The EAF’s powerful position within the state and as a final arbiter of Egyptian politics is the indispensable bedrock of the formal military economy, but also anchors the officers’ republic of self-perpetuating networks of retired EAF officers embedded throughout the state apparatus.1 Although they occupy positions in the official bureaucracy, they constitute a pillar of what may be labeled the informal wing of the military economy, since the bodies they head or influence and the resources they command do not belong formally to the military as an institution.
The core of this officers’ republic comprises several hundred retired EAF officers who are chairmen, managing directors, or members of the boards of state agencies and public business sector companies that manage economic assets; undertake production, trade, and services or award contracts in these areas of activity; and control much of the policy and regulatory framework in which both the public and private sectors operate. A significant complement to the officers’ republic are the thousands of EAF retirees in government ministries and agencies and throughout local government, itself a massive structure, many of them in senior positions. Others serve as cabinet secretaries and ministerial advisers. The officers’ republic ensures income streams for many senior retirees that are far higher than those received during active service, and more modest supplementary postretirement incomes for many hundreds, if not thousands, of other retirees who permeate the lower ranks of state bodies.
The core of this officers’ republic comprises several hundred retired EAF officers who are chairmen, managing directors, or members of the boards of state agencies and public business sector companies.
The existence of the officers’ republic does much to explain the widespread belief that the military accounts for anywhere between 25 and 60 percent of the national economy. But extensive penetration of the state apparatus by EAF retirees does not translate into direct military control, let alone ownership, of the financial and other assets of public economic authorities and enterprises. Certainly, it secures revenue for formally registered military companies and reinforces the economic utility derived from those factors of production that are substantially under military control, especially land, but otherwise this rent-seeking behavior is just as typical of civilian actors, both public and private. Government agencies that are not headed by EAF retirees act in much the same way in securing or awarding contracts, civilian officials wield their bureaucratic powers over economic licensing and regulation to similar effect, and private companies readily take advantage through privileged connections and bribes.
Furthermore, with the total proportion of GDP originating in the public sector estimated at 31 percent in 2016, the military would have to control the entirety of public production of services and goods in Egypt in order to reach even the more modest claims made about its economic empire, and would remain far short of the more exaggerated ones.2 Again, pinning down an exact value is not only impossible, but also a diversion from grasping the real import of the officers’ republic for Egypt’s political economy. Like their counterparts in the formal military economy, EAF retirees in the state apparatus routinely use legally sanctioned discretionary powers to award noncompetitive contracts to favored clients, obscure economic inefficiency (and mismanagement) of public funds, and both enable and protect insider trading and what at times amounts to plain racketeering. In brief, they are both an integral part and an outcome of the regime maintenance logic as it has evolved since 1952, and of how all actors currently engaged in the Egyptian economy and administration do business.
The Officers’ Republic
Together, EAF retirees constitute the backbone of the informal military economy and underwrite the loyalty scheme that holds the officers’ republic together. They are to be found across the state apparatus, but most significant for the military economy is their concentration in two broad areas of the public sector: first, the civilian administrative bureaucracy comprising so-called general and national authorities, other central agencies and regulatory bodies, and local government; and second, state-owned economic enterprises, including the large number that have been partially or fully privatized since 1991.
Together, EAF retirees constitute the backbone of the informal military economy and underwrite the loyalty scheme that holds the officers’ republic together.
An Enduring Legacy
The officers’ republic emerged as the result of several factors, but its roots lie in the Nasser-era practice of appointing EAF officers to key ministerial or civil service posts as a means of ensuring both technical competence and loyalty in a public sector that grew to 900,000 by 1960, and then expanded massively in the wake of the socialist decrees of July 1961 that led to nationalization of much of the economy.3 Reliance on EAF officers was additionally a function of the power play at the head of the state. On one side stood Nasser, who in the assessment of political scientist Robert Springborg “had to monitor personnel changes even at relatively low levels in the bureaucracy, military, and public sector of the economy, keeping a close eye lest one of his erstwhile supporters develop a ‘power base’ to which even Nasser would be vulnerable.”4 On the other was his powerful defense minister Abdel Hakim Amer, who exploited the spurt of institutional expansion to extend his own military patronage networks.5
The Nasser era left a lasting legacy. Most importantly, it established the entry of EAF officers to civilian roles, but the rivalry with Amer ensured that this also came with numerous privileges and perks and embedded habits that undermined military professionalism—as was shown disastrously in the June 1967 war with Israel. In the graphic description of political economist Samia Sa’id, “Amer regarded the military establishment as a tribe in effect, of which he was the sheikh.” He awarded his favorites soft military assignments and placed others in the state bureaucracy as company managers and governors or posted them to foreign countries with diplomatic benefits and allowances.6 Nasser tried to require officers to quit EAF service if they took civilian jobs, but failed. It was not until 1975, when Nasser’s successor Anwar Sadat issued Social Security Law 79 of 1975 and the modified Law 90 of 1975 on Retirement, Social Security, and Pensions for the Armed Forces that salaries and pensions were suspended for officers who entered civilian service, whether they did so on secondment during active service or after retirement.
Today, the officers’ republic ensures a flow of contracts and resources that helps sustain military enterprises, but does much more as well. It doubles as a loyalty scheme, tying senior EAF officers to the presidency and the governing political system and middle-ranking officers to their superiors, and as a reserve force of military bureaucrats who can be called on to staff civilian agencies. The benefits work both ways. Because retired EAF officers remain subject to the military judicial system, the MOD and affiliated agencies can use their influence in the state’s audit bodies—such as the Administrative Monitoring Authority, which is always headed by a senior EAF officer and staffed by several hundred other active-duty and retired EAF officers—to initiate investigations and prosecutions to those who diverge from the military’s preferences. Former officers are acutely aware of the military’s expectations and largely toe the line to avoid retaliation. The legislative decree issued by the Supreme Council of the Armed Forces (SCAF) in May 2011 giving MOD prosecutors the primary authority to determine whether EAF officers accused of making illicit gains while in service should be tried in military or civilian courts, even if they had retired in the meantime, offered protection but also held the threat of lifting it as a permanent Damocles’ sword.
Today, the officers’ republic ensures a flow of contracts and resources that helps sustain military enterprises, but does much more as well. It doubles as a loyalty scheme.
