from Pressure Points and Middle East Program

Will the Army Save Egypt’s Economy?

May 6, 2014
11:01 am (EST)

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Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

The success of the most likely winner of the Egyptian presidential election, Gen. Abdel-Fattah el-Sisi, will in the medium- and long- run depend on his ability to revive the Egyptian economy. It’s already clear that the Army wishes to crush all internal opposition--not just from the Muslim Brotherhood, but from the liberal, secular, moderate, and democratic forces within the society. So the Army does not plan to win popularity through respecting citizens’ rights and their dignity. Does it plan to win popularity through rapid economic growth?

If that’s the plan, there is thus far no evidence of it. As Deutsche Welle suggested yesterday,

While privately owned companies struggle under the burden of overall chaos and political insecurity, the army appears to have been unaffected. According to some observers, the army is indeed profiting from the crisis. Over the past months, the government in Cairo has commissioned construction companies operated by the military to carry out several large infrastructure projects. In November, Interim President Adly Mansour had issued a decree allowing the government to skip the tender process when placing an order - companies run by the army have largely profited from that move....

Estimates differ on how much of Egypt’s economy is controlled by the army - figures range from 5 to 60 percent. The country’s defense budget, and other figures that could shed light on the army’s true power, are kept secret. What is clear, however, is that the army has its hands in every single important sector - from pasta production, to manufacture of furniture and television sets, to oil production and infrastructure projects. The army owns hospitals and Red Sea tourist resorts, and has taken a leading role in agriculture. These army-owned companies are usually headed by retired military personnel, who earn well privately in addition to collecting their public pensions....However, army personnel in suits generally lack business expertise. In order to stay competitive, the army had to resort to other measures: Their companies usually don’t have to pay taxes, they profit from massive subsidies and can turn to enlisted personnel as cheap labor.

This is no formula for economic growth, but it’s easy to see how difficult Sisi would find it to curtail the military privileges that so greatly enrich the officer corps and the Army as an institution. Perhaps he’ll surprise us all after his inauguration, but I wouldn’t bet on it. He has already talked about an austerity program, but note who is being asked for austerity:

Egypt’s youth is its hope; they need to give and not expect to take anything now....Egypt needs a lot from us. Egypt’s youth should not be thinking about when will they be able to get married or when will they ‘live’, they need to build the country first. Our economic situation is extremely difficult, right now we can’t ‘want’ anything, we should only ‘give’ to Egypt....Before breakfast, before you put a piece of bread in your mouth, think what you have done for Egypt today.

This is general, broad appeal, and an appeal to Egypt’s youth. Nowhere is there an appeal to the army to prepare for austerity and prepare to lose some of its many economic privileges.

And this is what separates Egypt from the cases where an authoritarian government--Singapore under Lee Kuan Yew, Pinochet’s Chile, Taiwan and South Korea under military regimes--produced considerable economic growth. They did not have armies that controlled huge chunks of the economy, and the military had no reason to fight off real economic reform.

Egypt’s case is different, and considerably worse. If Sisi takes on the military’s economic empire, he will have a tough battle on his hands--and one in which the United States and other friends of Egypt should back him. But there are few indications that, after a career in the army and as the beneficiary of its economic role, he is willing to undertake this task.