Egypt's Generals and Transnational Capital
Before and after the ejection of Husni Mubarak from office, the size of the Egyptian army’s share in the economy has been a subject of great debate. The army is known to manufacture everything from olive oil and shoe polish to the voting booths used in Egypt’s 2011 parliamentary elections, but no one knows for sure how much of the country’s economy the military industries control. News reports have cited “expert” estimates that are all over the map, from 5 percent to 40 percent or more. Pushed by the New York Times to venture a guess, the former minister of trade, Rashid Muhammad Rashid, now in exile, offered “less than 10 percent.” [1] The broad range of figures drives home the impossibility of measuring the footprint of what scholar Robert Springborg calls “Military, Inc.” [2] Not only are army holdings classified as state secrets -- reporting on them can land a journalist in jail -- but they are also too vast and dispersed to estimate with any confidence.
The military’s oldest commercial interests are the factories run by the Ministry of Military Production, the Arab Organization for Industrialization (AOI) and the National Service Projects Organization. But the army also oversees numerous subsidiaries of state-owned holding companies and owns shares in public-private ventures. In many cases, these smaller operations are embedded in transnational conglomerates that reach into several economic sectors, from construction and maritime shipping to weapons manufacturing.
High-ranking army officers were once trustees of “import substitution industrialization” and other statist policies pursued by President Gamal Abdel Nasser. Conventional wisdom is that the Egyptian military seeks to uphold such Nasser-era legacies as a sizable public sector and a protectionist trade policy. The 2011 uprising strengthened this belief, particularly after the defenestration of Gamal Mubarak and his circle, masterminds of the aggressive neoliberal reform carried out under Prime Minister Ahmad Nazif from 2004-2010. That program, had it continued, might have dismantled the last public-sector enterprises in Egypt, many of which the army runs. The army is thought to have pushed out Gamal partly in order to preserve these operations. US officials had telegraphed this analysis years before: In a September 2008 State Department cable published by WikiLeaks, then-Ambassador to Egypt Margaret Scobey called the military’s conglomerates “quasi-commercial,” concluding that the government’s privatization schemes were viewed “as a threat to [the military’s] economic position” and that the military “generally opposes economic reforms.” Scobey’s predecessor Frank Ricciardone had made a similar argument in a March 2008 cable: “[Field Marshal Hussein] Tantawi believes that Egypt’s economic reform plan fosters social instability by lessening [government] controls over prices and production.”
Since the Mubarak family’s ouster in February 2011, the United States has tried to nudge the Supreme Council of the Armed Forces (SCAF), Egypt’s de facto rulers, onto something like Gamal’s path. In his May 19, 2011 speech on the Middle East, President Barack Obama claimed the US had already asked the International Monetary Fund and World Bank to devise a plan to stabilize and modernize the Egyptian economy. Obama said the US had written off $1 billion of Egyptian debt and would “work with our Egyptian partners to invest these resources to foster growth and entrepreneurship.” Under social pressure, however, the SCAF spurned the initial IMF loan package, making many observers anxious that Egypt would return to a more statist model of economic management.
But the SCAF’s subsequent actions suggest that those concerns are misplaced. The army has been diligent in disciplining striking workers, while the SCAF has dragged its feet on draft laws setting minimum and maximum wages and legalizing independent labor unions. These moves might also be seen as invoking the spirit of Nasser, who himself hanged two strike leaders less than a month after the coup that brought him to office, except that the army has paired the crackdown with other measures that were preached by the IMF and World Bank. Egypt’s interim military rulers issued tranches of dollar-denominated treasury bills to guard against inflation and reassure investors, for instance, and refused to lift Egypt’s debt ceiling. They replaced Finance Minister Samir Radwan -- an old NDP stalwart who had put forth an expansionary budget that increased social expenditures and wages -- with Hazim Biblawi, a strong advocate of free-market liberalism and the “rationalizing” of state subsidies on staples. To soften up the public for cuts in fuel subsidies, the SCAF is rumored to have orchestrated fuel shortages and delays in gasoline delivery -- even at the military’s own Wataniyya gas stations. Finally, in December the SCAF “grudgingly” agreed to a $3.2 billion IMF loan facility. The funds are scheduled to be disbursed around the time the Egyptian Central Bank runs out of currency reserves, narrowly averting economic disaster and allowing the army to claim the credit. At the same time, the SCAF has favored political players who view Egypt’s interests as synonymous with those of the military’s economic planners. Acquiescing to this logic is rewarded with entry into the state’s reconfigured institutions. Voices that reject this vision, such as independent labor organizers and protesters for social justice, are derided as fi’awi -- divisive and parochial. [3]
In retrospect, it seems clear that while the military-industrial complex resisted the privatization pursued by Ahmad Nazif’s cabinet, their recalcitrance was predicated on two fears: first, that military operations would be next on the chopping block and second, that the private-sector oligarchs close to Gamal would eclipse Military, Inc. in Egypt’s political economy. Tenders of privatization are excludable goods, and the more of them were granted to Gamal’s cronies, the fewer remained for military companies, which sought them just as assiduously.
Now, after a year with the SCAF as executive, and many of Gamal’s associates facing investigation or in exile, Egypt’s economic trajectory looks remarkably similar to that of 2010. No longer do silk-suited technocrats enjoin Egyptians to forgo living wages, safe working conditions and political accountability in pursuit of “economic growth.” But khaki-clad officers echo the argument that social justice must wait, accusing those who demand it of scaring away tourists and foreign investors. Proximity to political power is still the primary path to economic privilege, and the traditional constituencies of the interventionist state -- civil servants, peasants and the urban poor -- remain marginal. In tandem with transnational capital, the army seeks to corner markets even as it mouths free-market nostrums. And Military, Inc. may do the Mubaraks one better: With Gamal’s crony capitalist allies out of the way, there is no longer any competitor whose ambitions are a counterweight to the army’s appetite for economic expansion.
Expanding the Portfolio
Its Nasserist aura notwithstanding, the Egyptian military’s foray into the private sector is some two decades in the making. Military companies are best known for making war materiel, and despite a historically small foreign market, weapons systems continue to roll off the army’s assembly lines at rates exceeding what even a robust police state can absorb. Warehouses bulge with inventory. Some arms manufacturers believe that “export is our future,” [4] but the overall health of the army’s portfolio requires that it diversify its economic operations.
