Table of Contents

Military agencies are significant economic actors in Egypt. They deliver massive infrastructure projects, produce consumer goods ranging from food to household appliances, manufacture industrial chemicals and transport equipment, and import basic commodities for civilian markets. They have expanded into new sectors as diverse as steel production, pharmaceuticals, gold prospecting, and managing religious endowments and pilgrimage. In parallel, thousands of retired senior officers have benefited from the powerful political influence of the military to occupy senior positions throughout the state’s civilian apparatus and public sector companies, securing extra postretirement incomes for themselves while complementing the formal military economy in return. Both parts of the military economy have become increasingly assertive since the EAF took power in July 2013, destabilizing market dynamics, crowding the private sector in important sectors, and altering Egypt’s path to economic growth, social development, and political transition.

The military claims to act as a developmental spearhead, generating revenue for the state and jobs, but its role comes at a high cost. Despite boasting of superior managerial skills and technological advances, it has largely replicated the business model of virtually all economic actors in Egypt since the establishment of the republic in 1952, along with the model’s adaptations to an evolving policy and regulatory environment and most of its shortcomings. This is not to say that the military is not adept at delivering engineering projects or building up its funds with income from land it controls, but that it operates in a problematic political and economic system it has done much to shape. Whatever the intentions at command level, the military’s economic strategies and activities are undertaken in an environment in which legal permissibility, discretionary powers, and bureaucratic complexity allow considerable space for predation and corruption at lower levels.

The military claims to act as a developmental spearhead, generating revenue for the state and jobs, but its role comes at a high cost.

The military does not, however, undertake this role independently. It is an integral element of the incumbent regime governing Egypt, albeit one of a wider bureaucratic constellation that also comprises senior civil servants, security officials and judges, state economic managers, and technocrats. All are informed by the same political logic in their approach to the general management of the national economy and public finances, which prioritizes appeasing key constituencies and maintaining the governing system rather than undertaking the kind of reforms that could galvanize economic productivity and mobilize domestic resources more effectively. And all seek to occupy spaces within the national economy and lay claim to public finances in proportion to their political influence, explaining the marked tendencies of both to siloing (wasteful duplication of investment and effort) and fragmentation.

The military economy is two-faced, therefore: it is self-serving, but also conforms to and reproduces the broader regime maintenance strategy. For this reason it has replicated the predominant rentier mode (reliance on the capture of existing income streams rather than increasing productivity) of the Egyptian political economy: its constituent parts have closely tracked the behavior of other actors in both the public and private sectors, and responded in similar ways to new rent-seeking opportunities opened up by major shifts in the country’s economic orientation. The military economy may offer efficiencies in some civilian activities—principally large-scale engineering works—but what comes out at the end is negative economic value as losses are obscured and the cost of capital investment often exceeds its return.

It is the government and, more frequently, the presidency who create the policy context and assign national goals; despite being a springboard to power, the military is not a full political partner.1 Nonetheless, in working toward these policy goals—generating opportunities for myriad forms of rent-seeking along the way—the military contributes significantly to reproducing the chronic structural problems of the Egyptian economy, distorted private sector development, and the erosion of social conditions for large numbers of Egyptians. Western governments, international donor agencies and financial institutions, and foreign investors knowingly acquiesce, presenting a façade of ebullient optimism about Egypt’s macroeconomic indicators and potential while masking growing anxiety behind a slogan of “Egypt is too big to fail.”

The military’s progressive capture of state power since the popular uprising that forced then president Hosni Mubarak from office in February 2011 has transformed the scope and scale of its economic activity. The assumption of the president’s executive and legislative functions by the Supreme Council of the Armed Forces (SCAF) was followed in quick order by the military ouster in July 2013 of his successor Mohamed Morsi—the first civilian to be elected to the presidency since the establishment of the republic by the armed forces sixty years earlier—and then by the election of former defense minister Major General Abdel Fattah el-Sisi as president in May 2014. Since then, the military has come to play a major role in managing massive public works projects, supplying markets, and expanding into new economic sectors in an attempt to deliver government targets and increase state revenue.