The Loyalty Scheme
What the late Egyptian political scientist Samer Soliman called a “loyalty allowance” is both an enduring feature of the officers’ republic and integral to the informal military economy.7 Since the Nasser era, when EAF officers were appointed to upper ranks of the public sector, they have been entrenched in almost every sector and at all levels of Egypt’s vast state apparatus. From an estimated 1,500 under Nasser, a random sample of the civil service noted in my “Above the State: The Officers’ Republic in Egypt” paper from 2012 and additional surveys conducted for this report suggest that their number has increased several-fold. These officers import the connections made at officer school—the famous duf’ah (graduating class) and the resulting shillah (cliques)—that carry over into their subsequent service in the various EAF branches and affiliated agencies; as a 1985 CIA research paper noted, these “old-boy” networks are influential in shaping the behavior of the civilian agencies they join.8
Sadat’s assertion of presidential power over the EAF and partial de-militarization of the state apparatus in the 1970s reversed the trend, but only briefly.9 It gained powerful new impetus under Field Marshal Mohamed Hussein Tantawi, who was defense minister from 1991 until Mubarak’s ouster in 2011, and then for another year while he doubled as acting president. EAF officers had seen their purchasing power and official entitlements erode due to inflation and decline in comparison to the expanding private sector over the previous decade, but Tantawi brought welcome relief to many by trading loyalty during service for the prospect of additional postretirement incomes.10 The officers’ republic grew massively in this period, assisted by the transformations wrought in the public sector by two waves of privatization in 1991–1997 and 2004–2009, the meteoric expansion of the real estate market and other forms of speculative activity, and growth in foreign investment and trade, all of which multiplied the opportunities for placing EAF retirees.
The loyalty scheme served so important a political purpose that a well-connected source sympathetic to the Morsi administration alleges that it increased the number of recent EAF retirees appointed in the state apparatus sharply, from 400–500 annually to an estimated 4,000 in the single year of Morsi’s presidency.11 Whether the figure is accurate or not, it reflects the enduring power of this informal scheme as much as the Muslim Brotherhood’s eagerness to appease the military. The legacy endures, and indeed has been boosted by the military takeover in July 2013 and Sisi’s reliance on the military to deliver economic results.
The loyalty scheme focuses in particular on senior officers, estimated by one retired general to represent about 15 percent of the EAF officer corps in 2012.12 This is a high percentage by international standards, indicating a system designed to maintain the loyalty of officers by promoting them in numbers that exceed operational military requirements and extending their service past normal retirement ages. As noticeable is the unusually large number of retired major generals in Egypt. This is partly the result of the automatic promotion of brigadier generals to the rank of major general upon retirement, assuring them of increased statutory end-of-service pensions and benefits as well as improved postretirement prospects. These officers make up the backbone of the officers’ republic, along with the smaller but significant number of fellow EAF officers who are seconded to the General Intelligence Directorate (GID) or other agencies, such as the Administrative Monitoring Authority, where they see out their active service.
Regarded as an entitlement, the loyalty scheme adds a relatively modest postcareer salary to the military pension for a majority of retirees. Under Law 31 of 1992, the pension awarded to any member of the armed forces (after factoring in all allowances) may not exceed their total basic pay on retirement, making re-employment necessary.13 Following the end of their normal pensionable employment, retirees may be reappointed on renewable six-month “call-up” contracts that permit them to remain in uniform and in (noncombat) service.14 In most cases, postretirement positions are held for a few years, after which they are vacated to make way for more recent retirees. But the contracts of retirees who play key roles in the officers’ republic may be renewed for up to ten years as they rotate between a succession of new positions, and even longer in some cases. Other retirees are hired on consultancy contracts that are nominally for fixed terms, but which in practice are renewed at the discretion of the recruiting officials. All appointments moreover come with associated benefits, service allowances, and bonuses.
The loyalty scheme has been reinforced since Sisi became president in 2014. Two years later, parliament approved a draft law proposed by the MOD awarding the president the power to extend the service of select officers at the rank of major general, who normally retire at 58, by four years.15 In December 2017 it also approved an amendment to Law 90 that raised the retirement age for lieutenant generals by four years as well (to 64).16 These legislative moves extend the scope for seconding active-duty officers to select positions in state agencies. In doing so, they moreover shift the costs, as was made evident when the SCAF transferred four major generals to the Ministry of Housing, NUCA, and the National Authority for Potable Water and Sanitary Drainage (NAPWASD) in 2011, requiring the latter as the “benefiting party to cover all their military pay and compensations as well as all financial and administrative incentives issued to their families.”17 Indeed, this may be a factor incentivizing the appointment of active-service officers to civilian agencies; the Administrative Monitoring Authority alone employs many hundreds, and the GID possibly a few thousand.
Predictably, appointments are made on an informal gradated scale according to perceived loyalty, literally a pecking order.
Predictably, appointments are made on an informal gradated scale according to perceived loyalty, literally a pecking order. Officers reaching the EAF general staff or the service staffs of the four EAF branches (Army, Air Force, Navy, and Air Defense), central departments such as the Engineering Authority, and special units such as the Republican Guard are ostensibly the most competent but have, by definition, demonstrated unwavering loyalty the longest. This top stratum is assured of appointment upon retirement to top managerial positions in the civilian bureaucracy and state-owned enterprises that offer salaries commensurate with commercial companies or opportunities for extra income generation and asset accumulation. Some head more than one company, act as designated or delegated members to the boards of subsidiaries, or are imposed on the boards of private firms.18 Generally, senior officers become heads or board members of public companies for a few years and then give way to the next in line; middle-ranking officers tolerate relatively modest pay and conditions in hope that their turn will come.
Appointment to civilian bureaucratic or commercial entities is not based on any legal requirement or entitlement—except in the case of a few specialized parastatals or companies such as Egypt Telecom, which is required to have the chief of staff of the EAF Signals Corps on its board—but rather reflects the influence of the EAF and the tentacular spread of the officers’ republic. The trend intensified sharply after the launch of privatization in 1991, which rapidly widened the pay gap between the private and public sectors. By 2011, the most privileged EAF retirees were commonly earning salaries of EP100,000 to EP1 million (then $16,670 to $166,670), according to whistle-blowing officers, while hidden partnerships were believed to raise the annual incomes of the highest paid to between EP12 million and EP100 million ($2–$16.67 million).19
It has also become customary for officers on track to senior command positions to serve one or more tours of duty as defense attachés, as head of the military procurement office in Washington, DC, or as managers in military companies. They receive “task allowances” and an extra set of benefits and bonuses attached to each posting—including an additional housing unit, which they may rent or sell—whether or not they are rewarded with further promotions and eventual appointment to chair government agencies or companies.