Military, Inc. has accordingly inaugurated projects in sectors ranging from maritime transport to oil, gas and renewable energy. Contrary to the army’s reputation as a pillar of protectionism, these projects are collaborative, bringing in Gulf conglomerates, as well as Western and Asian multinationals, as partners. Like Egypt’s civilian private-sector oligarchs, the brass are exploiting their political influence and privileged access to economic inputs to attract foreign investors whose capital infusions and technology transfer agreements beef up the balance sheet. The military’s investment strategy appears to be reaping significant dividends: Not only did the SCAF “loan” the Egyptian Central Bank $1 billion in December, but it has also managed to dole out sizable monthly bonuses (about 2,400 Egyptian pounds, or $400) to mid-ranking army personnel since the uprising against Mubarak began. [5]
The military had been diversifying its holdings long before the uprising, through expansion into sectors like real estate development and heavy equipment leasing, in which the military’s enormous land holdings, infrastructure and capital provide major advantages, as well as the privately owned businesses that constitute what has become known as the “officer economy.” The army’s tentacles also grasped large shares of the civilian public sector as part of the “privatization” process in the 1990s. Alexandria Shipyard, for instance, was turned over to the Ministry of Defense in August 2007. It now produces large merchant vessels and warships and offers its repair services to private shipping companies. Likewise, the army-controlled AOI now owns 100 percent of the General Egyptian Company for Railway Wagons and Coaches, initially offered up for privatization in 2002. But the joint investments with Gulf conglomerates and multinational corporations have given the army’s diversification project an unprecedented boost.
The Kuwaiti group M. A. Kharafi and Sons -- whose late patriarch ranked seventh on the 2010 Rich List of the magazine Arabian Business -- has proven a particularly eager partner. Since 2001, it has joined the Egyptian military in a number of ventures, including the Arab Company for Computer Manufacturing, Egypt’s only producer of computer hardware and laptops, in which Kharafi owns 71 percent of shares and the AOI and a Ministry of Military Production subsidiary each own 5 percent. The company, which draws on Aopen, a Taiwanese firm, for technology inputs, had start-up capital of $140 million and produces 750,000 computers per year. [6] Via a subsidiary, Kharafi controls approximately 60 percent of the International Pipe Industry Company, of which the Ministry of Military Production owns 10 percent. This company is the largest manufacturer of oil and gas piping in the region, reporting sales of $104 million in 2008, and former Minister of Military Production Sayyid Mish‘al has described it as a “model of cooperation” between the state and private sector. [7] The military and Kharafi also run an operation called Maxalto, which relies on technology from the German firm Schlumberger to manufacture smart cards. In addition, there are a number of joint ventures between Kharafi’s Egyptian subsidiaries and divisions of state-owned holding companies widely perceived to be under the army’s aegis.
Joint Ventures
Egypt’s military is well situated to attract foreign investment partners, in large part because the economic sectors where its influence is strongest are also those that have great profit potential. These sectors include maritime and air transport, oil and gas, and industrial-scale environmental projects like wastewater treatment and renewable energy generation. The Egyptian military has actively pursued partnerships with overseas firms in all of these sectors, primarily under the rubric of public-private partnerships -- a mechanism of development economics that also meets the strictures of neoliberal policy planners. Large infusions of capital from state-owned banks, along with loans from international financial institutions and stepped-up privatization under the Ahmad Nazif cabinet, converged to facilitate the army’s efforts to establish joint ventures with Gulf conglomerates and foreign multinationals.
Historically, the military has often validated its role in the economy by highlighting the strategic nature of certain sectors, like maritime transport, which long remained immune from privatization imperatives. In the late 1990s, Public-Sector Enterprise Minister ‘Atif ‘Ubayd restricted privatization of shares in maritime companies to 10 percent after the Israeli ambassador revealed that Israeli companies were interested in purchasing one of Egypt’s state-owned (and likely army-run) stevedoring companies. Amid perceptions that Israeli owners would deliberately block the acquisition of new technologies in order to keep Egypt underdeveloped, the military was able to pose as guarantor of vital national assets. Ultimately, the government decided to postpone privatization of maritime transport altogether. [8] But renewed pressure from World Trade Organization members with major shipping interests led the government to adopt a master plan (2001-2017) to extend the liberalization of maritime activities. This plan included the introduction of the “landlord model,” whereby private-sector firms fulfill many port functions, but remain under the supervision of “independent,” profit-oriented (but still state-owned) entities. [9] By the middle of the decade, Egypt’s ports were experiencing what a 2008 USAID report termed an “investment stampede,” which included ample new investments from four of the world’s largest maritime conglomerates: the Danish Moeller-Maersk, the French CMA CGM, and Cosco Pacific and Hutchison Port Holdings, both of Hong Kong. Though such overseas firms now hold majority shares in Egyptian maritime companies, the military has been able to secure significant minority shares, as well as top executive posts, primarily through the state-owned Holding Company for Maritime and Land Transport, the various port authorities and the Ministry of Maritime Transport, all of which are heavily staffed by naval and other officers. (Military, Inc. also controls other parastatals involved in maritime shipping, such as the Arab Federation of Chambers of Shipping, whose chairman is Adm. Hatim al-Qadi.)
These joint ventures represent tens of billions of dollars in investment from foreign firms, state banks and international lenders; even the military’s minority share in these companies is a substantial asset. The new port operators include Damietta International Port Company, in which private French, Kuwaiti and Chinese firms own a combined 70 percent alongside an unknown holding by the United Arab Shipping Company (a roughly 50-50 joint venture between the military-dominated Holding Company and the Kuwaiti government) and a 5 percent holding by the Damietta Port Authority, whose chairman is also a military officer. [10] Likewise, the Suez Canal Authority -- headed by Adm. Ahmad ‘Ali al-Fadil -- owns 12 percent of the shares in the Suez Canal Container Terminal Company, which began operations in 2004, and whose other shareholders include Maersk and Cosco Pacific.