Developments in the military economy since 2013 mark a significant transformation of scope and scale in what for decades was a protected but essentially limited enclave. Until then, the military was just “part of the deal” in which other civilian actors had their part of the overall pie—measured in ownership or control of material assets such as machinery and land or in regulatory power over licensing access to specific sectors—with the lion’s share going to politically connected business cronies of the president and, from the early 2000s, his son Gamal and clustered in the governing National Democratic Party. The relative weight of the military economy shifted at important turning points: economic liberalization and reorientation to the West starting in the mid-1970s, financial retrenchment from the mid-1980s, the first phase of privatization in 1991, and the second phase of privatization in the early 2000s. But it did not undergo serious transformation, whether measured in terms of the scope and scale of its activities, apparent net income and profitability, or impacts on other economic actors (including the public and private business sectors) and on policymaking.

Until 2011, the military principally practiced what Egypt researcher W. J. Dorman refers to as “self-aggrandizing enclavization.”2 Nothing it did in the economic sphere disrupted the workings of the governing system, whose principal characteristics evolved in the era of president Gamal Abdel Nasser and through the presidencies of his successors Anwar Sadat and Hosni Mubarak—from 1952 to 2011. They still shape the military economy, whether with regard to its modalities and the symbiotic relationships between its formal and informal components or to the sense of technical superiority and moral entitlement that imbues the senior officer corps of the Egyptian Armed Forces (EAF).

However, the deepening crisis of the Egyptian political economy that produced the 2011 revolution, coupled with the repositioning of the military economy since 2013, have set the stage for deeper mutations in both. Sisi, who was elected president in May 2014, catapulted the military into a more central economic position. Since then, acting on his orders, it has managed roughly one-quarter of total government spending on a crash program of public infrastructure and housing projects, stepped in to resolve shortages of food commodities and medical supplies in civilian markets, intervened in productive sectors deemed strategic with the ostensible aim of stabilizing prices, and generally scrambled to generate revenue for the state treasury.

This degree of reliance on the military to deliver public goods and services and help attain national development goals is unprecedented even in comparison to the Nasser era, which established the pattern. Underlying it are two sentiments that set the Sisi presidency apart from its predecessors: undisguised contempt for the competence and integrity of civilian state agencies, and frank belief that only the military can escape the confines of government bureaucracy to “get things done.”3 A corollary article of faith for the president is that the military is also a far better economic performer than the private sector. “I will tell you simply,” he stated at the inauguration of greenhouses built by EAF engineers, that “it would take the private sector three to four years to complete the executive procedures to do something this big, such as roads and water projects, and to this standard.”4 The military shares these sentiments, making it the obvious partner to a strongman president who prides himself on making rapid policy decisions.5 It is moreover highly unlikely to return willingly to its pre-2013 economic enclave in the future, no matter which way the country’s economy and politics head.

The Military Economy: An Overview

Today’s military economy has evolved out of the interaction between three main spheres:

  • The defense industry, founded in the 1950s, and its later offshoots that comprise officially registered and commercially oriented military enterprises involved in manufacturing and established at various times since the mid-1970s.
  • Agencies of the Ministry of Defense (MOD) that are tasked with enhancing EAF self-sufficiency in food, personal kit, and other noncombat consumables, others that provide fee-paying services to civilians or produce tradable agricultural and industrial commodities, and, most importantly, EAF departments that engage in public works. Together with the defense industry, these constitute the formal military economic sector, which is discussed in Chapters 2 and 3.
  • The “officers’ republic,” as I have labeled it elsewhere, which comprises the extensive, informal officer networks that permeate the state civilian apparatus as well as state-owned companies and government entities engaged in public works and infrastructure, various public services, natural resource management, and commercial manufacturing.6 The cloak of nominal legality enjoyed by these military bureaucrats enables and protects insider practices in the award of contracts, access to state land, and investment of EAF special funds. A subsphere consists of officers-turned-entrepreneurs and privileged private sector partners and subcontractors of military-run projects.

Common to all three spheres is their privileged access to state resources and public contracts. Military agencies arguably make a significant contribution to the economy by providing public infrastructure, though at what real cost to the state treasury and to the capacity of the civilian agencies that should have managed or undertaken national projects is open to question. The net economic contribution of the defense industry’s civilian production is considerably more dubious. The opacity or formal withholding of financial information prevents definitive conclusions about economic cost-effectiveness, but the evidence points to the inefficiencies and hidden losses typical of many state-owned enterprises in both the pre- and postprivatization eras in Egypt.

