By Preslav Raykov
We are used to associating the word "military" with order, discipline, iron principles, hard work and boundless courage. Virtues which, if applied off the battlefield, at the head of an economy, should place the system in a state of almost perfect government, ever-increasing profits, and increasing prosperity. Excellent income and expenditure planning should also be a priority. A situation radically different from the reality of the Egyptian economy in the last 5 years.
In fact, the economy of the country is in a severe economic and financial crisis. The currency depreciates at a drastic rate, and double-digit inflation relentlessly undermines economic processes and squeezes the population. The country is struggling to meet its growing budget costs, and the import of basic raw materials and goods is extremely difficult. Securing foreign currency in the country is a financially difficult task for companies and banks. Tourism revenues are collapsing and international investors are withdrawing capital from the local economy at a record pace. The country signed an agreement with the International Monetary Fund (IMF) to provide $3 billion to prevent Egypt from falling into a complete economic collapse. With a promise to initiate economic and market reforms, the country must deal with the problems caused by the state's military intervention in the economy. A task that risks upsetting the fragile social balance and sparking civil war.
For almost a decade, the president of Egypt - Abdel Fattah al-Sisi promised his people that he would be able to revive the economy and build a new state of prosperity and well-being. Today, marking 10 years since the 2013 coup that brought the former army chief to power, Egyptians have little reason to rejoice. Years of artificially and fictitiously maintaining a financial and economic balance in the country's economy now confronts it with growing social tension and unrest, as well as millions of starving people. The military intervention in the country's economy led to a complete breakdown in market relations, made a large part of economic relations meaningless, and seriously distorted private initiatives and entrepreneurship. The subjugation of much of economic life to military rulers and structures has damaged the country's budget, and the 109 million population increasingly puts the rulers under enormous pressure related to feeding the population. The country is the world's largest importer of wheat, and providing subsidized bread prices is an important tool for maintaining the fragile social peace that is increasingly difficult for the government to maintain - especially economically. And hunger is a poor adviser and does not forgive power.
Officer's Republic
Why can't the military manage the economy well? The Egyptian economy is completely controlled by the military structures and this exposes the country to two serious risks. The first is the risk of central planning in which there are no clear market relations, responsibility and accountability.
In addition, it is also run by military personnel, which further distorts the situation and places private initiative under both centralized economic pressure and military-repressive control. To this day, the role of the military in Egypt's economy remains one of the main taboos in Egyptian politics. For the past thirty years, the military has insisted on concealing information about its vast interests in the economy and thereby keeping them out of the reach of public transparency and accountability. Today, the Egyptian armed forces own a huge segment of the country's economy and, according to various estimates, it varies between 25 and 40%. Army generals, officers, and colonels are responsible for running these state-military sectors, despite their lack of experience, training, or qualifications for the task, and often blinded by their ability to use sheer military force.
Since taking power in July 2013, Egypt's military has been on a dramatic trajectory of expansion. Having previously been an economic underdog, the Egyptian Armed Forces (EAF), as well as other military agencies, spearheaded the massive state investment strategy that President Abdel Fattah el-Sisi implemented after taking office effectively in 2014. In our days, the military controls a huge economic portfolio in the country, manages a significant share of the total volume of publicly awarded infrastructure and housing projects, builds industrial zones and intensively produces industrial equipment, consumer durables, transport and heavy-duty vehicles and parts, as well as equipment for the information technology sector. Representatives of the military forces are also involved in retail trade, own commercial and media companies, as well as a large part of the country's hotels. They are rapidly and aggressively increasing their presence in agriculture, fishing and mineral extraction. From September 2021, the military even has a complete monopoly on the production of school meals.
