information technology equipment. It undertakes associated retail, owns commercial media companies and hotels, and is rapidly increasing its stake in agriculture, fisheries, and mineral extraction. As of September 2021, the military even has a monopoly on the production of school meals. The Ministry of Defense (MOD) has formally controlled the use of state land by any civilian individual or entity, whether private or public, since 2001. The Ministry of Military Production (MOMP) is now one of two bodies that approves the import of foreign goods or services by government agencies. Military representatives sit on national boards, including for planning and sustainable development; feed into policy direction in several sectors, including the manufacturing industry, telecommunications, digital transformation, market development for electric vehicles, and rural development; and head major presidential initiatives, including the Long Live Egypt (Tahya Misr) development fund and the company responsible for constructing Egypt’s new administrative capital. Plans are underway to increase the capitalization of military companies by inviting private investment through the Egyptian sovereign wealth fund. What I have called an “officers’ republic”—comprising thousands of senior EAF retirees embedded in government ministries and agencies, regulatory and operational economic authorities, local government, and state-owned enterprises—complements the formal military economy. Military agencies and companies provide significant economic benefits. Military-managed public investment in transport infrastructure, for example, facilitates the movement of people and goods and expands access to external markets and investment opportunities. The construction of social housing for low-income groups addresses a serious shortage and assists government efforts to regenerate the informal settlements and slums where approximately one in seven Egyptians live. New industrial zones and extensive agricultural greenhouse projects attract investors, both domestic and foreign, contributing to economic growth and employment. And lower middle–class customers benefit from the expanding range of locally made consumer goods at affordable prices, alongside cheap meat and poultry imports, subsidized health services, and free food baskets for the poor. Why, then, should Egypt reconsider the military’s role in the economy?
Topic:
Armed Forces, Economy, Business, and Military
Political Geography:
Middle East, North Africa, and Egypt

2. Throwing Down the Gauntlet: What the IMF Can Do About Egypt’s Military Companies

Author:
Yezid Sayigh
Publication Date:
04-2022
Content Type:
Working Paper
Institution:
Carnegie Endowment for International Peace
Abstract:
Until recently, both the International Monetary Fund (IMF) and the World Bank were wholly reticent to say anything about the involvement of the Egyptian Armed Forces (EAF) and other military agencies in Egypt’s civilian economy. This is a longstanding problem. By turning a blind eye to the diversion of resources to the military sector and to the increasingly significant impacts on the economy and public finances, these international financial institutions (IFIs) have undermined the effectiveness of their own programs and allowed their resources to be invested in support of suboptimal policies by the Egyptian government. There is a question of propriety when international assistance allows distorted policy incentives to continue or even intensify and disregards the fact that much of the hype about global growth in the Egyptian economy obscures the very real constraints imposed on private sector development. It is high time to throw down the gauntlet: IFIs and their governmental sponsors should tackle the reality of military involvement systematically in their programs and policy recommendations, and they should confront the issue head on in their dealings with Egypt’s authorities. Reticence persists but is starting to dissipate. A report released by the World Bank in December 2020 noted that military agencies account for an appreciable proportion of all state-owned enterprises producing capital goods; consumer durables and apparel; materials; food, beverages, and tobacco; automobiles and components; retailing; media and entertainment; semiconductors and intelligent transportation system equipment; and technology hardware and equipment.1 The IMF went further in a July 2021 review of its loan agreement with Egypt, in which it referred to the presence and role of Egyptian military companies for the first time ever.2 Significantly, it included them explicitly in its assessment of state-owned enterprises in general—many of which, the report noted, are “registering weak financial performance while some are benefiting from an uneven playing field”—and implied that military companies should come under the same broad reform policies that the IMF proposes for the public sector as a whole. Now that the IMF, in particular, has broken its former silence, it should refine its approach so as to tackle the Egyptian military’s economic role in a more targeted and consistent manner—hence making its approach more effective and sustainable. This requires a mix of measures. The first set involves bringing military agencies and companies within the scope of recommendations proposed by the IMF for Egypt’s civilian public sector and state-owned enterprises as a whole. These first measures therefore engage with IMF recommendations and Egyptian government policy initiatives relating to broad questions of ownership, regulation, and financing strategy. The second set of measures tackles the specific aspects of the legal, regulatory, and judicial frameworks that enable the military’s activities in the civilian domain. Unless they are revised, these enabling frameworks will impede wider reforms, but the Egyptian government and IMF have, for the most part, neither reviewed nor addressed them to date.
Topic:
Regulation, Economy, Business, IMF, Civil-Military Relations, and Military
Political Geography:
Middle East, North America, and Egypt