Some of the much larger number of senior retirees who do not rise this high are awarded managerial positions in military clubs and hotels, with prime locations going to the better-connected officers and more remote ones to the less favored. Many more retirees are appointed in the state’s sprawling civilian bureaucracy and the local government structure. Well-connected officers are assigned positions in control of functions such as licensing marble quarries or internationally funded development projects, which offer scope for racketeering and bribe-taking. Others are hired as advisers and consultants in government ministries and agencies or in state-owned companies, reportedly earning monthly salaries of EP6,000–EP28,000 ($1,000–$4,670) and allowances and bonuses worth an additional EP10,000 ($1,667) a month in 2011—hardly princely amounts compared to employees of civilian companies with equivalent seniority and qualifications, but a significant boost for major generals whose official retirement package in the same year comprised a lump sum payment of up to EP40,000 ($6,670) and monthly pension of up to EP3,000 ($500).20
Discretion rather than professional competence and merit lie at the heart of the loyalty scheme.
Clearly, discretion rather than professional competence and merit lie at the heart of the loyalty scheme. For example, the minister of defense has the power to award officers lifetime use of beach chalets in desirable coastal resorts belonging to the military, but can also withdraw it, incentivizing loyalty and obedience.21 A tacit barrier moreover separates junior and middle-ranking officers from senior ranks. The former are given apartments, for which they pay monthly installments for three to five years, and loans from military funds to purchase cars, whereas the latter receive villas and cars, as well as being assigned drivers on retiring.22 Lower-ranking officers must normally educate their children at their own expense—a significant disadvantage given the poor state of Egypt’s public education system, which prompts parents to pay for private tutors—but children of officers (and relatives up to the fourth degree, according to anecdotal evidence), now benefit from tuition subsidies to attend the handful of international schools run by or for the EAF.23
At one level, the officers’ republic simply secures the interests of a large constituency of former officers. The SCAF and the MOD’s Organization and Administration Authority decide the appointment of retirees in military social facilities and companies (remaining in uniform and retaining the perquisites of rank), but this primarily serves the loyalty scheme rather than a clear strategic rationale. For most retirees, the process is more random. The Administrative Monitoring Authority routinely sends cabinet ministers the names and qualifications of EAF officers seeking postretirement placements.24 The Organization and Administration Authority, which is responsible for administrative development and reform, headed by retired Major General Safwat al-Nahhas from 2004 to 2016, has performed a similar role.
A Military-Bureaucratic Reserve Force
But on another level, the distribution of EAF retirees has followed two main patterns that characterize the informal military economy. First, retirees from specific EAF branches are systematically appointed to administrative or economic agencies within their general field of service. Originating in the 1950s, when EAF officers assigned to the state apparatus cultivated their own military networks in the public sector bodies they ran, these military-bureaucratic fiefdoms have assured officers from the same branches of service a sinecure and become a permanent feature of the officers’ republic.
For example, former Air Force officers assume management of civil aviation authorities and companies; Navy officers do the same in the maritime sector and the Suez Canal; their Signal Corps counterparts move into the telecommunications and information technology sectors; and Army officers dominate construction, land transport, and public works. Officers in charge of the Department of Armed Forces Clubs and Hotels have, predictably, moved into the tourism sector after retirement, while a former head of the EAF’s Department of Morale Affairs became minister of information in 2011 and then head of the Egyptian Radio and Television Union. Similar patterns have emerged in more incongruous contexts: three of four heads of the Arab Organization for Industrialization have been former Republican Guard commanders, for example, and all heads of the Central Agency for Public Mobilization and Statistics since 1977 have come from EAF ground forces, in clear displays of the sinecure principle.
The second main pattern is the symbiosis that has gradually emerged between different arms of the informal and formal military economic sectors. Initially this was primarily the result of path dependency, as fiefdoms tended to concentrate in sectors regarded by successive presidents and governments as engines of the Egyptian economy, most notably major public infrastructure and associated services, select manufacturing and feeder industries, and related administrative and regulatory public agencies. The parallel expansion of the EAF’s loyalty scheme and launch of the government’s privatization program in 1991 accentuated the concentration of retirees in these sectors, but probably still reflected a legacy factor rather than a clear strategic rationale. A principal exception was the MOD policy of placing EAF officers in the civilian agencies responsible for planning the use of state land, although this appears to have been driven by national security concerns as well as an early attempt to generate rent.
Since 2013, however, a more coherent strategic purpose has driven the deepening of activity and investment in economic sectors in which military actors are already prominent, as well as expansion in others. The discernible pattern of public bodies (including state-owned companies) that are headed by EAF retirees but have civilian deputies who are professional managers or specialized in the relevant fields may reflect a growing awareness of the need to ensure productivity and even profitability. This offers significant military influence, if not control, while leaving the business of actually running these bodies to competent individuals. But the result remains more a symbiosis between the formal military economy and the officers’ republic than a synergy: advantageous to each but failing to produce a greater combined outcome. In this sense, the informal military economy is only marginally more than a facsimile of the rest of the public sector. Another sign of strategic management is the rotation of a cadre of politically reliable EAF officers between various government agencies and state-owned companies—often but not always within the same sector—and also to top bureaucratic positions within local government.
But rather than indicating the existence of a shadow economic board run by the military with effective oversight and extensive control, the revolving-door phenomenon more likely reflects converging but distinct factors: the MOD’s employment of officer networks to secure its interests in specific sectors such as external trade and supply, on one hand, and on the other, the extension of presidential power through the governors who represent him while also complementing military economic activities. All serve the regime maintenance logic that has governed Egypt since the establishment of the republic in 1952.25 Officer networks, and the loyalty scheme that binds them to the incumbent administration, will have to be dismantled if any Egyptian government is ever to exercise effective economic management and attain sustainable development.
A Military Managerial Elite, or Military Fiefdoms?
