2023-07-14 22:33:48
In July 2013, Marshal Abdelfattah Al Sisi carried out a non-bloody coup, removing the Muslim Brotherhood from the presidency and restoring military control over all Egyptian institutions, thus ending the first democratic experience after the revolt. popular of 2011.
Since then, the participation of the generals in the country’s economy has increased considerably, until they have become the main contractors of the Egyptian State, executing large civil works, from highways to seaports, hospitals and primary care centers, in up to twenty new cities that have sprung up in the past years in the middle of the desert, including the New Administrative Capital (The Ministry of Defense owns 51% of the company that develops the pharaonic project).
Without going any further, in 2022 an agency of the Armed Forces took over the rights to commercially exploit the parks of the city of Alexandria, the second largest in the country, as well as 36 islands located in the Nile River and the coveted shores of this one as it passes through Cairo, where they have built a cement promenade that, in addition to not respecting the environment, It is not freely accessible to citizens.
Al Sisi, who in recent years has ruled in an increasingly authoritarian manner Crushing all kinds of opposition and silencing critical voices, it has benefited the generals and other security forces, as well as businessmen loyal to the Egyptian regime, while the majority of the population has seen how their living conditions have significantly worsened.
Inflation and debt at record highs
In the past decade, the economy has suffered repeated crises and inflation has exceeded 36% in the month of June, marking its all-time high, according to official data. With food prices skyrocketing, many Egyptians can no longer afford meat, leading the government to suggest they eat Chicken legs to obtain protein intake. The latest official data, published in 2019, placed the poverty rate at around 30% that year (although the World Bank already estimated then that 60% of the Egyptian population was poor or vulnerable).
Since then, the situation has worsened markedly due to several factors, especially the pandemic and the war in Ukraine, which caused the prices of wheat and other basic products to skyrocket on the international market, on which Egypt depends to meet the needs of its more than 105 million inhabitants.
The State pays for a part of the imports and must ensure that there are enough foreign exchange reserves to pay for them, and so that companies can also import raw materials and consumer goods. In recent months, reserves have recovered slightly, standing at 34.8 billion dollars in June, but debt has not stopped growing and represents close to 90% of GDP.
“Sisi and his regime bear the greatest responsibility for the current economic crisis. They have spent the last decade leveraging the Egyptian state to finance their consolidation of power, distribute benefits to their supporters and regime elites, while increasing the state’s vulnerability and the cost of debt, and diminishing its ability to deliver public services.” Timothy Kaldas, associate professor of International Relations at the Autonomous University of Barcelona (UAB) and deputy director of the Tahrir Institute for Middle East Policy (TIMEP), based in Washington, told elDiario.es.
Since Al Sisi took power in 2013 and until mid-2022, the external debt has tripled and so far this year it has not stopped increasing. Currently, the State allocates a third of its budget to pay the debt, which exceeds 165,000 million dollars And while most are long-term debt, many mature in a year or less.
The Army over the State
“There is no doubt that the regime has sacrificed the financial health of the state, even now when the country is in a perilous economic situation. A few months ago, the president issued an order to give the military thousands of square kilometers of state land for practically nothing, the state could have sold this valuable real estate to reduce its deficit”, explains Kaldas.
The political and economic analyst says that, in addition to the Army and the General Intelligence Service (subject to the Presidency) and the companies associated with both, “there are economic elites that have benefited from enormous contracts with the Government”, but also “there are partners outside of Egypt who have benefited.” For example, the agreement to the purchase of Rafale aircraft to France or contracts with the German company Siemens for a value of 8,000 million euros, the largest single order in the history of energy.
The countries of the Persian Gulf have also been “fundamental partners for Egypt to stay afloat and have entered key sectors of the economy such as real estate, energy, healthcare,” adds Kaldas, who explains that the government’s plan to sell shares of dozens of state companies is aimed at buyers from that region: “Actually it is not a privatization plan, but public companies in Egypt are being sold to public investment funds from other countries.” Specifically, from Saudi Arabia, the United Arab Emirates and Qatar.
