How Mubarak’s Cronies Are Being Resurrected
Far from heralding democracy, Egypt’s first sitting Parliament since the 2011 revolution is serving to rehabilitate Mubarak’s old guard, writes Jack Kennedy.
CASUAL OBSERVERS OF developments in Cairo might be struck by a sense of déjà vu at the presence of an authoritarian president from a military background effectively dictating policy through a compliant House of Representatives.
Former Field Marshal Abdel Fattah el-Sisi, now President Sisi, consolidated his power since assuming the executive role 18 months ago by appointing 28 lawmakers to Parliament on Dec. 31.
Nominally at least, he was completing the democratic roadmap that had been adopted following the military coup against Mohamed Morsi in 2013. Those 28 parliamentarians will be part of the 596 who were elected in October and November 2015.
But Egypt’s Parliament is far from the democratic and accountable body that international investors might have hoped would usher in political reform and reconciliation for the Egyptian economy.
Admittedly, Egypt’s fiscal security has improved slightly over the past year. Economic growth at 4.2% is the highest since the January 2011 uprising. Despite this, in 2015 foreign reserves fell to $16.4 billion – enough to cover a mere three months of imports. The current account deficit had ballooned to around $20 billion at the close of 2015.
The economy, buffeted by four years of political violence and instability, requires dynamic structural reform and a decision-making body with the cohesion and statecraft needed to make the necessary choices. Sisi’s regime and his Parliament do not represent this opportunity.
The President, a product of the military system, has approached politics with little appreciation for the extensive informal networks of patronage and influence required to maintain stability outside of his immediate circle, indulging the military’s non-transparent interests throughout the state economy.
The political environment itself has been largely hollowed out; opposition to President Sisi is targeted by the security services and not given room for debate. Sisi appointed 11 new provincial governors in December. Nine are from the security services and the remaining two are civil engineers with close personal and professional ties to the military-civil deep state.
This continued reliance on networks from the military poses multiple problems for the immediate development of Egypt. Aside from the opaque nature of the armed forces’ exact relationship within the Egyptian economy (the military’s share is estimated at anywhere between 5-40%), army oversight is disrupting the long-standing client-patronage networks that were previously key to Egypt’s relative political stability. There is little of the necessary regulation to encourage foreign partnerships. Laws exempting officers from any trial over illicit gains before civilian courts, even after retirement, provides caution against entering joint projects in Egypt.
Sisi spent 2015 enhancing the military’s economic oversight. Presidential Decree 446 empowered the Armed Forces Land Projects Agency to expand its commercial activity to defense real estate. The military played a central role in the extension of the Suez Canal and the active marketing of the real estate sector as a target for foreign investment.
It is difficult to positively assess the prospects for economic development when the private sector is excluded from the highest networks of influence by a military command that is determined to extract the maximum profit from the resources of the state.
Return of felool
Under Mubarak, Egypt’s Parliament was an inherently flawed but functional tool for regulating political patronage. Parliamentarians engaged in genuinely competitive electoral campaigns in order to secure access to state resources.
Mubarak’s National Democratic Party was the primary vehicle of this system. The NDP had 3 million members before the revolution. In its immediate aftermath, many of these crony politicians were held as persona non grata in light of their perceived exploitation of the state. High-profile corruption and embezzlement trials were carried out against the most visibly egregious profiteers of Mubarak’s patronage.
Although this was in keeping with the revolution’s ideals of social justice, the threat of prosecution discouraged investment from both domestic and foreign sources. These Mubarak-era politicians and business elites were termed felool – the remnants – and their attempt to rehabilitate their position within the Egyptian state is a key indicator of risk for 2016.
Changes to the Electoral Law in 2014 ensured that the majority of those elected to the 2015 Parliament were felool, or at the very least had close connections to former elites. Reductions to the proportions of candidates eligible to stand as representatives of a party list meant only 120 candidates for a unified party, compared with 420 independents.
Cognisant of the slim chances of a dynamic and representative parliament, less than a third of Egyptian voters cast their ballots in the two elections last year.