Alexandria International Container Terminals, majority-owned by Hutchison Port Holdings of Hong Kong and a UAE-based private equity fund, is another major joint venture. The project was inaugurated under Gen. ‘Abd al-Salam Mahgoub, a former chief intelligence officer who became a vocal advocate of coordination between the state and private sectors after being appointed governor of Alexandria in the late 1990s. The primary vehicle for this collaboration was an agreement signed by Mahgoub and the local Chamber of Commerce, which gave businessmen hefty privileges -- including free access to land for commercial development -- in exchange for a portion of their profits, which were deposited into a special city development account that allowed the governorate to avoid sending its tax revenues to Cairo. [11] Military interests have maintained a measure of ownership (5 percent) in this instance as well, through the Alexandria Port Authority. The port authority’s chairman, Adm. Muhammad Yusuf, praised the introduction of foreign shipping interests, stating that the government’s policy to “attract foreign direct investment by partnering with multinational companies” will benefit the transport sector through the transfer of “management expertise and best practices,” as well as the introduction of new technology and more container traffic. [12]
The various port authorities also have shares in individual maritime infrastructure projects and complementary sectors (such as shipping insurance) alongside foreign investors. One such project is a dredger assembly deal with the Dutch company Damen Group; another is Suez Canal Insurance, which is now majority-owned by Green Oasis Investments, a joint Chinese-Egyptian investment fund. The military stands to benefit handsomely from this influx of investment, equipment and technology, not only because it controls shares in both the joint venture companies and their state-owned competitors, but also because it exerts substantial control over associated industries. For instance, the military (via the aforementioned General Egyptian Company for Railway Wagons and Coaches) provides much of the hardware and labor for Egypt’s rail construction, which is being expanded in order to link new maritime port terminals with inland rail networks, which in turn will increase the volume of business for the joint venture port operators. The revenue of Military, Inc. from the maritime sector may also explain the degree of violence meted out to strikers and other protesters around Egypt’s ports, which are often incorporated into “special economic zones” where regulation is minimal and tax incentives are high.
Petrochemicals and Renewables
In the past ten years, the proven gas reserves in Egypt have doubled in size, from 36 to 76 trillion cubic feet, and in 2009-2010 proven oil reserves reached an all-time high. [13] These finds sparked a dramatic rise in foreign direct investment; Egypt signed 176 oil and gas agreements between 1999 and 2010, but more than half of the deals were struck in just the last two years of the decade. [14] The petroleum sector (including downstream processing) accounts for almost half of the state’s export earnings.
As with maritime transport, the military is in a good position to benefit from overseas investment in Egypt’s energy sector, where it exercises nearly as much formal control as the Ministry of Petroleum. The military has holdings in Tharwa Petroleum, the only state-owned oil company in Egypt that engages in the upstream activities of exploration and development. Tharwa has several joint ventures with foreign firms, including Sino Tharwa (a drilling operation with China’s state-owned Sinopec); Tharwa Breda Petroleum Services and Thekah Petroleum Company (joint ventures with the Italian firms Breda and Eni, respectively); and the Egyptian-Chinese Petroleum Company for Manufacturing Drilling Rigs (a consortium of Egypt’s Petrojet, Tharwa and Enppi, and Sichuan Honghua Petroleum Equipment). China and Italy are also key states in maritime transport, since most Chinese exports bound for Europe are unloaded at the southern Italian port of Gioia Tauro. Increasing the share of traffic headed to Italy that passes through the Suez Canal would therefore represent a huge source of revenue for the military. In 2006, the three governments signed an agreement designed to ease traffic through the Canal, which officials from the Suez Canal Authority said might be further encouraged by “tariff incentives” granted by the Ministry of Finance, according to a WikiLeaked State Department cable.
Foreign firms have also pursued partnerships with Egypt’s military producers in order to secure a piece of Egypt’s roomy market for renewable energy and environmental cleanup projects. China signed a memorandum of understanding with the AOI for collaboration in solar and wind energy projects. European firms have also been active in this area. German and Danish companies have concluded licensing agreements and technology transfers with the AOI to generate wind energy, while Spanish and Canadian firms are partnering with the AOI to build a photovoltaic plant near Cairo. Other environment-related projects in which Military, Inc. is involved include wastewater treatment, waste incineration and kits for converting vehicles to operate on natural gas. A report compiled by Cairo University’s Faculty of Engineering highlighted the military’s capacity to manufacture the components necessary for a renewable energy industry, and many commercial attachés at foreign embassies also stress the investment potential in these areas. Such marketing devices have paid off: Germany invested 50 million euros in rice straw recycling, building two factories in collaboration with the AOI. [15] The rice straw is to be pressed and transported under a contract concluded with another military institution, the National Service Projects Organization. [16]
The army’s drive to gain access to transnational capital is further reflected in the rhetoric of the newly appointed minister for military production, Maj. Gen. ‘Ali Sabri, who oversaw the expenditure of 1 billion Egyptian pounds (about $166 million) to expand the military’s fertilizer production and water treatment and sanitation operations in 2006-2008. Although Sabri has made many of the same pronouncements as his predecessor regarding job training for young graduates and industrial development in remote areas, he has been especially fond of pointing to the numerous foreign partnerships the military has secured with the US, Russia, Great Britain, China, South Africa, France, Germany and Italy. In a barrage of press interviews following his appointment, Sabri cited a long list of the military’s economic successes, including a 5 percent growth in production in the period after the uprising began, the completion of Egypt’s first (and according to Sabri’s statements, the region’s only) hot steel rolling mill, the scheduled completion of an industrial complex on a desert road northeast of Cairo, and the intensification of commercial joint ventures with major international companies that were “keen” to move ahead with planned expansion despite continued political unrest.
The SCAF has also succeeded in restarting talks on some of the public-private partnerships that were put on hold when foreign investors demanded enhanced guarantees against currency fluctuations and political risk. The primary sectors targeted for public-private financing -- hospitals, wastewater treatment plants and roads -- are also the traditional purview of the military and have featured prominently in Sabri’s media pronouncements.