Since 2001, the Ministry of Defense has officially controlled the use of government land by any civilian individual or entity, whether private or public. As an economy primarily reliant on the import of primary raw materials and goods, Egypt is an important participant in global trade. The country is the world's largest importer of wheat, and the ministry of war production is now one of two bodies that approves the import of foreign goods or services by government agencies. Military representatives participate in national councils, including planning and sustainable development, in setting policy directions in several sectors, including manufacturing, telecommunications, digital transformation, electric vehicle market development and rural development. Many of the military leaders are also heads of major presidential initiatives, including the Tahiya Development Fund Misr (Long live Egypt), responsible for the construction of Egypt's new administrative capital. Plans are also underway to increase the capitalization of military companies by attracting private investment through the Egyptian sovereign wealth fund. We can safely call Egypt an "officer's republic" - comprising thousands of senior military retirees embedded in government ministries and agencies, regulatory and operational economic bodies, local government and state-owned enterprises. Today, Egypt is a full-scale military economy, but facing the economic realities of modern and developed financial markets.
As managers, Egyptian army leaders typically run their enterprises in a traditional "Soviet style" inherited from the Cold War era. Yet, as consumers they tend to adopt a more Western role model.
Hidden budget - a pyramid of economic problems
A large part of Egypt's budget is "secret", and sooner or later this leads to economic problems. After the Central Bank switched to a free-floating rate of the Egyptian pound in October last year, the local currency lost more than 35% of its value against the dollar, and the potential for further devaluations remains extremely high, given the country's economic situation. The move to a freely floating exchange rate was part of the requirements of the International Monetary Fund (IMF), which at the end of 2022 approved a financing package of $3 billion for a period of 46 months. The program presents a comprehensive package of policies to preserve macroeconomic stability, restore buffers in the financial system, as well as pave the way for inclusive economic growth driven mainly by the private sector. The proposal of financial, economic and political measures includes a permanent transition to a flexible exchange rate regime, a monetary policy aimed at gradually reducing inflation in the country, fiscal consolidation to ensure a downward trajectory of the public debt, as well as structural reforms in a number of state institutions. The weakness of the pound greatly worsens the economic suffering of millions of Egyptians as it further fuels inflationary pressures, and inflation reached 21.3% in December, the highest level in years.
Currently, 60 percent of Egypt's population of 109 million lives below or slightly above the poverty line, creating extreme social tension and heralding social unrest. Public finances are also under extreme pressure. Egypt's overall fiscal deficit widened extremely sharply by 27.6 percent year-on-year to 341 billion Egyptian pounds ($11.2 billion). The increase was expected in view of expanded spending on interest payments, grain subsidies and commodity purchases. and services from the state, which significantly outpaced tax revenues in the budget. As of now, the fiscal deficit-to-GDP ratio has only risen to 3.7% from 3.4% a year ago due to strong nominal GDP growth, but the future trajectory is not positive, which will put the country's financing task in an even tougher position. situation. Although Egypt's economic growth remained relatively resilient to the shock of COVID -19 and the war in Europe, Egypt has been suffering from a shortage of foreign currency since the war in Ukraine hit tourism revenues hard, raised bills for imports of raw materials and goods, and caused foreign investors to withdraw more than $20 billion from the economy.
A difficult path of change.
Building the pyramids for which Egypt is world famous was an unimaginably difficult task, and a majestic goal for its time. Impressive for generations and approaching alien precision in its execution. However, no less significant and difficult will be the task of restoring the country's economy from the regime of dependence on the military, and returning to market principles and private initiative.
Egypt needs a leader who understands the necessity of at least partially eliminating the military economy in the country and reviving private entrepreneurship.
To do this, however, he will have to carefully determine exactly which parts of the economy can be restored while provoking the least resistance from the military, because there invariably will be. For the main reforms in the country, he will absolutely need military support, and this portends social and military tension, and even the potential for a full-scale civil war. In doing so, he will also have to identify ways to compensate the military for any benefits and advantages they may lose, an extremely difficult task. Today, these benefits in the country have become almost an evolutionary step for many people - that is, the people employed and leading this part of the economy have taken it for granted. In the history of the world, there are many events that happened precisely because of the disturbance of the equilibrium in evolutionary development, this portends a difficult path for changing the model in the country. The possibility of political, social and power pressure from the major players in the economy will fiercely meet any plan to change the status quo and take this evolutionary development away from a certain group of people.