This same week the Government of Cairo has announced the sale of shares of state companies worth 1,900 million dollars (about 1,700 million euros), 1,650 of which will be received in dollars and will help to slightly increase the currency reserves of the Central bank. A part of these reserves are also deposits from the Gulf countries, which have supported Al Sisi since the coup for political reasons, but they begin to want some benefit in return.
According to a report by the German Institute for International and Security Affairs, the Egyptian Army is “the main beneficiary of the debt policy” and “the foreign debt has helped protect the profits and assets of the Armed Forces” because it has served to finance large projects from which they have profited, in addition to financing directly defensive capabilities and means. In addition, we must not forget that the Egyptian Army receives 1,300 million dollars (about 1,150 million euros) each year in US military aidthe second largest amount, only behind that assigned to Israel.
Declare bankruptcy?
Fears of bankruptcy have been hovering over the country of the pyramids since before the summer, when rating agencies Standard and Poor‘s and Moody‘s downgraded the outlook for the affordability and sustainability of Egyptian debt from ‘stable’ to ‘negative’. The first agency stated that the measures adopted by the authorities “may be insufficient to attract foreign currency flows to cover the high financing needs of the foreign debt.” According to the agency Fitchin fiscal year 2024, Egypt has to return 7.2 billion dollars (just over 6.4 billion euros), including almost 2 billion euros in Eurobonds.
“If the country declares bankruptcy and loses access to any financing through the usual channels, it will be even more dependent on the capital that comes from the Gulf to have foreign currency, to be able to pay for the import of the most basic products that it needs. ”, warns the associate professor of the UAB to elDiario.es. “It would be very irresponsible of them to do that,” he says, adding that “it is worrying that they are even considering” that option, as the independent newspaper Mada Masr, one of the few remaining in Egypt, reported last week, citing government sources.
In addition, Kaldas stresses that Egypt is not complying with the reform plan agreed at the end of 2022 with the International Monetary Fund (IMF) in exchange for a loan of 3,000 million dollars (almost 2,700 million euros) in 46 months, which generates even more uncertainty: “The fact that the military continues to expand its activities in the midst of an IMF program, with which they have agreed to reduce them, is a worrying sign and, without a doubt, it does not give any confidence to those who want to invest in Egypt”.
business of the military
Kaldas points out that the lack of freedom of the press and information has generated a “very unreliable” environment for business in which “real competitiveness for the private sector” is not guaranteed against powerful actors such as the Army, which also are exempt from paying taxes. Military companies even employ young people who do military serviceso labor is free, and they compete with a great advantage over private companies.
In the framework of the IMF reforms, all state companies (including the military) will have to pay taxes, thus improving competitiveness; make its accounts public (something the Army has never done) and improve transparency; and the State has to reduce its participation in the economy in favor of the private sector. However, dozens of activities considered “strategic” are excluded from the privatization plan designed by the Egyptian government, ranging from the food industry to infrastructure.
The Army, either through the Ministry of Defense or entities such as the Organization of National Service Projects, or private companies owned by the generals, develops all kinds of activities: it produces pasta, bottled water and textiles; manages farms and fish farms, intensive farming fields; imports cheap frozen meat and feed, as well as fertilizers; it operates gold mines and renewable energy plants, in addition to owning several cement factories; builds schools and hospitals, remodels civil buildings and is in charge of grand egyptian museumwhich will replace the historic 19th century building and will house the complete collection of Pharaoh Tutankhamen.
As explained by one of the greatest connoisseurs of the Army’s economic empire, Yezid Sayigh, a researcher at the think tank Carnegie in Beirut, “There is no political will or power to implement” the reforms required by the IMF: “Even Al Sisi, the indisputable most powerful man in Egypt, is held hostage to the military’s transactional loyalty to him.”
At the moment, the IMF has not carried out the first review of the Egyptian program, scheduled last March, so the country will not be able to receive the second tranche of the loan (354 million dollars, about 315 million euros), nor has it A date has been set for its verdict, but experts believe Cairo will have to wait until September, at least. Al Sisi will be forced to compromise on some points, but he doesn’t seem willing to touch the privileges of his comrades in arms.
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