The Armed Forces and business: Economic expansion in the last 12 months
 
 

Since President Abdel Fattah al-Sisi’s appointment in mid-2014, the Armed Forces’ economic activities have expanded and diversified. According to researchers, the last 12 months have witnessed swift expansion into several sectors, documentation for which can be found in the Official Gazette, minutes of official meetings and media reports.

The Armed Forces’ economic projects are typically conducted through four parties: The National Service Projects Authority, affiliated with the Ministry of Defense, the National Authority for Military Production, affiliated with the Ministry of Military Production and the independent Arab Organization for Industrialization, all three of which run a number of factories and companies. The fourth party is the Armed Forces Engineering Authority, affiliated with the Ministry of Defense, which engages in civilian and military infrastructural projects.

In the following sections, we explore the areas in which the Armed Forces and its affiliated parties had a strong presence in the last year.

Government enterprises

The past few years have seen military-affiliated institutions gain control of a number of previously state-administered enterprises. In mid-August, the Ministry of Endowments decided to commission the Ministry of Military Production with selling 10,000 feddans of its lands in Kafr al-Sheikh to investors, with the intent of creating an investment hub in the governorate.

The Ministry of Supply also announced that an agreement had been reached effectively transferring responsibility for the smart supply card scheme and the bread card program, used for the distribution of subsidized bread, from the Ministry of Planning to the Ministry of Military Production, according to the state-owned Al-Ahram newspaper.

In the same month the Ministry of Military Production signed a protocol with the Holding Company for Drinking Water and Sanitation, affiliated with the Ministry of Housing and Urban Development, stipulating that it will take charge of manufacturing 3 million water meters over a five-year period. According toAl-Ahram, the project was assigned to the Ministry of Military Productions without a tender process.

The Ministry of Military Production has also partnered with the Ministries of Planning, Communication, Agriculture and Finance to automate agricultural tenure cards for farmers. This involves automating an estimated 7 million cards at a cost of LE357 million in the project’s first phase, according to a reportpublished by the privately owned Al-Mal financial newspaper.

General Mohamed al-Assar, state minister for military production, stated during the same meeting that his ministry also participated in the review, auditing and registration of family cards, logging data from 20 million cards covering approximately 80 million individuals. Additionally the ministry took part in healthcare schemes for the poor in 27 governorates, servicing an estimated 3 million beneficiaries, as well as the field technical support scheme for the population census in collaboration with the Central Agency for Public Mobilization and Statistics (CAPMAS).

In addition to all of the above, the Ministry of Military Production signed yet another protocol of cooperation in August, this one with the Long Live Egypt fund, the New Valley Governorate and the Social Fund for Development to build commercial shops in New Valley, aiming to provide employment opportunities for the youth.

In the same month the Holding Company for Airports announced that the Armed Forces started negotiations on its behalf to obtain biometric equipment used to register the entry and exit of airport staff, and monitor their movements during working hours.

Roads

In July 2015 the Cabinet agreed to several decrees authorizing the National Service Projects Authority to take on the management, operation and maintenance of the national roads project, according to minutes from a meeting published on the Cabinet’s website.

Last June Sisi issued decree 233/2016, which assigns the stretches of land on either side of highways built by the Ministry of Defense, measuring 2 km deep, to the Armed Forces. The ministry considers these strategic areas of military importance that cannot be passed on to private ownership. Twenty one highways were affected by this decree.

The Ministry of Defense also participated in a significant number of road construction projects, including the new regional ring-road connecting Delta cities, the Cairo-Ain Sokhna road, the development of the Cairo-Ismailia road, the development and expansion of the Cairo-Suez road, the General Saad al-Shazli axis, the Joseph Tito axis and the Pyramids Desert axis in addition to a number of other roads and bridges, as reported on the website of the Ministry of Defense.

From September to October 2015, a crisis erupted between several advertising agencies and the National Service Projects Authority and the General Department for Roads and Bridges, affiliated with the Ministry of Transport. The conflict arose after the latter parties froze the permits of companies leasing advertisement billboards on the Cairo ring-road, informing them that they were no longer responsible for advertising works on a certain section of the road. Companies wanting to operate there now have to apply via an auction organized by the National Service Projects Authority, if they pass a “security clearance.”

Although several of the agencies received court orders in their favor, the authority and the General Department for Roads and Bridges refrained from executing them.

In October, 2013 the Cabinet granted the National Company for the Construction and Development of Roads, affiliated with the National Service Projects Authority, responsibility for the completion, management and maintenance of the Cairo-Alexandria desert road.

The decree, published in the Official Gazette on October 23, 2013, stated that work on the project had been proceeding at a pace incompatible with both the initial plan, and the financial resources required by the project.

A contract annexed to the decree permits the National Service Projects Authority to contract any other specialized company to aid with the management, operation and maintenance.

Health

In August 2016 the Holding Company for Biological Products and Vaccines, representing the Ministry of Health, signed an agreement with Pharco, a pharmaceutical company, and the National Authority for Military Production to establish the first company to produce oncology medicines in Egypt, according to a report published by the state-owned EgyNews portal.

In a meeting held this August attended by 400 members of Parliament, MP Ahmed al-Awadi, member of the parliamentary Defense and National Security Committee, said that Egyptian Defense Minister Sedky Sobhy had announced that the National Service Projects Authority would take over the importation of infant milk formula. The decision came in the wake of protests against price hikes and a shortage in the subsidized milk substitute.

