El-Sissi and Resource Management in Egypt

Under the pretext of the weakness and flaccid structures of the state's civil institutions and their inefficiency compared with the military establishment and its various agencies, Egyptian President Abdelfattah el-Sissi has placed Egypt’s resources under the army's control. However, this is not just about efficiency; it is about control and loyalty.
2022-03-27

Ali Al Raggal

Egyptian researcher in socio-politics, specialized in Security Studies.


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This publication has benefited from the support of the Rosa Luxemburg Foundation. This text may be reproduced in part or in full, provided the source is acknowledged.

How can we understand the nature and form of el-Sissi's management of Egypt's resources, both human and natural? How does el-Sissi re-exploit Egypt's geographical location and how does he manage it from a security and geopolitical point of view?

El-Sissi from “Egypt, Mother of the World” to “We Are Very Poor”

El-Sissi's central goal was clear from the start; he said it was restoring the strength and prestige of the Egyptian state. Therefore, he was very keen to fully acquire most of the state's resources and maximize them through the army, in particular, and not through the state apparatus itself. But "maximizing state resources" does not mean maximizing the population’s resources and improving their living conditions... or at least not at this stage, as el-Sissi claims, arguing – verbatim - that we are “very poor, very poor indeed.” As for the army’s expansion or el-Sissi's acquisition of resources through the army and placing them under its control, this was done under the pretext of the weakness and flaccid structures of the state’s civil institutions and their inefficiency compared with the army and its various agencies. However, it is not just about efficiency; it is about attaining loyalty and control.

El-Sissi set maximizing control over resources under the command of the army as a precondition for restoring the state’s strength and cohesion of governance after decades of the sluggishness of the state apparatus, the control of the National Democratic Party elites and businessmen over resources, and loosening the government’s grip on the country after the revolution. El-Sissi began his rule with promises that "Egypt is the mother of the world and it will truly be the most important country of all," but now he ended with a constant discourse stressing Egypt's poverty, and the state's inability to provide many services to citizens.

While he evaded improving the living conditions of people to tighten his grip on power, el-Sissi tried to improve the living conditions of the members of the army, so he gradually raised their salaries and improved the services they get. He also raised their pensions to offset inflation and price hikes due to the floating of the Egyptian pound. Unlike the army, el-Sissi relied on the pay increases approved for the judiciary from 2009 to 2014, according to some internal sources. In return, he refused the request of the head of the Supreme Judicial Council to increase the salaries of judges after they complained about the high cost of living. 

 Furthermore, the Ministry of Finance addressed a strongly worded letter to judges. Although el-Sissi adopted the same policy with the Interior Ministry, he paid great attention to it in terms of development and moral support. However, there are many complaints and a muffled grumble among members of the Ministry of Interior who compare their conditions with those of the army personnel and their pay increases.

El-Sissi has improved the living conditions of the military establishment while the Minister of Education and the Minister of Health have complained about the lack of financial resources necessary for the work of their ministries. It became clear, then, that the primary objective of managing and redistributing resources was to grasp the nerve of the state to ensure its loyalty in light of repression and the conflict raging internally and externally.

These options in managing the state’s financial resources have given some indications of el-Sissi's general policy in the public administration of the state and its resources. Weeks ago, both the Minister of Education and the Minister of Health complained about the lack of the financial resources necessary for the two ministries to carry out their work and implement various plans. It became clear, then, that the primary objective of managing and redistributing resources was to grasp the nerve of the state to ensure its loyalty in light of the constant state of repression and the internal and external conflicts.

We can observe three stages of el-Sissi's control and management of resources in Egypt. They are not arranged chronologically but are overlapping. The first stage is the control over the state apparatus, the last of which was amending the Constitution to tighten control over the judiciary and grant el-Sissi more presidential terms. The second stage is the army’s extensive acquisition of production tools and natural resources, such as its complete control over land and quarries, and the expansion of the army in the public sector companies themselves. The third stage is the expansion in loans and domestic and foreign borrowing. This happened in conjunction with the lifting of subsidies and the removal of the state's social burdens to provide funds from the budget that allow the implementation of el-Sissi's mega projects. 

