The Ministry of Defense represents the second main pillar of the formal military economy, but unlike the loss-making defense industry, it makes a significant contribution to extra-budgetary military funds. Together, the diverse range of departments, agencies, and companies the ministry encompasses provide the EAF with noncombat consumables and services and, increasingly importantly, undertake major public works under contract to government ministries and authorities. These MOD bodies, which include the EAF itself and its affiliated departments, have made tangible contributions in providing diverse civilian goods and services—from highways, bridges, and housing to intermediate chemicals—but at heavy cost. Just how heavy is obscured by the deliberate lack of transparency on the real economics of production, hiding considerable amounts of dead (that is, nonfunctioning) capital and opportunity cost sunk not only in the important white elephant schemes managed by the military but even in sectors that could contribute positively to social and economic development.
Most significant among the economically active MOD bodies are the National Service Projects Organization and the EAF Engineering Authority and Works, Megaprojects, Water, and Survey Departments, which are also backed by the Technical Consultancy Bureau in the Military Technical College. These departments moreover liaise closely with civilian bodies in which the MOD has a direct role by law, most prominently the National Center for Planning State Land Uses, and other major contracting public entities such as the Ministry of Housing’s Central Construction Agency and New Urban Communities Authority. The MOD also comprises half a dozen additional departments that perform economic functions and report directly to it, such as the so-called Mining Sector, as well as several maritime companies, and owns shares in a number of nonmilitary joint stock companies.
MOD-affiliated bodies differ considerably from the defense industry companies and factories belonging to the MOMP and AOI in terms of primary activity and categories of products, but their income-generating activities reveal similar characteristics. They benefit from an enabling regulatory framework of tax and customs exemptions and permission to receive state loans, retain revenues, carry surplus funds over fiscal years (customarily to be deposited and retained in their “special funds”), and hold deposits in commercial banks of their choosing.1 They offer tangible contributions to public infrastructure and lower-income households but also reveal questionable commercial viability in terms of net cost to the treasury and of the quality of goods sold to consumer markets. And rent-seeking officer networks that straddle MOD-linked bodies, state-owned economic enterprises, and general authorities again play a significant role in steering contracts and investments.
The National Service Projects Organization
The NSPO is an economic arm of the MOD but also a significant pillar of the military economy in its own right, listing thirty-five companies by 2019. As the reference in its name suggests, it employs young Egyptian males conducting national military service in the EAF, for terms of between eighteen and thirty-six months depending on educational qualification. The potential labor pool is massive: an estimated 1,551,000 Egyptian males reach the age for military service annually.2 But although Sisi stated in 2015 that the EAF’s intake was around 1 million conscripts, Janes’ Sentinel Security Assessment and the International Institute for Strategic Studies more credibly estimated their number in service at between 220,000 and 410,000 in 2016–2017.3
Founded by Presidential Decree 32 in 1979 “to study and implement works and projects for ministries, [government] authorities, local government, and public sector companies,” the NSPO’s trajectory reflects the evolution of Egypt’s politics and economy.4 Its budget for the 1982–1983 financial year was EP50 million; nearly thirty years later, Major General Mahmoud Nasr, then assistant defense minister for financial affairs, stated that NSPO annual turnover had reached EP6.3 billion ($1.06 billion) in 2011, with net profits since 1990 of EP7.7 billion.5 The NSPO Board of Directors includes the heads of the MOD’s Organization and Administration Authority and Logistics Authority; the ministry’s Financial Authority is believed to supervise the NSPO and monitor its projects.6
A Conscript Economic Army
The NSPO was transformed by then EAF chief of staff Lieutenant General Abdul-Halim Abu-Ghazalah following his appointment as defense minister in March 1981. An ambitious figure, he was promoted by Mubarak to the rank of field marshall and made deputy prime minister in April 1982. Under his direction, the NSPO set up a Food Security Division with the aim of providing much of the EAF’s needs, in particular of livestock and poultry, eggs and dairy products, and bread. According to political scientist Robert Springborg, the NSPO also sought loans from the Principal Bank for Development and Agricultural Credit to prepare conscripts to undertake similar activities upon finishing their military service. In 1986, Abu-Ghazalah also announced that the EAF would organize 30,000 conscripts into development battalions.7 These battalions have been a source of cheap manual labor for both public and private companies undertaking public works projects ever since, working under the EAF Engineering Authority (rather than the NSPO).8
The rapid expansion of the NSPO reflected various factors. In 1986, Abu-Ghazalah and Mubarak claimed that half its earnings were spent on supplementing meager EAF salaries, with the other half going toward clothing, accommodation, and maintenance of equipment.9 The NSPO moreover followed in the footsteps of civilian businessmen who were benefiting from the partial liberalization of trade to invest in food, dairy, macaroni, and bottled water production in this period.10 As was the case for the MOMP’s defense companies and factories, the NSPO also provided an opportunity to replicate the military “old boy” networks and clientilism established in the Nasser era. Much like then EAF commander in chief and defense minister Abdel Hakim Amer, who sat on the Higher Council for Nationalized Enterprises in the 1960s, Abu-Ghazalah chaired the Ministerial Policy Committee starting in 1986, which enabled him to award land to the NSPO for reclamation and cultivation while withholding it from adversaries and to favor EAF retirees joining the private sector and their civilian partners with contracts.11
In any case, by 1986 the NSPO was already estimated to account for almost 5 percent of all housing construction and 18 percent of food production nationwide, which political economist Safinaz Tarouty valued at EP488 million.12 These figures have not been confirmed, and seem excessive for a food production sector estimated to employ 5,000 EAF personnel at the time.13 Nonetheless, the NSPO also started production of macaroni across the country three years later, and subsequently grouped all its pasta factories into a single enterprise. It also set up support facilities such as an automated vegetable wrapping and packing plant.14
Thanks to these activities, NSPO annual turnover grew from EP11 million in 1979 to EP644 million by 1990.15 This enabled a new phase of expansion. Reflecting the commercial opportunities provided by networking between various parts of the military economy and the public sector, the NSPO branched out in 1992 by constructing six gas stations to serve civilian markets, again using conscripts. These stations were brought under a new subsidiary called Wataniyyah in 2002, which subsequently expanded countrywide; the company now claims seventy-one stations.16 Sales of petrol, oil, and lubricants produced by NSPO companies ensure a large profit margin since they are acquired at a discount from refineries in which the General Intelligence Directorate is de facto gatekeeper. Wataniyyah has also sold detergents produced by the EAF’s chemical warfare branch since 2015.17 Following the military takeover in 2013, a former head of the General Authority for Petroleum, which is responsible for supply to civilian markets, complained that “most stations don’t even receive their full quota of petrol, after more fuel was assigned to state gas stations owned by the armed forces.”18 Wataniyyah has diversified following market developments; introduced charging stations for electric vehicles at its stations in 2018, and won government approval to host conversion facilities for dual-fuel vehicles (to use natural gas) in 2019.19
NSPO expansion accelerated during the 1990s, with a continuing primary focus on agribusiness and labor-intensive services. In 1993, it established the National Company for Public Contracting and Procurement, followed a year later by a company producing plastic sheeting, and in 1996 by another producing fruit juices and jams, pickles, and olive oil. Nasr Company for Services and Maintenance (originally named Queen Service) was started in 1998, offering cleaning and sanitation, security, maintenance, and management of equipment and facilities including hotels, heavy haulage, and general procurement services for government and private companies, including supplying and importing food.
As significant was the NSPO’s entry into the land reclamation market. In 1998 it established the Upper Egypt Company for Agro-Industry and Land Reclamation, which produced a range of farming goods. A year later it also established the East Owaynat Land Reclamation Company, which took over 100,000 feddans (42,000 hectares) in the Western Desert from a reclamation project launched in the early 1990s. It subsequently established farms irrigated by underground aquifers to produce cash crops for export to Europe; it claims to have provided the Ministry of Supply with 78,000 tons of wheat in 2015, and has leased land to Egyptian and foreign companies and to local farmers in the area.20 Some experts believe the East Owaynat aquifer may be nonrenewable; the same is true of the Siwa aquifer whose water is marketed by the NSPO’s Safi National Company for Producing and Bottling through twenty-seven outlets countrywide, as well as supplying troops under the U.S. Central Command and the Multinational Force in Sinai.21
As these examples show, the NSPO experienced a growth spurt in the last decade of Mubarak’s rule, mirroring other sectors of the military and civilian economies. Its National Company for Road Construction and Development completed a highway from Cairo to the Red Sea resort of Ain al-Sukhna in 2004; meanwhile, civilian public sector companies such as the Nile General Company for Road Construction built roads and an airport serving NSPO production sites in East Owaynat.22 From 1995 to 2004, the NSPO had also constructed or rehabilitated four museums, twenty-two archeological sites, and 390 schools, and in 2008 it consolidated its pasta production lines under the Queen label. Considerably more important was its construction of the Arish cement plant, which it took over when major civilian competitors balked at the starting price of EP300 million ($54 million) for the project license in 2007.23 By this point, the NSPO had become a holding company, having acquired existing state-owned enterprises—the Arab International Optronics Company and Nasr Company for Intermediate Chemicals—and having set up an elevator company.24
Post-2013: Favored Contractor
The real market value of NSPO output cannot be verified, but according to one source, its closing accounts showed turnover of EP1.63 billion in 2012–2013, with profits of merely EP63 million.25 Whatever the truth, the EAF’s ouster of Morsi in July 2013 opened the way to unbridled growth. Between October 2013 and February 2014, the interim government headed by Hazem el-Beblawi awarded contracts by direct order to the NSPO to fund, build, and maintain two national highways. This included the exclusive right to charge tolls, sell advertising space, and lease land for the next ninety-nine years in the case of the Rod al-Farag corridor around Cairo, and for fifty years on the desert highway between Cairo and Alexandria.26
The Egyptian Armed Forces’ ouster of Mohamed Morsi in July 2013 opened the way to unbridled growth.
The government’s General Authority for Roads, Bridges, and Maritime Transport immediately annulled existing permits of private sector advertising companies in Rod al-Farag, and in July 2014 also ceded the right to license advertising on additional stretches of the road network around Cairo to the NSPO, with which it will split profits for fifty years.27 The NSPO meanwhile increased heavy transport tolls on the Cairo–Alexandria highway by 800 percent; under its leasing arrangement the NSPO will pay the government roughly EP5 million in fees each year, but earn EP800 million annually ($112 million at the time) for the duration of its fifty-year franchise.28 (It is unclear how much of the cost of building and maintaining these and other highways and “national” roads managed by the military will be borne by the state treasury, which is responsible for this under Public Roads Law 84 of 1968.)29
The NSPO went from strength to strength: in 2014–2016 alone it won new contracts by direct order from individual government agencies to install traffic cameras at 250 junctions in Cairo Governorate for EP260 million, build a services complex in Gharbiyyah Governorate for EP240 million, a wastewater treatment plant and two electricity stations in New Heliopolis for EP200 million and EP230 million respectively, and four buildings for the Matrouh branch of Alexandria University valued at EP346 million, and renovate the great pyramids site near Cairo for a modest EP20 million.30 The NSPO also partnered with the Ayadi Company for Development and Investment, a state-owned public-private partnership established in March 2014, and the National Agency for Development of Sinai to develop northern Sinai through investments in local industry, agriculture, and other sectors.31 The government meanwhile decreed that operation of 500 kilometers of national roads being constructed by the Housing Ministry’s Central Agency for Construction connecting the Farafra oasis (a focus of military economic activity) at a cost of EP2.275 billion would be awarded on completion to the NSPO, which would levy tolls and run its Wataniyyah service stations.32
The NSPO has also expanded the activity of its security company, Queen Service, founded in 1988 and subsequently renamed Nasr Company for Services and Maintenance.33 Still known by its former name, Queen Service has won numerous protection and service contracts since 2013 from clients including the Cairo subway, state banks, public universities, and government ministries. In late 2013, it won a $600 million contract from a group of Saudi and Arab investors to provide integrated services for hospitals in Egypt. This added to its portfolio of managing services at 250 public hospitals, universities, and other public facilities in the country.34 Since then, Queen Service has been involved in megaprojects run by the EAF, such as the Suez Canal expansion, while expanding its operations to include managing sea and land ports and providing IT and communications services. By January 2015 it claimed 20,000 employees, of whom 5,000 were from the EAF according to company director general, Major General Wasfi Mahmoud Arafeh, although another source claimed it employed 7,500 EAF enlisted personnel and conscripts.35
The NSPO has expanded operations at an accelerating pace as the military economy geared up to generate greater revenue, both feeding into and spinning off similar expansions by other military economic actors. This encompasses increasing capacity in existing ventures and entering new sectors, at times elbowing private companies aside to do so.
