During recent months, the Egyptian Ministry of Defense was awarded several contracts by the Ministries of Health, Transportation, and Housing and Youth worth over $1 billion to carry out large infrastructure projects. The Egyptian Cabinet of Ministers justified its choice of the army over private companies for these undertakings, which range from building new highways and low-income housing to renovating public hospitals and youth centers, on the basis of the army’s efficiency, discipline in rapidly implementing projects, and high standards.

Assigning domestic infrastructure projects to the military is hardly a new practice by Egyptian authorities. But the army’s renewed role in Egypt’s domestic affairs—especially since its ousting of then president Mohamed Morsi in July 2013 and the inauguration of Abdel Fattah el-Sisi as president in June 2014—as well as several recent legal measures with bearing on this issue have raised basic questions about the commercial role of the military, especially the fairness and accountability of its practices. Particularly significant are a number of major new contracts with the United Arab Emirates (UAE). Worth billions of dollars, these agreements reinforce the controversial trend toward a greater role for the Egyptian military in Egypt’s civilian economic affairs.

The Military’s Enterprises

Ahmed Morsy
Morsy was a nonresident research associate in the Democracy and Rule of Law Program at the Carnegie Endowment for International Peace.
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Traditionally, Egyptians hold the military establishment in high esteem as an icon of national pride and regional power projection. Separate from its role as guardian of the state, however, Egypt’s army has invested for decades in industrial projects that manufacture both military and civilian equipment.

Three specialized enterprises and their subsidiaries run by the Defense Ministry play a direct role in the military’s domestic economic ventures:

  1. National Service Projects Organization

    Established in 1979, the National Service Projects Organization (NSPO) has the mission of helping the Egyptian military avoid dependence on the private market for obtaining goods. The body has created companies controlled by the military that invest in different sectors of the domestic economy.

    The organization’s website currently lists ten companies that the NSPO owns, spanning a wide range of sectors from construction to agriculture to food and dairy products. Any goods that these companies produce that exceed the military’s needs (and such surpluses always occur) are sold in the local economy as part of a commitment to “social responsibility.”
  2. Arab Organization for Industrialization

    Egypt, Saudi Arabia, Qatar, and the UAE created the Arab Organization for Industrialization (AOI) in 1975 in a bid for a collective Arab defense industry. After Egypt signed a peace treaty with Israel in 1979, the other Arab states pulled out their shares, and Egypt became the sole owner of the enterprise.

    The AOI focuses on supplying the defense equipment needs of the Egyptian Armed Forces and uses excess capacities for supporting community development projects in the fields of infrastructure, environmental protection, and transportation. The organization runs eleven factories across Egypt that produce military and civilian equipment and has several international joint ventures with European, American, and Asian conglomerates.
  3. National Organization for Military Production

    The National Organization for Military Production is run by the Ministry for Military Production. It manages over fifteen factories that produce mainly military armaments and munitions, in addition to some civilian goods such as electronics and sports equipment.

In May 2014, the director of the Armed Forces Engineering Authority said that the military had executed 473 strategic and service projects in the past year and a half. A list of national projects implemented by the army sheds light on the wide range of industries they cover. These projects include building roads, bridges, and ports; renovating hospitals, schools, and youth centers; and extending water pipes and constructing desalination plants. The military’s business deals not only happen at the national level but have also expanded to include partnerships with transnational corporations like General Electric, Lockheed Martin, Mitsubishi, and others. Beyond military equipment, these international ventures cover nonmilitary products like television sets, jeeps, and tablet computers.

Extensive Relations With the UAE

Among its international partners, Egypt has traditionally enjoyed strong economic relations with the UAE. It is perhaps no surprise, then, that this Gulf state has been a significant force in support of the Egyptian army’s new wave of economic activity.

In the first half of 2014, the Egyptian military signed two housing projects with UAE-based firms, independent of the substantial funds that the UAE government has pledged to deliver in aid to Egypt. The first project was secured in February, when Emaar Misr, a subsidiary of the UAE-based company Emaar Properties, signed an agreement with the Ministries of Defense, Housing, and Local Development to build a retail development, Emaar Square, as part of the Uptown Cairo housing project. The Emaar Square deal involves relocating military camps and upgrading the area’s infrastructure.

