September 14, 2016

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TSG IntelBrief: The Egyptian Military’s Expanding Economic Role

Egypt’s military industrial complex is expanding to new heights, and recent events indicate that the Egyptian Armed Forces (EAF) has become the institution of first resort for almost any economic challenge. On September 1, the exorbitant price of baby formula in Egypt prompted a group of mothers to stage a protest in Cairo—a rare and increasingly dangerous occurrence in Egypt’s current political climate—after which the EAF said it would intervene in the market and provide formula at below market rates. The move is indicative of both the diminishing economic relevance of Egypt’s non-military institutions, and the EAF’s eagerness to demonstrate its value by responding to economic challenges with pragmatic, albeit unorthodox, solutions. 

The EAF has been the prime economic actor in Egypt since the time of President Gamal Abdul Nasser in the 1950s. While the military’s finances are officially secret and free from civilian oversight, estimates of the EAF’s share of the Egyptian economy range from 2 percent—as alleged by President al-Sisi—to 60 percent. Today, the military is involved in almost every economic sector; from major infrastructure projects, education and real estate, to pasta, olive oil, and other consumer products. A slew of benefits—including subsidized labor from conscripts, tax-exempt status, and company boards staffed by former officers—help the EAF to crowd out private sector competitors. The military is also a broker in Egypt’s foreign economic relations, as demonstrated by its prominent role in deals with the UAE and Saudi Arabia—both key backers of Egypt’s military regimes—as well as other foreign investors. 

The EAF has demonstrated time and again that abridging its economic prerogative is a red line, no matter who holds the presidency. By the end of the Mubarak regime, large scale privatization of Egypt’s state-run economy had caused discomfort among the EAF’s business-minded generals. It was also an open secret that Mubarak was grooming his son Gamal—a champion of his father's privatization and liberalization policies—to take over as President. Many argue that the EAF’s growing resentment over Mubarak’s encroachment on its economic autonomy factored into the military’s decision not to intervene on his behalf during the 2011 revolution. Likewise, President Morsi’s willingness to challenge the EAF’s economic privilege was a factor in the military’s decision to remove him from office. Keenly aware of the risk of upsetting the military establishment, since his election President al-Sisi has instituted a host of policies that expand the EAF's economic base beyond its historical purview. For example, al-Sisi has permitted the establishment of for-profit EAF security companies, expanded no-bid contracts, and given the EAF the lead on his signature economic project, the renovation of the Suez Canal.

While the military has historically kept a relatively low profile regarding its economic power, the EAF’s response to the baby formula shortage demonstrates its growing willingness to take a more public role in Egypt’s economic policy. Such vocal attempts to justify its privileged role in the country’s economy were hardly necessary before the 2011 revolution. Since then, however, the EAF has assumed greater power and faced increasing scrutiny. As a result, a significant portion of the Egyptian populace has started to question the wisdom of having a military that is above the law and beyond reproach. In response, the military has sought to justify its coveted political and economic autonomy by tackling issues like the baby formula shortage, and broadcasting the economic benefits it bestows upon the country.

For now, al-Sisi and the EAF have settled into a mutually beneficial relationship in which the EAF provides a political and institutional power base, while al-Sisi allows the EAF to expand its economic empire to new horizons. However, increasing its public economic profile carries a risk of overexposure for the EAF. Egypt is likely to see more issues like the baby formula shortage in the near future as the government imposes austerity measures agreed to under a $12 billion dollar IMF loan. It is doubtful the EAF will be able to respond to every outcry over austerity measures with the same benevolence. With the military taking on more economic responsibilities, the Egyptian public may begin to look to the EAF for financial remedies that are beyond its abilities—and to hold it accountable for poor results. As the Egyptian economy continues its downward spiral, the country’s most respected institution may find its legitimacy under fire.

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