Egypt’s generals have a big secret: They own at least 35 factories and companies – and they refuse to privatize them. These factories are not engaged in defense activities; they produce non-military goods and services. Despite the policy of economic liberalization asserted before and after the revolution, the military’s civil enterprises remain untouched. This economic empire situates Egypt in neither a socialist economy nor a neo-liberal one: It is an “ambivalent market.”
Former President Hosni Mubarak’s regime purposely created ambiguity in the country’s economy. On the one hand, it attempted to abide by the 1992 agreement with its creditors to liberalize the economy under a World Bank plan and privatize state-owned enterprises. On the other hand, the regime did not want to risk angering the military elite who controlled a good portion of the public sector in various forms.
Thus, when Mubarak (a military man himself) privatized more than 300 state-owned factories and companies, the army’s holdings remained intact and run in an archaic, non-competitive Soviet manner. Furthermore, the retired generals and colonels proved inexperienced and inefficient managers of these enterprises and created corrupt, patron-client business networks with government and private beneficiaries.
There are three major military bodies engaged in civil production: the Ministry of Military Production, the Arab Organization for Industrialization, and the National Service Products Organization. According to the official numbers published by the company managers in national newspapers, the first owns eight manufacturing plants and 40 percent of their production is geared toward civilian markets, while the second owns 11 factories and companies, with 70 percent of their production going to civilian markets. The third, the National Service Products Organization, is engaged in civil manufacturing and service industries, producing a wide variety of goods: luxury jeeps, infant incubators, butane gas cylinders and even foodstuffs (pasta and poultry products). They also provide services such as domestic cleaning and gas station management.
Because of the lack of public accountability and transparency, determining the annual income of military businesses is almost impossible. Experts estimate that the military controls about one-third of the Egyptian economy, but it is the non-defense activities that we know least about. Whereas official statements suggest their enterprises make a total of $750 million a year, workers have claimed higher figures – as much as $5 billion from only one company.
In 2007, after 15 years of neoliberal transformations, Mubarak amended the Constitution to remove Gamal Abdel Nasser’s socialist articles.
Even so, the wording of the new Constitution was ambiguous. Mentions of the public sector, to which the military enterprises belong, were mixed with the new language on privatization. Article 4 in the 2007 constitution stated: “The national economy is based on free economic activity, social justice, the protection of various forms of property and workers’ rights.”
The same document later added that the state should protect the public sector and national cooperatives, as well as regulate the activities of the private sector toward a “greater national good.” Meanwhile, between 2004 and 2011, the “government of businessmen” formed by Gamal Mubarak’s close circle of tycoons privatized dozens of state-owned enterprises. None of the military businesses were among them. Moreover, retired army officers were placed in prestigious positions (as high administrators and board members) in the privatized companies and factories.
When the Supreme Council of the Armed Forces (SCAF) drafted a post-revolutionary constitutional declaration last March, it copied Mubarak’s amended Constitution verbatim, thus ensuring that military properties would remain safe. Article 5 of SCAF’s constitutional declaration was an exact copy of Mubarak’s Article 4.
Ironically, under a legally mixed status, the two appointed Cabinets of SCAF and their ministers of finance repeatedly assured American officials that post-revolutionary Egypt would continue to abide by the rules of a market economy. They promised they would not reverse any of the measures the deposed regime took in transforming to neo-liberalism. In response to several court decisions that have recently annulled corrupt sale contracts of state-owned factories, Minister of International Cooperation Fayza Abul-Naga affirmed that no privatization deals would be canceled and the state would not reclaim industries already sold.
Two 2008 WikiLeaks cables emerged that indicated Field Marshal Mohammad Hussein Tantawi and the Egyptian military hierarchy were largely critical of economic liberalization because it undermined state control. As Margaret Scobey, the former U.S. ambassador to Egypt wrote, “The military views [the government of Egypt’s] privatization efforts as a threat to its economic position, and therefore generally opposes economic reforms. We see the military’s role in the economy as a force that generally stifles free market reform by increasing direct government involvement in the markets.”
Tantawi’s skepticism of neoliberal economics has little to do with his loyalty to the socialist model of the Soviet Union, where he received his training as a young officer. Rather, he resents the potential of privatization to encroach on the military’s vast economic empire.
In Upper Egypt, the manner in which the military benefits from its ambiguous economic position becomes more conspicuous. While in Cairo the civilian Parliament closely follows a checklist of economic liberalization, including eliminating farmers’ subsidies and selling state factories, the appointed governors in Upper Egypt – for the most part retired army generals – maintain major industries as state monopolies after eliminating subsidies. This creates a crisis with suppliers, who are forced to sell to a state source with none of the benefits or windfall of a controlled economy.
For example, southern sugarcane cultivators have to submit their harvest every season to the state-owned sugar factories – the sole producer of Egypt’s sugar – but no longer have access to subsidization for seeds, fertilizers or machinery. Farmers are forced to sell unfairly at prices set decades ago, leading to protests and strikes even after the January revolution.
The revolution overthrew Mubarak, but it has yet to overthrow the ruling military elite and its economic monopolies. Maintaining the army’s unaccountable businesses and rendering them immune to privatization, while keeping an arbitrarily mixed system in the country, severely hurts the economy at a critical moment. It forces the revolutionaries to continue to fight for social justice against the SCAF.
Zeinab Abul-Magd is an assistant professor of history at Oberlin College and at the American University in Cairo. This abridged commentary first appeared at Sada, an online journal published by the Carnegie Endowment for International Peace.