In March, the agreement was followed by a second, $40 billion low-income housing project with another UAE construction firm, Arabtec. That deal involves building one million apartments covering 160 million square meters (1,722 million square feet) across thirteen sites in Egypt.

Additionally, the Egyptian government and the UAE signed a grant agreement in October 2013 under which the UAE would finance multiple development projects in Egypt. The agreement specifically entrusts the Ministry of Defense to oversee the construction and implementation of a number of these vital projects. This grant is worth billions of dollars in economic and development aid (the total amount and list of projects are unspecified in the notice of the deal posted in the online edition of Egypt’s official gazette).

Fairness and Accountability

One issue raised by the Egyptian military’s extensive role in domestic commercial matters is that of fairness vis-à-vis private Egyptian actors. The army’s industrial and economic assets are unmatched by any other Egyptian entity. The military is the largest caretaker of government land in the country. A 1997 presidential decree gave the military the right to manage all undeveloped nonagricultural land, which is estimated to be 87 percent of the country.

The military has the ability to use conscripts as cheap labor. Its profits are exempt from taxes and business licensing requirements according to Article 47 of Egypt’s 2005 income tax law. In addition, Article 1 of a 1986 law on custom exemptions stipulates that imports of the Ministry of Defense and Ministry of State for Military Production are exempt from any taxation. All of these factors give the Egyptian military significant advantages in its commercial activities, making it hard for both state-owned and private-sector companies to compete.

Another concern is the military’s level of accountability to the public. Simply obtaining basic information about the scope of Egypt’s military-industrial complex is very difficult. Estimates by independent researchers of the share of the national economy that the military controls range from 5 to 40 percent. In a May 15, 2014, interview with Reuters, then presidential candidate Sisi attempted to brush off such speculations, asserting that “there is talk that the army owns 40 percent of the economy. This is not true. It does not exceed two percent.”

Recently, two legislative amendments and one new law promulgated via the executive authority, in the absence of an elected parliament, have heightened concerns about the fairness and accountability of the Egyptian government and, in particular, the military.

In May 2011, the then-ruling Supreme Council of the Armed Forces (SCAF) amended the law on the military judiciary. The SCAF added an article that gives only military prosecutors and military judges the right to investigate illicit gains by army officers, even if the investigation started after an officer’s retirement. This effectively shields them from any prosecution under the civilian system.

In September 2013, Adly Mansour, the interim president following Morsi’s removal, issued a decree to amend the 1998 law on public tenders and auctions, allowing government officials to skip public tender processes in cases of undefined “urgent” matters. The amendment raises the value of services or property that state officials can purchase and sell by direct order. It is not clear whether the military has benefited from this particular provision in its latest contracts, although the legal foundation for such gains exists.

And in April 2014, the government approved a law that restricts the right of third parties to challenge business and real estate contracts signed with the state. That right is now reserved for the government, the institutions involved in the deal, and business partners. Although the government justified this law as a way to encourage foreign investment, the action’s potential to diminish oversight and accountability looms large.

Furthermore, three recent NSPO contracts for the construction of new highways fuel additional accountability concerns. These agreements, signed between the Ministries of Transportation and Defense, stipulate that the NSPO company responsible for the establishment, development, and management of roads will build, manage, and lease two of the roads for ninety-nine years, and the third for fifty years. In return, the NSPO will pay the government approximately $843,000 per year. These deals were concluded after the amended law on tenders was passed, illustrating that the military is already benefiting from these changes and will be shielded from any challenges to these deals.

Looking Ahead

As Egypt moves into a new political phase in which the military appears poised to play an expanding role in domestic affairs, basic issues of fairness and accountability regarding the army’s economic activities take on renewed importance. Given the pressing need for economic reforms that can invigorate new activities by the Egyptian private sector, any crowding out of private actors by the military will be sorely felt. And given the public’s proven hunger for governmental accountability and transparency generally, economic activities by the military that escape public oversight and control may contribute to public frustration and disillusionment.