The military economy’s primary mode may be described as a kind of institutional or regulatory seizure: it captures a disproportionate share of public revenues and resources that would otherwise have gone to competing state institutions and private companies, and diverts considerable amounts of investment capital from other productive sectors of the economy. In this sense, at least, military agencies differ less than they like to claim from civilian state agencies and private firms, which are often viewed by the general public and members of parliament as corrupt, unpatriotic, and incompetent in their own rent-seeking behavior. The rentier mode is typical of the officers’ republic and of private military entrepreneurs especially, but also characterizes the formal military economic sector’s involvement in massive white elephant projects, such as land reclamation schemes and the construction of a string of failed “desert” cities.

Consequently, frequent claims made by military officials that their projects stimulate economic growth and jobs are exaggerated at best, and often demonstrably false. The urgency with which Sisi has sought to raise revenue since assuming office has only exacerbated siloing and rentierism. However, the military establishment’s preeminent political position and ability to control public discourse—enhanced by the takeover of a swath of Egyptian media by various military and intelligence agencies since 2013—enable it to paper over shortcomings and inefficiencies. Military economic agencies moreover shield themselves from external scrutiny by embellishing a public image that highlights their contribution to national development through building basic infrastructure, providing civilian commodities and consumables at discounted prices, stepping in at short notice to resolve bread shortages and other supply crises, and distributing EAF food packages to the poor during Islam’s holy month of Ramadan.

The military economy captures a disproportionate share of public revenues and resources from competing state institutions and private companies, diverting considerable amounts of investment capital from other productive sectors of the economy.

Importantly, the EAF’s senior officer corps has come since the 1980s to regard both the formal military economic sector and its more informal access to the state apparatus and civilian economy as an entitlement. Speaking in 2012, Major General Mahmoud Nasr, then assistant defense minister for finance and SCAF member, was blunt: “We will not leave the [fruits of our] sweat that shaded us for thirty years to be destroyed by anyone, and we will not allow anyone, no matter who, to interfere with EAF ventures.”7 Anyone seeking to subordinate the military economy to civilian control or demanding curtailment or divestment, he added pointedly, “threatens Egypt’s national security.”

Nonetheless, portrayals of the military economy’s evolution as linear, unvaryingly predatory, and orchestrated by a military establishment pursuing clear institutional interests or else captured by crony officer networks pursuing narrow selfish ones are inadequate. There has been a clear trajectory of growth and expansion since the mid-1970s, but this has been contingent on landmark political and economic events generated by others that altered its structure of incentives, opportunities, and resource availability. A handful of trailblazing studies have outlined some of the military economy’s contours, but this report parses its various components in depth in order to produce an accurate assessment of what drives each and of its positive contributions and negative impacts.8 By enabling a more nuanced understanding of how and why the military economy has arrived at its present shape, the comprehensive and detailed anatomy provided here can inform policy proposals to contain, reverse, and ultimately dismantle those elements that go beyond the strict needs of maintaining and upgrading the operational capability of the EAF.

The military economy has clearly grown and expanded since the mid-1970s, but this has been contingent on landmark political and economic events that altered the structure of incentives, opportunities, and resource availability.

A Sense of Proportion: Ownership, Control, and Influence

Despite its visibility and much self-promotion, the military economy does considerably less than either its representatives or its detractors claim. Even now, halfway into its seventh decade and following several years of accelerated expansion, it still accounts for a small share of the national economy. Estimates that the EAF owns or controls 25, 40, or even 60 percent of the economy are often bandied about, but are based on little data and even less systematic analysis. None specify whether they refer to the military share of annual production of goods and services or to assets, and all are highly inflated. Firstly, they confuse three distinct spheres:

  • formally registered, military-owned factories, companies, and farms, whose combined output of military and civilian goods and services is measurably more modest than commonly believed or portrayed, and other military agencies such as the EAF’s Engineering Authority and Megaprojects Department that generate considerably more income from undertaking public works contracts;
  • the much larger number of public sector economic authorities, state-owned enterprises, and private sector firms that are headed by or employ retired EAF officers in management positions, but whose assets and profits do not in fact belong to the military, even though it can influence their business decisions to its benefit; and
  • regulatory jurisdiction to derive income from licensing land use, leasing military and public facilities, highway tolls, levies on mines and quarries, demining, peacekeeping, clearing imports, and similar fee-paying services; and investing in joint ventures with national and international private companies.