Most importantly, in May 2015 the NSPO announced plans for a new production line at its Arish cement plant that would take annual output to 6.4 million tons, and in early 2018 completed a second, larger plant in Beni Suef that boosted its overall capacity to 19.5 million tons.36 From a 3 percent share of the national market, the NSPO jumped to 23 percent, throwing the private companies that account for the rest of the cement sector into serious financial difficulty. It also formed the Egyptian National Petroleum for Exploration and Development Company in 2016 with the aim of “meeting the state’s needs of petroleum and natural gas” and becoming “a leading energy company in the Middle East.”37 This ignored the extensive oversaturation of the sector by public, private, and foreign companies in Egypt (let alone the wider region), but may have been intended to tap into exploitation of Egypt’s massive new Zohr offshore gas field.
The NSPO also positioned itself to benefit from impressive growth in Egypt’s domestic and export markets for industrial chemicals, worth $1.7 billion in 2017.38 In February 2016, its Nasr Intermediate Chemicals Company moreover started construction on what it proclaimed as the “largest factory” in Egypt to supply fertilizer for Sisi’s flagship 1.5-million-feddan land reclamation project.39 A complex of nine new factories belonging to the Nasr Company for Phosphates Industries was also launched in Ain al-Sukhna at the same time. There was no obvious need for this expansion; according to the Ministry of Investment and International Cooperation, there already are twelve major fertilizer producers in Egypt. But the NSPO is doing what it and other military agencies have done in recent years: entered or rapidly expanded in a tradeable commodity sector that enjoys state subsidies and trade protection, even though it has excess capacity, with private producers underutilizing by 30 percent.40 In October 2018, the NSPO joined three other state-owned companies in forming the Egyptian Marketing Company for Phosphate and Fertilizers, which has the declared aim of acting as the “exclusive commercial agent of all phosphate producers in Egypt.”41
The NSPO’s Mining Sector (sometimes presented as the MOD’s) similarly sought to increase its stake. In August 2014, it took a 51 percent stake of the newly established Misr Sinai Development Company that planned to build marble, glass, and cement factories in the peninsula, in partnership with local clans.42 National output of marble and various minerals had reportedly reached 1.4 million tons in 2015, but the NSPO expanded its mining and quarrying activities in Ain al-Sukhna, Ras Seder, al-Mina, and Aswan.43 It placed these under a newly established National Company for Marble and Granite in May 2016, which would seek “optimal exploitation of Egypt’s natural resources . . . and self-sufficiency in meeting the armed forces’ needs of these important strategic raw materials.”44 This company became the NSPO’s partnership vehicle with the Misr Sinai Development Company.45
Bizarrely, the new NSPO company claimed it would break a supposed monopoly in the marble and granite sector while boasting that it was already meeting 70 percent of “the current gap” in supply. That the NSPO was itself acquiring a monopolistic position was highlighted the following year, when it notified its private sector counterparts that it was taking its marble production capacity to 1 million cubic meters annually, or 80 percent of Egypt’s total output.46 In fact, the five marble plants and two granite factories it inaugurated in Beni Suef in 2018 took its production capacity to 3.6 million cubic meters a year, equivalent to 1.44 million tons.47 The NSPO reportedly also assumed the powers of the General Authority for Mineral Wealth to issue entry permits to mineral-rich military zones in the southern border region of Shalateen and to auction minerals extracted there.48
Bizarrely, the NSPO claimed it would break a supposed monopoly in the marble and granite sector, while boasting that it was already meeting 70 percent of “the current gap” in supply.
Separately, the NSPO formed a National Company for Fishery and Aquaculture in 2015, and in late 2017 announced an EP1.7 billion ($107 million) investment in what it proudly claimed was the largest fish farm in the Middle East.49 In parallel, it announced plans to expand the area under cultivation in East Owaynat from 80,000 feddans to 100,000, and in December 2016 established the National Company for Protective Cultivations to expand greenhouse production with the aim of “plugging the gap in domestic food supply” and, contradictorily, increase Egyptian exports at the same time.50 In 2017, it also acquired 25,000 feddans from the Kingdom Agricultural Development Company, originally purchased by Saudi billionaire Al-Waleed bin Talal in 1998.51
That the NSPO was pursuing an aggressive growth strategy cannot be contested. An EP1 billion donation it made to Sisi’s pet Long Live Egypt Fund in 2014 reflected its growing confidence and swelling coffers.52 But media portrayal of military domination of “the markets for water, olive oil, cement, construction, hotels and gasoline”—mostly sectors in which the NSPO was invested—was inaccurate.53 Even a cursory review reveals that its own dramatic claims and ambitious aims should be treated with caution.
For example, even after raising output from 37 million bottles annually to 50 million, the NSPO’s 4–5 percent share of the mineral water market is far from dominant.54 Its declared annual output of eggs reached 120 million as of February 2018, enough to feed every Egyptian just over one egg a year, or every soldier in active service two eggs every three days. NSPO production of pasta is often cited, but overlooked is the fact that its famed Macaroni Queen Company produces only 24,000 tons annually despite a capacity to produce 150,000 tons, which itself represents a mere 1.5 kilograms per capita annually, or under 100 grams per soldier daily.55 The NSPO accounted for a respectable but relatively small 6 percent of Egypt’s total exports of olive products in 2005, while the market share of its Wataniyyah gas stations stood at 4 percent in 2015 (with other government agencies accounting for 54 percent).56 Similarly, East Owaynat, which is presented as “one of largest projects producing strategic crops (wheat, barley, maize),” has been unable to increase the area under cultivation to the advertised target of 100,000 feddans since 2012.57 And despite highlighting its production of edible oils, the country still imported 97 percent of its needs in 2018.58
The NSPO has continued to claim that it primarily aims to provide self-sufficiency for the EAF, despite these modest results and its aggressive expansion into unrelated sectors. Speaking to media in June 2019, the NSPO Director Major General Sabry Abdel-Latif likened its role to the United States’ military PX stores and online sales service and the Navy, Army, and Air Force Institutes serving British armed forces overseas.59 The NSPO has also stated that its food production seeks to “ease the burden on the civilian sector” and is provided at half the cost, but in fact it often pursues this aim by dumping cheaper, imported commodities—such as meat and frozen chicken parts—into domestic markets.60 Then minister of defense Sedki Sobhi had previously told members of parliament that the NSPO imported “large amounts of cooking oil and baby milk,” and Abdel-Latif confirmed that the organization sold both locally grown and imported meat from Sudan.61
Clearly, this served the Sisi administration’s overriding political purpose of keeping prices affordable for its social constituency. In November 2016, for example, Egyptian media reported that he had urged government agencies including the NSPO to increase the number of outlets they ran selling basic food commodities ahead of the planned devaluation of the pound, which was expected to inflate prices.62 (Previous sharp hikes in 2008 and 2010 are believed to have contributed directly to the 2011 revolution.) But although NSPO officials publicly justify its imports as a contribution to fighting inflation and keeping living costs down, critical feedback from some customers indicated that its prices are no cheaper than at Ministry of Agriculture outlets, which rely on Egyptian farmers (and on imports), although other sources state that military (and police) outlets sell at 10 percent below market.63 The NSPO nonetheless expanded its sales capacity fourfold by purchasing 250 food trucks from the AOI in 2016, adding to its existing sixty-one mobile outlets, manned by EAF conscripts.64 Much of its produce is sold at outlets under the NSPO’s “Smile” label; an official representative said it had 193 fixed outlets and 1,029 mobile ones countrywide as of July 2019.65 But it also markets goods through other retailers; its director general claimed it was present at ninety-eight malls, retail branches, and canteens across the country in the same year.66
NSPO involvement in importing basic food commodities obviously alters its overall market share. But its modest share of local production is not insignificant. As the case of cement showed, the NSPO was able to jump from a 3 percent share of national production capacity to 23 percent in a few years; the fact that it enjoyed both a powerful political position and a market for its output in the megaprojects under military management enabled it to pose a serious challenge to the multinational and private Egyptian companies that dominated the sector.67 Reflecting these advantages, the NSPO secured government approval for the award of land to establish new farming and agribusiness ventures in 2018, including 30,000 acres to cultivate olives and produce oil (with Spanish investors) and another 34,000 feddans for greenhouse cultivation to be managed by the National Company for Protective Cultivations it had set up in 2016.68 Sisi sought to reassure farmers in August 2019 that the military’s involvement in agriculture “will not exceed 10–15 percent of the country’s overall projects,” adding that this proportion “is not huge,” but this only underlined the scale of its expansion.69
As importantly, the NSPO has followed other military economic actors in achieving massive increases in turnover by wresting public contracts from competitors rather than by raising productivity. Some of those losing out are private sector companies: Queen Services replaced G4S in providing security at Cairo subway stations, despite charging 10 to 15 percent more.70 But a large majority of the NSPO’s new contracts have come from government agencies and public institutions, or from other military agencies. In December 2015, for example, the head of the MOD’s Megaprojects Department, Major General Karam Salem Mohamed, stated that the NSPO would open a sales outlet to serve workers constructing New Ismailiya City.71 Weeks later, the governor of Faiyoum contracted with the NSPO to set up meat and poultry sales points, a fruit and vegetable processing factory, salt pans, an oil press, and other food production projects in the region.72 The NSPO has continued to pursue this approach, planning in 2019 to build a biscuit factory with the intention of supplying government schools and local markets, acquire two new dairy plants, expand its livestock, and open new Smile supermarkets in desert cities constructed by the New Urban Communities Agency (discussed later).73
The Military as Contractor, Land Agent, and Manager
The contracts given to the NSPO since 2013 were part of a much bigger tranche of public works contracts given to the military, the lion’s share of which went to other MOD departments. The republic’s president, Gamal Abdel Nasser, had deployed individual EAF officers to ensure control of a civil service formed under the monarchy and to kick start large public works such as land reclamation in the 1950s, but his rivalry with defense minister and EAF commander in chief Abdel Ḥakim Amer dissuaded him from using the military as the primary institutional instrument of his major economic initiatives: land reform, Egyptianization of foreign businesses, or nationalization.74
Consequently, the main contours of the military’s formal economic role emerged in the wake of infitah, the limited economic liberalization launched by Sadat in 1974 in order to encourage foreign direct investment, and the 1979 peace treaty with Israel. The MOD benefited from major new influxes of foreign aid, undertook postwar reconstruction in Egypt’s cities and the Suez Canal zone, and was awarded a say in the use of certain categories of state land. It expanded its rent-generating activities and increasingly diversified into other public works and infrastructure projects over the following two decades, acquiring an additional role as a contract broker. These developments laid the basis for the ministry’s remarkable rise since 2013 as the manager of some of the largest public works projects in Egypt’s history.
