The Egyptian army’s economy: dominance, corruption, and huge gains

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The Egyptian military has been involved in the economy over the past 70 years, since Abdel Nasser to be precise, yet its role has expanded significantly since Sisi seized power in 2013. Sisi chose an economic model based on mega projects implemented under military supervision. Projects such as expanding the Suez Canal, constructing a new capital, or building alternative new governorates (such as new Mansoura), has been a questionable public policy for several reasons. Chief among which is that these large infrastructure megaprojects are being channelled through the Egyptian Armed Forces Engineering Authority.

Sisi’s approach cements the political and economic front of the military as a political assistant to him throughout his rule which is criticised for its unprecedented scale of repression, detention, torture, enforced disappearance and last but not least the poverty rate that has been insanely growing with unemployment, which is up to 7.5 per cent. “The dramatic expansion in scope and scale of the military economy since 2013 may have been intended to serve the president’s political agenda,” says a report by Yezid Sayigh for Carnegie Endowment.

The economy under military dominance

According to Carnegie, Egypt continues to slide lower on all major socioeconomic indicators, compared to its peer group, after decades of military involvement in the economy. Moreover, for a country known for its decaying infrastructure, crowded chaotic transportation and stultifying bureaucracy, the new megaprojects offer nothing for the poorest and most suffering classes in Egypt. The crisis, then, is not limited to the armed forces totalitarian control, rather to the financial corruption surrounding these projects. The extent of their effectiveness is also questionable over resolving the rampant crises that led to the outbreak of the January 25 Revolution in the first place.

In 2016, the new law of value-added tax establishes that the armed forces do not have to pay VAT on goods, equipment, machinery, services, and raw materials necessary for armament, defence and national security purposes. Consequently, the military and other security institutions were given exemptions from the VAT law enacted as part of IMF-inspired reforms. “Receipts for a cup of coffee at private sector hotels, for example, add 14 per cent VAT. Receipts at military hotels do not. Employees at the military-owned Al-Masah Hotel in Cairo told Reuters that no VAT was charged when renting venues for weddings and conferences,” reports Reuters.

The army’s economy now contains dairy farms, medicine transportation means with a capacity of five million civil employees serving 2,300 projects in varied sectors such as specialised industries, agricultural sectors, fish farms, quarries, and mines, contracting, infrastructure and other giant projects in the country, according to the military spokesman for the armed forces, Colonel Tamer Al-Rifai. Meanwhile, Human Rights Watch and other groups have extensively documented the Egyptian military corruption policies and abuses and failure to hold anyone to account, specifically that thousands of retired senior officers in Egypt benefit from the powerful political influence of the army and reap huge profits from those projects that primarily serve their own interests.

For example, Reuters shed light on the military’s El Arish Cement Co, a military commercial enterprise, that is going to be Egypt’s largest cement plant. The cement industry is getting the full force of the military’s expanding activities due to the new mega projects long term infrastructure plan. It is supposed to produce 12.6 million tonnes of cement a year. Meanwhile the total market consumption does not exceed 52 million tonnes a year that is being produced by many other companies as annual production capacity already stood at 79 million tonnes.

However, due to the exemptions from the value-added tax law, the military cement factory is making more profits than any other company in the private sector which prompted some foreign plants to liquidate their business after suffering heavy losses in this sector leaving the space open to the armed forces whose economic activity has no reports explaining its real size or earnings and what it brings to the state treasury. The military did not respond to a request, sent by Reuters, for comment about the cement market.

Soviet-style advocates of the military in return argue through state-controlled media that the secrecy of the armed forces’ budget is a top-secret national matter that we as Egyptians must respect and protect. Shedding light on it is dangerous and puts the country at risk. “The part of the military’s budget that is kept secret has little to do with national defence and more with the huge profits the army accrues from the production of non-military goods and services,” reports Midan Masr.