Egypt’s military companies seek private investments

The Egyptian military seeks to expand investments in partnership with the private sector, thus crowding out civilian-run companies, amid the economic recession due to the coronavirus crisis.

al-monitor Traders work at the Egyptian stock exchange in Cairo, Egypt, Feb. 6, 2018. Photo by REUTERS/Amr Abdallah Dalsh.

Jun 18, 2020

Military-owned companies in Egypt are a few steps away from rolling out a plan to attract private sector investments and expand their property base. Sovereign Wealth Fund CEO Ayman Soliman said that various private local and international investors made bids to invest in Egyptian companies owned by the military.

During a virtual press conference June 8, Soliman told the state-run Al-Ahram newspaper that the fund is currently assessing a number of these companies before opening them up to investors. Soliman did not give any details on the companies nor the sectors in which they operate, and did not reveal which investors made bids.

Soliman’s remarks came after the fund had signed with the armed forces’ National Service Projects Organization (NSPO) in February an agreement to rehabilitate and develop a number of the armed forces-affiliated companies in order for them to attract investors.

Egypt’s Sovereign Wealth Fund was established in 2018 in order to attract private investments to Egypt and encourage joint investments in state-owned resources and assets, so as to make them more valuable and efficient to the Egyptian economy.

The fund offers up to 100% in shares in some of the military-affiliated companies, as the government steps up efforts to attract the much-needed private investments.

The outbreak of the coronavirus pandemic has dealt a heavy blow to the Egyptian economy, and increased pressure on the tourism and trade sectors, as well as on gas exports, after falling short in reviving private investments.

Yezid Sayigh, a senior fellow at the Carnegie Middle East Center in Beirut, said that the military’s ability to help the civil economy counter the coronavirus crisis repercussions will not be worth mentioning.

He told Al-Monitor via e-mail, “The military’s economic activities are fully dependent on state funding, which will be placed under acute pressure. The military’s economy does not bring a product to the export markets. Rather, it banks on sectors or markets — such as the construction sector — which the pandemic may have affected significantly.”

He continued, “The military is not a big hero of the economy with an extraordinary capability or magic solutions. It suffers from the same problems that the rest of the economy [sectors] suffers from, and will only survive because it can count on the state's continuous funding and political support.” 

The projects and funding carried out by the military companies are not made public. Meanwhile, it remains unknown how many of the NSPO’s companies will open up to investors. They include El-Nasr for Intermediate Chemicals, the National Company for producing natural water (Safi) and El-Nasr for Services and Maintenance (Queen Service), among many others. 

Soliman told the Financial Times in February that 10 NSPO companies are being assessed by the fund in order to open them up to investors. 

The latest agreement with the fund only involves companies of the NSPO, which is the military’s economic arm. Established in 1979, the NSPO has a portfolio of more than 30 companies operating in agriculture, animal and fish production; food industries; mining, industrial and engineering sectors; as well as some public services.

The military’s economic activities have expanded over the past years to involve the production of various food commodities and consumer goods, and the implementation of economic and construction projects.

Sayigh noted that the military's economic activities were limited for years, and were not in direct competition with the private sector. He added, “Even though the military’s role in construction projects has expanded since 2013, subcontracts were made with private businesses to conduct all works, which was beneficial to them.”

He believes that “there are a few cases — such as in the intermediate chemicals and phosphate-related processing industries — where the military cooperates with large private companies in public-private partnerships. Yet the direct and destructive competition is now taking place in specific sectors such as the cement and steel sectors.” 

“The military’s participation in the extractive industries [mines and quarries] also has an actual or potential negative impact on the private companies operating in these fields, although that does not represent a major phenomenon so far,” Sayigh added.

As the military’s economic influence grows bigger via its companies, the private businesses' fear of the unfair competition also increases, given that the military’s political influence allows it to overcome the bureaucratic obstacles.

Sayigh said that the military is crowding out the private businesses in the credit market and in getting bank loans. “It is an unfair competition as the public sector and military benefit from political ties and tax exemptions,” he stated.

Soliman had also told the Financial Times that the Egyptian regime wants to attract investors into supporting the military-owned companies in order to address the private sector’s complaints that the military — via its affiliated companies — controls the sector’s lucrative contracts.

Egyptian President Abdel Fattah al-Sisi said in late 2016 that the size of the armed forces’ participation in the national economy does not exceed 2%, and rebuffed that the military has control over up to 50% of the country’s economy. At the same time, he expressed hope that the military’s participation reaches said percentage.

In October 2019, Sisi noted that the military-owned and military-run companies need to be listed in the stock market, in addition to other companies that the government plans to privatize.

Sisi has always welcomed the private sector’s participation in the projects the military implements. During the opening of two medical and industrial gas factories of a military-owned company in October 2019, he said that the military’s projects are not implemented at the expense of the private sector

The Egyptian government adopts a program aimed at bringing about structural reforms to remove constraints on private businesses as part of a more comprehensive economic reform program.

On June 5, the International Monetary Fund (IMF) said that it reached with Egypt an agreement on a one-year $5.2 billion Stand-By Arrangement to help Egypt ease the impact of the coronavirus crisis.

On May 19, Minister of Planning, Monitoring and Administrative Reform Hala al-Saeed said that the IMF loan “will focus on structural reforms to remove constraints on private businesses.” She noted that she will discuss “all hindrances that may face the full participation of the private sector.”

Sayigh indicated that the private sector is strongly present in the Egyptian economy and is active in all markets, accounting for 70% to 75% of the gross domestic product and many jobs.

He concluded, “The military does neither control the economy as a whole nor does it control the economic policy. Thus, it cannot prevent the private sector from entering markets in general. The real problem for Egypt resides in the policies pursued by President Sisi, as he uses the military as a spearhead for himself.”

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