Last June, the privately owned Veto Gate news portal reported that from July the Armed Forces would also assume responsibility for importing cardiac stents, valves and therapeutic catheters for hospitals.

Statements issued by the administrations of various universities revealed the High Universities Council’s decision to end all public tenders and auctions for medicines and medical utilities. The privately owned Al-Tahrir newspaper writes that this was in preparation for their purchase by the Medical Services Department of the Armed Forces.

Education

The economic branches of the military have extended their reach to include the education sector. The Badr International School, for example, was built by the Third Field Army in Suez, providing American and English schooling systems.

Going beyond the establishment of educational institutions, Mohamed Othman, vice president of educational and student affairs at Cairo University, announced in August this year that the Armed Forces have been contracted to supervise food and housing services for students, according to Al-Tahrir.

Energy

The Ministry of Military Production is moving into the field of solar energy, after signing a memorandum of understanding with the Ministry of International Cooperation and Chinese company TBEA, with the aim of transferring to solar panel technology.

On August 18 the privately owned Al-Masry Al-Youm newspaper reported that Assar met with Minister of International Cooperation Sahar Nasr and Minister of Electricity Mohamed Shaker to discuss a US$3.3 billion Chinese loan to finance a 1000 megawatt solar power plant in Egypt, as well as a factory to produce solar panels.

Last July media channels published news of a partnership between Factory 360, owned by the Ministry of Military Production, and Chinese appliance company Galanz, to produce air conditioning units.

Fish farming

The National Service Projects Authority has incorporated fish farming projects into its portfolio of responsibilities. Last June Sisi issued decree 270/2016, allocating 2815.14 feddans of state-owned land in Berket Ghalyun, Kafr al-Sheikh to the authority, to be used for fish farming. In July he issued decree 313/2016 reallocating 6174.17 feddans of state-owned land in the same region, and in August, decree 332/2016 reallocating 107.5 feddans in the Diba triangle, to the west of Port Said, also for fish farming.

Restoration contracts

Branches of the Armed Forces have engaged in the restoration and renovation of a number of historical and cultural sites. In August of this year a committee from the Armed Forces Engineering Authority announced it would be inspecting a public culture space in the Mahalla al-Kobra governorate, before initiating restoration and renovations.

Gaber Serkis, director of the Department of Cultural Palaces in the Gharbiya governorate, said in August 2015 that the Armed Forces Engineering Authority had begun restoration work on the Tanta Theater and was scheduled to finish renovations and return it to the department by January 2016, according to the privately owned al-Bawaba newspaper.

Last August the Armed Forces Engineering Authority also announced the commencement of a project to improve the technical and managerial efficiency of the National Heart Institute, less than a month after receiving instructions to do so from President Sisi.

New laws and privileges

In past few last years, the Armed Forces’ economic activities have enjoyed a number of legislative privileges. In April, 2012 Parliament approved amendments to the Military Judiciary Law 25/1966 identifying the military judiciary as the sole authority responsible for investigating cases of illicit gains by military officers, none of which have been investigated before their retirement.

Sobhy issued a decree last June exempting 574 military facilities from real estate tax, including 52 clubs, 29 hotels, 18 summer resorts and eight cinemas and theaters in addition to a number of buildings, spaces, supermarket branches, mechanized slaughterhouses, residential buildings and villas.

Last December Sisi issued decree 446/2016 regulating lands vacated by the Armed Forces, ordering that their revenues be used for the building of new military areas.

This decree allowed the Armed Forces to establish companies, either on its own or with national or foreign capital. It also permitted the National Company for Fish Resource Development, affiliated with the National Service Projects Authority, to establish a joint fish farming company with a Saudi Arabian investor and a German company specializing in tuna fish farming, (International Company for Marine Products).

The Armed Forces also enjoys an additional competitive edge since the bulk of its labor force consists of conscripts not subject to civilian labor laws.

Development versus transparency

The increasing involvement of military enterprises in the private sector has become a source of concern for some. Assar used the announcement of the cooperation protocol for the manufacturing of water meters as an opportunity to stress that the “main mission of the Ministry of Military Production is armament and meeting the needs of the Armed Forces.” He added that “efforts in that regard are not made public, but I want Egyptians to rest assured that work in that area is proceeding at the highest level.”

The participation of his ministry in national projects has “many advantageous effects on the state development policy,” in addition to having “a positive economic return on military production companies,” Assar claimed.

Armed Forces spokesperson Mohamed Samir followed a different line of logic when defending the military’s role in the importation of infant formula. In a statement on Saturday, he announced the import of 30 million units of formula by mid-September, claiming this was to fulfill the Armed Forces’ “role in serving civil society.” He added that by buying formula in collaboration with the Ministry of Health at a cost of LE60 per unit and selling at LE30 per unit, “the Armed Forces has landed a blow against the greedy monopoly of traders and companies working in the milk industry. The military is driven by its sensitivity to the needs of citizens, just as with the provision of all basic goods at low prices, including meat and chicken, through its sales outlets in all governorates.”

However, a Transparency International report contends that incorporation of the defense sector in the private sector greatly increases the risk of corruption in a number of countries in the region, including Egypt, Iran and Yemen. The profits of the Armed Forces and affiliated individuals are rarely made public, which exacerbates the secrecy around military spending, the report states, adding, “those at critical risk are Kuwait, Morocco, Iraq, Libya, Syria, Bahrain, Oman, Egypt, Qatar, Algeria, and Yemen as there is virtually no accountability or transparency in regards to defense and security establishments.”

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Mohamed Hamama