There are four major types of public institutions involved in economic activity in Egypt besides government ministries: local government productive enterprises, services general authorities, economic general authorities, and public sector companies, of which the last two are the principal economic actors. Public sector companies will be discussed later, but there are currently between fifty-one and sixty-one general authorities responsible for assets and operational budgets, regulatory frameworks, investment and development decisions, and implementation in the most important sectors of the economy, including the Suez Canal, petroleum, supply and trade, social and health insurance, public infrastructure and land reclamation, and others. To these should be added some of the roughly 120 services general authorities that affect economic activity or generate income in one way or another. The general authorities operate as semi-autonomous corporations under Law 11 of 1979, which separated their budgets from the general state budget.26
EAF retirees occupy an important position in the general authorities that award government contracts in a wide range of areas including transport, housing, construction and land reclamation, public infrastructure and utilities, mining and quarrying, petroleum, tourism, media and telecommunications, energy (including nuclear), and religious endowments. Established by presidential decree, most come under the relevant ministries responsible for these sectors, with the exception of a few that are fully autonomous, such as the Suez Canal Authority. In 1995, additionally, Presidential Decree 281 established general authorities with a specific remit of planning, implementation, operation, and maintenance of works relating to potable water and sanitation in individual governorates.27 On the eve of the 1991 privatization program, general authorities accounted for 23 percent of Egypt’s total GDP. Their operating budgets are financed either through their own activities, the National Investment Bank, or foreign assistance channeled through the government—and most operate at a loss.28
Of 72 general authorities surveyed for this report, EAF retirees were heads, deputy heads, or board members in 40.
Of seventy-two general authorities surveyed for this report (mostly economic, but also including some services), EAF retirees were heads, deputy heads, or board members in forty (56 percent) in 2018. This does not include the ten subordinate authorities of the MOD, all headed and staffed by EAF officers. Retirees also occupy a similar proportion of positions in roughly two dozen government bodies that shape the economic sphere: so-called national authorities that oversee railways, insurance, pensions, mail, and so on, which are established in separate laws and equal in status to ministries; national councils or centers that undertake planning or set policy in specific, narrow fields such as energy and land use; and central state agencies that provide oversight, regulation, and statistics and other information. Some general authorities moreover have regional or provincial branches that are often headed by retirees, a foremost example being the Ministry of Housing’s Central Construction Agency, which is a major employer of former EAF engineers.
The sectoral distribution of EAF retirees reveals an especially marked concentration in transport infrastructure and associated services; certain utilities; housing and urban settlements; and land reclamation. They head or sit on the board of: fifteen out of sixteen general authorities for transport (land, including roads, bridges, and tunnels; maritime, including the main sea ports; and aviation) as well as the National Authorities for Tunnels and for Railways; two of three general authorities in housing and new urban communities; one of two land reclamation authorities; three of seven in the agricultural sector; and the NAPWASD.
Contracting and construction are clearly the common denominator, but control of land use is a key enabler: it lies at the basis for the military’s business-oriented approach, and EAF retirees have headed the National Center for Planning State Land Uses for nearly two decades. Control over land use moreover underpins the extension of the officers’ republic into the development and construction of tourist resorts in mainly coastal areas, many of which come under MOD jurisdiction as “strategic zones.” EAF retirees head or sit on the board of seven of eleven general authorities for tourism. For the same reason they are heavily present in important regional agencies, most notably the Suez Canal, Suez Economic Development Corridor, and Sinai Development Authorities. EAF retirees additionally play important roles in government agencies linked to real estate, including educational buildings, religious endowments (which manage assets worth an estimated EP70 billion in 2016, or $4.24 billion), and real estate management for national insurance.29
Control of land use is a key enabler: it lies at the basis for the military’s business-oriented approach, and EAF retirees have headed the National Center for Planning State Land Uses for nearly two decades.
The officers’ republic naturally also extends into land reclamation and related large-scale agriculture projects, continuing a long line of involvement that has been uninterrupted since the Nasser era. As Robert Springborg noted in the late 1970s, “Neither Abdel Hakim Amer’s nor Gamal Abdel Nasser’s death terminated the presence of former military officers, most of whom had been Amer’s clients, in those sections of the bureaucracy and public sector responsible for reclaiming and farming reclaimed land.”30 They were committed to the continuation of these activities, he added, believing them to be desirable and “because without such activity their respective state companies and organisations would be left with little or nothing to do.”31 This emphasis persists, forty years later. The head of the General Authority for Reconstruction and Agricultural Development, an EAF retiree, sits on the board of the Egyptian Countryside Development Company that was formed to implement the reclamation of 1.5 million feddans of desert land on Sisi’s orders in 2014, along with the head of the EAF Engineering Authority and an assistant to the minister of housing who is also a retired EAF officer. The land moreover lies in the area of past land reclamation projects in which the EAF has been invested for decades at Farafra, Toshka, West Minya, and al-Maghrah.32
The officers’ republic also encompasses six of nine general authorities under the Ministry of Trade and Industry, affecting the activity of both public and private enterprises. EAF retirees exert added influence through national bodies such as the Central Agency for Public Mobilization and Statistics—the sole agency authorized to issue official statistics, which has been headed by an EAF retiree since at least 1980—and the AMA. AMA officers moreover sit on some eighteen other government bodies such as the National Payment Council, the Supreme Council for Tourism, and the Supreme Council for Investment, extending presidential power but also potentially serving the officers’ republic. Retirees additionally have a significant presence in the Egyptian Radio and Television Union (commonly known as Maspero), while, as noted above, the sitting chief of staff of the EAF Signal Corps is a statutory member of the National Telecommunications Regulatory Authority (as well as of the main telephone company, Egypt Telecom).
EAF retirees exert added influence through national bodies such as the Central Agency for Public Mobilization and Statistics—the sole agency authorized to issue official statistics.