Army, Interior Ministry

Amr Adli (1) , a researcher in political economy, considers that Egypt’s el-Sissi represents a type of economy that can be called “military capitalism”, which is a branch of state capitalism where state institutions, agencies, and companies undertake economic activities according to the logic of the market and to achieve profits like any market entity. However, unlike previous state capitalism cases, such as the public sector during the era of late Egyptian President Gamal Abdel Nasser, the current stage is witnessing a growing role for institutions and companies affiliated with the military in various activities, and in a much more extensive way than it did during the Mubarak era. By issuing a presidential decree, el-Sissi granted the Intelligence and Interior services the right to establish their own security companies. Issuing more presidential decrees, he granted the Engineering Authority [of the Armed Forces] the right to carry out various investment projects and allocated and re-allocated lands for the benefit of various military agencies. As a result, the army acquired one of Egypt's most important resources, land, thereby becoming one of the speculators in the real estate market. Perhaps the most prominent example of this is the new administrative capital and the city of Al-Alamayn, whose lands were allocated through direct presidential decrees in favor of the army. But at the same time, el-Sissi does not aim at reviving the public sector. On the contrary, he is pushing to privatize the rest of the public sector, or to bring the local and foreign private sector into partnerships with it, and to rely on the military, especially in infrastructure projects, housing, and some industries. Wael Gamal (2), an economic researcher, points out that the army is also preying on the public sector, and perhaps the two most prominent examples of this are the iron and cement industries and some pharmaceutical industries.

Furthermore, el-Sissi has used the state's financial resources and his relations with the UAE and Saudi Arabia to arm the Egyptian army and the Ministry of Interior. Egypt became the third importer of  arms (3) in the world, according to the Stockholm Peace Institute, which indicated that Egypt’s imports of arms have tripled in the period between 2014 and 2018 in comparison to the period between 2009 and 2013. The Egyptian army was rearmed by France, Germany, and Russia, along with the continued purchase of weapons from the United States to supplement the US military aid to Egypt since Camp David Accords. One of the France 24 channel reports has indicated Saudi Arabia's participation in financing the French Mistral deal (4).

The armament of the Ministry of Interior varied between equipment, vehicles, armored vehicles, ammunition, and tear gas canisters, as well as the right to produce bullets. Moreover, billions of dollars’ worth of espionage equipment and technologies were imported, many of which were financed by the UAE, according to the same  source (5). Arming the Ministry of Interior and developing surveillance techniques can be understood in the context of the domestic war the regime is waging against the Muslim Brotherhood and “terrorist groups”, and as a way to corner the democratic forces. But this qualitative development in rearmament exacerbated the size of Egypt's debts, which, like the rest of the state's expenditures, depended mainly on the expansion in indebtedness.

Due to the secrecy of the armament issue and the budget of the armed forces, according to the Constitution, it is neither possible to know how these expenditures are allocated in the general budget nor the extent of their impact on the future concerning the issue of debts, in particular.

Regarding the expansion in military rearmament, we can analyze it from more than one angle. First, the domestic reason was to satisfy the army as a military establishment and consolidate the pillars of el-Sissi's rule by ensuring its loyalty by raising its efficiency and developing it. The diversification of armament sources had a positive effect on the army, as it raised el-Sissi's popularity. He is considered the first to have succeeded in diversifying these sources since Camp David Accords; this is at least the view of many officers now. Thus, el-Sissi, succeeded in maneuvering with the United States after the latter threatened more than once to cut off military aid. The second reason was the regional arms race and the fear of existing tensions in the region, where el-Sissi has more than once presented Egypt to the Gulf as potential power. These deals succeeded in buying the silence of Western countries over human rights violations and breaking the isolation that some countries tried to impose on Egypt after the army took control on 3 July 2013. Due to the secrecy of the armament issue and the budget of the armed forces, according to the Constitution, it is neither possible to know how these expenditures are allocated in the general budget nor the extent of their impact on the future concerning the issue of debts, in particular.

Of course, a question arises here about the options of setting spending priorities and the absence of any kind of public participation and transparency in the issue of spending state resources.

