Tuesday, February 15, 2011

Egyptian military's ownership stake in the economy

...the Egyptian military has an enormous stake in the national economy. Inspired in part by their Soviet military mentors, the Egyptian army under former President Nasser developed the idea of strategic self-sufficiency. The idea was for the military to supply, feed and arm itself.

But in the post-Cold War era, that idea has morphed into a financial free-for-all that has seen the military invest in lucrative businesses far beyond bullets and bread. The military now owns fertilizer and chemical plants, vast real estate holdings, road construction firms, factories that make home appliances, clothing and much more. "They have wide-ranging economic interests from bottled water, raising cattle, construction — things far removed from any sort of military industries," notes Egypt expert Michael Hanna with the New York-based Century Foundation.

While protest leaders might want to eventually bring civilian oversight or free-market reforms to the Egyptian military's multibillion-dollar empire, Hanna notes that they are also practical.
RYSSDAL: So tell me how the army manifests itself in the economy. How do you know? What do you see?

WAHID HANNA: Well a lot of this is an open secret in Egypt. They have vast economic holdings. They own land. They're in construction. They're in consumer goods, automobiles, things that are far removed from any possible relation to military industry. And they employ many people. There are estimates that this could be as much as 10 percent of the official Egyptian economy. These aren't things that are discussed widely in Egypt. This is something of a taboo topic. The exact parameters and dimensions and scope of the Egyptian military's holdings is something that you have to read between the lines.

RYSSDAL: I imagine -- being as entrenched as the military is in the economy -- they have certain structural benefits with tax rates and employment, and all that stuff?

WAHID HANNA: Sure. Their workers can't strike. They don't pay corporate taxes. They're able to acquire property at vastly reduced sums. They're able to employ their own soldiers at times as labor, and so they have all these institutional advantages that make their economic enterprises very lucrative.

RYSSDAL: Is it a well-run bureaucracy or is creaky and old and not incredibly efficient?

WAHID HANNA: Well, much like the rest of the Egyptian economy, it has major inefficiencies. One big challenge is that much of the resentment among the Egyptian protesters has been against the crony capitalism that has taken place in recent years. And this was something that grew up around young businessmen that were associated with Gamal Mubarak.

RYSSDAL: Hosni Mubarak's son, we should say.

WAHID HANNA: Yes. Exactly. But there is a bad taste in many people's mouths around the notion of economic liberalization. It's gotten a bad rap. And now it's become associated with corruption. So there isn't a mood in the country, writ large, to try to liberalize the economy. In fact, many of the strikes going on now are by state workers demanding higher pay and better conditions. ...
It owns companies that sell everything from fire extinguishers and medical equipment to laptops, televisions, sewing machines, refrigerators, pots and pans, butane gas bottles, bottled water and olive oil.

Its holdings include vast tracts of land, including the Sharm el-Sheikh resort, where ex-President Hosni Mubarak now resides in one of his seaside pala-ces. Bread from its bakeries has helped head off food riots.
In a September 2008 classified cable recently released by WikiLeaks, U.S. Ambassador to Egypt Margaret Scobey wrote, "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."

The cable noted "the military's strong influence in Egypt's economy," with military-owned companies, often run by retired generals, "particularly active in the water, olive oil, cement, construction, hotel and gasoline industries."

As for the civilian government's privatization initiatives - headed by Mubarak's son Gamal before he was ousted from his party post - they were viewed "as a threat to (the military's) economic position, (which) therefore generally opposes economic reforms," according to the cable.

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