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Objective notes on Hesham Geneina’s corruption report

A report on corruption by the Central Auditing Authority stirred deep controversy in Egypt and led to the dismissal of its president, Hesham Geneina, and his prosecution in June on the charge of spreading false news. With the report made available in full by Mada Masr, we can now attempt an objective, systematic evaluation of its claim that corruption cost the country LE600 billion between 2012 and 2015.

Regardless of the outcome of this evaluation, my political stance remains the same: I reject the attack on the CAA’s independence and the prosecution of Geneina for either his intentions or his unannounced political beliefs. Furthermore, an objective assessment of the CAA’s report does not change the fact that corruption is rampant in Egypt, and that this corruption has a high economic, social and political cost.

Geneina’s report: A first look

The report consists of 350 pages. It is a compilation of several CAA reports prepared between 2012 and 2015 that evaluated the performance of state institutions across multiple sectors. These reports were collected in order to calculate the cost of corruption resulting from squandering and damaging public funds.

Despite the magnitude of the task, the report offers no clear methodology. It neither provides a procedural definition of corruption from which we can derive quantitative criteria to estimate the losses resulting from it, nor does it set a specific timeframe for the incidents it examines.

The report refers to incidents monitored between 2012 and 2015 but dating back to the mid or late 1990s. For example, on page 62, we find a reference to the squandering of public funds due to a private company failing to pay installments on land allocated between 1997 and 2002. Page 61 looks at land allocations in 1995 that were in violation of the 1998 tenders law — rather interesting, considering that the deals were made before that law was issued.

Plainly, several incidents that occurred prior to 2012 are included in the estimate made by the report, decreasing its accuracy. The study should have a clear timeframe in order to be meaningful.

As for the lack of a clear methodology for defining corruption, the report contains repeated references to corruption as “the squandering of public funds.” This broad definition is occasionally narrowed down to focus on losses to the treasury in the form of funds the government was entitled to but, for one reason or another, failed to collect.

In this regard, the report conflates many different forms of corruption. Some incidents in are clear and direct examples of the government not collecting its dues, such as cases in which the state did not collect payments it was owed by public companies who received land allocations or cases of infringement on state-owned land. When calculated according to a “fair price” — meaning the price of a similar piece of land in the same area — violations of this type amount to the larger part of the estimated LE600 billion cost of corruption.

The report also includes many other examples of corruption, but does not clarify how these violations impacted the public treasury. This includes the frequent practice of allocating state-owned land to entities, individuals or companies through direct orders rather than competitive bids. This, of course, was part of the crony capitalism that took root in the era of Hosni Mubarak, and violated both the Tenders Law and market logic. These practices can certainly be regarded as corrupt, but it is not clear they fit into the report’s own definition of corruption as a matter of losses to the public treasury.

In many cases, especially in the era of the former Housing Minister Mohamed Ibrahim Suleiman, land was allocated at set prices to private companies or individuals, or to associations representing employees of a particular government body. This amounted to preferential treatment of some at the expense of others, but in cases where these entities paid their bills, can we really consider this kind of nepotism to be costly to the state according to the narrow definition adopted in the report, which is supposed to lead to an estimate of LE600 billion?

Assessing land deals

Almost half of the report is devoted to discussing the cost of corruption in economic and service authorities, with a special focus on the sectors dealing with state-owned land. Particular attention is paid to the New Urban Communities Authority, the Ministry of Housing and the General Authority for Reconstruction Projects and Agricultural Development. This section is the source of most of the estimated cost of corruption, and thus merits a deeper discussion.

The basic component of this cost estimate comes from two types of violations.

The first is the sale of state-owned land to private companies, often without competitive bids, at below market price or what the report calls a “fair price.”

The second concern parcels of land that were allocated long ago but later revoked due to violations, such as failure to meet contractual obligations to develop it in a set timeframe. The report outlines multiple cases in which government agencies were either lax in revoking the land or issued administrative decisions to revoke the land but did not execute them. Then, the CAA calculates the potential return if the state had re-sold the land at market value.

There are several comments to be made here.

First, the report does not clarify how a fair market price is calculated.

Second, the report puts forward a single scenario — it assumes the state takes back the land and then re-sells it, as if the General Authority for Reconstruction Projects and Agricultural Development is a company that administers the state’s assets. In fact, the authority’s own law puts it, along with the Ministry of Housing, in charge of the administration of state land for developmental purposes such as the construction of new cities and population redistribution. Its mission is not to maximize state revenue through real-estate speculation.

As it happens, the practice of selling state land at high prices significantly increased under former Housing Minister Ahmed al-Maghrabi, often via public auction. This led to a crazy rise in land prices in so-called “new areas,” desert land that was supposed to be cheap in order to encourage the population to move out of the Nile Valley and Delta. This practice generated some income for the state, but much greater profits were made by giant real estate development companies through the increase in the value of desert land.