Betting with the House
The payoff for foreign conglomerates that go into business with Military, Inc. is largely the same system of benefits that Egyptian oligarchs have enjoyed, including preferential treatment in bidding for state contracts, privileged access to infrastructure and services, and advance notice of pending projects. The biggest perk, however, is being able to rely on Egyptian soldiers to secure corporate assets -- a type of insurance no other state actor can provide. During the course of 2011, Kharafi National (part of the eponymous Kuwaiti group) was given an armored guard to ensure safe delivery of equipment to its al-Shabab power plant project, part of a public-private partnership venture awarded in 2010. According to a Kharafi National newsletter: “The Egyptian military provided forces, reinforced with tanks, to protect the client’s major power sites in al-Shabab and Damietta…. The Egyptian military also used armed military personnel to escort the transportation of large pieces of equipment for the gas turbines from al-Ismailiyya port to the al-Shabab site.” In the wake of the uprising, when several Gulf states announced aid packages to Egypt in hopes of containing popular anger, the Kharafi Group announced it was borrowing another $80 million to expand its infrastructure investments in Egypt, adding to the estimated $7 billion the Kuwaiti conglomerate already has invested there.
From the outset of the uprising, army leaders went to great lengths to assure outsiders that ports, oil and gas facilities, and other critical sites were operating normally under the watch of armed forces and police. [17] As the army consolidates the additional leverage it has accrued as Egypt’s transitional government, its merits as a business partner become clearer: Not only do foreign investors get soldiers to safeguard their assets, but they also get the political connections that have always been the path to economic gain in Egypt. Future foreign investment may be even more concentrated in ventures where the military has a stake.
The army, for its part, will likely reinforce its sally into the private sector as its overseas allies increase in number. In the past, the military was able to block new commercial ventures on “security” grounds, but not without expending precious political capital. Today, with several civilian oligarchs at the mercy of corruption probes, the military is much freer to dictate its terms. With the power to determine the winners and losers at the commanding heights of Egypt’s capitalism, the SCAF will retain unchallengeable clout long after the formal return of civilian rule.
Choosing Autocracy
Much of the speculation over the Egyptian military’s role in the economy has been misleading. The generals’ antipathy for Gamal Mubarak led many to assume they also disdained all neoliberal projects. The guessing similarly obscured the fact that, in an era of transnational capital, the army’s footprint is found in many places outside the formally state-owned holding companies. The military has broadened its portfolio by launching joint ventures and executing share purchases in private operations, exploiting its monopoly over lucrative sectors and granting exclusive access to foreign companies in order to burnish its pro-business bona fides. While the SCAF’s lust for direct political power is in doubt, the centrality of military-run industries to Egypt’s economic future is not. The generals have had nearly 12 months in which to anchor their enterprises so firmly as to make them immovable.
From the moment of Mubarak’s resignation, it was apparent that the SCAF was no disinterested arbiter of the political transition. The furor over the obscene wealth of Mubarak’s private-sector cronies presented the military with a golden opportunity to eliminate rivals. The SCAF proceeded to shape the electoral field to advantage those politicians who would not infringe upon the military’s economic prerogatives. Chief among its tactics was a showy, but highly selective anti-corruption campaign. By jailing big businessmen like Ahmad ‘Izz, an intimate of Gamal’s, and unpopular officials like the former housing minister, Ibrahim Sulayman, the SCAF channeled the public’s demand for justice. Not surprisingly, civilian businessmen with strong links to military companies were passed over by prosecutors—another signal to politicians to accept the military’s role in the economy or be shut out altogether.
The SCAF also crafted a new electoral law designed to advantage supporters of the status quo. In the lower house of Parliament, one third of the seats still belong to single-member districts, giving a leg up to the same local power brokers who had benefited from NDP-sponsored patronage. The remaining seats are allotted according to proportional representation, and although this system might have allowed for contests reflective of party-based platforms, the SCAF’s demand to hold elections so soon after Mubarak’s resignation meant that most potential challengers were too weak and disorganized to mount a meaningful campaign. Old NDP clients were thus the winners here, too. The SCAF’s law also maintained a provision requiring that half of the seats in the lower house be reserved for “workers and peasants,” although in reality these slots are often filled by retired military and police personnel. These men then take up membership in the parliament’s defense and national security committee, the only body with even nominal responsibility for overseeing the military. [18]
The military’s election management techniques appear to be paying off. The army’s most powerful potential adversary -- the Muslim Brothers’ Freedom and Justice Party -- is toeing its line on salient issues, including adherence to the peace treaty with Israel, the sine qua non for continued US military aid. The Brothers’ deputies have also voiced their support for shielding the details of the military budget from prying fellow parliamentarians (who will have access only to a single, comprehensive figure). And the Brothers have mobilized their members to stand alongside security forces confronting large demonstrations, such as on the “Tuesday of Determination,” when protesters marched to the parliamentary building demanding an accelerated transfer of power to civilians.
The result is a parliament in near lockstep with the military on economic governance. Although the parliamentarians will certainly have power struggles with the generals, the parties that command almost 87 percent of the assembly -- Freedom and Justice, the salafi Nour Party, the Wafd and the Egyptian Bloc -- all endorse the continued pursuit of neoliberalism. Groups rejecting that framework, such as The Revolution Continues, won a paltry 2.5 percent of the seats. It would be simplistic to suggest that the SCAF manipulated the results with precision, but they did design a system likely to produce their preferred outcome.
In addition to electoral engineering, the SCAF has engaged in both overt repression and legal chicanery to quiet those excluded from the political arena. Not only did the generals make it a crime to organize protests that disrupt the economy, deftly exempting “thuggery” from the list of acts that are no longer punishable under emergency law, they also encouraged the notion that labor strikes are undermining the national economy. The SCAF’s civilian allies go to dramatic lengths to remind the population of the worsening economic situation, with Prime Minister Kamal al-Ganzouri literally shedding tears on camera. [19] Meanwhile, dissenters are subject to arbitrary imprisonment, military tribunals and torture. Together with the sowing of fear and discord, such coercion serves as a deterrent to labor actions and street demonstrations that challenge the neoliberal program. The aim is not to imprison every demonstrator, but to dissuade the discontented from protesting in the first place.