The MOD’s initial purpose in generating income was to finance minor improvements in service conditions for EAF career personnel, covering food, leisure, and bonuses among other things. Over the years its recreational and service facilities—eventually numbering 574 by 2015, according to an official count—were also opened to middle-class customers—at rates that significantly undercut private sector competitors—with the profits being distributed to officers.75 But the MOD also contributed to public infrastructure, with EAF departments reportedly installing more than 40 percent of new telephone links covered in the government’s five-year development plan for 1982–1986 and constructing power lines, sewers, bridges, and overpasses in Cairo and other cities.76 They were credited in later years with other notable public facilities including the Cairo International Airport road, Aida Opera House, and El Galaa theater.77
MOD finances received a major boost thanks to a substantial increase in foreign military assistance, which offset most of the cost of converting from Soviet to Western hardware. It received initial military assistance of $1.5 billion in 1978–1980, part of a five-year program worth $3 billion, and credit lines worth $2–$4 billion for arms purchases.78 According to the U.S. Arms Control and Disarmament Agency, the value of arms transfers to Egypt in 1983–1987 came to some $7.8 billion.79 Debt forgiveness also played a significant role. A ten-year moratorium imposed by Sadat in 1977 on repayment of $4 billion in military debt to the Soviet Union relieved the MOD until 1987. Egypt then renewed the suspension, despite receiving an additional $340 million in Soviet assistance in 1983–1987, finally settling all its military and civilian debts to Russia in 1994.80
U.S. military assistance initially cost Egypt up to $600 million annually in capital and interest repayments, but it gained similar relief when the United States converted its assistance into grants after 1984.81 The U.S. additionally wrote off $7.1 billion in military debt in 1990 to reward Egyptian support for the U.S.-led intervention against Iraq in Kuwait.82 The U.S. Navy moreover paid above the standard fees that all military ships transiting the Suez Canal must pay, throughout this period and until the present.83
In parallel, $17 billion in Western nonmilitary aid that flowed to Egypt in 1974–1980 went partly into large capital infrastructure projects, including the reconstruction led by the MOD of cities and infrastructure in the Suez Canal zone and elsewhere.84 The MOD is known to have implemented other development projects such as land reclamation using foreign aid in this period, setting a pattern that continues today. It also generated income by renting docking space at seaports to foreign companies bringing heavy machinery or cement into the country, or by requiring them to upgrade port facilities in return for allowing use.85
The MOD still needed disposable capital. It earned an estimated $500 million by selling munitions from EAF inventories to Iraq during its war with Iran, but the real estate market offered a more significant source of income. Sadat set the legal stage for this one week before his assassination in October 1981, by establishing the EAF Land Projects Agency and investing it with the authority to sell or lease EAF facilities and real estate.86 Up to 20 percent of the agency’s income was to be spent on buying armaments, but since foreign assistance covered this need, the main effect was to accelerate MOD accumulation of capital.87
The MOD’s control of land licensing and its forays into dealing have probably provided it with the most significant and lasting of all sources of disposable capital. The development of extensive military zones along the Suez Canal and to the east of Cairo following the 1967 war with Israel had the side effect of granting the MOD a large reserve of land that it could leverage. And the pattern of selling prime real estate in cities that had previously housed EAF facilities or barracks to civilian investors was also initiated under Abu-Ghazalah in the 1980s.88
The Ministry of Defense’s control of land licensing has probably provided it with the most significant and lasting of all sources of disposable capital.
The MOD was therefore ready to take advantage of significant public infrastructure projects in that decade. A foremost example was the ring-road that was to be constructed as part of the Greater Cairo master plan launched in 1981: as Egypt researcher W. D. Dorman has documented, the MOD blocked construction on the eastern arc of the capital, where it had its own scheme to convert military zones into large urban developments (including what later became New Cairo), and where much of urban planning in the interim was absorbed into military and police housing projects.89 The acceleration of work on desert cities, four of which were under way in the 1980s, offered additional opportunities for the MOD to extract payment for allowing use of state land. Military-affiliated bodies such as cooperatives formed by EAF officers and retirees also took advantage by seizing more than their allocated land in these new urban communities.
A lasting pattern was set. As urban researcher Florian Steinberg argued, “the Armed Forces were reluctant to relinquishing land under their control, largely because these lands . . . are expected to yield high, speculative gains.”90 MOD resistance prompted the German development agency GTZ and the World Bank to withdraw funding for projects in the mid-1980s, as Dorman notes, but the potential gain from future commercial sales to civilian users far outweighed such costs. According to one estimate, sale of military real estate in the Suez Canal zone alone amounted to EP1 billion (then $295 million at the official exchange rate) by 1994.91 The MOD also leased or sold land it occupied in Nasr City (a district in Cairo) for commercial and residential uses. Conversely, the MOD occasionally reclaimed real estate it had previously ceded in prime locations—such as the grounds of Egypt’s principal mental health hospital at al-Abbasiyyah—to erect new buildings for its own use.92 The exemption of the MOD and all its affiliate branches and agencies from sales tax in Law 11 of 1991 also helped its accumulation of capital.
White Elephants: Land Reclamation and Desert Cities
EAF involvement in land reclamation and the construction of dozens of new desert cities has offered the MOD a significant source of capital over the decades. Since the establishment of the republic, successive heads of state and senior officials have believed that “horizontal expansion” out of the Nile valley and delta—where 95 percent of the population live on 5 percent of the country’s territory—is necessary to reverse overcrowding and the loss of agricultural land due to urbanization. Presidents from Nasser to Sisi have repeatedly announced grandiose legacy projects aiming to reclaim over 6 million feddans (2.5 million hectares) and engineer the relocation of 20 million or more people to nearly fifty new towns and cities.93 Crucially, these endeavors require massive financial outlays, but despite draining the treasury they have consistently fallen far short of goals, making them quintessential white elephants.
Making the Desert Bloom?
The military played a principal role from the outset and, despite a dismal record, continues to derive significant income streams from implementing or managing schemes intended to bring desert land under cultivation and construct entire cities with their associated infrastructure. The Free Officers assigned EAF engineers to undertake a technical assessment of a major land reclamation project in Tahrir Province soon after deposing the monarchy in 1952. An EAF officer was appointed to head the Tahrir Province Organization in charge of the work in 1961, and another assumed responsibility for all major land reclamation schemes in 1965.94 But these efforts were hobbled by poor soil analysis, low drainage, or high salinity; excessive application of irrigation water; improper maintenance of canals; and very high costs generally—as they still are.95 By 1970 only one-third of reclaimed land produced anything, prompting a halt and deterring Western donors from providing support when the government relaunched a reclamation project in Nubariyyah in 1977.96 The EAF went ahead anyway, but the project again suffered waterlogging and salinization.97
Robert Springborg noted that continuing investment in these schemes reflected “the development of a powerful institutional interest group of former military officers in the land reclamation bureaucracy.” This “provided a real bonanza” during the Nasser era and beyond, as
branches of the civil service and public sector with responsibility for reclamation and utilization of reclaimed land, including the Tahrir Province Organization, the General Organization for Desert Development, and the General Organization for Land Reclamation, were liberally stocked with officers. . . . Who not only had an interest in pressing the government to reclaim ever increasing amounts of land, but also to retain the land under state control, for most of the reclamation companies and public sector organisations under the Ministry of Land Reclamation also had responsibilities for farming the land once it came under the plough.98
John Waterbury separately observed that EAF officers approached the task in the form of a “military campaign,” in which “there was no agricultural strategy, just the [Aswan] dam and land reclamation.”99
Written in 1979 and 1983, Springborg’s and Waterbury’s observations remain true. Major land reclamation was suspended in 1980 (as was U.S. Agency for International Development funding), but it resumed after 1990 (along with support from the International Fund for Agricultural Development) as massive population growth drove urban expansion and loss of prime agricultural land in the Nile valley and delta. The NSPO took on the sizable East Owaynat project in 1998, but a year later the government revived a much larger plan (originally drafted in 1985, and shelved) for two mammoth projects to cultivate desert land, build six new cities, and develop four free-trade zones. Between them, the South Western Development (Egypt’s Southern or New Valley) and northern Sinai Development Projects—known as Toshka and Salam respectively—sought to reclaim 1.4 million feddans (588,000 hectares), create 3.6 million job opportunities, and resettle between 3 million and 6.3 million Egyptians over thirty years. Ultimately, the aim was to disperse the country’s population over 20 percent of its landmass compared to 5 percent, and to help increase the total arable area by up to 44 percent by 2017.100
Crucially, the EAF and MOMP were made responsible for planning and excavation for the new projects. But both stalled: Salam lacked water resources and failed entirely at a cost of “billions,” according to the head of the North Sinai Investors Association, leaving water lifting and pumping stations that had already been constructed in Rafah dilapidated due to non-use; and Toshka was effectively suspended by the mid-2000s due to poor planning and equally inept management.101 Besides, only 3 percent of the 2.8 million feddans estimated by the government to be reclaimable nationwide at the start of the work was first-class and only 20 percent second-class—the remainder comprised coarse and gravelly sandy soils and loams of lower utility.102 But the state budget has continued to make annual allocations to these and nearly a dozen other, smaller reclamation projects ever since. Despite six and a half decades of land reclamation efforts, and even after a canal was constructed to connect Lake Nasser to a number of oases, the cultivated area of Egypt increased by only about 15 percent between 1947 and 2018.103
These white elephant projects have resulted in significant losses for the public purse. The General Authority for Reconstruction Projects and Agricultural Development owed its principal stakeholder, the state-owned National Investment Bank, EP23.5 billion ($3.59 billion) by 2011.104 According to its head, Major General Magdy Amin, the authority was itself owed EP15 billion by various private and public sector companies as of 2013.105 Typical of these was the Ahmad Orabi Land Reclamation Cooperative, whose members were mainly EAF retirees and reportedly did no agricultural work; meanwhile, scores of desert villages constructed by the New Urban Communities Authority (NUCA) remained mostly uninhabited.106 And in 2014, subsidiaries of the public sector Holding Company for Land Reclamation owed EP4.8 billion to the tax authority, banks, insurance companies, and other creditors.107
Undeterred by these failures, dubious land quality, and prohibitive costs, Sisi made reclamation a pillar of the economic road map he announced during his electoral campaign for the presidency. In April 2014, he promised to reclaim a total of 1 million feddans (630,000 hectares) within a mere two years.108 He later raised this to 1.5 million feddans, and stated that it was just the first phase of a 4-million-feddan target. Sisi also revived the Toshka project, even though it had still delivered only 10 percent of its goals by 2012.109 Its original cost estimate of EP6 billion (then $1.76 billion) in 1999 was believed to have reached as much as $70 billion by 2015, although as usual dependable accounts and credible data are hard to come by.110
The project’s original cost estimate of $1.76 billion in 1999 was believed to have reached as much as $70 billion by 2015, although as usual credible data is hard to come by.
Revival of massive land reclamation schemes dovetailed with the effort to woo Gulf investors back to Egypt. Several individuals and companies had previously leased large tracts of land earmarked for agriculture in the Mubarak era, but faced legal challenges after the 2011 revolution on the grounds that they had diverted use from cultivation to real estate development. “Mega farms” in Toshka were advertised during the high-profile economic development conference held in Sharm el-Sheikh in March 2016, for example.111 Additional investments continued to be made, with the Council of Ministers allocating $1 billion to reclaim 181,000 feddans and establish a sugar factory in western Minya in January 2018, for example.112 Waterbury’s wry observation in 1983 remains true: “Nearly anything can be justified in terms of ‘food security,’ and increased production.”113
Predictably, the MOD once again assumed a central role in these various schemes. In 2014, it received a government contract by direct order to reclaim 500,000 feddans in the Paris and Farafra districts of the New Valley, to which the UAE pledged $1.3 billion. To cut labor costs, which are generally estimated to account for half or more of the cost of reclaiming land, the EAF planned to use conscripts and local farmers.114 The NSPO meanwhile undertook a pilot project to reclaim 10,000 feddans, while the EAF Engineering Authority would construct two model villages.115 The MOD has worked closely since then with the General Authority for Reconstruction Projects and Agricultural Development and the Holding Company for Land Reclamation, both of which were headed by EAF retirees, and with the Egyptian Countryside Development Company, a new holding company formed by the government in late 2017.116 And when Sisi expressed dissatisfaction with the pace of implementation of the 1-million-feddan project in May of the same year, he warned that he would instruct the EAF and police to take back land that was not in agricultural use.117
Desert Cities, Dead Capital
Sisi’s 1-million-feddan project was part of a grandiose scheme to build forty-eight new cities and eight airports, taking the overall cost to an estimated $140 billion.118 This was the latest in a long succession of schemes since at least the early 1960s, when planning started to move surplus population from Cairo to four satellite cities that would be built for this purpose in adjacent desert areas.119 Sadat relaunched the effort in 1974, and established NUCA in 1979 to see it through.120 Official data issued by NUCA has been inconsistent, but the targets it published in 1997 and 2004 showed that it aimed to build between 41 and 44 new towns and cities with a population of 6.7–6.8 million.121 However, urban planning consultant David Sims has used figures published by the Central Agency for Public Mobilization and Statistics (CAPMAS) to show that the twenty-three towns and cities built by 2006 had a collective population of only 783,000, instead of what he calculated was the official target of 20.6 million.122 NUCA claimed to have taken the total number of cities built to twenty-seven with a population of 5 million by 2011, but the fact that the Toshka project was originally supposed to attract between 4 and 6 million inhabitants alone revealed how far short these desert cities were falling.123 The authority also stated that it expected to reach a total relocated population of 17 million by 2022, after completing another five planned cities, but industry specialists observed they had once again “failed to attract anywhere close to the numbers of new residents expected” by 2019.124
Indeed, Sims concluded in 2017 that “not a single proclaimed desert development target has been met, and most are several orders of magnitude out of sync.”125 In all the new cities “especially around Cairo,” he noted, “housing and real estate ventures (both public and private) . . . remain stalled, vacant or unexploited for years—no returns, not recirculated, and have little or no utility value.” A few first-generation new communities such as 6 October and New Cairo—the first of which hosts EAF officer housing, while the second was built on land leased from the MOD—have filled up since 2015 as the focus of real estate development has shifted toward the nearby new administrative capital project, but previously had attracted only about one-quarter of their targeted populations.126 Overall, according to Sims, the population of all new cities accounted for only 3.8 percent of Egypt’s total population increase, or roughly one-third the rate needed to start reversing overcrowding.127
The result is what economists call dead capital on an extensive scale. In 2016, the Central Accounting Organization estimated total losses to Egypt arising from corruption, mismanagement, and lost income relating to new urban communities at EP880 billion (this covered a six-year period of repeated currency devaluations, so a dollar conversion is impractical).128 The accuracy of the methodology used was questionable, but even if sharply discounted the findings indicate major problems. Yet heads of the Egyptian state and powerful institutional actors have persisted for over six decades in reclaiming land and building cities in desert areas. One reason is that “large segments now have important stakes—not just corporate elites but also government employees and small investors and millions working in the Gulf.”129 As if to confirm this, the “Egypt Property” roadshow organized by Tawasol for Public Relations, a subsidiary of Falcon Group International, a private security firm with close ties to Military Intelligence, pitched the three exhibitions it held in 2017–2019 to Egyptian expatriates in the United Arab Emirates and the United Kingdom.130
But as important are the military interests embodied in white elephant schemes, which Springborg identified several decades ago. For example, the more successful new industrial zones have centered on Alexandria, Port Said, and Ismailiya, where the military economy already has multiple, overlapping investments and public works contracts. Planned cities outside the Nile valley and delta were developed as standalone clusters, an analyst working for the American-Egyptian Chamber of Commerce noted in 2016, with little thought given to public transport or existing railroads.131 But this has offered military economic agencies opportunities to undertake massive road construction contracts that connect Cairo and other main cities with these investment areas, including EAF-managed land reclamation schemes, but that serve no other purpose. With these exceptions, however, what is most noticeable about the spatial distribution of existing new cities and those planned until 2052 is that only two may properly be said to lie in desert areas; about half a dozen are pitched as coastal idylls for the affluent, with all the rest lying on the edge of the Nile valley or in the delta.