When Sisi and defense sector officials estimated the formal military economy varyingly to represent 1.0–1.5 or 1.5–2.0 percent of Egypt’s gross domestic product (GDP) in 2016, they were probably referring to the total value of goods and services produced by all military agencies: the Ministry of Military Production (MOMP), the Arab Organization for Industrialization (AOI), and the MOD and its subordinate agencies.9 It is unclear if these estimates specifically included MOD income from public works contracts implemented or managed by EAF departments, but this is not implausible, since all incoming funds (including extra-budgetary incomings) would be logged in the ministry’s internal books and subsumed under the overall figures provided to the president. In any case, the military has access to significant extra-budgetary income streams and accumulated funds and has come since 2013 to manage a substantial share of public capital expenditure, but its economy is both less extensive and considerably less productive than commonly believed, and certainly far less cost-effective than the military itself portrays.

The percentages cited by Sisi and others therefore appear close to the truth. But even if they are taken only as indicative, they still point to a significant overall value. Estimating Egypt’s GDP is complicated by the sharp devaluations of the Egyptian pound in March and November 2016, but in constant dollar terms the military economy’s share of GDP at that time would have ranged from $3.32 billion to $6.64 billion, using Sisi’s percentages and the figure from the International Monetary Fund (IMF) for nominal GDP of $332 billion in the 2015–2016 fiscal year.10 Indeed, these are significant amounts when the poor performance of pillars of the military economy such as the MOMP and AOI is taken into account. The “big push” of megaprojects assigned to the EAF since 2013 has increased MOD income from management fees and profit margins and consequently raised the military’s overall share of GDP, but probably only by an additional percentage point at most.

Second, inflated estimates confuse ownership, control, and influence. The military owns certain productive and services enterprises outright, legally controls access to factors of production that civilian economic actors need such as land, undertakes or manages various public works and procurements under official government contracts, and disposes of the incomes and surplus funds generated by all the preceding at its sole discretion. Although the net value of military income from sales and fees is not published in full, at least it is quantifiable should access be given to the data. Nonetheless, sufficient detail can be assembled to support the contention made in this report that the net income of the formal military economy cannot exceed a few percentage points of GDP.

Harder to assess is the income that the military derives from more nebulous relationships with public and private sector companies and with governmental economic agencies. Even after nearly three decades of privatization, the legacy of state intervention in the economy and its continued ownership of hundreds of companies and partnership in nearly as many joint ventures have also made it easier for military agencies and retirees to maintain cozy relationships and “sweet deals” across all sectors. Military businesses form joint ventures or feeder arrangements with private companies that gain access to subsidized inputs and protection from possible competitors through such relationships, or for which the military is the single or largest client.11 Military agencies—or their allies in the state bureaucracy and parliament—can manipulate the award of contracts or import licenses and create nontariff barriers tailored to favor specific companies or deny entry to others (especially foreign competitors). The officers’ republic of thousands of retired EAF officers employed in government ministries and economic authorities wields the additional authority to award contracts to military agencies (and to each other).12 And because they remain subject to the military judicial system, they have a strong incentive to ensure that the government bodies and sector companies they head or belong to comply with the military’s expectations.

The picture has shifted somewhat since 2013, as the quickening pace of compulsory takeovers of private firms (most visibly in the media) or the predatory acquisition of equity or board membership in start-ups confirms. But, in most cases, military control is indirect rather than direct, and often should instead be thought of as influence. Various studies have shown that in Egypt political connectivity is the key determinant of the access of companies (both private and public) to contracts and credit and of their overall productivity: with the lion’s share going to politically connected cronies of Mubarak’s son Gamal and his associates in the 2000s, not the military. As pertinently, close relationships between military agencies and favored private companies are mutually beneficial, and cannot be regarded as purely reflecting military control. Furthermore, a significant portion of the benefits gained by military agencies and businesses from relationships with private and public sector companies—including from controlling or influencing their procurement and investment decisions—is subsumed within the declared turnover of the formal military economy. In many respects, the principal beneficiaries of the officers’ republic are the EAF retirees themselves, who secure their sinecures by demonstrating their usefulness but in doing so primarily increase their postretirement incomes.