Egyptians are thus offered a familiar Hobson’s choice: Acquiesce to a slightly adapted status quo in order to restore “stability,” or return to the streets and invite the resumption of chaos. Elections, whatever their benefits, give the authorities a broader mandate to repress dissent and recruit new enablers of the military’s rent-seeking behavior. Military, Inc. is determined that its holdings and operations remain beyond public scrutiny. The real Machiavellian turn in Egypt is just how many Islamists, liberals, nationalists and unaffiliated actors are content to watch the military’s economic empire grow at the expense of those clamoring for political change and social justice.
The military’s oldest commercial interests are the factories run by the Ministry of Military Production, the Arab Organization for Industrialization (AOI) and the National Service Projects Organization. But the army also oversees numerous subsidiaries of state-owned holding companies and owns shares in public-private ventures. In many cases, these smaller operations are embedded in transnational conglomerates that reach into several economic sectors, from construction and maritime shipping to weapons manufacturing.
High-ranking army officers were once trustees of “import substitution industrialization” and other statist policies pursued by President Gamal Abdel Nasser. Conventional wisdom is that the Egyptian military seeks to uphold such Nasser-era legacies as a sizable public sector and a protectionist trade policy. The 2011 uprising strengthened this belief, particularly after the defenestration of Gamal Mubarak and his circle, masterminds of the aggressive neoliberal reform carried out under Prime Minister Ahmad Nazif from 2004-2010. That program, had it continued, might have dismantled the last public-sector enterprises in Egypt, many of which the army runs. The army is thought to have pushed out Gamal partly in order to preserve these operations. US officials had telegraphed this analysis years before: In a September 2008 State Department cable published by WikiLeaks, then-Ambassador to Egypt Margaret Scobey called the military’s conglomerates “quasi-commercial,” concluding that the government’s privatization schemes were viewed “as a threat to [the military’s] economic position” and that the military “generally opposes economic reforms.” Scobey’s predecessor Frank Ricciardone had made a similar argument in a March 2008 cable: “[Field Marshal Hussein] Tantawi believes that Egypt’s economic reform plan fosters social instability by lessening [government] controls over prices and production.”
Since the Mubarak family’s ouster in February 2011, the United States has tried to nudge the Supreme Council of the Armed Forces (SCAF), Egypt’s de facto rulers, onto something like Gamal’s path. In his May 19, 2011 speech on the Middle East, President Barack Obama claimed the US had already asked the International Monetary Fund and World Bank to devise a plan to stabilize and modernize the Egyptian economy. Obama said the US had written off $1 billion of Egyptian debt and would “work with our Egyptian partners to invest these resources to foster growth and entrepreneurship.” Under social pressure, however, the SCAF spurned the initial IMF loan package, making many observers anxious that Egypt would return to a more statist model of economic management.
But the SCAF’s subsequent actions suggest that those concerns are misplaced. The army has been diligent in disciplining striking workers, while the SCAF has dragged its feet on draft laws setting minimum and maximum wages and legalizing independent labor unions. These moves might also be seen as invoking the spirit of Nasser, who himself hanged two strike leaders less than a month after the coup that brought him to office, except that the army has paired the crackdown with other measures that were preached by the IMF and World Bank. Egypt’s interim military rulers issued tranches of dollar-denominated treasury bills to guard against inflation and reassure investors, for instance, and refused to lift Egypt’s debt ceiling. They replaced Finance Minister Samir Radwan -- an old NDP stalwart who had put forth an expansionary budget that increased social expenditures and wages -- with Hazim Biblawi, a strong advocate of free-market liberalism and the “rationalizing” of state subsidies on staples. To soften up the public for cuts in fuel subsidies, the SCAF is rumored to have orchestrated fuel shortages and delays in gasoline delivery -- even at the military’s own Wataniyya gas stations. Finally, in December the SCAF “grudgingly” agreed to a $3.2 billion IMF loan facility. The funds are scheduled to be disbursed around the time the Egyptian Central Bank runs out of currency reserves, narrowly averting economic disaster and allowing the army to claim the credit. At the same time, the SCAF has favored political players who view Egypt’s interests as synonymous with those of the military’s economic planners. Acquiescing to this logic is rewarded with entry into the state’s reconfigured institutions. Voices that reject this vision, such as independent labor organizers and protesters for social justice, are derided as fi’awi -- divisive and parochial. [3]
In retrospect, it seems clear that while the military-industrial complex resisted the privatization pursued by Ahmad Nazif’s cabinet, their recalcitrance was predicated on two fears: first, that military operations would be next on the chopping block and second, that the private-sector oligarchs close to Gamal would eclipse Military, Inc. in Egypt’s political economy. Tenders of privatization are excludable goods, and the more of them were granted to Gamal’s cronies, the fewer remained for military companies, which sought them just as assiduously.
Now, after a year with the SCAF as executive, and many of Gamal’s associates facing investigation or in exile, Egypt’s economic trajectory looks remarkably similar to that of 2010. No longer do silk-suited technocrats enjoin Egyptians to forgo living wages, safe working conditions and political accountability in pursuit of “economic growth.” But khaki-clad officers echo the argument that social justice must wait, accusing those who demand it of scaring away tourists and foreign investors. Proximity to political power is still the primary path to economic privilege, and the traditional constituencies of the interventionist state -- civil servants, peasants and the urban poor -- remain marginal. In tandem with transnational capital, the army seeks to corner markets even as it mouths free-market nostrums. And Military, Inc. may do the Mubaraks one better: With Gamal’s crony capitalist allies out of the way, there is no longer any competitor whose ambitions are a counterweight to the army’s appetite for economic expansion.
Expanding the Portfolio
Its Nasserist aura notwithstanding, the Egyptian military’s foray into the private sector is some two decades in the making. Military companies are best known for making war materiel, and despite a historically small foreign market, weapons systems continue to roll off the army’s assembly lines at rates exceeding what even a robust police state can absorb. Warehouses bulge with inventory. Some arms manufacturers believe that “export is our future,” [4] but the overall health of the army’s portfolio requires that it diversify its economic operations.