The report proves that a number of violations, corrupt practices and conflicts of interests occurred in the final years of the Mubarak era. But it’s possible that land allocations made by direct orders were done so in order to serve non-financial aims like population redistribution — at least in theory — and that maximizing sale prices isn’t the sole standard by which these transactions should be judged.

Third, the larger part of the estimate of the cost of corruption is based on calculating the market value of land in cases of violations and infringements on state-owned land, and which legally falls under the authority of the New Urban Communities Authority or the General Authority for Reconstruction Projects and Agricultural Development.

The problem of infringement on state land is not necessarily a result of corruption, unless we expand the definition of corruption to a degree that would render the concept meaningless. It is true that infringements and violations constitute loss to the state and to the economy. But to assume that the failure to eliminate them is always a result of corruption — meaning the misuse of public office for private gain — ignores the very real problem of state entities’ inability to enforce the law, especially when it comes to reversing violations and infringements on public land.

This inability leads to informal settlements, construction on agricultural land, and the seizure of state-owned land. In the report, the weakness of law enforcement institutions is illustrated in cases where administrative decisions are issued to remove land or buildings, followed by “lax” execution of these orders.

However, to categorically view this “laxity” as a form of corruption is to ignore the real, physical power required to execute such decisions — power that is definitely beyond the capacity of these government agencies. Moreover, many of these phenomena result from demographic pressures and systemic failures in housing policy that have resulted in the majority of urban expansion in Egypt being based on illegal construction. Informal settlements make up some 60 percent of urban space in Egypt and house around 70 percent of the population.

Fourth, the report provides a detailed description, supported by facts and numbers (the number of acres, the purpose they were designated for and the official prices agreed upon for them) of patronage networks that were widespread in the Mubarak era, especially under housing ministers Suleiman and Maghrabi.

Here, the report presents a wealth of information that illuminates the structure and workings of these networks, which were based on informal relations between the private sector — particularly the major real estate companies — and the state institutions charged with the planning and allocation of state-owned land. We see how capital and authority overlapped in such a way that the latter regularly created the former. These networks do not necessarily fall under the definition of corruption adopted in the report, but the information the report contains is indispensable for understanding, analyzing and dismantling crony capitalism.

Fifth, the report estimates the direct losses caused by delayed payments from private companies, and from the state’s failure to collect fines when land allocated at low prices for activities like farming was instead used for more profitable ventures like real estate development or tourism. The report indicates that these violations were frequent, and most probably systemic, and that government agencies failed to collect fines or charge price premiums due to the land-use conversions.

If these payments, fines and price premiums had been collected, the direct cost of corruption would be in the tens of billions, not in the hundreds. This does not, of course, negate the fact that these are huge sums of money, particularly for a government where tax revenue is barely able to finance half of expenditure, leading to a dependence on domestic borrowing and foreign aid to meet the annual deficit.

The petroleum sector

In the sixth section, concerned with corruption in the petroleum sector, the report takes on a structure and methodology completely unrelated to the first section or the unified introduction of the report.

In this section, we find a detailed description of the public companies in the sector, and a detailed narrative of technical and financial issues that have nothing to do with identifying corruption costs.

Surprisingly, this section contains no numbers we can use to calculate the cost of corruption. It recounts the many administrative, technical and financial problems that plague the Egyptian General Petroleum Corporation and its companies, without explaining how they are associated with corruption. It also outlines more general problems, such as issues with petroleum subsidies and their impact on the budget, and the absence of investments in assets like refineries and the consequent weakness in production that in turn leads to an increased need to spend hard currency to import fuel. All these problems are important at the macroeconomic and policy level, but they are unrelated to any notion of corruption according to the report’s own definition.

What the report really exposes

The bottom line is that the CAA report does not contain data to support its estimate of the cost of corruption at LE600 billion. It does, however, expose the weakness of one of the biggest monitoring bodies in Egypt, highlighting the absence of even a minimal level of methodological consistency and a general inability to carry out an accurate study.

This does not mean that report exonerates the state. It is replete with information and details about the ways in which officials exploit their power, the overlap between authority and capital, and the mechanisms of the patronage machine that controls access to state-owned assets.

The report also exposes the weakness of Egypt’s legislative framework and administrative systems, and the lack of capacity to enforce the law – all of which have an enormous effect on the economy as a whole and thus the public treasury. The report is not, however, sufficient to generate a firm estimate of the actual cost of these deficiencies.

We can say there is an urgent need to build the capacity of Egypt’s monitoring agencies and to ensure their independence rather than subjugating them to the executive branch, which they are supposed to be overseeing. A lack of both capacity and independence compounds the problems of corruption, mismanagement and inefficiency that currently mar the work of almost all state institutions.

The cost of corruption in Egypt may not be LE600 billion, but how much is it? Is it less or more? This question remains unanswered, waiting for an objective response that could enrich public discussion and provide solid ground on which to build political positions in future debates. But these discussions should take place in the halls of Parliament, in universities, syndicates, NGOs, research centers and other places — and definitely not in the courts.

 

Translated by Asmaa Naguib

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