The third source of inflated estimates of the military economy comes from oversimplifying or misrepresenting the military’s relationship to key assets such as state land. Indeed, this kind of estimate often confuses assets with the income that may be generated from utilizing them, that is, with output or turnover. Much of the commentary asserts that the MOD owns all state land, estimated at 90–95 percent of Egypt’s surface area, but this is simply not true.13 The MOD holds the power to license use of state land, but in fact is one (albeit the most powerful) of several government ministries that have similar regulatory jurisdictions. So although control of land use is indisputably one of the military’s most significant economic advantages—and one of the most detrimental brakes on the general economy and private sector—the actual income derived is not directly proportional to the extent of military control. Nor can it be calculated from an assumed valuation of state land, since this has no meaningful price until it is licensed for economic or residential development and thus turned into real estate: only then does it acquire clear market value, which the military may benefit from, but not capture in whole. Nonetheless, the ability to re-designate military-controlled land has been a major source of income for at least three decades, providing the seed capital for the expansion of military farms since the mid-1980s and the acquisition or launch of new companies since the 1990s and yielding high, speculative gains generally.

Between Preservation, Politics, and Predation

The military economy’s net worth is impossible to quantify, therefore. Indeed, the contradictory figures given at different times by both the minister and official spokesperson of the MOMP for its annual turnover in the period 2014–2017 show that even the military faces problems keeping its own books.14 But in any case, trying to determine the proportion of the Egyptian economy controlled by the military is a red herring. Instead, the more consequential questions are why the military undertakes various economic activities, and what effects that has—good or bad—on Egypt’s economic growth, public services, and private sector development. The answers lie in a fluid mix of three principal drivers: an instinctive, corporate effort by the military to preserve the productive capacity of the defense industry; the striving of senior defense officials to serve the political priorities and goals of the president; and the self-serving responses of various military and civilian actors to capture the opportunities for economic predation opened up by top-level policies and projects in a highly permissive legal and bureaucratic environment.

Sustaining the defense industry built by then president Gamal Abdel Nasser in the 1950s still shapes investment and commercial strategies. Officials frequently recite the mantra that production for civilian markets is merely a means of utilizing excess capacity in military-owned factories. Yet both the MOMP and the National Service Projects Organization, which comes under the MOD, have ambitiously built new facilities, expanded production lines, and broadened their range of goods and services for civilian markets since 2013, belying the argument that they seek only to utilize idle capacity. Defense production is rarely economical unless a country is able to capture a significant share of export markets, which Egypt has completely failed to do. A major impediment in this context is its staggeringly low level of investment in genuine research and development (R&D), which has severely limited absorption of foreign technology, generation of indigenous adaptation and innovation, and increases in local content (consequently keeping value added to a minimum). Reflecting this, the minister for military production admitted that the majority of his ministry’s twenty companies were still making losses in 2018, after several years of claimed surges in production.15 The economic inefficiencies of maintaining the civilian side of the defense industry or expanding it are probably no worse than in comparable public sector companies in Egypt, but result in a similar drain on the state treasury and more dead capital (stranded assets that cannot be salvaged under present or foreseeable economic circumstances).

Serving the president’s political goals is a hallmark of military economic activity under the Sisi administration, and explains the dramatic increase in its scope and scale since 2013. The military’s role in delivering public goods and services, which is highly publicized and extolled, is believed to reinforce political stability and the administration’s domestic legitimacy while demonstrating its credibility to foreign governments and investors. “We mean business” is the intended signal to all audiences, rather than profit-making. The degree of reliance on the military to spearhead this effort is unprecedented, even compared to the Nasser era, but what the Sisi administration does share with all its predecessors, and magnifies, is an overriding technocratic bias that responds to social and economic challenges with engineering solutions and technical fixes.16

Serving the president’s political goals is a hallmark of military economic activity under the Sisi administration, and explains the dramatic increase in its scope and scale since 2013.

The most graphic embodiment of this approach is the enduring fixation on resolving overcrowding in the Nile River valley (and its consequent environmental damage, transport congestion, and loss of agricultural land) by reclaiming land in desert areas and moving the bulk of the population to new settlements there. This thinking has dominated presidential and government thinking for over sixty years, and provided a framework to justify massive investment despite the failure of almost all previous schemes. It has also given rise to an “edifice complex” that Sisi has elevated to new heights with megaprojects such as an expansion of the Suez Canal and a grandiose scheme for an entirely new administrative capital, both of which were placed under military management.17 It does not appear that any of this is instigated by the military, let alone imposed by it—with the possible exception of infrastructure and industrial development in the Suez Canal zone, which the military regards as its economic sinecure. But it is equally evident that the military shares Sisi’s mindset, including his faith in its own engineering and management skills.