Military, Inc. has accordingly inaugurated projects in sectors ranging from maritime transport to oil, gas and renewable energy. Contrary to the army’s reputation as a pillar of protectionism, these projects are collaborative, bringing in Gulf conglomerates, as well as Western and Asian multinationals, as partners. Like Egypt’s civilian private-sector oligarchs, the brass are exploiting their political influence and privileged access to economic inputs to attract foreign investors whose capital infusions and technology transfer agreements beef up the balance sheet. The military’s investment strategy appears to be reaping significant dividends: Not only did the SCAF “loan” the Egyptian Central Bank $1 billion in December, but it has also managed to dole out sizable monthly bonuses (about 2,400 Egyptian pounds, or $400) to mid-ranking army personnel since the uprising against Mubarak began. [5]
The military had been diversifying its holdings long before the uprising, through expansion into sectors like real estate development and heavy equipment leasing, in which the military’s enormous land holdings, infrastructure and capital provide major advantages, as well as the privately owned businesses that constitute what has become known as the “officer economy.” The army’s tentacles also grasped large shares of the civilian public sector as part of the “privatization” process in the 1990s. Alexandria Shipyard, for instance, was turned over to the Ministry of Defense in August 2007. It now produces large merchant vessels and warships and offers its repair services to private shipping companies. Likewise, the army-controlled AOI now owns 100 percent of the General Egyptian Company for Railway Wagons and Coaches, initially offered up for privatization in 2002. But the joint investments with Gulf conglomerates and multinational corporations have given the army’s diversification project an unprecedented boost.
The Kuwaiti group M. A. Kharafi and Sons -- whose late patriarch ranked seventh on the 2010 Rich List of the magazine Arabian Business -- has proven a particularly eager partner. Since 2001, it has joined the Egyptian military in a number of ventures, including the Arab Company for Computer Manufacturing, Egypt’s only producer of computer hardware and laptops, in which Kharafi owns 71 percent of shares and the AOI and a Ministry of Military Production subsidiary each own 5 percent. The company, which draws on Aopen, a Taiwanese firm, for technology inputs, had start-up capital of $140 million and produces 750,000 computers per year. [6] Via a subsidiary, Kharafi controls approximately 60 percent of the International Pipe Industry Company, of which the Ministry of Military Production owns 10 percent. This company is the largest manufacturer of oil and gas piping in the region, reporting sales of $104 million in 2008, and former Minister of Military Production Sayyid Mish‘al has described it as a “model of cooperation” between the state and private sector. [7] The military and Kharafi also run an operation called Maxalto, which relies on technology from the German firm Schlumberger to manufacture smart cards. In addition, there are a number of joint ventures between Kharafi’s Egyptian subsidiaries and divisions of state-owned holding companies widely perceived to be under the army’s aegis.
Joint Ventures
Egypt’s military is well situated to attract foreign investment partners, in large part because the economic sectors where its influence is strongest are also those that have great profit potential. These sectors include maritime and air transport, oil and gas, and industrial-scale environmental projects like wastewater treatment and renewable energy generation. The Egyptian military has actively pursued partnerships with overseas firms in all of these sectors, primarily under the rubric of public-private partnerships -- a mechanism of development economics that also meets the strictures of neoliberal policy planners. Large infusions of capital from state-owned banks, along with loans from international financial institutions and stepped-up privatization under the Ahmad Nazif cabinet, converged to facilitate the army’s efforts to establish joint ventures with Gulf conglomerates and foreign multinationals.
Historically, the military has often validated its role in the economy by highlighting the strategic nature of certain sectors, like maritime transport, which long remained immune from privatization imperatives. In the late 1990s, Public-Sector Enterprise Minister ‘Atif ‘Ubayd restricted privatization of shares in maritime companies to 10 percent after the Israeli ambassador revealed that Israeli companies were interested in purchasing one of Egypt’s state-owned (and likely army-run) stevedoring companies. Amid perceptions that Israeli owners would deliberately block the acquisition of new technologies in order to keep Egypt underdeveloped, the military was able to pose as guarantor of vital national assets. Ultimately, the government decided to postpone privatization of maritime transport altogether. [8] But renewed pressure from World Trade Organization members with major shipping interests led the government to adopt a master plan (2001-2017) to extend the liberalization of maritime activities. This plan included the introduction of the “landlord model,” whereby private-sector firms fulfill many port functions, but remain under the supervision of “independent,” profit-oriented (but still state-owned) entities. [9] By the middle of the decade, Egypt’s ports were experiencing what a 2008 USAID report termed an “investment stampede,” which included ample new investments from four of the world’s largest maritime conglomerates: the Danish Moeller-Maersk, the French CMA CGM, and Cosco Pacific and Hutchison Port Holdings, both of Hong Kong. Though such overseas firms now hold majority shares in Egyptian maritime companies, the military has been able to secure significant minority shares, as well as top executive posts, primarily through the state-owned Holding Company for Maritime and Land Transport, the various port authorities and the Ministry of Maritime Transport, all of which are heavily staffed by naval and other officers. (Military, Inc. also controls other parastatals involved in maritime shipping, such as the Arab Federation of Chambers of Shipping, whose chairman is Adm. Hatim al-Qadi.)
These joint ventures represent tens of billions of dollars in investment from foreign firms, state banks and international lenders; even the military’s minority share in these companies is a substantial asset. The new port operators include Damietta International Port Company, in which private French, Kuwaiti and Chinese firms own a combined 70 percent alongside an unknown holding by the United Arab Shipping Company (a roughly 50-50 joint venture between the military-dominated Holding Company and the Kuwaiti government) and a 5 percent holding by the Damietta Port Authority, whose chairman is also a military officer. [10] Likewise, the Suez Canal Authority -- headed by Adm. Ahmad ‘Ali al-Fadil -- owns 12 percent of the shares in the Suez Canal Container Terminal Company, which began operations in 2004, and whose other shareholders include Maersk and Cosco Pacific.
