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National Security

analysis

Egypt’s Military Will Have to Remember Jobs

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A man squats near a water hose while Egyptian military policemen line the street in Cairo's Tahrir square today, three days after the ouster of President Hosni Mubarak.(MARCO LONGARI/AFP/Getty Images)

The Egyptian military’s move Sunday to dissolve parliament and suspend the country’s constitution offered the first concrete indications of how it intends to rule Egypt in the months ahead. But the generals now running the country will soon face complicated questions about whether -- and how much -- to privatize the military’s vast business holdings, which extend into virtually every aspect of daily life in the country.

The recent protests that toppled longtime strongman Hosni Mubarak focused heavily on Egyptians’ frustrations at the political dimension of his decades of autocratic rule. Mubarak was nominally the elected president of the country, but he presided over a one-party state where organized opposition was effectively impossible. Rival parties were largely banned from taking part in the elections, and the Mubarak regime used decades-old emergency laws to imprison thousands of its political opponents without charge.

 

But there was a second major component to the country’s recent unrest: the pervasive unemployment that persuaded hundreds of thousands of young Egyptians that they had no chance for a viable economic future in Mubarak’s Egypt. Mubarak may now be gone, but political unrest is virtually certain to flare up again if the ruling military council fails to create new jobs and kick-start the country’s moribund economy. 

A 2010 report by the country’s state-run Central Agency for Public Mobilization and Statistics said the country’s unemployment rate was 9.4 percent but made clear that young Egyptians were being hit especially hard by the country’s economic stagnation. Nearly 900,000 of the 2.3 million Egyptians lacking jobs when the report was compiled held university degrees, for example, and 87.2 percent of the total number of unemployed were between 15 and 29 years old. Since unemployed men have a hard time finding wives in Arab societies, Egypt’s stubbornly high unemployment rate could have broad social ramifications for the country.

There are a wide variety of reasons why Egypt’s economy is in such bad shape, from the crony capitalism that has left poorly qualified Mubarak allies running many of the country’s most important companies to the widespread government corruption that makes it difficult for would-be entrepreneurs to start new businesses or expand existing ones.

 

But Egypt’s economy is also being held back by the country’s military, which owns and operates hundreds of firms across a strikingly diverse range of industries. The armed forces run companies that produce bread and milk, as well as televisions, pots, pans, and other forms of consumer goods. The military manufactures Cherokees and Wranglers under a joint venture with Jeep. And it owns the construction firms that recently expanded Cairo University and built a new multilane highway connecting the capital to the luxurious resorts on the Red Sea.

Andrew McGregor, a Jamestown Foundation analyst who wrote a recent history of the Egyptian military, said in an interview that he would be "very surprised" if the Egyptian armed forces reduced their business holdings. He noted that some estimates say those holdings account for as much as 10 percent of Egypt's total economy. 

"If the officer corps was to retreat from the economic sector, it would seem some other opportunity or funding must replace it to maintain stability within the military," he said. "Democratic transition to a purely civilian government intent on economic reforms would threaten the interests of the officer corps, which could reduce their interest in seeing a democratic position through."

The military-run companies enjoy an array of advantages over their private sector competitors. They don’t pay corporate income taxes and aren’t subject to the country’s cumbersome civilian bureaucracy. Its civilian employees, by law, cannot go on strike. And in a pinch, the Egyptian defense minister can invalidate any contract awarded to a non-military company on national security grounds.

 

In a 2008 cable uncovered by WikiLeaks, the U.S. Embassy in Cairo said its Egyptian contacts described a web of military-owned companies, often run by retired generals, which were “particularly active in the water, olive oil, cement, construction, hotel and gasoline industries.” Egyptians told the embassy the military also owned extensive tracts of land in the Nile Delta and on the Red Sea coast.

Embassy analysts, backed by many private-sector economists, believe the military-run companies are bad for the country as a whole.

“We see the military's role in the economy as a force that generally stifles free market reform by increasing direct government involvement in the markets,” embassy staffers wrote in the classified cable.

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The 2008 cable also noted that the military was deeply critical of the Mubarak regime’s initial efforts to privatize state-owned businesses as a way of spurring investment and job growth.

“Most analysts agreed that the military views the [Egyptian government’s] privatization efforts as a threat to its economic position, and therefore generally opposes economic reforms,” the cable noted.

The military’s business holdings have clear benefits for the armed forces themselves. Revenue from the enterprises funds the luxurious private clubs, restaurants and hotels that are available to current and retired soldiers and their families. The companies have also helped to preserve the military’s high standing in Egyptian society: During severe bread shortages in 2008, the military’s bakeries went into overdrive and produced enormous quantities of extra food. The influx of bread defused a dangerous situation and left many ordinary Egyptians with a deep sense of gratitude towards the armed forces.

The military has become even more popular in recent days because of its role in forcing Mubarak from power. Protest leaders seem inclined to give the generals time to organize new elections and oversee the drafting of a new constitution. But in Egypt, as in the U.S., pocketbook concerns often trump political ones. And if the military is unable -- or unwilling -- to take the steps necessary to create new jobs, their support may vanish in a hurry.

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