The same is true of water supply and waste treatment, both sectors in which the MOD and MOMP and their affiliates are active.132 Most of the land reclamation schemes and desert cities rely on carrying water in canals across hundreds of kilometers or on extraction from underground aquifers, a significant portion of which are nonrenewable. Toshka depended on lifting billions of cubic meters from Lake Nasser in a 240-kilometer canal, for example, while the Salam scheme in Sinai depended on transporting water from the Nile through tunnels under the Suez Canal.133 Conversely, Sisi’s 1-million-feddan scheme takes 88.5 percent of its water needs from underground sources and only 11.5 percent from the Nile River.134 In 2015, the government allocated EP6 billion ($692 million) to drill more than 5,000 wells in the Western Desert to tap into aquifers, much of it implemented or managed by the EAF’s Engineering Authority in what national media dubbed a “miracle that will irrigate 7 million feddans.”135
An additional problem lay in the heavy cost of pumping water to elevated locations such as Toshka or remote locations such as Sinai. Building a pumping station for this purpose in 2005 came to $436 million, besides a projected cost of EP4.5 billion to construct the main carrier canal and branches; with fuel costs, the outlay of delivering water alone came to EP11,100 per feddan.136 Nonetheless, Sisi’s relaunch of work in Toshka as part of his 1-million-feddan scheme gave new impetus to military business such as the AOI’s Kader factory, which manufactured water pumps for Toshka in 2016 and imported other irrigation equipment at a cost of some EP500 million a year later.137 And as a former World Bank director for Egypt notes, even after incurring the costs, improving soil quality sufficiently to grow a simple grass cover could take five years or more.138
Diversification and Synergy
Parallel to land reclamation and water carrying schemes, the MOD undertook a widening and increasingly diverse range of government-funded construction and management projects from the mid- or late 1990s onward. Like any big company accumulating capital, business know-how, and market access, the MOD moreover sought synergies between its different arms and activities. The EAF Engineering Authority and Works, Megaprojects, Water, and Survey Departments constructed highways and bridges, sanitation or water treatment facilities, and social housing; undertook or oversaw urban slum development; delivered other public works (such as stadiums, bakeries and slaughterhouses, schools, clinics, leisure and social centers, and government facilities like courthouses); and removed unlicensed encroachments on the Nile River and ancillary irrigation canals or ditches and on desert lands, especially around land reclamation schemes and new cities.
In many cases the EAF proudly labeled deliverables such as bridges as “gifts of the Armed Forces to the Egyptian people,” but most, if not all, were in fact financed by public funds.139 The government was effectively awarding contracts to the MOD to implement or manage projects that would normally be done by civilian agencies (ministries of public works and housing, so-called general authorities and national authorities, and municipalities). EAF media have moreover not been above claiming successful commercial ventures by private sector firms in military-managed investment zones as the armed forces’ own.140
Larger public works often served the MOD’s commercial interests as well, not least in food production and trade. Speaking to reporters in early 2015, for example, an unidentified military source stressed the importance of what he claimed were many Nile anchorages constructed by the EAF to stimulate tourism and trade exchange between Egypt and neighboring Sudan.141 Though he related this to achieving “comprehensive development” for the country, it also facilitated the import of livestock and other agricultural products from Sudan, a lucrative trade in which MOD agencies, EAF departments, and the NSPO are involved. As with other public works contracts or commercial activities, this dovetailed with companies headed by EAF retirees such as the joint stock Masria Company for Wholesale Trade, headed by a retired EAG major general, that also imports fresh meat and live animals from Sudan.142
The MOD had already established some of the infrastructure for trade activity with the acquisition of the United Packaging Company (1995), the SEMAF railway company (2004, transferred to the AOI), and Alexandria shipyard, which builds river transport barges (2007).143 At the start of 2014, the EAF invested EP7 billion (some $930 million) of its own funds in linking the so-called Desert and Oases highways, serving its land reclamation schemes in the New Valley.144 Similar motives may have prompted MOD involvement in 2004 in the construction of the highway to Ain al-Sukhna, originally a private seaport that has become the focal point for major military economic projects and foreign investment in industry and infrastructure. The pattern has been replicated since then with development of the Sohag International Airport and Port of Hurghada, again along the Red Sea littoral where the EAF is extensively invested in tourism and real estate as well as in external trade. The same is again true of the development of the Alexandria saltpans and of licensing of land use and provision of infrastructure for major tourist resort development on Egypt’s northern coast prior to 2011—with new highways added to connect them in 2015.145
The focus on major publicly funded infrastructure projects in the Red Sea zone also served the EAF’s strategic military deployment. The same is true of its involvement in the construction of new highways in South and North Sinai, which aid operations against the insurgency ongoing there for nearly a decade. An Israeli study published by the Jerusalem Institute for Strategic Studies in January 2018 argued that, while new infrastructure is primarily intended for civilian development, it also reinforces the EAF’s deployment capability by increasing the number of hardened air shelters and runways, protected fuel and ammunition stores, dumps, and improved road movement east of Cairo and on the Sinai Peninsula.146
The MOD has long used the national security argument to assert an almost exclusive right to undertake or lead development of civilian infrastructure and socioeconomic development projects in Sinai.
Whatever portion of the public works undertaken by the EAF are intended for military purposes, the MOD has long used the national security argument to assert an almost exclusive right to undertake or lead development of civilian infrastructure and socioeconomic development projects in Sinai, assuring it of continued access to public contracts. In late 2013, for example, the interim government that was formed after the military takeover allocated EP2.7 billion (then $380 million) for development and EP527 million for housing in Sinai. The contracts were awarded—by direct order, as usual—to the EAF Engineering Authority.147 In August 2015, Sisi announced that the EAF would take the lead in building new cities in the peninsula, and in March 2016 Saudi Arabia committed $1.5 billion to finance agricultural development projects and residential complexes including hospitals and schools in the region.148
Cashing in on Strategic Zones
As the preceding examples show, the MOD has been able to derive considerable income from portraying its mission and the public projects it undertakes as “strategic.” Backing this is the extensive authority it has been granted over the use of state land in wide areas of the country during the past four decades. Law 38 of 1977 already required tourism agencies to obtain MOD permission in order to operate in border areas, which included the country’s coasts, a principal tourist destination.149 Presidential Decree 143 of 1981 expanded this requirement to include all “desert land,” that is, any area not previously registered in cadastral surveys as zimam—owned by legal persons or entities, public or private, and subject to real estate tax.150 This encompassed an estimated 90–95 percent of Egypt’s total surface area.
The MOD’s prerogative regarding land use was significantly expanded by Presidential Decree 152 of 2001.151 This designated “strategic areas of military importance in desert land,” and set out criteria that had to be met by any civilian agency or person seeking to undertake construction or other activity—whether over or under the ground, along roads, or off the shores of seas and lakes—within the vicinity of military installations. In effect, the decree also granted the MOD discretion to designate land for commercial use.152 The location of strategic areas was to be determined by the MOD, which would also specify the distances to be maintained from their perimeters by new civilian construction, the permissible heights of structures built in the vicinity, and the technical specifications for waste-producing activities (solid, gaseous, or effluent) undertaken nearby.
Contrary to widespread assumption, these laws conferred neither ownership (mulkiyya) nor possession (hiyaza) of land on the MOD, but control of land use. Construction or development of any kind on desert land—whether residential, industrial, agricultural, or relating to services and infrastructure, either privately or publicly owned—can only be undertaken with the permission of the MOD and other ministries (including agriculture, antiquities, and petroleum). In 2006, for example, the World Bank reported the typical case of a large investor group that had been waiting for twelve years to obtain all the clearances needed to register its property; the New Urban Communities Authority, which is heavily dominated by retired EAF officers and works closely with military economic entities, also delayed the transfer of some plots of land, demanded a sharp increase of the original price, and eventually awarded the land to competing investors.153
Crucially, although the designation of any land as a strategic area was to be ratified by presidential decree, the maps showing their precise coordinates are kept secret on grounds of national security. It is unclear whether specific areas were in fact demarcated in this way, or if the decree acts as a catch-all that may be invoked at any time and applied retroactively. This has permitted the MOD enormous leeway to claim that land for which approval is sought for a civilian venture lies in a strategic area without having to present further evidence. It is aided by the fact that a large proportion of privately owned land remains unregistered and untitled—one 2004 study estimated this applied to 92 percent of property owners—enabling the EAF routinely to take over what are claimed to be illegal encroachments.154
Businessmen confirm that they have regularly been asked to donate to the EAF fund in return for receiving permission to register land or change its use since 2001, or to pay outright bribes.155 Applications are often made to local EAF commanders rather than exclusively to a qualified department of the MOD—let alone from the Ministry of Trade and Industry or Ministry of Finance—creating opportunities to demand bribes, especially from smaller businesses, but also from government ministries. Sometimes permits must be obtained from separate EAF branches: for example, the Air Force determines whether the height of structures might affect “air use.” Egyptian businessman Naguib Sawiris stated publicly during questioning over his large mobile telephone venture in 2011 that the EAF was “one of the many authorities that have to approve setting up masts.”156
Coming on the eve of a massive speculative boom in real estate markets, Presidential Decree 152 of 2001 was a boon. The MOD charged for permitting private sector companies to build luxury residences and upmarket tourist resorts along the coast, for example. Urban sociologist Mona Abaza noted that in the subsequent period, sea resorts “multipl[ied] wildly all along the North Coast and the Red Sea, in spite of the countless run-down, failed resorts constructed during the past decades that look like war ruins.”157 The MOD also capitalized on megaprojects such as the development of the affluent New Cairo extension of the capital, much of which was built on land held by the military and sold in opaque deals to investors and development tycoons.158 The head of the MOD’s Financial Authority later claimed that it only took payment when it had to “move a battalion or find an alternative training ground for its activities,” but there is little to suggest this was really the norm.159
The MOD also exploited its legal prerogative in other ways. As Egyptian journalist Ahmed Abouleinein has reported, it charges investors to verify that the land they are acquiring is free of mines and other military ordnance.160 More importantly, private companies operating in remote areas after 2001, both domestic and foreign, were entirely dependent on MOD permission to bring in machinery, materials, and labor as well as food, water, and other supplies. This was especially true in high-value sectors such as oil and gas, which were almost entirely located in desert areas already allocated for military use or that could be designated as strategic.
