Suez Canal: Egyptian Military Takes Charge Of Economic Development

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Egyptian military
A street vendor sells souvenirs related to former Egyptian Defense Minister Abdel Fattah al-Sisi, who is expected to be elected as the nation's next president, including this fake 200 Egyptian pound with a picture of al-Sisi, in Cairo, March 13, 2014. Sisi has been instrumental in the military's takeover of the Egyptian economy after the routing of the Morsi regime and the Muslim Brotherhood.

CAIRO – Only last summer, when Egypt was still in the hands of an Islamist-inspired government, the military appeared vulnerable to losing its lucrative hold on the country's most significant development project, along the Suez Canal.

But as the military has stepped back to the fore of Egyptian political life since deposing President Mohamed Morsi last summer -- ostensibly for not making requested economic reforms -- and imprisoned thousands of his supporters in the Muslim Brotherhood, the generals have expanded their control of the nation's economy, including the vital canal. The military has dominated the economy for decades, but now there are no restraints.
 
“There is nothing that is out of the grasp of the military,” noted Robert Springborg, a visiting professor at the department of war studies at King’s College in London who specializes in Egypt. “It is appointing its people to positions all over the country, taking business contracts from the state, presenting its various companies as partners for international corporations. It is taking charge of the development strategy for the country as a whole.”
 
Nowhere is this clearer than at the Suez Canal. The strategic shipping link through which 8 percent of world trade passes is the focus of the massive Suez Canal Development Project, which will include port and terminal expansions, the construction of a new airport and a new industrial zone, at an estimated cost of USD $8.6 billion during the next two decades, much of which will go to private subcontractors abroad, including in China.
 
The strategic initiative is designed to accommodate increases in the canal’s trade volume. Among the foreign contractors already involved is the UAE’s Dubai Ports World, a global port operator awaiting an international bid offer for the second berth of Ain Sokhna Port, where the company intends to invest USD $600 million, according to a March 17 report by Logistics Trader. The berth would include 500,000 square meters for storing shipping containers, at a cost of $200 million.
 
Egyptian General Mohamed Refaat, acting head of the General Authority for the Northwest Suez Gulf Economic Zone, has also signed a contract with the Chinese developer TEDA to develop six square kilometers in Ain Sokhna. Chinese companies have already built petrochemical, automotive and textile factories along the Suez.
 
For Morsi’s government, vying for control of the Suez project would have threatened the crown jewel of the military's vast business assets. Since his ouster, the military-led government has assumed complete control of the bidding process, selecting 14 companies to bid, with the winner to be announced in October. The military, which is responsible for security along the occasionally volatile canal, is acting as the primary contractor for economic development there, as it is in numerous other projects across the nation of 85 million people.
 

Suez Canal Aircraft carrier USS Nimitz passes under the Friendship Bridge during a transit of the Suez Canal in this handout photo provided by the U.S. Navy, taken on Oct. 20, 2013.

 
The military’s takeover of canal development is part of a larger move to act as the primary driver of the Egyptian economy. The military already manufactures a vast range of products and assets, from oil to Fiat cars, TV sets and baby incubators, owns extensive real estate and land across Egypt, and acts as the contractor in road building projects.
 
With the Muslim Brotherhood effectively out of the way and little public oversight of military activities, the generals now have free reign over the Egyptian economy, and the canal project is a coveted trophy. Revenues from the canal are expected to hit a record high $5.5 billion this year, according to a statement from the head of the Suez Canal Authority Mohab Memish (the Suez Canal Authority did not respond to a request for further comment).
 
Analysts say the military's reemergence as the driving force in Egyptian life came in large part as a reaction to the threat to its economic interests posed by the Morsi regime. The potential loss of control over the Suez Canal strategic area, which has been traditionally overseen by the military and is a huge source of income for the Egyptian economy, threatened the generals and galvanized them to act, Springborg told International Business Times.
 
