Egypt’s military oppose listing army companies on stock exchange

On November 1, at the opening conference of new projects, General Abdel Fattah al-Sisi said that companies owned by Egypt’s military must be allowed to sell shares on the stock exchange alongside other state companies slated for privatisation.

This statement has caused widespread legal and financial confusion in the Egyptian authority’s circles, and nearly two weeks later, there seems to be no anticipated move in that direction.

The reason for the internal confusion is that military companies are not allowed to be listed as joint-stock companies because they are not subject to any kind of actual censorship, nor do they pay any taxes.

Informed sources told Egypt Watch that military companies are not monitored by the Central Auditing Agency, the parliament, and they are not included in the state budget.

Military companies’ budgets are not subject to oversight, and its accounts do not look like joint-stock companies. 

These companies make huge profits because most government projects are given or outsourced directly to military companies, without any tenders.

If General al-Sisi wants to list these companies on the stock exchange, they will have to be restructured completely, so that they can be controlled, these sources say.

Over the past 10 days, orders have been issued by the Presidential Institution for Legal and Legislative Departments of the Council of Ministers, the Ministry of Justice and the Ministry of Investment to work on a legislative solution to ensure that the companies owned by the armed forces can be listed on the stock exchange.

These instructions were also sent to some of the law figures who cooperate with the regime in legislative matters but do not hold official positions.

The instructions asked for a vision to ensure the entry of military companies, intelligence, police, and other sovereign and security agencies in the free market with investors and list (an unspecified) part of its shares on the stock exchange.

The president’s instructions requested that these visions should attempt to maintain (as far as possible) the current structure and the way these companies are run.

The last request came after a number of generals in the Ministry of Defence expressed concern over al-Sisi’s remarks.

Sources told Egypt Watch that generals at the Ministry of Defence and General Intelligence Service do not want any kind of control over military or intelligence companies, and that they had previously received promises from al-Sisi regarding this.

These sources explained that al-Sisi’s recent statements came for two reasons.

The first is questions and fierce criticism from Western capitals about the role of the military in the Egyptian economy. This criticism was exacerbated by criticism from Egyptian opponents over the unprecedented expansion of the army’s economic companies.

The most prominent of those countries that have criticised the role of the army in the Egyptian economy are Britain and Germany.

The second reason for al-Sisi’s statements is that the UAE is fed up with the way al-Sisi manages the local economy.

The UAE (along with Saudi Arabia) is the largest economic supporter of the Egyptian regime.

Sources say that the UAE has discovered that al-Sisi’s economic policies have caused heavy losses to the Egyptian economy to ensure that the army has the largest market share.

Abu Dhabi considered that these policies have kept the Egyptian economy helpless, weak and in constant need of support, which eventually reaches the hands of the army, or as UAE puts it, the black box that does not tell us where the money went.

As a result of this concern, al-Sisi held an unannounced meeting last week with Defence Minister Mohamed Zaki and a number of officials of the army’s economic bodies, according to Alaraby Aljadeed.

At that meeting, al-Sisi reassured army representatives that he was keen for the army and its economy to be independent and that no legislative amendment would be approved without the army agreeing.

Sources say that it is inconceivable that military companies would be subject to the supervision of the Financial Supervisory Authority or the Capital Market Authority, even in theory, and that the army would never agree.

The sources suggest that the notion of supposed transparency in censorship contradicts the existing legislative advantages of the army.

Although the army is legally under the control of the Central Auditing Agency, it has never been subject to it.

The sources suggest that the closest implementation scenario is to exclude existing companies in areas where the National Service Projects Service of the Minister of Defence or Intelligence and the Police is active, from listing on the stock exchange.

They explained that the solution would be through the establishment of new army companies specialising in the areas in which it wants to participate with the public business sector (government companies), and then put part of the shares of those companies on the stock exchange.

But now the argument is in the proportion of projects that the army will accept to abandon in favour of those new companies, which will be controlled, even in theory.

Sources confirm that the shares offered on the stock market will remain a minor percentage, in order to ensure the control and acquisition of military management as well.

According to the sources, the army and intelligence generals have been promised that the new companies will be directly given new government projects, without withdrawing the old ones that were entrusted to the old army companies, so that the old companies will not be significantly affected by abandoning part of their projects in favour of new companies.