Alexandria International Container Terminals, majority-owned by Hutchison Port Holdings of Hong Kong and a UAE-based private equity fund, is another major joint venture. The project was inaugurated under Gen. ‘Abd al-Salam Mahgoub, a former chief intelligence officer who became a vocal advocate of coordination between the state and private sectors after being appointed governor of Alexandria in the late 1990s. The primary vehicle for this collaboration was an agreement signed by Mahgoub and the local Chamber of Commerce, which gave businessmen hefty privileges -- including free access to land for commercial development -- in exchange for a portion of their profits, which were deposited into a special city development account that allowed the governorate to avoid sending its tax revenues to Cairo. [11] Military interests have maintained a measure of ownership (5 percent) in this instance as well, through the Alexandria Port Authority. The port authority’s chairman, Adm. Muhammad Yusuf, praised the introduction of foreign shipping interests, stating that the government’s policy to “attract foreign direct investment by partnering with multinational companies” will benefit the transport sector through the transfer of “management expertise and best practices,” as well as the introduction of new technology and more container traffic. [12]
The various port authorities also have shares in individual maritime infrastructure projects and complementary sectors (such as shipping insurance) alongside foreign investors. One such project is a dredger assembly deal with the Dutch company Damen Group; another is Suez Canal Insurance, which is now majority-owned by Green Oasis Investments, a joint Chinese-Egyptian investment fund. The military stands to benefit handsomely from this influx of investment, equipment and technology, not only because it controls shares in both the joint venture companies and their state-owned competitors, but also because it exerts substantial control over associated industries. For instance, the military (via the aforementioned General Egyptian Company for Railway Wagons and Coaches) provides much of the hardware and labor for Egypt’s rail construction, which is being expanded in order to link new maritime port terminals with inland rail networks, which in turn will increase the volume of business for the joint venture port operators. The revenue of Military, Inc. from the maritime sector may also explain the degree of violence meted out to strikers and other protesters around Egypt’s ports, which are often incorporated into “special economic zones” where regulation is minimal and tax incentives are high.
Petrochemicals and Renewables
In the past ten years, the proven gas reserves in Egypt have doubled in size, from 36 to 76 trillion cubic feet, and in 2009-2010 proven oil reserves reached an all-time high. [13] These finds sparked a dramatic rise in foreign direct investment; Egypt signed 176 oil and gas agreements between 1999 and 2010, but more than half of the deals were struck in just the last two years of the decade. [14] The petroleum sector (including downstream processing) accounts for almost half of the state’s export earnings.
As with maritime transport, the military is in a good position to benefit from overseas investment in Egypt’s energy sector, where it exercises nearly as much formal control as the Ministry of Petroleum. The military has holdings in Tharwa Petroleum, the only state-owned oil company in Egypt that engages in the upstream activities of exploration and development. Tharwa has several joint ventures with foreign firms, including Sino Tharwa (a drilling operation with China’s state-owned Sinopec); Tharwa Breda Petroleum Services and Thekah Petroleum Company (joint ventures with the Italian firms Breda and Eni, respectively); and the Egyptian-Chinese Petroleum Company for Manufacturing Drilling Rigs (a consortium of Egypt’s Petrojet, Tharwa and Enppi, and Sichuan Honghua Petroleum Equipment). China and Italy are also key states in maritime transport, since most Chinese exports bound for Europe are unloaded at the southern Italian port of Gioia Tauro. Increasing the share of traffic headed to Italy that passes through the Suez Canal would therefore represent a huge source of revenue for the military. In 2006, the three governments signed an agreement designed to ease traffic through the Canal, which officials from the Suez Canal Authority said might be further encouraged by “tariff incentives” granted by the Ministry of Finance, according to a WikiLeaked State Department cable.
Foreign firms have also pursued partnerships with Egypt’s military producers in order to secure a piece of Egypt’s roomy market for renewable energy and environmental cleanup projects. China signed a memorandum of understanding with the AOI for collaboration in solar and wind energy projects. European firms have also been active in this area. German and Danish companies have concluded licensing agreements and technology transfers with the AOI to generate wind energy, while Spanish and Canadian firms are partnering with the AOI to build a photovoltaic plant near Cairo. Other environment-related projects in which Military, Inc. is involved include wastewater treatment, waste incineration and kits for converting vehicles to operate on natural gas. A report compiled by Cairo University’s Faculty of Engineering highlighted the military’s capacity to manufacture the components necessary for a renewable energy industry, and many commercial attachés at foreign embassies also stress the investment potential in these areas. Such marketing devices have paid off: Germany invested 50 million euros in rice straw recycling, building two factories in collaboration with the AOI. [15] The rice straw is to be pressed and transported under a contract concluded with another military institution, the National Service Projects Organization. [16]
The army’s drive to gain access to transnational capital is further reflected in the rhetoric of the newly appointed minister for military production, Maj. Gen. ‘Ali Sabri, who oversaw the expenditure of 1 billion Egyptian pounds (about $166 million) to expand the military’s fertilizer production and water treatment and sanitation operations in 2006-2008. Although Sabri has made many of the same pronouncements as his predecessor regarding job training for young graduates and industrial development in remote areas, he has been especially fond of pointing to the numerous foreign partnerships the military has secured with the US, Russia, Great Britain, China, South Africa, France, Germany and Italy. In a barrage of press interviews following his appointment, Sabri cited a long list of the military’s economic successes, including a 5 percent growth in production in the period after the uprising began, the completion of Egypt’s first (and according to Sabri’s statements, the region’s only) hot steel rolling mill, the scheduled completion of an industrial complex on a desert road northeast of Cairo, and the intensification of commercial joint ventures with major international companies that were “keen” to move ahead with planned expansion despite continued political unrest.
The SCAF has also succeeded in restarting talks on some of the public-private partnerships that were put on hold when foreign investors demanded enhanced guarantees against currency fluctuations and political risk. The primary sectors targeted for public-private financing -- hospitals, wastewater treatment plants and roads -- are also the traditional purview of the military and have featured prominently in Sabri’s media pronouncements.
Betting with the House
The payoff for foreign conglomerates that go into business with Military, Inc. is largely the same system of benefits that Egyptian oligarchs have enjoyed, including preferential treatment in bidding for state contracts, privileged access to infrastructure and services, and advance notice of pending projects. The biggest perk, however, is being able to rely on Egyptian soldiers to secure corporate assets -- a type of insurance no other state actor can provide. During the course of 2011, Kharafi National (part of the eponymous Kuwaiti group) was given an armored guard to ensure safe delivery of equipment to its al-Shabab power plant project, part of a public-private partnership venture awarded in 2010. According to a Kharafi National newsletter: “The Egyptian military provided forces, reinforced with tanks, to protect the client’s major power sites in al-Shabab and Damietta…. The Egyptian military also used armed military personnel to escort the transportation of large pieces of equipment for the gas turbines from al-Ismailiyya port to the al-Shabab site.” In the wake of the uprising, when several Gulf states announced aid packages to Egypt in hopes of containing popular anger, the Kharafi Group announced it was borrowing another $80 million to expand its infrastructure investments in Egypt, adding to the estimated $7 billion the Kuwaiti conglomerate already has invested there.
