Egypt’s military commercial enterprises are no longer a black box, opening new possibilities for understanding the extent of waste and corruption in the Arab world’s most populous country. The dramatic transformation of the military economy under President Abdel Fattah el-Sisi is less a function of an increasingly militarized political economy than of an officer hierarchy driven to extort as much privilege as possible from its (perhaps limited) time in power.
The military’s main advantage in this capture of state resources is that many Egyptians remember the ostentatious corruption under former president Hosni Mubarak as well as the military’s participation in constructing many of Egypt’s most important public institutions under former president Gamal Abdel Nasser. The Egyptian military, in other words, has taken advantage of a rosy history and economic opportunity to emerge as the core of Egypt’s new ruling class.
Yezid Sayigh’s sweeping and detailed report on the Egyptian military economy contains a vast amount of new material, including empirical evidence from official documents and interviews. His access to officers and others knowledgeable of the Egyptian Armed Forces (EAF) enables him to make a number of critical new observations, including the recognition that much of the military’s involvement in the economy is informal.
The incoherence, informality, and general lack of data on the EAF’s economic operations has made it difficult to compare them to other militaries with economic portfolios. The question that remains is whether the military functions as a unique ruling class because of its control over the tools of coercion, or because it is firmly ensconced throughout the economy, making brute force unnecessary. Is the EAF today merely taking advantage of its newfound power to become a new ruling class, or is it using coercive means in a deliberate plan to remake the economy and bring the country under its thumb?
The evidence suggests opportunism. Previous analysis of the Egyptian military economy has made the EAF’s coercive character the analytical point of departure, but this forestalls the ability to see military officers as an emerging ruling class, alternately absorbing or jettisoning the remnants of Mubarak’s rule. The appointments to corporate boards, managerial posts in large companies, stints as advisers and consultants to public agencies and private firms, and liaisons with international firms on major projects are the perquisites of a ruling class and form the basis of its influence.
A Typical Ruling Class
This influence is not unique, but operates along the lines of a typical ruling class. Control over capital—including access to state funds, conscript labor, capital equipment, land, foreign investment, and formal military aid—forms the foundation for continued accumulation. Whereas ruling classes in other states often rely on accessing overseas markets or creating new opportunities for capital accumulation, the primary source of enrichment for the military ruling class in Egypt is the Egyptian state. Active and retired military officers permeate the state bureaucracy, especially since 2011, when new public contracts and control over huge investment streams from the Gulf began driving expansion of the military economy.
The symbiosis between the military’s formal and informal operations highlights the opportunity exploited by this new ruling class. An officer with a private sector operation to repair luxury sport utility vehicles may acquire spare parts and access to expensive machinery for free, because the military assembles and modifies many similar vehicles under official government contracts. Another officer may have a free villa in a resort area, granted to him by the government, which he can not only rent out, but also use to host foreign businessmen and potential investment partners. Such symbiotic networks of privilege characterize a ruling class that has exploited high defense spending, billions in foreign military aid, and the panoply of institutional privileges accorded it by the state.
The military economy functions like the privileged enclave of a typical ruling class in other ways as well. Military officers enjoy disproportionate access to subsidies, insinuate themselves into political and economic transactions to extract value, and rotate in and out of public agencies and private companies to capitalize on personal connections and access to restricted information. Officers are often paid by private companies to serve in public relations or government affairs roles because they can expedite access to licenses, regulatory exemptions, and other government services. This is characteristic of any rent-seeking or predatory class.
Benefits of State Capture
Substantial benefits result from this rent seeking. The limited accounting and financial information produced by the military makes it difficult for observers or civilian auditors to develop a comprehensive understanding or critique of the military economy. This safeguards the perpetuation of military privilege through efforts to deceive, inveigle, and obfuscate. The military’s ability to creep into every other sector, including banking and finance, combined with the military economy’s manufactured complexity, makes operations difficult for regulators and auditors to control. Military officers are therefore able to replicate many of the privileges enjoyed by military-controlled enterprises in Egypt, like tax avoidance, subsidized inputs, and bailouts.
The military also possesses a powerful institutional identity that influences economic decisionmaking. The military places its members as gatekeepers and fixers in the increasing number of intermediate spaces between public and private sector firms, nongovernmental organizations, development banks, and aid organizations. Military decisionmakers see their institution as a source of structural change, and public support and institutional pride rather than profit drive the EAF to provide basic commodities and medical care at below-market rates. That such public mindedness exists alongside severe inequality in the resources that accrue to high ranking officers emphasizes the lengths to which this new ruling class will go to preserve its privilege.
Khalid Ikram, former director of the World Bank’s Egypt department, points to privileged factions within Egypt that “benefit from economic rents created by inefficiencies in the economy” (75). However, these rents—bribes, villas, below market-rate inputs, and profits skimmed from contracts—produce inefficiencies; they are not the result of inefficiencies. Rents divert resources from where they would be most fruitfully applied, usually in infrastructure, basic health, or education.
Rents are inefficient because resources go instead to benefit individuals that have already accumulated significant wealth, meaning their circulation in the economy is very limited. These extraordinary profits exist because of hyper-efficiencies that result from the very low costs incurred for the exploitation of labor and the natural environment in Egypt, neither of which have thus far succeeded in demanding a just compensation for their use. The new ruling class seeking out such opportunities for rent has created deliberate inequalities that would have been unlikely to result from natural defense sector growth after the military came to power in 2013.
Internal and External Advantages
The package of liberalizing reforms generally prescribed to increase economic efficiency (like privatization and deregulation) would not dislodge the military from its seat of power, nor would it somehow strengthen a group of liberal private sector elites waiting in the wings to take their place. Instead, reform requires massive structural political change from both inside and outside Egypt, as well as increased support to the poor and working classes.
The continued participation of foreign multinationals and wealthy domestic investors in the Egyptian economy, despite the significant price tag to supply bribes and kickbacks, suggests sufficient profit margins to cover a substantial improvement in worker wages and conditions across the board. Prosecuting foreign banks, consulting firms, and other (primarily Western) professionals for facilitating illicit capital flight and tax evasion by wealthy Egyptians would improve economic conditions by providing money for domestic welfare programs and by disempowering the new ruling class that has driven the state to the point of ruin.
The military can continue to garner support from the mass of Egyptians because its delivery of collective goods such as infrastructure, basic commodities, and healthcare is much more visible to the public than the military’s corruption, fraud, and waste. The transition to military-led rule in 2013 may have marked the beginning of the end for the military’s time in power, as further embedding the new ruling class increases the chances that its corruption and incompetence will come to light.
Decades of international aid and investment pumped into extractive or speculative sectors like financial services and luxury real estate have not raised standards of living, but they have created a class of ultrawealthy Egyptians whose continued privilege depends on a poorly run state that cannot tax the rich, prevent illicit capital outflow, enforce labor or environmental protections, or otherwise interfere with wealth accumulation. A nationalist ruling class that occasionally provides collective goods will always garner more public support than a collection of cosmopolitan elites whose language and lifestyles are alien to the vast majority of the population. Part of the military’s political advantage can be laid directly at the feet of the political system it kept in power for decades prior to 2011. Had Mubarak and his Western allies not been so ostentatiously corrupt, the military would need more than drab uniforms and bread dispensaries to convince the people that they were on the same side all along.
Shana Marshall is associate director of the Institute for Middle East Studies at the Elliot School of International Affairs.
