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Tuesday, January 17, 2012

The Egyptian army's strangehold on Egypt's economy

Two weeks ago I posted a very well researched article that revealed the depth of the Egyptian army's land and business holdings in Egypt, and the corruption that results.

The Media Line looks at the issue as well, not so much from the perspective of corruption but to show that the army is not likely to give up power any time soon:

Concrete information on the extent and holdings of the army’s business operations is difficult to come by. The armed forces are secretive but have portrayed themselves and the government generally as poor and hemorrhaging money. In the case of the government, that is certainly the case, but in the case of the army that is less evident.

In one of the most unusual intra-government transactions of the year, the military loaned the central bank $1 billion to help support the sagging Egyptian pound last month. The transaction not only pointed up the relative wealth of the two institutions but also the extent to which the army has access to money beyond the reach of the civilian authorities to whom it is supposed to be reporting.

Amr Hamzawy, a political analyst and newly elected member of parliament, estimates that the military controls as much as a third of Egypt’s economy. Paul Sullivan, a U.S. National Defense University professor and expert on Egypt’s military, told Time magazine last year that the military accounts for some 10% to 15% of the economy.

Mohamed Kadry Said, a retired general and a military analyst for the Al-Ahram Center for Political and Strategic Studies in Cairo, puts the figure at 8% of gross domestic product, a seemingly small percentage but, in Egypt’s $180 billion economy, one that puts the annual turnover of Egyptian Army Inc. at more than $14 billion.

As Egypt moves on its rocky road toward democracy, observers say the army’s efforts to preserve its business interests are likely to be a major barrier. More democracy will almost certainly entail more accountability and perhaps a direct assault by the country’s civilian politicians and economic reformers on the military’s economic power and privileges.

Many doubt that the generals will relinquish power so quickly. Among those is Mohamed ElBaradei. who announced over the weekend that he had dropped out of the presidential race, saying he saw no hope that the election due by the end of June would bring a real end to the military's rule.

“They use their businesses to maintain their power now more than ever. They own restaurants and tourism companies, so for the leadership today, stability and crushing the opposition to their rule is paramount to maintaining their wealth,” Ahmed, a former general who asked that his name not be used, told The Media Line.

...As an institution, the armed forces own and run much of the food industry, including plants manufacturing olive oil, milk. bread and bottled water – all of which are subsidized by the very government they are in charge of.

They also run a number of cement factories, gas stations and refineries, clothing and kitchen facilities, vehicle production – one local newspaper reported the military is in partnership with Jeep to produce Cherokees and Wranglers – as well as resorts and hotels.

Since February last year, the role of the military and business has become more visible and controversial. All these industries, says economic analyst Gamal Abdel-Salam of CS Securities in Cairo, lead to a conflict of interest.

“The military runs all these companies, factories and tourist destination spots, and now is in charge of the government, so it means they are giving money out and supporting industry that in essence they are already in charge of,” he says.

Topping it off, military businesses are free from government oversight and are not required to pay taxes, which Abdel-Salam says means that as the government gets poorer, “the military and its leaders are getting wealthier, so why would they want to leave power if they are winning on all sides?”

Abdel-Salam contends that the generals “see an opportunity to push forward without fear of government oversight, because they are the oversight and that is why they are silent on their role in the economy.”

....Overcoming wealth and power in Egypt may be difficult to achieve, even if a new constitution – which the military wants to ensure contains no oversight over its budget and income – is established in the next few months. Indeed, for the former general the revolution that toppled Mubarak is starting to look like the one that toppled King Farouk in 1952 and inaugurated nearly six decades of military rule.

“What we are seeing,” he says, “is Egypt’s military taking a very Soviet-style approach to things and one we have seen before, in the 1950s with Nasser and look how that turned out for the country.”

(h/t Ian)