Driving to Cairo from the airport, it is easy to see why the transition from authoritarianism to democracy will be hard in Egypt. Large glass-encased buildings line the manicured, flower-sheathed avenue. Each one of the buildings is a reason why the Egyptian military is keen to manage the transition as carefully as they possibly can. For they are all owned by Egypt’s officers, who since the ouster of Hosni Mubarak nearly five months have been running the country.
But the buildings along the airport road are only a small part of the military’s holdings. The Egyptian military controls anything between 5 and 30 percent of the country’s economy – nobody knows the real figure. Military-owned companies sell everything from fire extinguishers and medical equipment to laptops, televisions, sewing machines, refrigerators, pots and pans, butane gas bottles, bottled water and olive oil. The military also built Cairo University’s new annex and control most of the Red Sea resorts. As a cable signed by the U.S. Ambassador to Egypt Margaret Scobey said, the military was “becoming a 'quasi-commercial' enterprise.
The creation of this Military Inc dates back to the military factories that sprang up in the 1820s to produce uniforms and small arms. Their role expanded with the state-led economy from the early 1950s. But it really began to grow after the 1967 war between Israel and Egypt, when Egypt’s camouflage-clad leadership worried that demobilisation would create a large number of unemployed, weapons-trained youths. So they transformed the military into a peacetime employment-generator while giving real estate developers, often retired officers or people connected to the military, the right to exploit land owned by the military – for example along the Red Sea. The choice must have come natural to a generation of officers who were trained in the former Soviet Union, and learnt first-hand about of what the economist Murray Newton Rothbard called the “welfare-warfare” state.
Dealing with the military’s economic role is difficult and at the same time critical if Egypt is to develop into a fully-fledged democracy and create the kind of rules-based, free-market economy that can help the country grow by some 5% annually – the figure needed to keep unemployment stable. Under a baseline scenario of no economic growth, the Egyptian unemployment rate will more than triple during the period 2011-2030 implying an increase of 10 million jobless people.
Military reforms are necessary for several reasons. The first is financial. The country’s budget gap will widen to the highest level in more than a decade next year, as tourists have fled or cancelled long-planned trips for fear of further violence. Economic growth may slow to 1 percent this year, the International Monetary Fund has predicted. And the nation had its credit rating lowered to Ba3 at Moody’s Investors Service and to BB at Standard & Poor’s, the third- and second-highest non-investment grades. To service its billion dollar debts, the Egyptian state needs all the revenue it can raise. But with billions – nobody knows how much – diverted to the defence budget and up to forty percent of the economy controlled by military-run companies that do not pay taxes and use conscripted labour, the Egyptian state will struggle to service its debts in the medium-term.
So the military stands in the way of creating jobs in the private sector and reforming the public sector. But the real reason why military reform cannot be avoided is political. Given the extent of Military Inc, thousands of civilians are bound in predatory partnerships with the military, in turn strengthening it institutionally and increasing its appetite for power and profit while creating an undemocratic over-class. Upon retirement, senior officers are given considerable retirement packages and appointed as provincial governors or head of municipalities.
Until now, however, everyone has skirted around the issue. A few weeks ago, sitting in his wood-panelled, air-conditioned office outside of central Cairo, I put to General Murad Mowafi, Egypt’s intelligence chief, that most transitions from authoritarianism have led to some form of military reform. He smiled and answered an entirely different question I had not asked. The Tahrir Square activists are not much better, hoping that the Egyptian military will help to safeguard the revolution they have begun. But as an Egyptian proverb has it: “Because we focused on the snake, we missed the scorpion”. Military reform may be difficult, but it cannot be avoided if Egyptians want a democracy.
How, then to proceed? Everyone knows what military reforms look like – they include constitutional reforms, legislative changes, budget oversight, professionalisation, the retirement of the senior leadership etc etc. Such reforms start from a different kind of assessment of threats and challenges, such as the Internal Security Sector Review that Kosovo undertook, and a process to reshape the military to address these. But the Egyptian military is unlikely, at this stage at least, to accept a process, which leads to this kind of reform. A more circumspect process is needed.
The key consideration is to cajole and persuade Egypt’s military leadership not to block the initial steps towards reform. That will first of all require a unified international community. There is no chance of reforms happening if the United States, European governments and the likes of Turkey and Saudi Arabia sending different signals. Egypt’s security can no longer be bought through the comfortable kleptocracy of Military Inc.
Supporting democratisation will demand that the military’s key patrons can also commit to shifting away from unconditional, unrestricted aid flows and send a clear message that business with the Egyptian military will be more transparent and accountable. Moreover, a concerted effort to ensure that new lending agreements, as with the latest commitments from the European Bank for Reconstruction and Development, are made with an eye to improving corporate governance and contributing to the diversification of private sector ownership.
Inside Egypt, a key step should be to ensure that during the forthcoming electoral campaigns – for parliamentary and presidential office – the issue of military reform becomes part of the debate. Candidates should be asked what they think of the issue and the media should be encouraged to test he limits of the military’s patience by raising the issue – with the West ready to support reporters who are brave enough to explore the issue.
Part of making the issue a “story” could be done by organising a high-level conference in Cairo on the subject of military transformation with speakers from countries that have successfully undergone military reform – such as Spain, Bosnia-Herzegovina, Albania, Indonesia, Ghana, and South Africa – and from those countries that will continue to support Egypt’s military. The fact that people would gather to talk about the issue will provide enough of a “hook” for the media to raise the issue. Perhaps UNDP could be persuaded to focus their forthcoming Arab Human Development Report on the economic consequences of Egypt’s Military Inc. Their earlier reports, starting in 2002, have helped shape the way Middle East is talked about.
More medium-term, one idea might be to follow the model of the National Dialogue, which has been established by Deputy Prime Minister Yehia Al Gamal to maintain contacts with the range of Egyptian stakeholders. A commission could be set up by the new legislature, with members drawn from all parts of society, to look not at military reform, but at economic reform – or some aspect of thereof, such as tax-raising, competition of labour practices. Badging the initiative as such will make it more palatable yet will allow an investigation into the impact of Military Inc and expose how harmful it is to Egypt’s economic development. From this, a larger, more explicitly defence-related process can begin – starting with a review of the threats and challenges that Egypt actually faces. Once this has delivered a report, some years from now, it may by then have become acceptable to launch an explicit process of military reform.
Egypt will struggle to progress towards democracy unless some form of military reform takes place – at some stage. Right now, however, the question is not so much how to drive reform, but how to make the notion of reform palatable to entrenced interests, which includes a military officer’s corps that currently controls the country. To set the stage for reform. Failure to do so could end up underming progress in the longer-term.
The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of its individual authors.