An energy exploration company working in the Western Desert in the 2000s, for example, was compelled to contract the EAF to arrange stevedoring and customs clearance for its imports and to transport its heavy equipment, and to use the EAF’s civilian contractors as its own main suppliers of food, safety gear, and other equipment.161 An administrator in the company recalled that the EAF
controlled how many foreign staff we were allowed to bring in, but the liaison officer would add, say, 10 percent informally in return for under-the-table cash payments. But our big issue was low productivity of Egyptian labor, especially [during] Ramadan, so we always demanded permission for big increases in manpower—the army officer would say there was not enough labor locally, but offered his soldiers, who were far more disciplined and productive. The officer would get paid—I don’t know where the money went, but it was always in cash.162
The same administrator had to deal with “a young lieutenant, who was more powerful than a brigadier because he was the son of a minister, who had a complete monopoly on the delivery of any and all materials we needed for construction and so on. He was in effect a sub-sub-subcontractor!” Other EAF officers stationed in the area took advantage by running protection rackets, charging under-the-table fees to ensure that trucks and tankers bringing in food and water were not stopped or robbed by local clans, with whom they may have colluded.
MOD control over land use and direct access to inside information about zoning and development plans have led to other illicit practices. Officers and their families and friends have repeatedly profited from buying desert land at rock bottom prices in areas where mammoth infrastructural or residential developments are planned, and then selling once it became prime real estate. A civil servant recounted, “A military friend tried to get me to buy some land with him in the region near al-Sukhna highway known as the Fifth Grouping at 50 piastres a meter [in the early 2000s] because he knew where new roads and towns would be built,” adding “I declined, but later the value of the land rose enormously.”163 The son of a former EAF officer was offered the opportunity to buy land in the same area “for only $2,000 down payment; this eventually became part of a deluxe officer residential complex worth millions.”164 Both Mubarak and the EAF command tolerated speculation as a means of ensuring loyalty.
“By Direct Order”: The MOD as Contractor
The award of increasingly large and ambitious public works contracts to EAF departments suggests that the armed forces has considerable capacity to design, implement, and service projects, and all to a high standard. The sheer quantity and growing diversity of projects entrusted to it or for which it claimed credit in the fifteen-odd years prior to 2013 seem to confirm this too. The EAF enjoys a very high media profile, which it promotes assiduously. But a more careful review shows that its capacity to implement this volume of public works is far more limited. Rather, it assumes the role of manager for most publicly funded projects, securing government contracts and then overseeing their implementation by private subcontractors. This is routinely justified on the grounds that the EAF assures punctual delivery and efficiency, but detailed data demonstrating cost-effectiveness has never been published. Indeed, while the EAF does deliver on time in many cases, this is mostly true of smaller projects; but several mammoth projects it manages have never been completed.
The award of increasingly ambitious contracts to the armed forces suggests it has capacity to design, implement, and service projects. But a more careful review shows that its capacity is far more limited.
Subcontracting moreover undermines claims that the EAF delivers at substantially lower cost than domestic or foreign private sector companies, since it is generally the latter that do the actual work, for which they seek to charge market rates. The EAF has moreover only ensured punctuality by driving up costs, which it passes on to the state treasury or offsets by compelling Egyptian subcontractors (in contrast to foreign companies) to absorb losses or to work for free, even on large projects. The head of Amlaak Holdings, a medium-sized business with 500 employees, revealed the scale of this practice when he complained in August 2019 of being unable to reclaim EP220 million ($13.3 million) from the MOD for construction work on a series of buildings including the presidential palace in New Alamein.165 He also noted that his and other construction companies were not compensated for losses resulting from the devaluation of the Egyptian pound, which affected orders they had already placed to import equipment and materials, and that they had been compelled to build villas for Sisi and EAF commanders.
According to the EAF Engineering Authority, it implemented 473 strategic and service projects between 2012 and 2014.166 But in the next two years up to June 2016, it reportedly undertook 1,737 projects, an increase of 367 percent.167 However, of the projects that were not delivered by private subcontractors, a vast majority were small, including classrooms and clinics in rural areas or small water treatment plants and involving only basic design and execution.168
More sizable projects requiring complex administrative capabilities and technical skills were assigned to private companies, accounting for the bulk of the EP7 billion (then $1 billion) in contracts awarded to the EAF by the government in September–November 2013. This even included contracts to construct military facilities; for example, the EAF awarded the National Real Estate Bank for Development, which is headed by an EAF retiree, contracts worth EP209 million in 2012 and 2013.169 Noha Bakr, assistant to the minister of international cooperation, later explained that “projects are implemented by civil subcontractors . . . while the military as the main contractor has the role of monitoring and auditing the quality and time frame of the implementation.”170 Then minister of local development Adel Labib confirmed this view when awarding an EP2 billion contract to the EAF to improve urban slums in Cairo, arguing this would “ensure they would be accomplished promptly and accurately.”171
Not surprisingly, EAF officers also regard military project management as superior. For example, Major General Mohammad Mukhtar Qandil, formerly head of the Ministry of Housing’s Central Construction Agency in Sinai, noted that government schemes in the region were typically planned hastily, with monitoring dispersed excessively among multiple ministries and governorates, and argued that management of complex schemes “should be like armies that have a command to coordinate combined services and mutual support.” He proposed that coordination “be merged into a single ministry of monitoring and follow-up as some European states do,” but it is easy to see why others view the EAF, rather than a government ministry, as the body naturally qualified for the role.172
Even the short-lived administration of the Muslim Brotherhood bought into this discourse, at least outwardly. When the government of then prime minister Hesham Qandil allocated EP4.4 billion to development in Sinai, it assigned responsibility to the EAF. This may simply have reflected pragmatic realization that the EAF would block any civilian program that did not go through it in a zone it claimed as its exclusive security domain, but in public the government cited its desire for speed and efficiency, claiming it sought implementation in six to nine months.173
Again, the actual record is considerably more mixed. In the early 2000s, arguing that the EAF could deliver at half cost, then minister of defense Field Marshal Mohamed Hussein Tantawi wrested the contract to construct the Ain al-Sukhna highway from the Spanish company to which it had been awarded. But this reasoning overlooked the EAF’s access to virtually free conscript labor, exemption from customs duties on imports, state subsidies on fuel and energy, and tax-free status.174 The net savings to the public purse were unproven, and likely to be modest at best if not negative. Yet this argument has been made countless times since then to deflect inspection of military claims, let alone project books.
An Emerging Management Role
The sharp upswing in the scope and scale of contracts awarded to the MOD after July 2013 similarly disregarded real economics and performance. This was evident in the effort to tackle Egypt’s acute housing crisis, for example, where between 15 and 50 percent of the population are estimated to live in ashwaiyat, informal housing including squatting on public or privately owned lands and unlawful urbanization of agricultural lands, without basic infrastructure or public services.175 The housing shortage was estimated at 3.5 million units in 2014, and growing by 250,000 units every year.176 According to the head of the EAF Engineering Authority in 2011, Major General Kamel al-Wazir, then SCAF head and acting president Tantawi ordered “all sixty civilian companies belonging to the EAF to implement housing projects” in recognition of the seriousness and extent of the problem. Kamel said that Tantawi reasoned that “since the EAF is not busy with the main task of waging war, it can devote itself to other things in peacetime . . . this additionally offers advanced, realistic, and practical training for the army’s Engineering Authority that specializes in these tasks.”177
The government’s previous track record in delivering new housing was poor, but the MOD quickly found itself in a similar position. A mass housing scheme launched by Mubarak during his reelection campaign in 2005 delivered less than half its target of 1 million units over the following six years, for example.178 In 2011, the Ministry of Housing’s Central Construction Agency, which is heavily dominated by retired EAF engineers, undertook to build 1 million social housing units in five years; the MOD committed to build 20,000 units, and announced a donation of EP2 billion ($336 million) to the scheme from its own funds.179 Noticeably, the EAF did more than commit to build housing; it additionally coordinated pricing with the Ministry of Housing.180
Similar political calculations prompted Sisi to announce in March 2014 that the MOD would cooperate with the UAE’s Arabtec construction company to build 1 million residential units—partly aimed at youth and low-income groups—at a cost of $40 billion over five years.181 The official military spokesperson boasted that businessmen had “answered the call of the army” to invest, and the “whole budget was already covered.”182 The claim was specious, and these schemes again proved overly ambitious.183 Arabtec withdrew due to disputes with the EAF over the proportion of housing for low- and middle-income groups and over profit-sharing. According to an insider business source, “Arabtec apparently balked at EAF demands to hire Egyptian labor and buy Egyptian materials.”184 Arabtec was replaced by the Ministry of Housing, which lacked the funds to proceed. Meanwhile the EAF fell short on its smaller contracts. It was committed to build an additional 150,000 government-funded social housing units,185 but by the start of 2015 had completed only 7,500 and started work on another 50,000 (with separate UAE funding), none of which had been delivered to intended beneficiaries.186
Clearly the EAF would have been incapable of averaging the 200,000 units a year needed to meet the Arabtec project targets had it gone ahead or, if it had, of remaining within budget. But political factors, not performance, determined awarding major contracts to the EAF. The armed forces anchored the new regime that took form after July 2013, and Sisi depended on them more heavily than on any other state agency or element of his ruling coalition to deliver badly needed economic goals and underpin his policy initiatives in other domains.
Political factors, not performance, determined awarding major contracts to the armed forces, which anchored the new regime. Sisi depended on them to deliver badly needed economic goals and underpin his policy initiatives.
Reflecting this overriding goal, the interim government of then prime minister Hazem el-Beblawi awarded contracts by direct order to the MOD worth over EP7 billion ($1 billion) by November. The MOD also managed projects from nongovernment sources. The Federation of Egyptian Banks stated that its members had spent approximately EP1 billion on slum development between 2011 and 2014, and allocated a further EP300 million in 2014 for projects to be handled by the EAF Engineering Authority under the supervision of businessman Hussein Sabour (who had overseen U.S. foreign military funding to Egypt in the 1980s and 1990s).187 The EAF also found itself managing projects funded at least in part by foreign aid agencies, replicating the pattern established in the 1980s; for example, the World Bank extended Egypt a $500 million loan for social housing projects in 2015.188
Further contracts followed in rapid succession. According to one account, by the end of 2014 these included over EP4.7 billion ($660 million) for maintenance of roads and bridges, EP3.2 billion for development and housing in Sinai, EP2 billion for slum regeneration, and some EP960 million for assorted building projects including hospitals, schools, bridges, traffic lights, bakeries, and administrative centers—nearly EP11 billion ($1.53 billion) in total.189 This was besides projects for national highways and roads in new cities—again awarded by direct order—with a total value of EP14.76 billion (then just over $2 billion)—bringing the cumulative value of all public works contracts to the EAF to date since July 2013 to EP25.7 billion.190 Amendments to Law 89 of 1998 on bids and tenders decreed by interim president Adly Mansour in June 2014 reinforced the trend by raising the threshold for government agencies to award contracts without open bidding, preventing third-party legal challenges to public contracts, and effectively releasing the MOD, AOI, and MOMP and their affiliated agencies, departments, and subsidiaries from any preset thresholds.