Energy: El-Sissi's Obsession and Greatest Success 

El-Sissi came to power at a time when power outages were a constant problem across the country. It was one of the major problems faced by late President Muhammad Mursi during his short reign. The power outage was not the fault of either of them, as both of them inherited worn-out power plants from late President Muhammad Husni Mubarak, severe weakness in the generation of electric power from different sources, and an 89 percent dependence on fossil fuels. El-Sissi relied on diversifying sources of energy-producing electricity and allocated 614 billion Egyptian pounds [about $39 billion] to it from 2014 to 2020. Egypt’s agreement with the German Siemens company was one of the key successes in this field. El-Sissi built wind power plants and a giant solar energy project in the area of Benban. He also started the nuclear reactor project in the area of Addabah.

El-Sissi was extremely successful in the issue of electric power. The power shortage has ended completely, and Egypt has had a surplus of power estimated at between 25 to 35 percent. There are many rumors about Egypt's tendency to export electricity, which has not been clear yet. Indeed, after achieving this surplus, some plants stopped production due to lack of need. Undoubtedly, it was a much-needed success. But it raises a question about planning and the use of power resources. This success is accompanied by doubts about the integration of planning and scheduling. It was necessary to benefit directly from these surpluses, or in the worst circumstances, to expand as much as needed, and to spend on other sectors in light of the budget deficit that the state suffers from. Moreover, despite this success in developing the electricity sector and the adequacy of production, the cost incurred by citizens increases every day, as the state transformed electricity from a service into a commercial commodity.

The subject of electricity does not stop at the social issue because this success was achieved at a high cost and with debt. To build three power plants by Siemens, Egypt borrowed $6.7 billion through a coalition of several financiers: Deutsche Bank AG, HSBC Holdings Plc, and KfW-IPEX Bank AG. A recent Bloomberg report indicated that Egypt had received an offer from China's Black Stone and Malaysia's Edra Energy to buy the three plants, after which they will sell electricity to the Egyptian Government, which, in turn, will sell it back to Egyptian citizens. The director of Qalaa Holdings believed that this deal would have helped reduce the volume of Egyptian debts and bring foreign direct investments to  Egypt (6).

El-Sissi relied on diversifying the sources of energy-producing electricity, allocating 614 billion pounds [about $39 billion] to the sector between 2014 and 2020, and building wind power plants and a giant solar energy project in the Benban area. He also started the nuclear reactor project in the Addabah area. He achieved great success. The power shortage has ended completely and Egypt has a surplus estimated at between 25 to 35 percent.

Wind power projects are also expanding in the areas of the Red Sea, such as the Jabal az Zayt project, which cost 12 billion pounds [about $763 million] on an area of more than 100 square kilometers and includes 300 turbines producing 580 megawatts. This is in addition to other projects in Al ‘Ayn Al-Sukhnah. Reliance on wind energy is a real gain for Egypt in terms of positively exploiting natural resources, avoiding environmental pollution, being sustainable, and generating clean and safe energy.

New power plants, such as the Baltim plant in Kafr ash Sheikh built by Siemens, which relies on gas directly from the sea, have helped solve the problems of blackouts and power shortages in rural governorates. Despite turning electricity into a commodity, this did not prevent striking a balance between the cities and the countryside in terms of the availability of that commodity. During Mubarak's days, most of the electricity loads, and consequently the blackouts, were distributed to the rural areas because the impact of their protest would not have been as strong as the protests of the big cities if that happened there.

However, the Addabah nuclear power project raises a lot of controversies. Some state officials argued about the nuclear reactor's energy production as a matter of life and death for Egypt, seeing it as very important in diversifying energy sources. Nuclear energy in France, for example, represents about 70 percent of the total electricity production in France, which is cheap energy in the long run because the reactor operates for about 80 years, whereas solar energy projects are extremely expensive and expire within 25 years, after which they have to be replaced.