Manipulation of parliamentary representation appears to be a considered attempt by the President to ensure his pre-eminence over decision-making. Favouring the individual system provides greater control over who can actually stand for election. Only candidates of financial means can afford the monetary cost of electoral campaigning and the distribution of patronage required for success.
Clients of Sisi
Yet this lack of a party structure also limits Sisi’s ability to dominate the legislative process.
Despite a reduction in their preferential access to economic opportunity, the felool remain a prominent aspect of Egyptian politics and business, and will almost certainly be needed to contribute to any redevelopment of Egypt’s economy. As the military has sought to increase its hold over the economy while attempting to battle an increasingly violent political insurgency, the notable figures that flourished under Mubarak have endeavoured to return to their previous positions of favour.
Former NDP members and Mubarak-era notables comprised the majority of candidates in the first round of voting for Upper Egypt and the West Delta, particularly with the Fi Hob Misr party alliance, led by a former intelligence officer, Samah el-Yazal. In all, 84 Mubarak-era parliamentarians won almost 30% of 286 available seats.
The pro-Sisi alliance was equally successful, winning 15 seats in the East Delta with no competition and a combined 45 seats from the Cairo, Middle, and South Delta constituencies in the second election in November.
With candidates primarily drawn from former ministerial positions or heavy industry sectors, the stage is set for competition between these traditional elite groups and the newly empowered clients of Sisi.
There is no coordinated group capable of rallying this body in line with the President’s personal preferences of government. Attempts by el-Yazal to create a functioning parliamentary coalition have failed as the two largest parties, both dominated by nominally pro-Sisi business interests, rejected total compliance to the executive.
Due to the fragmented and individualist structure of the new Parliament, there is likely to be genuine opposition to any attempt at dominating the legislative.
Competition between these interest groups risks pushing back constructive reforms and limiting the chance of the Egyptian economy making significant progress.
Drive for Legitimacy
Despite a willingness to appear part of the political charade that fronts a military regime, the business elites of Egypt are under pressure. In order to appease continuing concerns from foreign observers that the Egyptian state is terminally corrupt, Sisi has taken a pro-active approach to investigating corruption within his administration, although the targets are likely to be individuals from outside his network of allies.
Former Agriculture Minister Salah Helal was arrested in September after his resignation over corruption allegations, and the government of Prime Minister Ibrahim Mehleb collapsed a week later. In December a fact-finding committee was created to investigate government corruption after the head of the Central Auditing Authority claimed $76 billion was lost from the public sector in 2015.
Beyond probable further cabinet reshuffles, the findings of this commission are unlikely to negatively affect Sisi himself. Meantime, the President is overcoming the lack of cohesion in the parliament by rushing through mountains of legislation.
Since June 2014, Sisi has ratified over 200 extra-parliamentary laws and decrees that have had no civilian oversight. Once Parliament sits it will have 15 days to review and accept this legislation – an almost impossible task. The vast majority of these laws will therefore pass without extensive review and consolidate the pro-military agenda that Sisi has pushed since becoming President. Sisi already indicated in October his preference for amendments to the 2014 constitution that would further enhance his control of the state.
In an indication of how the newly empowered military interests are dealing with competition from established elites, the authorities arrested Salah Diab, the owner of the independent newspaper Al-Masry Al-Youm, and froze accounts of Mahmoud al-Gamal – the father-in-law of Gamal Mubarak, the former President’s son – on allegations of real-estate corruption.
Al-Masry Al-Youm has been one of the few Egyptian media voices willing to openly criticise aspects of Sisi’s regime and the state of Egypt since the coup in 2013. A major financier of the paper, Naguib Sawiris, is one of the most recognisable faces in Egyptian business and politics; in his role as founder of the Free Egyptians Party, he has been a key actor in political developments since the revolution.
Despite having the backing of the security state, Sisi is aware that he can’t afford to entirely alienate the elite networks of influence that hitherto dominated the Egyptian polity. Two pieces of legal manipulation in particular are designed to warm Mubarak’s crony elites to the new order.