The Suez Canal: A New Economic Horizon
The amendment of Law 89 turned the MOD into a principal economic broker in its own right. This was demonstrated immediately when Sisi announced a plan to expand the Suez Canal in August. The expansion will be discussed in Chapter 6, but the canal zone had already long been a sinecure for the military, which has consistently used the national security argument to assert a deciding say in any civilian activity undertaken in a wide corridor on either side of the canal. Retired Navy admirals have for decades headed the Suez Canal Authority (SCA), and dominate its subsidiary agencies and companies and a majority of the forty-three ports along the 2,420 kilometers (1,512 miles) of Egypt’s coastline.191 Service and support facilities for transit shipping moreover provide secure contracts for MOD-owned facilities such as the Alexandria shipyard, as well as for numerous private companies with military ties. Last but not least, the MOD is believed to levy an off-the-books percentage from the canal’s income from international shipping fees, which averaged between $400 million and nearly $500 million a month in 2014–2019.192
This is why the MOD objected vehemently when then president Morsi announced the launch of a Suez Economic Development Corridor project in March 2013, building on long-standing proposals to develop the zone and attract foreign investment. The fact that he had not consulted the ministry beforehand, coupled with the swiftness with which he initialed agreements with India to invest in the corridor and other sectors, alarmed the military.193 His plan to expand the 193-kilometer-long zone to include the Gulf of Suez moreover prompted accusations that he intended to create an independent “Suez region” that would be attached to Sinai and eventually separated from Egypt.194 This was pure fabrication, but Morsi’s creation of a new authority attached to the presidency to oversee the whole enterprise credibly threatened to sideline the SCA and challenged the MOD’s effective suzerainty in the canal zone.
The MOD’s first response was to warn publicly that it would not permit the project to proceed without its review and approval, nor allow use of land designated for military purposes. Other land in the zone could be used (intifa), but not sold, if it did not affect national security, and any contracts reached with foreign companies would have to exclusively come under Egyptian, not international law.195 Ostensibly, the MOD was merely upholding the 1981 and 2001 presidential decrees on desert land and strategic areas, and acting “to ensure that the national security of the state is not harmed.”196 But as political scientist Shana Marshall has noted, the EAF aspired to turn the canal zone into “a major logistics hub and center of heavy manufacturing” of its own, and to contract military companies to construct and equip industrial and energy-generating projects and provide services to shipping.197
The EAF moved swiftly to protect its stake. It publicly reasserted its authority to determine policy and regulatory frameworks in the canal zone and then proposed draft implementation statutes for the law establishing a new Suez Canal Development Authority.198 These limited permissible development to areas in which existing projects were already being implemented, required 55 percent Egyptian ownership in joint ventures operating in the zone, and made new projects subject to cabinet approval. The latter clause effectively enabled the MOD to veto anything that threatened what it deemed in the national—and therefore its own—interest.199 The MOD also refuted the president’s power to designate use of state land within the proposed authority’s jurisdiction, while explicitly denying the latter control over “land in strategic areas that has military importance and land designated to or owned by the MOD and its agencies.” For good measure, the draft added the heads of the National Agency for Development of Sinai—headed by a former EAF general—and National Center for State Land Uses—by law, headed by a MOD appointee and therefore always a general—to the authority’s governing board.200
A partial retreat by the Morsi administration seemed to resolve the dispute, and in mid-May 2013, members of the Supreme Council of the Armed Forces declared that the revised development plan satisfied national security needs.201 But the EAF had already reached the conclusion that it could not coexist with the Muslim Brotherhood in March, suggesting that in its view the dispute over the Suez Economic Development Corridor had been the last straw.202 It ousted Morsi on July 3, and Sisi was elected president in May 2014; on August 5, he assigned management of the Suez Canal expansion project to the MOD.
Ministry of Defense: The Heart of Military Inc.
EAF operational departments and the NSPO are clearly more significant in terms of economic scope and scale, but other MOD agencies also serve an additional, if secondary, income-generating role. Much of their operation revolves around procurement of military needs—from food and gear to weapons and other combat equipment—an area identified by Transparency International’s Government Defense Anticorruption Index as being at “critical” risk of financial fraud.203 The MOD also owns a few companies that it has sought, somewhat inconsistently, to promote commercially, in addition to shares in a number of civilian companies. MOD agencies and companies moreover reveal the related role of informal officer networks embedded in these agencies and in many of their public sector civilian counterparts, through which insider information is exchanged and private profits are assured.
Then president Sadat signaled the economic function of MOD agencies by establishing a General Economic Company of the Armed Forces in 1977.204 However, it remained inactive until April 1981, when its workforce and assets were transferred to the newly created General Services Agency (GSA) that had the task of providing “all economic services at appropriate prices to EAF units and personnel and their families.”205 At some point in the 1990s, the GSA was designated as an “economic general authority” in accordance with Law 11 of 1979; this made its budget independent of both the general state budget and the defense budget, but most importantly allowed the GSA to cover its deficits and receive additional transfers directly from the state treasury.206
The GSA helps maintain the support of EAF personnel and their large social constituency for the incumbent administration. It runs consumer cooperatives (military commissaries) under the “Sun” label, comprising twenty malls, seventeen supermarkets, and six branches countrywide as of 2019 (EAF branches run an additional fifty-five).207 Active, reserve, retired, and honorary EAF personnel as well as conscripts and civilian employees of the defense sector may use discount vouchers to buy domestically produced and imported goods—the latter already subsidized by virtue of being exempt from customs duties.208 Its starting budget of EP45 million in 1982 passed the EP500 million mark in the 2010–2011 fiscal year.209 Reflecting its political importance, the GSA’s budget was increased by almost 50 percent following the military takeover in July 2013, going from EP679 million ($98 million) in the 2013–2014 budget that had been approved by Morsi before his ouster to EP1 billion in 2014–2015.210 As the Egyptian pound devalued over the next two years, the budget inflated to EP2 billion for 2016–2017.211
The MOD’s Logistics and Supply Authority is also involved in the purchase and distribution of basic commodities, especially food, mostly for the EAF but also for civilian markets. It fulfils EAF needs of food and bread, transport and fuel, uniforms and personal gear, publications, medical services, veterinary services, and firefighting and rescue services.212 Boundaries are blurred between the authority and the NSPO, as MOD officials and EAF commanders commonly credit both with the same activities. These include food production and packaging, as well as running military bakeries.213 Both the General Services Agency and the Logistics and Supply Authority have imported basic food commodities—such as meat and poultry, sugar, and rice—when hoarding by civilian traders and price rises have generated shortages in domestic markets.
The Ministry of Defense’s Logistics and Supply Authority is involved in the purchase and distribution of basic commodities, especially food, mostly for the armed forces but also for civilian markets.
The Logistics and Supply Authority has also expanded income-generating activities in its own right. Its Publications Department was expanded to launch commercial operations as early as 2001; in early 2016 it competed directly with local small businesses by opening a large modern printing press in Ismailiya.214 It probably generates more lucrative income from the procurement and sale of food, equipment, and services such as handling and transport. It may also be the MOD agency in charge of the sale of meals and other needs to EAF personnel at canteens on military bases or from the food trucks that serve conscripts working on military farms and other sites and, occasionally, the workers of civilian contractors employed on EAF-managed public works projects.215
Most notable in the public domain, however, is the MOD’s Medical Services Department, which currently runs military hospitals in twenty governorates, ten cancer clinics around the country, and mobile clinics in the southern border region with Sudan. It claims to treat citizens at half the price of private hospitals, and in 2014–2015 boasted that it had provided medical care at reduced fees to 400,000 people and for free to 40,000 Sinai residents.216 Given that medical tourism to Egypt has not been promoted actively, the main purpose is probably to maintain social support and cover the cost of the Medical Services Department, rather than to generate significant financial returns.217
The role of the MOD’s Mining Sector has also grown in recent years. Like the Logistics and Supply Authority, it overlaps considerably with the NSPO, which set up its own mining and quarrying company when it was established in 1979. MOD activity in this sector (mostly marble and granite) appears to have been subsumed under the NSPO until June 2015, at which time NSPO annual output was given as 1.4 million tons. The revised mining and quarries Law 198 of 2014 changed matters: Article 8 of the implementation statutes approved the following year stated that licenses to extract mineral wealth anywhere in Egypt, whether on state-owned or private land, could not be issued without MOD approval. Article 13 moreover awarded the ministry exclusive rights to the proceeds of extracting and processing raw materials from mines and quarries on military land.218 This potentially includes any area designated as a military zone, which reportedly encompasses state land reclaimed by the EAF from encroachment by civilians.219 The MOD Mining Sector moreover joins civilian authorities in these areas to adjudicate on the legal claims by local residents to land and minerals and to resolve environmental complaints.220 And by tying the MOD’s jurisdiction to the activity, rather than limiting it to geographical zones designated for military use or as strategic, the revised law granted it authority over the sector everywhere in the country.
In a related move, Sisi designated a strip in Shalateen, on the southeastern border with Sudan, as a military zone in November 2014.221 Significantly, the associated regulations severely restricted the right of civilian residency to the existing inhabitants, and prohibited any new civilian settlement in this or other areas of the Red Sea, Aswan, New Valley, and Marsa Matrouh Governorates in which the military has economic interests.222 Nonetheless, the government put up 1.5 million feddans for sale to developers around several of the southern oases and land reclamation schemes in Maghara, Farafara, West Minya, and Toshka—the last of which is part of Nubian territory—in October 2016.223
Since the revised Law 198 of 2014 was issued, the New Valley Company for Mineral Resources and Oil Shale (Wadico)—in which the MOD is believed to have a stake—has joined a commercial consortium that exports minerals from the Shalateen area of southern Egypt.224 In parallel, EAF checkpoints, which already levied a fixed daily usage fee directly from vehicles exiting quarries, adopted a new fee structure—based on vehicles’ laden weight and the number of trips—that reportedly tripled the fees and significantly increased MOD income.225
Potentially of even greater significance is the new foray by the MOD into gold prospecting, which currently accounts for 1 percent of Egyptian GDP.226 The MOD has a direct stake through the NSPO, which in 2016 held a 34 percent share of the Shalateen Company for Mineral Wealth. At that time, the company oversaw three apparently private companies prospecting for gold, with thirteen more due to start operation in 2017, and additionally bought gold from local prospectors at 20 percent of its market price.227 The MOD also had an indirect stake in the sector: Shalateen Company was headed by retired Major General Mohamed Gaballah Talkhan, while Red Sea Governor Major General Ahmed Abdullah and the head of investment in the governorate, Major General Salah al-Gamal, were involved in the July 2016 launch of what was billed as the first “Egyptian international city for gold and mining” at Marsa Alam.228
MOD Companies and Investments
The Maritime Industries and Services Agency is the most recent addition to the MOD’s economic portfolio, having been established in 2003. Although a military department, it had the legal framework of a public sector holding company in all but name: it was empowered to form joint ventures with domestic and foreign companies, retain a percentage of the profits of its subsidiaries in return for its oversight and management, and raise loans against these assets or its equity in joint ventures.229 Its initial capital was secured by transferring the assets of the Egyptian Ship Building and Repair Company to it.