From the outset of the uprising, army leaders went to great lengths to assure outsiders that ports, oil and gas facilities, and other critical sites were operating normally under the watch of armed forces and police. [17] As the army consolidates the additional leverage it has accrued as Egypt’s transitional government, its merits as a business partner become clearer: Not only do foreign investors get soldiers to safeguard their assets, but they also get the political connections that have always been the path to economic gain in Egypt. Future foreign investment may be even more concentrated in ventures where the military has a stake.
The army, for its part, will likely reinforce its sally into the private sector as its overseas allies increase in number. In the past, the military was able to block new commercial ventures on “security” grounds, but not without expending precious political capital. Today, with several civilian oligarchs at the mercy of corruption probes, the military is much freer to dictate its terms. With the power to determine the winners and losers at the commanding heights of Egypt’s capitalism, the SCAF will retain unchallengeable clout long after the formal return of civilian rule.
Choosing Autocracy
Much of the speculation over the Egyptian military’s role in the economy has been misleading. The generals’ antipathy for Gamal Mubarak led many to assume they also disdained all neoliberal projects. The guessing similarly obscured the fact that, in an era of transnational capital, the army’s footprint is found in many places outside the formally state-owned holding companies. The military has broadened its portfolio by launching joint ventures and executing share purchases in private operations, exploiting its monopoly over lucrative sectors and granting exclusive access to foreign companies in order to burnish its pro-business bona fides. While the SCAF’s lust for direct political power is in doubt, the centrality of military-run industries to Egypt’s economic future is not. The generals have had nearly 12 months in which to anchor their enterprises so firmly as to make them immovable.
From the moment of Mubarak’s resignation, it was apparent that the SCAF was no disinterested arbiter of the political transition. The furor over the obscene wealth of Mubarak’s private-sector cronies presented the military with a golden opportunity to eliminate rivals. The SCAF proceeded to shape the electoral field to advantage those politicians who would not infringe upon the military’s economic prerogatives. Chief among its tactics was a showy, but highly selective anti-corruption campaign. By jailing big businessmen like Ahmad ‘Izz, an intimate of Gamal’s, and unpopular officials like the former housing minister, Ibrahim Sulayman, the SCAF channeled the public’s demand for justice. Not surprisingly, civilian businessmen with strong links to military companies were passed over by prosecutors—another signal to politicians to accept the military’s role in the economy or be shut out altogether.
The SCAF also crafted a new electoral law designed to advantage supporters of the status quo. In the lower house of Parliament, one third of the seats still belong to single-member districts, giving a leg up to the same local power brokers who had benefited from NDP-sponsored patronage. The remaining seats are allotted according to proportional representation, and although this system might have allowed for contests reflective of party-based platforms, the SCAF’s demand to hold elections so soon after Mubarak’s resignation meant that most potential challengers were too weak and disorganized to mount a meaningful campaign. Old NDP clients were thus the winners here, too. The SCAF’s law also maintained a provision requiring that half of the seats in the lower house be reserved for “workers and peasants,” although in reality these slots are often filled by retired military and police personnel. These men then take up membership in the parliament’s defense and national security committee, the only body with even nominal responsibility for overseeing the military. [18]
The military’s election management techniques appear to be paying off. The army’s most powerful potential adversary -- the Muslim Brothers’ Freedom and Justice Party -- is toeing its line on salient issues, including adherence to the peace treaty with Israel, the sine qua non for continued US military aid. The Brothers’ deputies have also voiced their support for shielding the details of the military budget from prying fellow parliamentarians (who will have access only to a single, comprehensive figure). And the Brothers have mobilized their members to stand alongside security forces confronting large demonstrations, such as on the “Tuesday of Determination,” when protesters marched to the parliamentary building demanding an accelerated transfer of power to civilians.
The result is a parliament in near lockstep with the military on economic governance. Although the parliamentarians will certainly have power struggles with the generals, the parties that command almost 87 percent of the assembly -- Freedom and Justice, the salafi Nour Party, the Wafd and the Egyptian Bloc -- all endorse the continued pursuit of neoliberalism. Groups rejecting that framework, such as The Revolution Continues, won a paltry 2.5 percent of the seats. It would be simplistic to suggest that the SCAF manipulated the results with precision, but they did design a system likely to produce their preferred outcome.
In addition to electoral engineering, the SCAF has engaged in both overt repression and legal chicanery to quiet those excluded from the political arena. Not only did the generals make it a crime to organize protests that disrupt the economy, deftly exempting “thuggery” from the list of acts that are no longer punishable under emergency law, they also encouraged the notion that labor strikes are undermining the national economy. The SCAF’s civilian allies go to dramatic lengths to remind the population of the worsening economic situation, with Prime Minister Kamal al-Ganzouri literally shedding tears on camera. [19] Meanwhile, dissenters are subject to arbitrary imprisonment, military tribunals and torture. Together with the sowing of fear and discord, such coercion serves as a deterrent to labor actions and street demonstrations that challenge the neoliberal program. The aim is not to imprison every demonstrator, but to dissuade the discontented from protesting in the first place.
Egyptians are thus offered a familiar Hobson’s choice: Acquiesce to a slightly adapted status quo in order to restore “stability,” or return to the streets and invite the resumption of chaos. Elections, whatever their benefits, give the authorities a broader mandate to repress dissent and recruit new enablers of the military’s rent-seeking behavior. Military, Inc. is determined that its holdings and operations remain beyond public scrutiny. The real Machiavellian turn in Egypt is just how many Islamists, liberals, nationalists and unaffiliated actors are content to watch the military’s economic empire grow at the expense of those clamoring for political change and social justice.