The General Authority for Industrial Development illustrates both the extended reach that the officers’ republic has when one of its own heads a government body that acts as a hub for others. The authority came under a retired EAF officer for the first time in 2011, since then it has always been headed by a former director of the EAF Engineering Authority or Water Department. The major general who assumed the position in 2016 sits on the boards of the AOI, the National Center for Planning State Land Uses, the Industrial Modernization Center, the Executive Agency for Industrial and Mining Projects, the Abu Kir Company for Fertilizers, the General Authority for Standards and Quality, the General Authority for Economic Zones, the Rural Electricity Authority, the Arab Organization for Industrial and Mining Development, the Nuclear Materials Authority, the Environmental Affairs Agency, and the Isotopes Research and Development Center.33
The maritime sector offers an especially telling example of how the officers’ republic has deepened and expanded. Most significant is its enduring grip on the Suez Canal Authority, one of Egypt’s principal foreign currency earners: it has been headed continuously by EAF officers since 1964, and several former Navy commanders are currently also deputy heads. Former Navy officers have dominated twenty-nine of Egypt’s forty-three ports and specialized terminals (for trade, mining, petroleum, tourism, and fishing) for decades, as well as many of the dedicated maritime services companies and dealerships that will be discussed in the next section. This position allowed horizontal extension into bodies such as the Arab Academy for Science, Technology and Maritime Transport, an Arab intergovernmental organization, and its Research and Consultation Center. Seventeen of the twenty-eight members of the latter body’s governing board are Navy retirees who head general authorities and maritime companies.34 Separately, a Navy retiree heads the Union of Arab Navigation Chambers, established by the Arab League’s Economic Unity Council. Yet management of Egypt’s Maritime Transport Sector has been so poor that in 2010 the United Nations’ International Maritime Organization blacklisted it, citing extensive corruption affecting safety inspections and maintenance of ships and ferries.35
The presence of EAF retirees in leading positions within government agencies moreover correlates with the spread of the officers’ republic more widely throughout the bureaucratic apparatuses they head. An incomplete media list of major generals in the Ministry of Transport in 2016, for example, included four advisers to the minister, head of the central administration of general personnel, head of protocol, head of the Maritime Transport Sector and a consultant, head of maritime safety, head and three members of the crisis center, head of the regional implementation sector, head of central administration, head and deputy head of the central department for administrative affairs, and assistant head for properties and advertising at the General Authority for Roads, Bridges, and Maritime Transport, head of the lighthouses sector at the Egyptian Authority for Maritime Safety, head of central administration for areas, head of mobility, and an adviser for ports and lighthouses affairs in the Maritime Transport Sector.36 The ministry was itself headed in 2015–2016 by a retired EAF major general who had previously headed the General Authority for Roads, Bridges, and Maritime Transport in 2014–2015.
Militarizing Local Government
The patterns are similar in local government, which almost certainly contains the largest concentration of military-bureaucrats. They do not have exclusive control, as local government is also heavily staffed by former police and security officers, generating what Robert Springborg labels a duopoly of domination.37 But the embedding of EAF retirees in local government is so extensive, nonetheless, that it imparts a powerful impression of military ubiquity throughout Egypt’s public space. There are currently twenty-seven governorates, which in 2002 were subdivided into 166 centers and 200 metropolitan areas designated as cities, followed by hundreds of city boroughs and 4,617 villages (of which 920 were large enough to have their own municipal council). Since the 1960s, officials at all levels of local government have been appointed by executive order (governors by the president, heads of centers and cities by the prime minister, and so on down the line), making it an ideal sinecure for EAF retirees.38
The embedding of EAF retirees in local government is so extensive . . . that it imparts a powerful impression of military ubiquity throughout Egypt’s public space.
The number of governors with a military background reached an all-time low of some 20 percent toward the end of the Sadat presidency in 1980, but rose to between 50 and 80 percent consistently since the 1990s, with a sharp but temporary dip under the Morsi administration in 2012–2013. The pattern has intensified since the military takeover of July 2013, with seventeen of twenty-seven governors appointed in November coming from the EAF (besides two police generals). This was higher than the average during the Mubarak era, which was already high. Their number was maintained in the next main round of appointments announced in August 2018, dipping to sixteen by 2019.
Although important, the number of governors diverts attention from the more significant fact that military retirees hold an even larger proportion of subordinate posts in local government: deputy governor, director of the governor’s office, secretary general and assistant secretary general of the governorate-level local council, as well as assistants and advisers to the governor in a wide range of specialist areas. The pattern is replicated at the lower administrative levels of centers, cities, urban boroughs, and villages.39 Each governorate and its subordinate centers and cities moreover have their own directors of planning, properties, finance, projects, as well as technical and engineering affairs who additionally run service departments, branches of utilities companies, and other government entities. These officials replicate or oversee the work of central government agencies in the areas of social, health, welfare, and educational services and development, often determining how the latter’s budgets will be spent locally. EAF retirees also head central departments of the Ministry of Local Development, such as the agencies for the development of villages and of crafts.
The high profile of military retirees in the media encourages citizens to credit the EAF with services delivered by the local government. Less visible is the parallel economy run by local heads of geological and environmental departments and other administrative services, who exploit their control over registration and licensing for businesses, nongovernmental organizations, quarries, mines, and the like to generate illicit income from bribes and racketeering. This accounts for reports showing corruption in state bodies is highest in local government.40 These patterns are especially pronounced in governorates deemed to affect national security such as Sinai, which has a particular concentration of EAF retirees as well as mineral resources and government investments.
The high profile of military retirees in the media encourages citizens to credit the EAF with services delivered by the local government.
Local government demonstrates the overlapping of different parts of the informal military economy. The distribution of governorships follows a clear pattern: former military region commanders (drawn from the EAF ground forces) have usually assumed governorships in Cairo (or its four subdistricts), Suez, and the Sinai Governorates, for example; the Navy customarily takes mainland coastal governorates, and the ground forces or the Military Intelligence and Reconnaissance branch govern sensitive inland border regions such as Upper Egypt. The distribution correlates extensively with the map of economic and public works projects undertaken by formal military actors and their informal counterparts in government agencies. All moreover invest heavily in highways and associated infrastructure and services connecting these areas of concentration.
Governors are selected among EAF officers deemed particularly loyal and effective in serving presidential power, and for this reason rotate frequently between positions in the informal military economy. To take just two recent examples, Major General Amro Abdel-Monem directed the EAF’s Arms and Ammunition Department and then its procurement office in Washington, DC, under Mubarak, became secretary general of the Council of Ministers following the July 2013 military takeover, then became a deputy minister in 2014, and was finally made governor of Qalyubiyah in September 2016.41 Major General Atef Abdel-Hamid Mostafa, who became governor of Cairo in the same year, previously headed the EgyptAir Company for Maintenance and Technical Services and EgyptAir Holding Company from 2002 to 2008.42
Then minster of local development Ahmed Zaki Badr justified the heavy reliance on officers in 2016 by arguing that “others don’t approach the position of governor or like it because it carries a heavy burden with no reward, and [competitive contenders] shy away from such posts.”43 As if to prove his point, nineteen out of ninety-three top-ranking candidates in a competition to appoint “excellent leaders” in the ministry that July came from the EAF alone.44 Ironically, Badr’s own replacement in the reshuffle of ministerial posts in February 2018 was EAF retiree Major General Abu Bakr al-Jundi, who had headed CAPMAS since 2005. One of Jundi’s first acts as minister was to set up a new body, the South Upper Egypt Development Authority; both the MOD and MOMP are required by law to be represented on its board of directors, and an EAF retiree heads its board of directors.45
Penetrating State-Owned Enterprises
The extension of the officers’ republic into state-owned economic enterprises forms a second principal component of the informal military economy. Like so many other aspects of the military economy, this has its roots in the Nasser era. But it was the launch of the Egyptian government’s Economic Reform and Structural Transformation Program in 1991 that offered EAF retirees the most significant commercial opportunities, which they were quick to seize. Privatization moreover coincided with the start of Tantawi’s tenure as defense minister, accelerating the loyalty scheme he oversaw. Predictably, the sectoral distribution of EAF retirees in the civilian administrative bureaucracy discussed in the previous section and in public sector companies has been very similar.