“The Brotherhood was going to consolidate its economic position through the canal area,” Springborg said. “This would have stripped the military of its control of the biggest development project Egypt will have over the coming two decades.”
 
Reasserting control of the Suez Canal development was a priority of the military leadership after Morsi’s ouster and before the presidential elections are finalized and a parliament is in place later this year. 
 
The military is meanwhile taking over the massive development of public housing projects with the help of Gulf allies. In March, the Egyptian army reached a $40 billion agreement with the UAE’s Arabtec Holding construction company to build a million houses for lower-income Egyptians. The defense ministry and its former minister Abdel Fattah el-Sisi -- who recently resigned his post to run for president, and is expected to win the election -- was himself involved in securing the agreement with Arabtec.
 
Sisi Egypt's then-Defense Minister Abdel Fattah al-Sisi is seen during a news conference in Cairo, May 22, 2013.

 
In a statement, Arabtec CEO Hasan Abdullah Ismaik predicted the housing project will be “a major boost to the Egyptian economy and will help improve the living standards of the Egyptian people. This project is a historic turning point in our pursuit of growing the company into one of the leading groups in the region.”
 
The Egyptian government is in talks to set up a joint venture company with Arabtec to develop the five-year real estate project. “It [the new agreement] is a positive sentiment, especially for Arab investors,” said Amr El Alfy, managing director of MubasherTrade Research, a Cairo-based analysis and brokerage firm. “But it’s a short-term solution to the long-term problem of recovering Egypt’s economy and job creation.”
 
Springborg noted that while it remains to be seen how effective the military will be in getting the Egyptian economy on track, “For the first time since Nasser and the military came to power in 1952, the military has everything in its hands; it has never been true before. It is now operating without any constraints.”
 
Estimates of the army’s share of the economy vary widely, between 1 percent and 40 percent. A reliable figure is elusive because there is no independent civilian oversight of the military budget. As a result of the newly adopted constitution, the military budget is approved by a government panel including the president, prime minister and defense minister. But the military’s growing economic authority has been evident since December 2011, when the Supreme Council of the Armed Forces loaned $1 billion to the Central Bank to support Egypt’s economy and cover the costs of imports. 
 
In rare public statements and recent announcements, military officials tend to downplay their role in the economy. “It’s less than 1 percent of the GDP,” said one military official who spoke with IBTimes on condition of anonymity, and who estimated the military’s contribution to the economy at 0.74 percent last year. “It’s from all the factories, infrastructure, all the companies,” he said. “All of this is for the people, our soldiers and military officers, so we don’t burden the national budget.”
 
Frustrated with years of political turmoil and uncertainty, many Egyptian businesses are giving the military a chance. Karim El Mansi, co-founder and CEO of Pie Ride, a new startup offering shared commuting service in Cairo, said the military “will have to prove themselves. If the Egyptian military manages to stabilize the country, then the investors may come back.”
 
“If the president is able to control the country, then the country will be attractive for investment,” said Ihab El Fouly, a chairman of Nabda Care, a healthcare startup launched after the January 2011 uprising. “Transparency, predictability, clear vision, simple procedures are key for the coming period – if this will happen, there will be a big change.”
 
Yet analysts remain wary of the potential risks of the military’s growing role in the economy, citing the lack of reform and market competition.
 
“If Egypt wants to get out of its mess, it’s not only requiring stability and security, it’s also going to require economic reforms,” said David Schenker, director of the Program on Arab Politics at the Washington Institute for Near East Policy. “Part of that reform is to privatize and reduce state-controlled industries, many of which are not as profitable as they should be.”
 
As a governing institution with its own business interests and little or no public accountability, the military will also have to tackle increasing corruption since the Mubarak years. 
 
“Corruption is getting a lot worse, manipulations of licenses -- it’s easy to license anything,” said Mohamed El Sawy, chief executive officer at Misr Contracting Company. “Generally we need to fix laws and regulations, to make sure there are no loopholes in the laws, how people can get land, to be clear and transparent and to protect the investors.”

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