Egypt’s Military Economy

What pushes millions of respectable citizens to go to the streets and risk being hit by an army of riot police?

In Egypt, a country of approximately 84 million people, one person in four lives below the poverty line. The last two presidents were toppled after mass protests: it is estimated that fifteen million expelled Mubarak, and thirty Morsi. If there was any real ambition for change, all they had to do is listen to the slogans of the January 25 revolution to hear what the citizens of Egypt expect of their rulers.

The Infitah, Sadat’s policy of “opening the door” to private investment inaugurated a market-oriented economy, creating a substantial private sector in alliance with the United States and the west. Mubarak continued with a wave of privatisations in the 1990s and the military were established as part of his business and political elite.

Officials were appointed as regional governors, village chiefs and put in charge of state-run companies. This economic path also leaded to a massive displacement of the public sector: public spending on social services was dramatically cut, state-owned industries were privatised and employees fired.

The contributions from western foreign investment and Gulf aid have so far not trickled down to the broader population. Nowadays, a private oligopoly dominates the Egyptian economy, benefitting from state subsidies and almost exclusive access to bank credit. These companies are subject to very low taxes, and this is justified by the logic of investment support.

No one knows the army’s real share of the economy, but it is estimated at around 40 percent of the GDP. They manage a large number of companies and public institutions, and participate in infrastructure development, urban projects (such as the subway or the airport of Cairo), not to mention the consumer goods industry and their investments in key sectors such as tourism.

The military-business network attracts important foreign investment partners, in part because the sectors where its influence is bigger are also those with the greatest profit potential. Loans from international financial institutions facilitate their efforts to establish companies with Gulf conglomerates and western multinationals. The army is beneficing from this influx of investment, equipment and technology, and controls many of these companies.

For the average citizen the economic difficulties are huge: taxes on profits of small and medium-sized enterprises are generally more onerous than those of larger ones; they have fewer opportunities to develop their economic activity and less access to bank credit.

In the medium and long term, these small companies that create jobs could help the economy, as unemployment has reached exorbitant figures among an educated work force.

Almost half of the workers have no contracts; do not receive any social security or even a regular salary. These jobs provide low incomes and do not produce benefits such as pensions, health insurance, or professional growth.

Egypt is in desperate need for an immediate plan of action for its labour force, with the assistance of independent unions, a minimum wage adequate to the increasing cost of living needs to be set, and a system of progressive taxation needs to be implemented.

Social programs are also near to non-existent; measures need to be taken to improve the education system as well as health and housing. A national development project for Egypt may be the solution for internal growth, and expenditures on health, education and infrastructure will not only benefit the poorest and more vulnerable, but the vast majority.

This year, Sisi invited more than 2,000 businessman and political figures to the Egypt Economic Development Conference (EEDC) in Sharm El Sheikh, where projects covering energy, agriculture, tourism and the expansion of the Suez Canal were introduced. The president also attended the annual meeting of the World Economic Forum in Davos, and his visits to Europe covered political, economic and security issues.

But as Amr Adly of the Carnegie Middle East Centre pointed out, “the government does not have a plan to spread the benefits of growth. Moreover, it is looking for inspiration in Dubai, whereas India might be a more suitable model given Egypt’s size and poverty.”

President Sisi, former Commander-in-chief of the Egyptian Armed Forces, former President of the Supreme Council of the Armed Forces, and former Minister of Defense under Morsi, is the new Egyptian strongman.

The army, now in government with international support, is increasing its economic power and is free to impose the conditions it deems suitable. This has all been made possible with the help of an increasing number of foreign political allies, global investors and multinationals.

The current power structure ruling Egypt is overwhelming, but “poor economic performance” may be a weak point, as the political analyst Maged Mandour pointed out in a recent article. The question is; how does the current government plan to remain in power with poverty levels and the income gap increasing?