The money behind the Egyptian military

CAIRO – One year into Egypt’s unfinished revolution, fateful questions loom here in the most populous nation in the Arab world as it leans forward into a new and uncertain future.

How to square a hope for democracy with a history of autocratic rule? What will be the role of religion in shaping a new constitution and what will the sweeping victory by Islamist parties in recent elections mean for the rights of the Christian minority, women and so many who put so much on the line in this revolution to make Egypt a more democratic country?

But of all the questions casting a shadow across Egypt, there is one that is most sharply in focus right now as the tumult of the ‘Arab Awakening’ continues to unfold in the region.

That is, what role will the military play in a new Egypt?

Will the military relinquish its executive power, which it currently holds through the governing Supreme Council of the Armed Forces (SCAF), as it has promised to the Egyptian people and guaranteed to its US benefactor?

What is clear in assessing this question of succession of power is that Egypt’s 350,000 strong military has everything at stake in a new Egypt — most pointedly its $1.3 billion in annual assistance from the United States and the vast, multi-billion dollar economic enterprise the Egyptian military has built up over the last 60 years.

A timetable is set, the governing generals say publicly and US officials confirm privately, for a transition of power in July when the first civilian president is modern history is expected to take office.

But the political process in Egypt does not trust this timetable. That was made dramatically evident earlier this month when Mohammed ElBaradei, Nobel laureate and a leading presidential candidate, withdrew his candidacy in protest. On January 14, he pulled out of the race before it really got started because he said the governing SCAF and the forces of the old regime were still firmly in place and unlikely to allow a civilian government to implement the reforms needed for a democracy to take shape.

Most analysts and retired officers here say that the military’s increasingly brutal show of force foreshadows the fact that it is not likely to give up executive power easily in large part because it seeks to hold on to its sprawling economic interests — that stretch from industry to hotels to supermarkets and huge real estate portfolios.

Amr Hamzawy speaks with GlobalPost-Open Hands Initiative 'reporting fellows' in Cairo in October 2011. (Elizabeth D. Herman/GlobalPost)

Like so many things in life, it seems it’s all about the money.

But how much are we talking about? GlobalPost has spent several months of reporting in Cairo and Washington to try to come up with some sense of the scale — if not a precise figure — of the military’s economic might.

Newly elected parliamentarian and leading public intellectual Amr Hamzawy and others in the more secular, liberal parties have announced their intention to directly challenge the SCAF to get a better accounting of the bottom line of the military’s largely hidden assets and business interests. Extravagant perks for retired generals, who often end up as heads of large corporations despite having virtually no business experience, is a charged issue in a country where 40 percent of the population live on less than two dollars per day.

For 60 years, the military’s financial empire has been completely hidden from the scrutiny of the parliament, which in the past was appointed through elections that were hardly free and fair and rarely challenged the regime. Now that has changed, and newly elected parliamentarian is a big part of that change.

Hamzawy, a former research director for the Carnegie Middle East Center and political science professor at Cairo University, has researched the military and Egypt’s economy for years and estimates that the military may control up to 30 percent of Egypt’s total $180 billion economy, or $60 billion.

This, Hamzawy told GlobalPost, is why “they are keen on securing their economic assets” by trying to preserve the remnants of the old regime that will allow them to continue to avoid transparency and accountability to parliament.

Other more conservative estimates of the military’s economic holdings, including one by Mohamed Kadry Said, a retired major general and long-time military analyst for the Al Ahram Center for Political and Strategic Studies, put the figure at an estimated 8 percent of GDP, or about $15 billion.

Western diplomats in Cairo and Egyptian experts interviewed by GlobalPost say somewhere in the middle of these estimates, or about $35 billion, is a safe guess.

But the reality is that none knows the precise extent of the Egyptian military’s economic holdings because successive authoritarian regimes have made sure it was kept secret.

Paul Sullivan is an expert on Egypt who lived and worked there for many years and taught at the American University of Cairo before becoming a professor of economics at National Defense University and adjunct professor of security studies at Georgetown University. He says the military budget is somewhere between $3 billion and $7 billion with $1.3 billion in direct military aid provided by the US and a further $1 billion from Saudi Arabia and about $700 million from other donor countries. The military payroll carries 350,000 servicemen on active duty as well as pensions and jobs created through its economic holdings for millions more.

So while money motivates the Egyptian military to keep its controlling hand in government, the threat of withdrawing funds by the US and other donors is essentially an important form of leverage. For the US that leverage is particularly important in getting the country to live up to the Camp David agreement between Egypt and Israel, which is wildly unpopular among Egyptian voters. US officials are keenly aware of this fact, but as has been pointed out in Cairo diplomatic circles, the money card can only be played once.