However, a report by the Egyptian Initiative for Personal Rights pointed to the danger of nuclear energy, noting that it is neither cheap nor safe. The report was based on three factors: First, the risks of any disaster that may occur, which will mean the almost destruction of the northern coast; one of the most beautiful beaches in the world, as well as the danger of nuclear waste disposal and the cost of the operation. Second is the lack of Egyptian competencies in this field. Third, the Levelized Cost of Energy (LCOE), which takes into account the cost of construction and operation, fuel prices, and the assumed lifetime of the plants, shows that the adjusted price per megawatt-hour of nuclear energy is about twice the price of both the combined cycle of gas and solar cells and three times as much as wind energy, according to the US Energy Information Administration (EIA) report for  2017 (7).

Gas discoveries in the eastern delta and the discovery of the Zohr gas field helped to achieve self-sufficiency in gas and to start exporting instead of importing. Nevertheless, Egypt continues to import gas from Israel, which is strange and incomprehensible, especially in the last decade. However, these discoveries helped El-Sissi improve the state's resources and plan to turn Egypt into one of the largest areas of gas liquefaction. While the Mediterranean gas became a vital area of conflict between Egypt and Turkey, it turned into Egypt's rapprochement with Italy and Greece. This conflict places a huge burden on the state's resources in the arms race and military exercises in the Mediterranean.

On the domestic level, the way the state deals with electricity is the same way it deals with gas. The plan to deliver gas to homes has been achieved in record time in the various governorates, such as the Al-Buhayrah Governorate, which completed the mission in one year and a half. However, the value of gas bills incurred by subscribers is witnessing a significant increase.

Converting State Services into Commodity

In a video leaked in 2013, El-Sissi, during a meeting with some army officers, disclosed his policy regarding the state services and the issue of subsidies. It did not take much time for the President to turn that vision into a public statement he made in more than one meeting, where he said: “The Egyptian people have been pampered by the services provided by the state; it is time to sell those services at their true cost.” This position represented the first direction of the el-Sissi Administration regarding state resources. Amr Adli said: "This tendency to use public resources per market rules aims to achieve the highest possible profitability. It, thus, raises the economic logic of the market at the expense of any other social logic that can govern the uses of public resources, such as ensuring social justice or equality." 

This is what we see in reality with other natural resources such as desert lands, which are increasingly subject to market logic in terms of pricing and sometimes speculation. This is in addition to creating the legal framework for state-owned or state-affiliated companies and institutions to use natural resources in a market logic. In other words, it is the process of completing the commodification that had begun with the land issue in Mubarak's last days. The same applies to natural gas and fuels, which are increasingly subject to pricing according to an austerity program aimed at reducing the losses incurred by the state's public treasury, as well as other public institutions working in the field of fuel production and distribution.

But again, this neoliberal approach to the state resources and services poses a central question: Where is the people's right to benefit from those resources? In other words, why don't the recent great gas discoveries in Egypt reflect an improvement in the lives of the population, since these discoveries help in the production of electric energy, which is in itself a source of energy? Are these resources a population property or a wealth in the hands of an oligarchy in control of the state apparatus, which, like any businessman, puts a price on things and sells them to the population under its rule? Here, it is possible to monitor the path of the Egyptian state and the ruling military oligarchy from the Nasser era to el-Sissi. While the former used the state's resources to conclude a reciprocal deal with the society based on exchanging freedom for services and social security, the latter ended up depriving the people of their right to wealth and services, as well as to freedoms. This outcome now makes sense, if we think retrospectively. It is the result of the marginalization of the population at the level of government and production tools, depriving them of integration into the political and productive process, and, of course, depriving them of the right to manage the state resources. Hence, the state’s argument that “we are poor and suffer from a lack of resources” is nothing but a rhetorical and ideological maneuver whose central goal is repression to push the public to accept the state’s financial policies and its management style.

El-Sissi, who openly boasted of the poor resources, is the one who wasted a large amount of hard currency on the project of the new canal parallel to the Suez Canal. By the same logic, el-Sissi relied on selling the bonds of this new canal to finance the project, but his insistence on ending the project in one year had significant repercussions on the Egyptian pound. No one understood why he insisted on constructing the project in one year when all economic reports indicated a decline in world trade. Secondly, the project did not reflect positively in any way on the Suez Canal revenues. Rather, its revenues are noticeably declining. In the beginning, the government said that the Suez Canal’s income would multiply by 300 percent, meaning that it would reach $15 billion (about 250 billion Egyptian pounds at current exchange rates) in 2023. But later, it said that the project’s central goal was not to profit or increase income, but rather it was a morale booster to confirm the Egyptian people’s ability to achieve.