The record of the Maritime Industries and Services Agency reveals the questionable economic claims and commercial assumptions on which the sector is based. This was especially visible in the Alexandria shipyard (ASY), which was transferred to the agency’s ownership immediately upon its establishment.230 The shipyard was exempted from the remit of health and safety legislation issued in the same year (along with fifteen facilities belonging to the MOMP).231 As Shana Marshall has noted, the ASY offered a means of securing technology transfer, constructing new facilities, importing capital equipment, and training personnel.232 In 2011, the Egyptian navy renegotiated a $13 million contract to build four patrol craft at the shipyard instead of purchasing them directly from U.S. firm Swiftships; Egyptian participation in assembly and production raised the cost to $20 million. Three years later, the ASY won a similar co-production agreement to assemble three French Gowind-class corvettes.233
An expectation of commercial gain also motivated the MOD to acquire the shipyard. The ASY had incurred annual losses of some EP50 million ($15 million) until 1997, but was expected to be worth around EP5 billion following an upgrade to prepare it for privatization. Officials hoped to make Alexandria the port of call for any of the 16,000 ships passing through the Suez Canal every year that required repair or maintenance.234 A decade later, Egyptian Navy commander Major General (Admiral) Osama al-Guindi gave a grand spin on the MOD’s vision by calling for “the military and civilian sectors to unite, in cooperation with the maritime chamber and . . . owners of ships and maritime agencies, to elevate this industry that can give a strong boost to the Egyptian economy and world trade.”235
There was a definite commercial opportunism in the MOD’s entry into the maritime sector. As political scientists Joshua Stacher and Shana Marshall noted, the Egyptian government’s publication of a 2001–2017 master plan to liberalize the sector prompted an “investment stampede” that left the world’s largest maritime conglomerates holding majority shares in Egyptian maritime companies, in which the MOD retained the minority.236 The Maritime Industries and Services Agency expanded in the meantime: the Egyptian Ship Building and Repair Company continued to operate as a distinct entity, but the Triumph Shipping Company was established in 2009 and the Nile General Company for River Transport was acquired from the public sector the following year.237
But none of these commercial aspirations were fulfilled, despite the boast that “the shipyard attained profitability for the first time in its history” while Admiral Hussein Ahmed Sennarah headed it in 2000–2007.238 Productivity remained especially low. According to the timeline on its own website, the Alexandria shipyard had built a lifetime total of twenty ships with a total capacity of 188,840 tons between 1972 and 2010 (besides forty smaller oil and water tankers, tugs, and river barges), although it also claimed to have built in excess of thirty-five commercial (goods) ships.239 Other sources put its output at 300,000 tons by late 2017, but even this barely exceeded the displacement of a single supertanker on the high seas. Along with the smaller Port Said shipyard, the ASY moreover spent nearly two, five, eight-and-a-half, and eleven times as many worker hours per ton of shipping steel as their counterparts in China, South Korea, Spain, and Japan respectively.240 Revealing its lack of work, the ASY manufactured steel tanks for a local sugar beet processing factory.241
The ASY also appears to have underperformed even in relation to its defense output. In 2016 it faced looming penalties for failing to meet its delivery schedule for Gowind corvettes, prompting the MOD to draft military high school students to replace shipyard workers who had gone on strike. Two years later, the French Naval Group that had designed the Gowind entered talks to build further vessels in the UAE or Saudi Arabia, indicating that the ASY was not to be integrated into its production chain.242 And in December 2018, the Naval Group inaugurated an Egyptian subsidiary—Alexandria Naval for Maintenance and Industry—to maintain the Gowind vessels in Egyptian Navy service—again a task the ASY should have been in a position to undertake.243 Possibly in recognition of these difficulties, the MOD’s maritime industries and services sector commissioned the Industrial Modernization Center, a quango funded jointly by the government and the European Union to promote public-private partnerships, to improve and modernize the ASY’s capabilities.244
The ASY was far from being “one of the largest castles of heavy industries and leader of the shipbuilding and repair industry in Egypt and the Middle East,” as it boasted.245 Indeed, given the chronic underperformance of these maritime companies, it is possible that the MOD acquired them as a means of writing off losses on its books, as much as of maintaining industrial capacity and Navy support capability. Buying public sector companies allowed the MOD to capture whatever revenues they made, while shifting their losses onto the state treasury, a ploy originally developed by public sector businessman and presidential crony Osman Ahmed Osman in the 1960s and 1970s.246
The MOD as Hub: Officer Networks
The murkiness of MOD accounts obscures both the full extent of the officer networks that straddle MOD agencies, other state bodies, and civilian companies (especially public, but also private) and the volume of illicit income they derive from their bureaucratic position and privileged access. This is most obvious in relation to licensing use or re-designation of state land, for which corrupt officers are known to solicit considerable under-the-table payments—from public sector companies and government ministries (such as Housing), as much as from private businesses. How much the MOD earned in official fees is not known, but a joint report published by the Administrative Monitoring Authority and the Central Accounting Organization (CAO) in 2015 estimated the cumulative cost of corruption, encroachment, and mismanagement or undervaluation of state land, to which EAF officers contributed, at EP440 billion.247
Procurement is the other principal source of illicit income within the military, as it covers an extremely wide range of spheres and activities. It also acts as a main locus connecting MOD-linked bodies, suppliers, and officer networks. For example, successive heads of the GSA have been delegate members on the Board of Directors of the state-owned Nasr Export and Import Company. Originally established by the General Intelligence Directorate as a front to counter Israeli intelligence activity in sub-Saharan Africa, Nasr became a major trading company in its own right in the 1960s, but then closed most of its foreign branches in the decades following the 1979 peace treaty with Israel.248 It is not clear when MOD interest in Nasr revived, but it now trades in many of the commodities that are either required by the EAF or produced by the defense industry and that are also sold in civilian markets, both domestic and export.
Nasr reveals much about the intermeshing of military-affiliated entities and networks. One of its trade intermediaries, the Delta Sugar Company, is a major shareholder in the United Packaging Company, which was acquired by the MOD in 1995 and employs EAF conscripts in its work force.249 Nasr is moreover one of fourteen subsidiary companies belonging to the public sector Holding Company for Maritime and Land Transport that are headed by a former EAF officer; the holding company itself is headed by Admiral Mohamed Ibrahim Youssef.250 No less significant is that two heads of Nasr’s Board of Directors in the past decade were both EAF retirees and former senior officials of the AMA, Egypt’s most powerful audit agency.251
The recycling of EAF officers—especially but not exclusively retirees—through various civilian posts is common (discussed in Chapter 4). Among Nasr’s board members in 2016 was Major General Ayman Salem, who had spent the previous fifteen years as head of the Egyptian Company for Retail Trade, a subsidiary of the Holding Company for Food Industries that failed to make a profit until 2014–2015.252 Salem was replaced in February 2016—along with the heads of twenty-seven other subsidiaries of the holding company—for “failing to reduce losses,” but he was immediately made head of the famous Omar Effendi retail company, in addition to joining Nasr.253 And when the minister of trade and industry formed the Higher Council for Logistics and Shipping to facilitate trade through public-private partnerships in December 2017, he brought on five former EAF officers, including the new head of Nasr, Major General Fathi Jibreel.254
A consequence of this veritable game of musical chairs of EAF retirees has been to obscure serial poor performance.
A consequence of this veritable game of musical chairs of EAF retirees has been to obscure serial poor performance. A glowing report on the performance of Nasr Export and Import Company in March 2015 boasted that it had achieved “an enormous surge in turnover exceeding EP1 billion,” but Jibreel, who took over as head in December 2016, admitted frankly that the company was “not in its best shape.”255 The company had previously done well when it won public sector contracts “by direct order,” he acknowledged, “but now we and the private sector compete equally for tenders, and regrettably we don’t have the same flexibility as the private sector in taking action and pricing and so the competition is not fair.”256
Undeterred, the Holding Company for Maritime and Land Transport claimed that Nasr achieved 60 percent growth in 2016–2017 and another 68 percent in 2017–2018, but these results were only true when measured in Egyptian pounds; for a company dealing in external trade and therefore highly susceptible to exchange rates, the pound’s loss of one half of its value meant that the company’s net value was static or declining. Implicitly confirming this, Admiral Youssef revealed in September 2017 that Nasr was to be restructured.257 Two years later Nasr, along with the Egypt for Import and Export Company, which is also run by EAF retirees, were slated to play a role in a planned shipping line connecting Ain al-Sokhna to Kenya’s Mombasa port.258 The promised restructuring of Nasr had not yet taken place, but its involvement reconfirmed the close intertwining of military interests in infrastructure projects, external trade, and military-headed civilian companies and government agencies.
What the case of Nasr also revealed is that MOD affiliates can hope to extract income from the activity of other firms while transferring their own costs and losses or those of their subsidiaries—which nominally remain civilian state-owned enterprises—to the state budget. An example is the Egyptian Navigation Company, which reached financial collapse in 2015 and had to be bailed out by the Holding Company for Maritime and Land Transport.259
However, corrupt procurement practices also occur on a large scale much closer to home. Not surprisingly, officer networks are especially active in arms procurement, reportedly clustering around key individuals such as former defense minister Tantawi or Minister of State for Military Production Mohamed al-Assar; cliques such as the graduates of the Military Technical College (spread out across the MOMP and EAF Armaments Authority); or bodies such as the Military Intelligence and Reconnaissance Administration or the military procurement office at the Egyptian embassy in Washington, DC.260 Networks may overlap, but they also compete; historically, those closest to the presidency have an obvious advantage, which is why several former commanders of the Republican Guard are believed to have been influential arms dealers. But the rise of Sisi has emboldened officers in Military Intelligence, which he headed until 2012, who are believed to be encroaching on their competitors. Furthermore, a new generation of MOD procurement officers has come to the fore since the 2013 takeover, and they are said to be “greedier” in the bribes they demand from commercial agents—themselves often EAF retirees—in return for the award of contracts.261
The same patterns apply to all other aspects of procurement, such as those relating to food and undertaken by the GSA and Logistics and Supply Authority. But they also extend to ensuring that companies with which the military interacts use the same favored procurement agents and customs handlers as the MOD, if not the MOD itself, given its exemption from inspection at ports of entry; pay the transport department of the Logistics and Supply Authority to move heavy machinery; and hire labor brokered by state agencies with close military ties—such as Petrojet in the case of the oil and gas sector.262
The scale on which these practices occur lead unavoidably to the conclusion that they are conducted with the connivance of the MOD’s financial administration, and therefore with the knowledge of senior commanders and officials. In a typical case, finance officers are asked to process invoices for shipping, labor, and material costs for EAF equipment that is purportedly sent abroad for maintenance, but never leaves the country and is either maintained by a local contractor or not at all.263 This may shed additional light on why the MOD has acquired companies or bought shares in others, especially foreign ones. An early instance was an investment in 1980 by the MOD’s short-lived General Economic Agency in the National Company for Food Security, one of the large companies established under Law 43 of 1974 in partnership with the revived private sector.264 By 2011 the MOD had “an extraordinary range of investments in domestic firms and large-scale foreign partnerships,” according to political scientist Shana Marshall.265
How, exactly, the MOD exercises ownership is unclear. Unlike the MOMP’s shares in the Tharwa Petroleum Company, for example, which are held by the NAMP, the MOD’s Financial Authority does not appear to directly own shares in its own ministry’s companies.266 More importantly, the purpose of acquiring shares in both domestic and foreign civilian companies is also unclear. As noted in Chapter 2, Shana Marshall argued that this is intended as a means for securing technology transfer, but past practice in public sector companies suggests other possible purposes. Investment in shares absorbs budget surpluses that can be shown as expenditure in annual accounts and then written off as net losses to be borne by the state treasury. Parking funds offshore removes them further from potential oversight, while creating joint ventures from which military agencies and affiliated companies can import used equipment at inflated prices but claim in their accounts as new, using false certification supplied by corrupt customs officers.267
U.S. Military Assistance: A Business Opportunity
A crucial element of Egypt’s defense economics is the annual U.S. foreign military financing (FMF) package that it has received since 1978. This is estimated to cover approximately 80 percent of the EAF’s needs of major combat systems, enabling the MOD to spend its own disposable funds on other priorities such as acquiring shares in civilian companies and underwriting military interventions in the cement and steel sectors or other markets. Without U.S. FMF, the MOD would be very hard pressed to provided the EAF’s real defense needs. But in reality, the MOD has been able to derive additional income from the relationship, whether from commercial exploitation of EAF equipment and MOD facilities funded under the FMF program for civilian purposes, rather than their original military ones, or from other areas of military cooperation with or services for U.S. forces in the region.
U.S. foreign military financing covers approximately 80 percent of the EAF’s major combat systems, enabling the MOD to spend on other priorities such as acquiring shares in civilian companies.
As importantly, the FMF package also offers EAF officers, both active and retired, particularly favorable business opportunities thanks to their privileged and often exclusive access to defense-related information and contracts. These opportunities derive from procurement (of weapons and other equipment or materiel), support and service contracts associated with the delivery of the FMF, and other services and activities undertaken on behalf of or with the U.S. military. The involvement of former officers in commercial defense contracts is common worldwide, but in Egypt’s case it more clearly takes the form of insider trading and profiteering from what in effect is the captive market of U.S. military assistance and defense ties.
