Army’s economic role fuels debate in Egypt

Military advocates said the institution’s increased economic role is aimed at assisting the Egyptian people in a time of need.
Sunday 01/04/2018
Egyptian President Abdel Fattah al-Sisi (2nd-L) looks at model diagrams of greenhouses during the inauguration of an agricultural project at Mohamed Naguib military base in al-Hammam region, last February. (Egyptian Presidency)
Huge advantage. Egyptian President Abdel Fattah al-Sisi (2nd-L) looks at model diagrams of greenhouses during the inauguration of an agricultural project at Mohamed Naguib military base in al-Hammam region, last February. (Egyptian Presidency)

CAIRO - Business activities by Egypt’s powerful military have been a source of speculation and political gossip for years and Egyptian President Abdel Fattah al-Sisi has sought to dispel myths surrounding the military’s economic role in Egypt.

Sisi, answering questions during his election campaign on the role the army plays in the national economy, said the army’s non-military economic interests represented 2-3% of Egypt’s gross domestic product of almost $227 billion at today’s exchange rate of 17.64 pounds per dollar.

“I asked the army to enter some production fields to cushion the effects of commodity price hikes,” Sisi said in a campaign documentary. He mentioned poultry and beef production and referred to the military’s role in overseeing implementation of infrastructure projects.

There is a widespread belief, however, that the army’s involvement in the Egyptian economy is far greater than suggested, a point that analysts said could distract the military from defending Egypt’s borders.

“This is something that turns the generals into businessmen and the institution that should defend this country and its people into an entity that works for profit,” said political researcher Ammar Ali Hassan. “The economy should be left for civilian entities, the private sector and the government sector.”

The Egyptian Army has been in control of various non-military production facilities dedicated to producing military needs, including food, clothes, footwear and even electrical appliances.

The army can sell production surpluses on the local market, bringing in additional revenue.

The army’s involvement in business and industrial activities reportedly mushroomed after the election of Sisi, who had served in various senior military posts, including as director of Egypt’s Military Intelligence.

Over the past four years, Egypt’s military has entered industries that had previously remained civilian, including manufacturing of refrigerators, air conditioners, solar panels, passenger buses, medical equipment, electricity smart metres and television sets.

The expansion of the role the military plays in the economy coincides with a national economic reawakening that has been seeking to move away from imported goods and increase domestic production.

While this overreaching economic strategy has won acclaim from economists, helping Egypt increase economic growth and grow foreign currency reserves, it has resulted in direct economic competition between Egypt’s military and the private sector.

Abdelrahim Ali, a journalist and member of parliament who staunchly backs Sisi, said the Egyptian president started his term in June 2014 with a meeting with the major manufacturers and traders in the country. Speaking on the private Al Kahera Wal-Nas TV station, Ali said that Sisi asked private sector manufacturers and traders to limit their profits to a 20% margin.

“Sorry to say, most of them [the manufacturers and the traders] rejected this profit margin,” Ali said. “However, the army accepted the same profit margin.”

This might explain why Egypt’s military has gotten involved in additional aspects of the economy at a time when reduced imports and the 2016 currency flotation means there have been major commodity price hikes that have out-stripped salary increases. The army is selling beef at reduced prices to people on the streets. It also sells vegetables, butter, bread, fish, chicken and milk.

Army trucks loaded with frozen food can be seen on major squares and in poor districts selling goods at far below market rates.

Military advocates said the institution’s increased economic role is not aimed at securing a profit or a larger market share but assisting the Egyptian people in a time of need.

“The army has huge production capacities and it uses these capacities in serving the people and striking some balance in the market,” said retired army General Samir Badawi. “It finalises projects quickly and for almost half the price the private sector demands.”

Sisi said in the documentary that the army oversaw and sped up implementation of infrastructure projects by national contracting companies.

“When we construct a bridge, for example,” Sisi said, “the army commits contractors to finalising the project in five months or a year, instead of four or five years. Does this not serve the interests of our country best?”

Economists said this could harm private sector investment.

The army does not pay taxes, is guaranteed preferential treatment and depends on low-paid conscripts for labour. This means the army pays almost nothing for production and reduced overhead compared to the private sector.

“This is something that makes the private sector feel the unfairness of the game,” said Alia al-Mahdi, an economics professor at Cairo University. “So, the only thing we can expect is the flight of the private sector at a time the economy is badly in need of investments.”

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