The larger reality is that Egypt’s overall economy slowed in the global economic crisis and then came to a near standstill in the aftermath of the street protests that toppled President Hosni Mubarak one year ago.

In the last half of 2011, Egypt reported zero growth in its $180 billion a year economy. That is particularly ominous in a country of 80 million people that needs to produce 175,000 jobs a year for its ever-growing youth population. The military’s control — some would say stranglehold — of so many sectors of the economy, will ultimately hold Egypt back from making the economic reforms and improved regulation needed to revitalize its economy. SCAF announced last week that they would seek $3.2 billion in assistance from the International Monetary Fund to prop up the faltering economy. The request came after a brash — and careless, many economists believe —rejection of IMF funds by the SCAF in early 2011, when the ruling generals had greater confidence of public support and a sense that they could turn the street demonstrations into a stable return to governance by the old guard.

Sullivan explained that part of the military’s motivation in first backing the pro-democracy movement was to try to reassert its power, particularly in economic terms, at a time when the Mubarak regime and most pointedly his son, Gamal, were taking more and more control of economic sectors and privatizing them through a corrupt network of cronies.

He said that the auditing is very precise on where the US funding goes and that since the 1978 Camp David Accord, when Egypt became the second largest recipient of US assistance after Israel, there has been a two-star American general appointed to head up what is known as the Office of Military Cooperation at the US Embassy which serves as a liaison between the US and Egyptian militaries.

“That’s a tight ship. We know where that money goes. But the question is in the larger economy and where the military has its interests, that’s where there is a lack of transparency,” said Sullivan.

Taking into account the military’s links to real estate development, industrial sectors ranging from the manufacturing of tanks for export to bakeries for domestic consumption to toll roads, airports and sea ports and other business interests, Sullivan says a “conservative” estimate is that the military would control as much as 15 percent of the total GDP.

A glimpse of the military’s economic might emerged last week when the government-run media reported that the military had provided $1 billion to the Egyptian government’s central bank to help prop up its faltering currency. It has raised a question by economists and military analysts alike as to how many militaries in the world have sufficient revenue to bail out their own government?

Former Egyptian Ambassador to the US Nabil Fahmy. (Tim Grucza/GlobalPost)

Former Egyptian Ambassador to the US Nabil Fahmy said bluntly, “If you could do that, you must have a lot of money.”

Past and present US and Egyptian government officials interviewed in Washington and Cairo all say that the military and its full economic portfolio are very much a “black box,” as one former American official put it.

GlobalPost has interviewed more than a dozen officials, including retired Egyptian generals as well as former and current diplomats and military attaches, and tried to get a baseline of the Egyptian military’s reach. Here’s what these officials confirm:

The military owns huge tracts of land around Cairo where opulent residential developments are built and officers are given housing. In New Cairo, there is a new national sports stadium being built by the Air Force. The military controls bakeries, farmland and industrial factories that make everything from tanks to toasters as well as hospitals and the toll roads to the highly profitable port of Suez. The economic empire is present at just about every turn in a country where they openly hold claim to gas stations, hotels, shopping complexes and even their own chain of supermarkets.

Dating back to the era of President and General Gamal Abdel Nasser in the early 1950s, the Egyptian military has built up nationalized industries and in more recent decades it has transformed them into a kind-of privatized economic empire. What started off as a culture of perks for retired generals to serve as executives and high-level managers in these enterprises has become, according to a growing list of critics, a culture of corruption.

But Sullivan cautions that the US will have to tread carefully in pushing the military to reform. It will require balancing the rise of the Muslim Brotherhood and the challenges it might present to American interests against the long-standing connections the US has with the generals who’ve backed the regimes that have ruled the country for so long. (The Muslim Brotherhood’s political arm, the Freedom and Justice Party, won nearly 40 percent of the seats in parliament in the just-finished elections for the lower house.)

“It’s a dangerous moment, and the last thing we want to is inject ourselves into a highly emotional and time and create a wave of anti-Americanism. And so if we want to retain a reasonable, productive relationship with Egypt we have to support the democratic movement and encourage the military to be part of that,” he said.

“We should engage cautiously and quietly with the Muslim Brotherhood,” he added, “even if there is legitimate concern about what the Muslim Brotherhood will do when they get a taste of power.”

And so while role the military will play in the transition of civilian power is the most pressing question now, Sullivan and others believe the next big question in Egypt is already appearing on the horizon: What will the role of religion be in a new Egypt?

This story is presented by The GroundTruth Project.