U.S. FMF to Egypt has run at a steady level of $1.3 billion a year since 1987. Additionally, in 1979 then president Jimmy Carter approved “cash flow financing” for Egypt, allowing it to pay for purchases of U.S. defense equipment in installments rather than all at once, an advantage it was to enjoy until 2018.268 This enabled it to place orders worth $3.5 billion instead of $1.5 billion by 1982, for example.269 A special provision for advance disbursement of the entire annual grant has also been in place since 2000, allowing Egypt to accumulate unspent assistance and accrue interest on it, which it can then spend on additional purchases.270 It had received a cumulative total of $48 billion in FMF by 2017, besides receiving what the U.S. labels as “excess defense articles” not needed by its own armed forces worth hundreds of millions of dollars annually.”271 FMF moreover allowed Egypt to save significant amounts of foreign exchange, equaling about 8.5 percent of its earnings in 1984–2000.272
The fact that the amount of FMF is fixed has depreciated its purchasing power over time, capping the business opportunities it generates. Precise figures are not available; according to a 2006 U.S. Government Accountability Office report, even the Pentagon could not track FMF commitments against actual disbursement to Egypt prior to 1998. But U.S. agencies have estimated that approximately one-third of Egypt’s FMF is allocated for the purchase of new weapons and equipment, one-third to upgrades, and the remaining one-third to various support contracts.273 The first two categories offer officers scope for taking commissions, but the latter offers additional commercial opportunities. Given the cumulative value of FMF over the years, potential income derived from it has been considerable.274
Acquisitions are governed by the Reciprocal Defense Procurement Memorandum of Understanding between the United States and Egypt. This suspends the latter’s Law 89 of 1998 on bids and tenders, which allowed public bodies to prefer local contractors over foreign ones: in the case of MOD tenders, U.S. companies may bid on equal footing with Egyptian competitors.275 But because procurement in the defense sector is a closed process, an Egyptian representative is needed for U.S. (and non-U.S.) bidders.276 As in many countries, former officers play this role, although they must still bribe MOD procurement officers to be favored.277
Among the more successful businesses that supply the EAF with foreign defense equipment, training, and other services is the Triangle Group, which was founded in 1990 by Major General Abdul-Monem Tawil. A former Air Force officer, Tawil handled EAF procurement from the United States from 1985 until his retirement and the launch of his company, and he became a senior member of the American-Egyptian Chamber of Commerce.278 Within the larger group, Triangle Aerospace represents Western defense companies, such as Lockheed Martin, Raytheon, Northrop Grumman, Rheinmetall Defense, and others, and boasts a “team of handpicked consultants, all of which are retired high ranking officers who served in the MOD’s different units” in addition to “young highly skilled business development professionals.”279
Not all supplier and intermediary companies have a military background. An example is the Artoc Group, which is also one of the more significant companies representing numerous international firms in Egypt and providing the EAF with noncombat equipment—from aircraft ejector seats to fitness machines—while operating in numerous fields in which the EAF or retired officers are also active such as steel structures, petroleum, real estate, airport construction, services, and cargo, and the car industry.280 Another example is Pyravision for Trading and Consultancy, an Egyptian multinational that undertakes technology transfer to the Egyptian defense industry as well as supporting a slew of civilian sectors including heavy industry, cement and petrochemicals, shipbuilding, aviation and aviation services, automotive and spare parts, oil and gas, telecommunications, environment, and food processing.281
Behind the legitimate side of doing military business in Egypt lie dealings that range from what Shana Marshall calls “legalized bribery” to the clearly illegal, as with most parts of the military economy.282 Egypt, like a few other Arab states, requires all procurement contracts to specify that commercial fees paid to agents in order to secure sales of equipment or services are not charged to the government, but this formal provision is routinely sidestepped. As a Mubarak-era cabinet minister confided after his ouster, with regard to illicit profiteering by the EAF, “a big hidden issue is arms purchases from the United States—that is, anything that is secretive and involves a monopoly affords the biggest opportunities, whereas in something like cement it would become immediately known and embarrass the army.”283
Until 2011, much of the commission-taking centered on Mubarak who, in the words of opposition politician and one-time presidential candidate Ayman Nour, “ran procurement as a one-man show for thirty years, allowing great corruption.”284 Whether they actually engaged in corruption or not, top-ranking EAF officers and defense officials formed part of the rent-seeking elite and certainly had—and still have—the most lucrative opportunities.285 Especially well placed to take advantage are active-duty officers privileged to head the Egyptian MOD’s purchases office in Washington, DC, as well as defense attachés and officers who take part in the bilateral mechanisms through which FMF is negotiated: the Communications Interoperability and Security Memorandum of Agreement, the Military Cooperation Committee, and the Defense Resourcing Conferences. These posts are normally filled by heads of the MOD Arms and Ammunition Department or senior commanders in the ground forces and serve as career stepping stones to hold senior positions in government agencies or public sector businesses upon retirement.
No less important a source of income is the large share of FMF allocated to support contracts, especially for transport of U.S.-supplied arms and equipment, both at time of sale and later for shipment of certain systems back to and from the United States for maintenance and upgrade. A special provision in the FMF program allowed up to 50 percent Egyptian ownership of the ships used to transport equipment, and so well-connected businessmen quickly set up U.S.-registered companies in order to win these contracts.286 According to political scientist Robert Springborg, then president Anwar Sadat’s brother Esmat and several generals formed a company to ship a military consignment worth $300 million from the United States, for which they reportedly charged $56 million for shipment, despite Pentagon estimates that the cost should be around $11 million.287 A similar case surfaced when a member of parliament for the Wafd Party, Elwy Hafez, demanded a formal debate on corruption in military contracts following press reports that businessman Hussein Salem, a Mubarak crony, and senior government officials had made improper gains totaling $73 million from FMF contracts.288
Although fewer abuses have been exposed so publicly since then, the system appears to be unchanged. In fact, according to an antigovernment source, the member of the Supreme Council of the Armed Forces responsible for the handling of U.S. military assistance in 2011 pressed the United States to increase the proportion of FMF allocated to support contracts, which would have expanded business opportunities for EAF officers to earn lucrative profits through front companies.289
What is certain, in contrast, is that Egypt has failed to make use of the 15 percent of total FMF originally allocated for the EAF’s own maintenance and logistics needs to bring business as well as technology and technical know-how to its defense industry. This has long been stated as a goal, and so Egyptian behavior is paradoxical. The Soviet Union had refused to grant licensed production or technology transfer to Egypt at the height of their military cooperation in the late 1960s—major combat equipment had to be returned to the Soviet Union for maintenance and repair—impeding development of Egyptian know-how and facilities and generating resentment.290 And yet the Egyptian defense industry has singularly failed to take advantage of far more generous U.S. provisions, which U.S. officials specifically see as a means of assisting Egypt to develop sustainable indigenous capabilities.291 An example of the consequences is that when U.S. military aid was suspended from 2013 to 2015, U.S.-made Apache helicopters in EAF service fell into disrepair because the Egyptian contractors lacked the technical proficiency necessary.292
Indeed, by 2014 the Egyptian MOD was actually spending roughly half the annual U.S. aid package on maintenance and sustainment of its existing systems.293 Even at the lower rate of 15 percent, this provision was worth $7.2 billion since FMF began. A U.S. technical services contract worth $210 million to provide equipment, parts, training, and logistical support for six Egyptian Navy frigates and a separate package worth some $750 million for the upgrade of 156 aircraft engines in 2009–2010 give a sense of the potential value of secondary contracts that were not taken up by the Egyptian defense industry.294 This failure contrasts sharply with hyperbolic assertions about the existing capabilities of the defense industry made by numerous MOD officials, especially since the early 2000s, and their claims that efforts to increase technology transfer and local content were being redoubled.295
For all the boasts of self-sufficiency, the Egyptian military and defense industry either lack the technical expertise and technology to undertake maintenance—which they leave to U.S. contractors—or else prefer to allow senior officers to extract easy rent from shipping contracts. This may help explain why the MOD sought (and got) an increase in the FMF share allocated to support contracts, and why it met U.S. proposals in 2014 to restructure the FMF program (eventually confirmed in 2015) with barely hidden dismay. Conversely, the practice noted above of submitting fraudulent invoices for maintenance and shipping that do not actually take place indicates a risk that the increase may also explain why the Egyptian MOD does not take advantage of the provision.
But the MOD also practices its own forms of rent-seeking from FMF. A former U.S. diplomat based in Egypt confirmed that the MOD insisted on using hotels it owns for conferences and joint meetings and military hospitals when U.S. peacekeepers in the Multinational Force and Observers in Sinai needed medical treatment—for which the United States had to pay.296 Major General Michael Collings, who in 2006–2008 headed the U.S. Office of Military Cooperation in Egypt, which handles FMF, similarly complained of price gouging by companies chosen by the MOD to provide equipment or services—from chairs and tables to bottled water for meetings.297
A former U.S. diplomat based in Egypt confirmed that the MOD insisted on using hotels it owns for conferences . . . military hospitals when U.S. peacekeepers . . . needed medical treatment—for which the United States had to pay.
The MOD also earned millions from conducting joint military exercises, such as the biennial Bright Star maneuvers with the United States (which were suspended in 2011 but resumed in 2017, albeit in a reduced form), or the Coral exercises with Saudi Arabia.298 But most egregious in the view of some U.S. officials is commercial exploitation by the MOD and allied public agencies of facilities and equipment provided under the FMF package. A prime example is the “not for profit” 800-bed International Medical Center, which is intended exclusively for EAF use but proudly advertises its services to fee-paying private patients, both Egyptian and foreign. Adding insult to injury, the center’s website, does not acknowledge U.S. funding, merely noting that the center was “established by Egyptian & American expertise and cooperation.”299 Similarly, the U.S.-supplied Synchrolift device for lifting large ships out of the water for repair, which was installed at Ras el Tin Naval Base in Alexandria for Egyptian Navy use only, is hired out routinely for commercial use. The senior U.S. officer in charge of the FMF program at the time relates that he remonstrated repeatedly to then Navy commander Admiral Mohab Mamish, who affirmed that “this will never happen again,” but on his next visit the same officer again found a commercial ship in the Synchrolift.300
Lastly, the military economy benefits indirectly from U.S. and other international assistance for civilian development projects. As political scientist John Waterbury has noted, significant U.S. aid has been invested since the 1970s in public infrastructure, such as power stations, storage facilities, housing, irrigation, and transport—all areas in which military agencies and the officers’ republic are heavily involved.301 Enabling them to tap into assistance that in theory is earmarked to be channeled exclusively through the private sector is Law 43 of 1974, which qualifies state-owned enterprises as private if 20 percent of their share capital is offered to the public.302 Other international agencies, such as the World Bank, have also used this loophole to fund large-scale projects implemented by military economic entities or managed by the MOD, especially since 2013.
Conclusion: Dead Capital, Cash Cows, and Shell Games
The MOD and its affiliated agencies now undertake an enormous volume and range of civilian projects, but the net value they add to the national economy is dubious, and in many instances negative. This is not measured simply in terms of the physical assets they produce or the incomes they generate, which can be considerable, but rather of the extent to which they enable sustainable growth, trigger economic diversification, or enhance the ability of civilians in the private and public sectors to exercise autonomous, market-based decisionmaking. Even in the case of undoubtedly useful contributions such as the construction of public infrastructure and housing, the actual cost-effectiveness of military-run projects is unproven, as much of the real cost of their factors of production is transferred to the public purse and obscured or understated.
As the military now plays a much greater role in managing public works, leading investment, and addressing supply needs in civilian markets, its attitudes and perspectives have come to bear more significantly than ever on the trajectory of the economy. Whether by training and temperament or as a core regime pillar, it shares both the technical gaze of civilian counterparts in Egypt’s state bureaucracy and the hierarchical and deeply paternalistic approach of successive state leaders to the design and implementation of policy in the economic and social spheres. This results in what political scientist John Waterbury labels “flight forward,” the tendency to avoid knotty problems such as changing the spatial distribution of Egypt’s population, by resorting to engineering fixes such as constructing desert cities or forcibly relocating small businesses to remote locations.303
The manner in which the military circulates budgets and surpluses, contracts, and investments . . . forms an elaborate shell game that complicates, if not prevents, effective accounting and meaningful evaluation of performance and cost-effectiveness.
At best, the military’s response to social and economic problems exemplifies the belief that “if you build it, they will come”—in a country where, to take just one simple indicator, extreme poverty increased from 26.5 percent of the population to 32.5 percent in the six years since the EAF took power.304 At worst, the military is wedded to activities that assure it of constant income streams despite glaring evidence of their nonfeasibility and appalling cost-effectiveness. There is little reason for this to change: the military has been able to extract varying levels of capital and economic opportunity from the public purse and foreign assistance for nearly seven decades, with little or no accountability for actual delivery. In addition to the state treasury, the Soviet Union, the United States, and more recent investors such as Chinese companies involved in military-managed megaprojects constitute the military’s cash cows. The manner in which the military circulates budgets and surpluses, contracts, and investments between various public and private sector counterparts, the treasury, foreign partners, and its own agencies moreover forms an elaborate shell game that complicates, if not prevents, effective accounting and meaningful evaluation of performance and cost-effectiveness.
Correction: This chapter stated the Egyptian pound’s depreciation in 2016–2017 two-thirds; it was actually a decline of one half.