Why don't the great gas discoveries reflect an improvement in the lives of the population? Are resources a population property or a wealth in the hands of an oligarchy in control of the state apparatus, which, like any businessman, puts a price on things and sells them to the population under its rule?

The tendency to use public resources per market rules aims to achieve the highest possible profitability. It, thus, raises the economic logic of the market at the expense of any other social logic that can govern the uses of public resources, such as ensuring social justice or equality.

The new canal and the new administrative capital have one thing in common: el-Sissi's vision of himself as a contractor and resource extractor. He sees that many Egyptians have a large cash flow that can be extracted by opening ways for this money to flow into his projects. This process can also open a way for money laundering through direct investment, which some of the regime's supporters see as a skill in exploiting hidden funds. The banking sector also benefits from the debt crisis; the more the Egyptian state borrows from the banking sector, the more this sector thrives. This situation has begun to move Egypt toward an economy based on permanent debt, which many neoliberals, merchants, and real estate investors do not object to. But the future question remains central in this matter: Who will bear the cost of this permanent debt? What is the impact of this burden on future generations?

The matter does not end with el-Sissi's tendency to expand in domestic debt, as he is also greatly expanding external debt. The state's role, including the provision of public services and the use of public resources, is increasingly aligned with the neoliberal agenda of the Washington  Consensus (8). This is mainly due to the renewed traditional role of the International Monetary Fund with its intervention as a lender to Egypt at the end of 2016 and as a guarantor of more Egyptian borrowing from global bond markets. El-Sissi also adopted the same policy with China. Egypt borrowed nearly $3 billion from China to finance projects in the administrative capital, including the electric train project. In one of the television interviews with the Minister of Finance, the man simply confirmed that he did not have financial resources, and therefore he would borrow again. This is a cycle that may never end and lead to the Egyptian economy falling prey to permanent debt, and then becoming very fragile and vulnerable to economic shocks. Some analysts believe that the signs of a real estate crisis loom on the horizon due to the large expansion in the real estate sector.

Is Egypt a Poor Country?

The Egyptian opposition always argues that Egypt is rich in natural resources: seas and a river that runs along with the country, as well as natural resources such as gas, oil, and various quarries. This thesis suggests that Egypt's main problem is the systematic corruption and looting that Egypt has been subjected to since the colonial era, and then the corruption and looting at the hands of the military national elites that ruled Egypt after independence. But the truth is that Egypt is not such a rich country, but it is not a poor country either.

Egypt is not one of the resource-rich countries with huge financial benefits, such as Russia, the United States, Saudi Arabia, Canada, Iran, China, Brazil, Australia, Iraq, and Venezuela. Egypt, in particular, differs from the Gulf model, such as Saudi Arabia, which is based on extracting huge quantities of oil. In this model, the state only needs to contract with foreign powers to extract oil and distribute its export surpluses to the ruling elites, including a large amount of looting and corruption, to ensure loyalty or to cover the expenses and extravagance of the ruling family. Then the state uses the rent to build cities, construct some investment projects, and provide services to the general public.

But for Egypt to become a wealthy country, Egypt's resources require another mode of governance and different relations of production. Maximizing resources in Egypt requires rational management, the participation of the general population in the production process, and improving the capabilities and conditions of their production. Take, for example, the tourism sector. Egypt has monuments and huge tourist potential. At the level of the Middle East, it comes after Saudi Arabia in the number of tourists, as Saudi tourism is based, of course, on Hajj. However, not more than 10 million tourists per year visit Egypt in the best cases, which is inconsistent with the size of the available capabilities, compared to countries such as Spain and Portugal. Except for the factor of political and security turmoil, this shortage is mainly due to mismanagement, the inefficiency of infrastructure, lack of skill in presentation and interaction, and reliance only on the presence of monuments and picturesque beaches. There are some beaches that tourists do not come to at all, such as the northern coast, which extends for more than 600 km, most of which are among the best beaches in the world.