3. Two Paths to Dominance: Military Businesses in Turkey and Egypt

Author:
Zeinab Abul-Magd, İsmet Akça, and Shana Marshall
Publication Date:
06-2020
Content Type:
Working Paper
Institution:
Carnegie Endowment for International Peace
Abstract:
Egyptian and Turkish military businesses have used their institutional privileges to dominate their respective economies, but they have key differences. Turkey’s military businesses are centrally managed while Egypt’s use multiple complex conglomerates. In recent years, Turkish and Egyptian military institutions have followed divergent paths in their respective states. After many decades of full or partial control over the government, the Turkish military today is largely marginalized in politics. By contrast, after periods of exclusion from power, the Egyptian military is now in full control of the state. Despite these differences, both military institutions are powerful economic actors within their states. They have developed extensive civilian economic enterprises over the decades, dominating important sectors by capitalizing on their political influence, legal and regulatory privileges unique to their enterprises, and opportunities provided by market liberalization.
Topic:
Government, Economy, Business, and Liberalization
Political Geography:
Turkey, Middle East, and Egypt

4. Owners of the Republic: An Anatomy of Egypt’s Military Economy

Author:
Yezid Sayigh
Publication Date:
11-2019
Content Type:
Special Report
Institution:
Carnegie Endowment for International Peace
Abstract:
The Egyptian military accounts for far less of the national economy than is commonly believed, but its takeover in 2013 and the subsequent rise of President Abdel Fattah el-Sisi have transformed its role in both scope and scale and turned it into an autonomous actor that can reshape markets and influence government policy setting and investment strategies. The military delivers massive infrastructure projects, produces consumer goods ranging from food to household appliances, manufactures industrial chemicals and transport equipment, and imports basic commodities for civilian markets. It has expanded into new sectors as diverse as gold prospecting, steel production, and managing religious endowments and pilgrimage. In parallel, thousands of retired senior officers benefit from the military’s powerful political influence to occupy senior positions throughout the state’s civilian apparatus and public sector companies, complementing the formal military economy while benefiting themselves. The military boasts of superior managerial skills and technological advances and claims to act as a developmental spearhead, but its role comes at a high cost. It has replicated the rentierism of Egypt’s political economy, benefiting like its civilian counterparts (in both the public and private business sectors) from an environment in which legal permissibility, bureaucratic complexity, and discretionary powers allow considerable space for predation and corruption. At best, the military makes good engineers, but bad economists: the massive surge of megaprojects in public infrastructure and housing it has managed since 2013 is generating significant amounts of dead capital and stranded assets, diverting investment and resources from other economic sectors. The military economy’s entrenchment is detrimental to Egypt’s democratic politics, however flawed. The military economy must be reversed in most sectors, rationalized in select remaining ones, and brought under unambiguous civilian control if Egypt is to resolve the chronic structural problems that impede its social and economic development, inhibit productivity and investment, subvert market dynamics, and distort private sector growth. Nor can any Egyptian government exercise efficient economic management until informal officer networks in the civilian bureaucracy, public sector companies, and local government are disabled. Rosy assessments of Egypt’s macroeconomic indicators issued by Egyptian officials and their counterparts in Western governments and international financial institutions disregard fundamental problems of low productivity and innovation, limited value added, and insufficient investment in most economic sectors. These officials may be hoping Sisi can somehow build a successful development dictatorship, which would explain why they gloss over the social consequences of his administration’s economic approach and its fierce repression of political and social freedoms and egregious human rights violations. A corollary is the faith that the military is as good an economic actor and manager as it claims to be, and that it will withdraw from the economy as the latter grows. Yet current trends suggest Sisi will remain hostage to key partners in the governing coalition, including the military leading its involvement in the economy to accelerate.
Topic:
Military Affairs, Economy, and Military Government
Political Geography:
Middle East, North Africa, and Egypt