As political scientist Gamal Selim noted, the EAF officer corps has been “the primary pathway to senior government positions since the time of Nasser,” and that included heading public sector companies.46 Political economist Samia Sa’id adds that the extension of Egypt’s security management to Syria during the short-lived union between the two countries (1958–1961) and the Egyptian military intervention in Yemen (1963–1967) boosted the military bureaucracy’s involvement in a wide range of commercial activity, as did Amer’s heading of the Higher Council for Public Enterprises of an Economic Character from April 1961 onward.47
The gradual liberalization of the Egyptian economy from the mid-1970s widened the scope for employing retired EAF officers by allowing the creation of an estimated 240 joint ventures with domestic and foreign private sector companies.48 As Robert Springborg and Clement Moore Henry argued, Sadat compensated the military for its “nominal loss of power and permit[ing] the rehabilitation of the civilian political system” with “patronage derived from quasi-privatized economic operations, many of which were placed under the military” and with the means of “establishing methods of remote control that ran through the political economy.”49 A partial list compiled by Sa’id gives a sense of the diversity of companies and sectors in which military retirees held senior positions or stakes: the newly established Nile and Delta International Banks, tobacco imports, real estate investment, building supplies, printing and publishing, the Peugeot dealership, maritime navigation and shipping, granite and marble production, construction, stationery, footwear, and cultural preservation.50 Major state-owned companies such as the Arab Contractors Company also employed “scores of generals at ten times their former salary,” and has consistently been a subcontractor for MOD-run projects ever since.51
The launch of privatization in 1991 provided a major fillip to this part of the informal military economy. The Economic Reform and Structural Transformation Program, which was designed with the help of the International Monetary Fund and the World Bank, grouped 314 state-owned enterprises in the industrial and trading sectors under twenty-seven holding companies and placed them under market-oriented management.52 At that time, public enterprises produced around 10 percent of GDP and employed about 6 percent of the labor force, and additionally dominated the banking and insurance sectors.53 Public Enterprise Law 203 of 1991, which regulated the program, exempted these enterprises from following standard procedures for awarding procurement and works contracts required of government entities. It also empowered boards of directors to award employees—and themselves—competitive salaries, benefits, and pensions as well as discretionary bonuses, placing them on par with private sector firms. In short, it released Egypt’s public enterprises from the restrictions previously imposed on them as nominally joint stock companies formed under Law 97 of 1983, and now treated them the same as private enterprises in all respects unless specified otherwise.54
A 1980 bill had placed the budgets of public sector companies outside the state budget, but after a 1991 law they could privatize their profits while nationalizing losses.
Crucially, Law 203 applied not only to companies slated to be privatized but also to those remaining in public ownership. As Khalid Ikram, a former director of the World Bank’s Egypt department, observed, the law put public sector businesses on an “almost equal footing with private enterprises in terms of administrative, financial, and employment policies.”55 This generated an unprecedented opportunity for their directors. A 1980 bill had already placed the budgets of public sector companies outside the state budget, although their net deficits would be financed by the state, but now they could privatize their profits while nationalizing losses.56 This was no less true of the military economy.
Military responses to privatization were nonetheless contradictory. On one hand stood economic nationalists who opposed selling off what they regarded as successful state-owned enterprises. As one of his cabinet colleagues later recalled, Tantawi lobbied especially hard against the sale of the major Alexandria and Cairo banks during the second main wave of privatizations in 2002–2007, but was overruled by Mubarak.57 According to a former general, public sector companies—including military ones—depended on borrowing from state-owned banks to pay their employees, building up bad debt.58 As a leaked cable from 2008 showed, the U.S. embassy in Cairo also believed that the “military views the [government of Egypt’s] privatization efforts as a threat to [the military’s] economic position, and therefore generally opposes economic reforms.”59
But the military also opposed privatization because buyers often simply wanted to strip former public sector companies of their assets, especially land, and threatened social and political stability by dismissing workers. The latter concern was justified, as employment declined in almost 75 percent of privatized companies.60 Indeed, following Mubarak’s ouster, the SCAF pointed to its earlier opposition as proof that it had been defending the national interest even before it refused his orders to use force against protesters during the 2011 Arab Spring.
On the other hand, the officers’ republic benefited significantly from the Economic Reform and Structural Transformation Program, as EAF retirees enjoyed massive increases in income through appointment to public sector companies, whether or not they had been privatized. Based on his discussions with EAF officers in active service, a former cabinet minister confirmed in 2011 that the chiefs of staff and their deputies from the various EAF service branches could, upon retirement, typically look forward to earning monthly salaries of EP1 million (then $168,000) for directing military-owned companies.61 Indeed, they might also sit on the board of one or more public sector companies while in service, receiving salaries of EP250,000–EP500,000 ($42,000–$84,000) from each.