By tightening his grip on the country and restoring much of the security, el-Sissi has succeeded in helping tourism pick up again, especially in the last two years. But has the management of this resource improved its conditions, away from security, and made a serious investment in it? The answer so far is no.

The same applies to the rest of resource management. El-Sissi is aggressively expanding in road construction, real estate investment, land speculation, and energy projects, which have many positive aspects. However, road and real estate projects do not address the urgent and crisis-ridden economic questions in Egypt, as they are excessive in domestic and foreign borrowing and do not help build a productive pattern, which increases the problem of hard currency availability in the absence of exports. In the absence of production, el-Sissi's tireless attempts to limit and restrict imports remain a temporary treatment, albeit a good one in some respects.

El-Sissi's policies show that most expenditures are spent on the military and security sector, while the budget for the health and education sectors is shrinking. This illustrates a vision that is based on the marginalization of the population because the regime does not need them in this type of governance. 

It is clear from tax collection that Egypt has continued to follow the rentier economy. The tax collection rate in Egypt is very low, not more than 14-15 percent of GDP. Part of these low proceeds comes from rentier sources such as the Suez Canal, the petroleum sector, and the financial sector. Of the 462 billion EGP [about $29 billion] collected in taxes in the 2016-2017 fiscal year (the latest actual figures available), 22 billion EGP [about $1.4 billion] came from the Suez Canal taxes and 42 billion EGP [about $1.4 billion] from the [Egyptian General] Petroleum Corporation, as well as taxes that came from other rentier activities such as investing in debt and securities. 

Economic researcher Osama Diab (9)  pointed out that in its quest to mobilize resources, the Egyptian state depended to a limited extent on the human element. Most of its resources come from borrowing, grants, income from the Suez Canal, and oil, whereas in industrial and post-industrial economies, most of the resources come from taxes on industrial, commercial, and service activities. In this model, the state relies more on the human element for its resources. This means workers at the heart of the processes of production and value creation on the one hand, and consumers who dispose of this generated value on the other.

The dilemma of resource management in Egypt and the question of whether Egypt is a poor or rich country can be summarized in three points: 1) The underdevelopment of the Egyptian economy structures, its inability to get out of the cycle of primitive accumulation of wealth, and dependence on rent and borrowing; 2) The failure to develop the productive forces themselves; 3) The predominance of the security character in managing the country and the reliance on the rule of the oligarchs, as shown by the expansion of the army and its agencies in sharing the rest of the economy with the Egyptian and global capitalist sectors. Egypt suffers from massive looting of surplus value with a huge untapped and marginalized population, which are constantly repressed and subject to violent police management. This raises many questions about how to manage the country's resources and the question of democracy and participation. Therefore, it is no wonder that Egypt is one of the countries in the world most characterized by the absence of economic data, statistics, and information related to various projects.

The content of this publication is the sole responsibility of Assafir Al-Arabi and Rosa Luxemburg Foundation cannot accept any liability for it.

Translated from Arabic by Sabry Zaki
Published in Assafir Al-Arabi on 30/05/2019

______________

1. The researcher’s interview with Dr Amr Adli in May 2019
2.An interview conducted by the researcher with the economic researcher Wael Jamal in May 2019
3.Mada Masr report on 12 March 2019
4.France 24 report on 23 September 2015
5.France 24 report on 6 July 2017
6.Magdy, Mirette (2019): Egypt Mulls Blackstone Unit Offer to Take Over Power Plants, published in 27 May 2019
7.The Egyptian Initiative for Personal Rights (2019): Position Paper: Nuclear Energy Is the Most Expensive and Dangerous, published on 23 April 2019
8.The Washington Consensus is a draft proposed by John Williamson in 1989 to be a set of ten economic policy prescriptions for "failed states" that have faced financial, administrative, and economic difficulties. It contains directions on how to diversify their economy and manage their natural resources, in addition to his call on the World Bank and the International Monetary Agency to adopt these prescriptions.
9.The researcher’s interview with the economic researcher Dr Osama Diab in May 2019

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