Consequently, the military does not visibly object to Sisi’s approach to generating economic growth, which revolves largely around launching a seemingly endless series of construction projects. To the extent that either Sisi or the military thinks conceptually about the economy, if at all, it is assumed to be the sum-total of discrete projects to build highways and bridges, power stations and water treatment plants, desert cities and luxury resorts. There is little grasp in this top-down vision of how markets actually work, or of how to increase productivity and efficiency, generate sustained growth in investment and jobs, and enable genuine private sector development. And there is even less sense of how any of this touches on the lives of the majority of Egyptians, some 60 percent of whom were either poor or vulnerable as of 2019, let alone an inclination to pursue inclusive economic growth strategies or participatory policy development.18

Paradoxically, the technocratic bias of its state leaders and military has taken Egypt in a divergent direction from that described by political scientist Ayesha Siddiqa in Pakistan, where “military governments depend more on technocrats, especially experts in commerce and economics, and on the entrepreneurial class, to earn the bulk of financial resources channeled for military modernization that can be fulfilled from national budgets.”19 Egypt has no shortage of capable technocrats, but the lack of a clear profit motive behind this aspect of military economic activity and ambivalent relations between the military and big business have led to a fundamentally different model that has some noncapitalist aspects and is heavily based on public funding (and borrowing). The contrast is even sharper with Turkey, whose past model of military guardianship the Egyptian military now seeks to emulate, where military-owned civilian companies function wholly along business lines within competitive markets and the defense industry is privately owned and subject to normal commercial logic.20

Not everything the military does in the economic sphere is overweening, damaging, or predatory. Its displacement of the civilian actors that should have been providing public housing and infrastructure compounds the shortcomings of the state apparatus, but can still make a positive contribution. Military engineering agencies moreover appear to deliver good quality, to budget, and on time—although this is far from true across the board, and often hides many costs or significant outstanding dues to civilian contractors. The core problem of the Egyptian economy lies, rather, in how the state functions, itself a reflection of how political power is generated and used. The military is evidently an integral part and a principal beneficiary of this system, and bears a major responsibility for ensuring its survival. But it has been successive presidencies, not the military, that have repeatedly decreed sinking enormous amounts of capital in megaprojects that are often based on false assumptions about expected impacts and returns.

The core problem of the Egyptian economy lies in how the state functions, itself a reflection of how political power is generated and used. The military is evidently an integral part and a principal beneficiary of this system.

The costs could be extremely high. Total government debt (domestic and external) reached an estimated 108.7 percent of GDP by June 2016, a twelve-year high.21 Three years later, national external debt had risen to $106.2 billion, representing 35.1 percent of GDP, and government domestic debt to 4.2 trillion Egyptian pounds (EP), which represents 92.5 percent of GDP).22 The surge of mega- and national projects under the Sisi administration reportedly accounted for 54 percent of the increase in government borrowing from Egyptian banks and foreign lenders between December 2016 and May 2019.23 Public debt service consumed up to 40 percent of the government’s budget, and foreign direct investment was plummeting as of 2019.24

The result is negative economic value added in many politically motivated projects decreed by Sisi and implemented by the military, as the cost of economic capital exceeds its return. Much of this investment represents dead capital, imposing a long-term financial drain and making it harder to pull back and follow a different approach in the future. Four years after it was launched, for example, the new administrative capital is struggling to raise the $58 billion it needs and has seen major foreign investors pull out.25

The military’s central political role since 2011, and especially since the takeover of power in 2013, has made it an enabler of this economic approach. Its empowerment under Sisi may moreover be taking it to the point where it can no longer be extricated from the economy. In addition to the impacts on the national economy, this has major implications for private sector development. While the military’s managerial role in public works and housing projects since 2013 has drawn admiration domestically—including from the private sector firms subcontracted to do the actual work—its expansion into new sectors has prompted accusations of predatory economic behavior. Military entry into sectors such as steel and cement that are both oversaturated and almost fully supplied by private sector companies turns military agencies into direct competitors, for example, while elbowing aside struggling state-owned companies already operating in these sectors, rather than salvaging and making them more profitable. Furthermore, the fact that this entry is linked to providing the needs of military-managed public construction, the overall volume of which is already declining as projects are completed or government funding and foreign investment runs out, threatens to leave the military with additional stranded assets in the form of excessive manufacturing capacity. The military makes good engineers, but bad industrialists and even worse economists.