“Institutionalized corruption,” as the minister called it, was the epitome of the loyalty scheme. According to an avowed government opponent, the chief executives of fifty-five of the largest companies in Egypt, which collectively control as much as one-third of the economy, were EAF retirees in 2014.62 Both figures are exaggerated, but contain some truth. Retired officers were also well positioned to benefit from the sale of shares in select public sector companies by prior arrangement (rather than open auction); the MOD acquired a 75 percent stake in Nasr Company for Services and Maintenance, for example, with retirees holding the balance.63
Political Connectivity and Crony State Capitalism
The pattern of penetrating recently privatized public companies depended heavily on political connections. It also revealed the extent to which state capitalism survived in Egypt, where the regime could have its cake and eat it too, as Robert Springborg and Clement Moore Henry noted, running a crony system while appearing to comply with the pro–free market Washington Consensus.64
For nearly two decades, the lion’s share of the fully or partially privatized part of the economy was captured by businessmen and politicians close to Mubarak or his eldest son Gamal, many of them also affiliated with the governing National Democratic Party. According to economists Daron Acemoglu, Tarek Hassan, and Ahmed Tahoun, there was no overlap between NDP-connected and military-connected firms, and NDP-connected firms were about ten times more valuable than military-connected ones.65 But the shift of political fortunes after 2011 reversed the picture as companies quickly modified their boards “to include more representatives from the group currently in power during each phase of Egypt’s Arab Spring,” most pertinently the EAF. There was a “sharp drop in the profitability of military-connected firms” during the short-lived Morsi administration, followed by “a discernible increase in [the] number of officers on company boards after 2013.”66 Twelve public sector holding companies with EAF retirees on their boards moreover controlled or held stakes in thirty-three of 177 companies listed on the stock market in 2013, by the count of Acemoglu, Hassan, and Tahoun.67
Notably, the sectoral distribution of military-connected public sector companies matches the rest of the military economy almost perfectly. Like the registered military companies and military-connected general authorities, these public sector companies are concentrated primarily in the maritime and aviation sectors (43 management, services, shipping and handling, and storage companies) and in infrastructure and transport (31 companies, all but two of them fully publicly owned). They are also prominent in chemicals- and petroleum-related manufacturing and in textiles (14 companies), food supply and storage (14), construction and contracting (11), tourism (9), energy (5, including related transportation and services), and real estate, cars, and trade (7). These figures are based on a survey undertaken for this report that showed 137 military-connected public sector companies in 2016; an updated survey revealed a slight decline, but EAF retirees still headed or sat on the boards of 128 of 374 companies, or 35 percent, with the ratio holding as true for those that have been privatized (fully or partially) as for those remaining in full public ownership in May 2018.68
The advantages of market-oriented management, especially the shift to more liberal rules for the award of contracts and to commercial sector financial incentives for directors, prompted a parallel response. General authorities had not been privatized under Law 203 of 1991, and thus remained subject to standard government civil service pay scales, but the managers of some sought to convert them into holding or subsidiary companies. This was approved in the case of the national airline (EgyptAir), the main national airport authorities, and almost all other authorities in the aviation sector, which actively lobbied for conversion. The maritime sector notably did not follow suit, however, possibly because of its poor commercial viability. An adviser to the World Bank, Sufyan Alissa, moreover noted that many public sector managers “used their access to public money and networks to establish their own private companies or purchase other [state-owned economic enterprises],” allowing expansion and diversification.69
Penetration of state-owned economic enterprises offered the officers’ republic access to a very considerable slice of the national economy regardless of privatization. The process slowed to a trickle after 2008, but 382 companies had been privatized—about one-third of them fully—and a few dozen others liquidated by 2014. Public sector companies had contributed approximately 37 percent of GDP in the 1980s, accounting for some 55 percent of industrial output and controlling over 80 percent of external trade and some 90 percent of the banking and insurance sectors.70 But even after divestment, what had been re-labeled the “public business sector” still dominated much of the economy, perpetuating and even magnifying the scope for cronyism. For example, a World Bank blog post observed that while the performance of fully privatized companies had improved, partially privatized ones showed no improvement, mainly because they had not undergone a change in management.71 In other words, privatization offered privileged actors such as the officers’ republic greatly increased salaries and benefits packages, while masking the continuation of bad business practices and inefficiencies.
Privatization offered privileged actors such as the officers’ republic greatly increased salaries and benefits packages, while masking the continuation of bad business practices and inefficiencies.
As Egyptian researcher Mohamed Abdel-Salam argued in relation to the energy sector, the creation of new public sector companies whose mandates overlapped with those of existing general authorities made it extremely difficult to judge their economic performance, due to the subsidies they received from the latter. Favored middlemen bought products such as gas at subsidized prices to sell on to consumers at significant profits, while company officials engaged in “rampant graft in gas exploration and production contracts with foreign partners.”72 The pattern was similar in other sectors, where “sweetheart loans, below-market valuations of state assets, and other methods commonly used to reward regime cronies” applied, as Shana Marshall noted.73 This helps explain why public sector holding companies that were originally created with the purpose of maintaining operations until they were privatized were instead expanding and buying into more businesses.74
These perverse incentive structures shaped the behavior of all economic actors, and the officers’ republic was no different. Defense spokespeople routinely tout the superior management skills and relevant expertise of EAF officers to justify their penetration of the public business sector, but their track record speaks differently for the most part. Commonly, in the words of one foreign consultant, “When you meet with company directors or board members they are retired generals who understand nothing about the sector they are in.”75 Indeed, the research conducted for this report reveals a marked pattern of competent civilians appointed as deputies to military heads of company boards to ensure effective management, or of civilian-headed boards that co-opt EAF retirees as members simply to assure them of a sinecure, without assigning them serious responsibilities.
Military Commercial Fiefdoms
Sectoral fiefdoms similarly emerged in the public business sector. Former officers of the EAF Water Department dominate the twenty-four subsidiaries of the Holding Company for Water and Wastewater, for example, while Air Force retirees dominate aviation companies, as well as virtually all their branches, such as regional airports and associated services companies. An informal roster moreover shows retirees rotating constantly from one company board to another across the public business sector—and often the general and national authorities and governorships—perpetuating both the loyalty scheme and the military’s reach.
A random review of military-connected public sector companies confirms patterns of penetration similar to those found in general authorities. Access at management level moreover offers wide scope for employing EAF retirees at lower levels; in some cases the potential is massive, as with the Holding Company for Food Industry “consumer complexes” that have 4,000 cooperatives countrywide, or the Ministry of Housing’s Construction and Housing Cooperatives.76 Major public sector construction company Hassan Allam gives a sense of the scale: according to an admittedly hostile Muslim Brotherhood media outlet, it was compelled to hire sixty retired major generals in 2016 alone.77
Military-connected public sector companies also closely resemble defense industry companies in their economic inefficiency and poor financial performance. This affects companies both large and small. The Cairo Ferries Company, headed since 2008 by an EAF major general, was found to have racked up debts of EP80 million (approximately $5.2 million) by May 2016; all of its fifty employees were reportedly EAF retirees at the time.78 A parliamentary committee revealed in the same year that the Alexandria Refrigeration Company, which had been slated for liquidation in 2002 with losses of EP15.7 million, was still in operation fourteen years later, while the Holding Company for Food Industry, to which it belonged, had failed to collect EP455 million in arrears from various contractors, including EP285 million from private firms, all of which prompted suspicions of fraud.79 Indeed, the holding company’s head, a retired major general, was arrested on corruption charges in May 2018.80
Clearly, the giants of the public business sector have fared no better. For example, the Central Accounting Organization estimated that the Holding Companies for EgyptAir (the national airline) and for Airports and Aviation and their subsidiaries—which are dominated by Air Force retirees—had lost EP7.5 billion (roughly $1.19 billion) between the 2010–2011 and 2013–2014 fiscal years.81 In July 2015, the head of the National Navigation Company, a retired Navy admiral, revealed that only eight ships remained of its original fleet of seventy, and that it owed EP100 million for insurance, taxes, repairs, and spare parts.82 Hassan Allam delayed paying statutory workers’ profits for seventeen months in 2015–2016 due to insufficient turnover from new projects, while employees accused its head, a retired EAF major general, of selling company vehicles and employing his relatives at high salaries.83 Hassan Allam was only one of thirteen subsidiaries belonging to the Holding Company for Construction and Development deemed by the government to be in need of assistance in 2015; fellow construction giant Mukhtar Ibrahim was in debt by EP350 million.84
In this period, companies in the public business sector were boasting dramatically improved results despite poor performance, thanks not to increases in efficiency and productivity, but to the redirection of public funding.
As with their defense industry counterparts in the same period, companies in the public business sector were boasting dramatically improved results despite poor performance, thanks not to demonstrable increases in efficiency and productivity, but to the redirection of public funding. For example, the head of the Holding Company for Construction and Development, a retired EAF major general, admitted in 2014 that performance was weak, with only EP1 billion in turnover and EP40 million in profits in the preceding financial year, and proposed restructuring subsidiaries that were underperforming or in liquidation in a new asset management company that would work with the private sector.85 Instead, turnover reportedly jumped in the following year to EP6 billion, with profits of EP480 million, as the holding company was awarded EP18 billion in government contracts to work with the EAF Engineering Authority on the Suez Canal expansion and national roads plan.86
The head of the holding company moreover engineered a similar financial turnaround for a troubled subsidiary of his holding company, the Arab Company for Engineering Consultancies, by making it the exclusive consultancy firm for the holding company’s other subsidiaries.87 The fact that government daily al-Ahram described his decision to penalize the head of the Arab Company for Engineering Consultancies, another retired EAF major general, by transferring him to a smaller company as “banishment” revealed how clearly the loyalty scheme is commonly seen to function.88 It also underlined the constant rotation between posts that is so characteristic of the officers’ republic.
Rotation was graphically displayed by the musical chairs played out when the head of the Holding Company for Food Industry, a retired major general, was arrested for corruption in May 2018. Both his deputy and his replacement were also retired EAF major generals, one of whom had previously headed a subsidiary of the holding company, the General Company for Wholesale Trade, and then the holding company itself in 2016.89 Indeed, the Ministry of Supply and Internal Trade, to which the holding company belonged, has been headed by retired EAF Major Generals Ali Mseilihi and Mohamed Abu-Shadi in the past few years.
Similar patterns hold in sectors such as petroleum, in which a particularly high number of services companies operate. The new head of the Sinai Company for Petroleum and Minerals Services in June 2018, for example, was a former Republican Guard officer who had undertaken a stint as defense attaché in Kuwait before becoming an assistant to the head of the Ganoub al-Wadi Holding Company for Petroleum and then security officer at the major state-owned Egyptian Natural Gas Holding Company.90 The officers’ republic clearly reproduces itself continually in these and other cases. For example, when the National Petroleum Company inaugurated its own hospital in 2016, it appointed a retired EAF major general to head it.91
That public business sector companies have functioned as fiefdoms is especially well demonstrated by the example of al-Nahdah Cement Company, a subsidiary of the Chemical Industries Holding Company. In early 2016, Nahdah’s executive director was a retired EAF major general who had formerly been deputy governor of Qena, where the subsidiary is based, while its head of public relations was another retired major general, formerly a member of the ruling NDP’s Policies Committee. Some years earlier local protesters had complained that 75 percent of Nahdah’s staff came from the same local clan as its head of security, a police major general and also a former NDP member. The entire board of directors was dismissed for undisclosed reasons in 2016, and two military retirees (including a former head of the EAF Engineering Authority) were brought in to run the company in quick succession.92
Conclusion: Mutual Defense
The distribution of EAF retirees across the state’s bureaucratic apparatus and publicly owned companies during the latter two decades of the Mubarak era reflected a mix of drivers. At one level, former officers responded to privatization by entering economic sectors that offered the best opportunities and incentives, much as civilian managers and private businessmen did. They moreover gravitated naturally toward sectors or individual government agencies or companies with which they had dealt during their active service, whether this was in one of the EAF’s operational branches or in a military company or factory operating in the same field. This partly explains the concentration of retirees in certain manufacturing or transport sectors, for example, or in construction. At another level, conversely, the growth of the officers’ republic after 1991 also revealed strategic purpose and coordination, best shown by the positioning of EAF retirees in “nodal” government agencies that control land use, telecommunications, information and statistics, or auditing.
The massive expansion of the remit of formal military agencies in managing public works, generating revenue, and brokering supply to civilian markets since 2013 has impacted the officers’ republic, albeit in subtle ways. Its role and distribution do not appear to have changed significantly: the proportion of EAF retirees in management positions in government agencies and publicly owned companies has not altered appreciably in most sectors. But there has been a general reconfiguration of influence and networks within the state bureaucracy in favor of the military. Most importantly, this has resulted in the displacement of competing networks in lucrative sectors such as media, oil, and natural gas that were previously the quasi-exclusive domain of the GID. Crucially, the rentier logic driving all participants in the informal military economy remains unchanged, and EAF retirees will seek new opportunities in the wake of the formal military agencies, so long as their role continues to expand. But the officers’ republic is more than an opportunistic tailgater: lying at the end of a conveyor belt starting in the EAF senior officer corps, it both offers and is assured of defense against any future effort to restructure and rationalize, let alone dismantle, the military economy.