The military makes good engineers, but bad industrialists and even worse economists.

Whatever drives policymaking by the country’s political leadership and top military command, it provides a context for predation at lower levels of the military economy. The Egyptian state’s complex, indeed labyrinthine legal, regulatory, and administrative system allows considerable discretion and extensive opportunity for insider information-sharing and profiteering, rent-seeking, and capture of informal income streams. The dramatic expansion in scope and scale of the military economy since 2013 may have been intended to serve the president’s political agenda, but it builds on modes of doing business established over the preceding thirty years at least, if not the six and a half decades since the start of the Nasser era. Officer networks have followed in the wake of formal military agencies to muscle into a widening range of sectors, sometimes operating through family members to set up private companies as fronts with the goal of capturing contracts (or winning them in order to sell them on at a profit). This may also help to explain the military’s marked tendency to favor small or medium companies, often unknown, with public works contracts for which they lack the skill and capacity.

The relationship between the formal and informal spheres of the military economy is, for the most part, mutually beneficial. But their complementarity is mostly self-serving rather than adding value to public finances or to the wider economy. Distinguishing the two spheres is nonetheless necessary if they are ever to be prised apart, should the political will to do so materialize. In theory at least, so long as the overall driving forces of the military economy cannot be reduced to predation alone, it should be possible to dismantle and divest those parts of it that do not relate specifically to providing defense needs. But its evolution since 2013 may result in a qualitative transformation—not just a quantitative, linear increase—making it ever harder to dislodge the opportunistic accretions that accumulate and deepen with every passing year. The 2019 constitutional amendment empowering the military to step in when it deems necessary to “protect the constitution and democracy, and safeguard the basic components of the State and its civilian nature, and the people’s gains, and individual rights and freedoms” effectively ensures that its formal economic role and informal extensions also cannot be challenged—unless it decides to do so itself.26

Research Challenges

Researching the Egyptian military economy presents challenges. Financial opacity and poor quality of data complicate estimating important economic indicators such as GDP, while the steady depreciation of the Egyptian pound, which slumped by 200 percent in November 2016, makes it difficult to convert into a U.S. dollar value. (Conversions offered in this report are based on current rather than constant or real dollar rates for the dates indicated. They should be taken as merely indicative, especially when relating to periods of major exchange rate fluctuations.) Besides these problems, compiling and fact-checking is complicated by the very vastness of the state apparatus, which has a complex structure comprising 295 so-called units and 2,449 administrative entities.27 At times, government bodies and information agencies themselves appear confused about not only the proper name of certain units, but even which ministry or public authority they belong to. And when media cite military officials speaking about economic activity, they often use terms interchangeably that in fact have distinct meanings—such as output or production and turnover—or confuse these with net income or profit.

While the military establishment does not publish its financial books, it is not coy about its economic activity. Quite the opposite, officials are keen to tout supposed achievements.

But while the military establishment does not publish its financial books, it is not coy about its economic activity. Quite the opposite, officials are keen to tout supposed achievements. Consequently, this report relies mainly on open-source material, much of it primary: military company websites, the official gazette, business registers, and statements by officials and officers carried in progovernment media. This allowed listing, for example, of all general economic and national authorities, state-owned companies, and privatized former public sector companies with retired EAF officers on their boards of directors, shedding light on their preferred areas of concentration and influence. Qualitative assessment and mapping of informal practices is backed by interviews conducted from 2008 to 2019 with several dozen Egyptians—retired EAF officers, cabinet ministers, representatives, businessmen, economists, journalists, researchers, and activists—and with an additional number of non-Egyptians—foreign diplomats, international financial officials, defense personnel, and analysts. Their names have been withheld for their protection. Taken together, these various sources provide numerous data points from which relationships and the direction of resource flows can be inferred and an overall picture drawn.

Notes

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