Law No. 32 of 2014 annulled any third parties from challenging contracts between the state and an investor. It can be applied retroactively. This was a significant olive branch from the regime as Egypt’s courts had issued rulings ordering reversals of at least 11 deals signed by Mubarak’s administration.
An even clearer indication of Sisi’s desire to rehabilitate crony networks came from an amendment to Law No. 62 of 1975 on Illicit Earnings (submitted in December 2014). This allows for amicable settlement between the government and public figures that embezzled funds. The accused are required to pay back a fraction of the amount they embezzled before being re-admitted to the political and social elite circles.
As of January 2015, the Justice Ministry is negotiating with 15 people charged with making illicit profits. The defendants include members of Mubarak’s family and several other Mubarak regime figures. The funds smuggled are estimated to be around $132 billion.
The settlements have the dual purpose of returning embezzled funds to Egypt and convincing corrupt businessmen – many of whom fled Egypt after 2011 – to return to business. Hussein Salem, a tycoon accused of profiteering from a monopoly over state gas deals under Mubarak, paid an undisclosed sum in June 2015 to wipe his alleged theft of $700 million.
Burgeoning Energy Crisis
Sisi established his position for the executive as the candidate capable of restoring security and re-establishing economic growth. Reform of the economy is essential.
The abject failure of the Suez Canal to increase the profitability of trade is not a positive indicator for future projects in Egypt. There is future growth potential from the economic development and trade zones planned along the canal route. For now, cargo transit has actually declined since the extension was opened in August.
While the economy has been propped up by Sisi’s benefactors in the Gulf, they too are suffering from the prolonged drop in global oil prices and will not be able to subsidize Cairo indefinitely.
In March 2015, the Cabinet rushed through an Investment Law to streamline bureaucracy and the laid out its plans at a conference intended to serve as a public advertisement for investment. Over the course of the two-day Egypt Economic Development Conference in Sharm el Sheikh, the government announced 40 agreements and signed memoranda of understanding in electricity, energy, telecommunications, oil and housing projects. The total investment amount was estimated at $60 billion, with the armed forces’ combined economic interests remaining prominent actors in all of the sectors.
Electricity is particularly vital, with capacity for generation and distribution severely degraded since 2011. The issuance of an Electricity Law in February 2015 was intended to facilitate investment in this sector, notably from a consortium of GE and the Sawiris family’s Orascom. But investment in electricity will come to naught without a clearly defined strategy to enhance power generation.
Egypt’s electricity relies on natural gas for 70% of production, and shortages of this resource have been one of the defining symptoms of the state’s breakdown.
The discovery of the Zohr field, with an estimated 30 trillion cubic feet of gas, may go some way to covering Egypt’s domestic needs, but it will come at a cost. Investment estimated at $7 billion by ENI will ultimately be paid by Cairo.
Egypt was a net exporter of gas under Mubarak. Years of mismanagement by crony networks crippled the sector. The country must focus on continued reform of energy subsidies if foreign companies are to be sufficiently incentivized. Equally, government payments for exploration and extraction – notoriously lax under Mubarak – must be encouraged.
Any assessment of Egypt must take into account the domestic security situation. Islamist and radical jihadist groups, some affiliated with Islamic State, have waged an insurgency against the Egyptian state, largely based out of the Sinai Peninsula.
The assassination of state prosecutor Hisham Barakat in June was the highest profile assault on Sisi’s regime last year. Carried out in Cairo, the bombing underlined the clear and present reality of the gaps in Egypt’s security state. The president himself has no fixed nightly address for fear of assassination.
The beheading of a Croatian geological surveyor in August by IS was followed by the destruction of a Russian airliner in October in Sharm el Sheikh, killing all 224 passengers. These incidents were clearly targeted at key economic sectors for Egypt – oil, gas and tourism – and the ability of the state to guarantee security has been fundamentally brought into question. The failure to adequately secure airport facilities will be of particular concern moving forward, as evidence suggests bribery and illicit networks are capable of undermining existing security mechanisms.
For as long as Egypt takes a publicly harsh stance against political Islam, it is unlikely that the security situation will improve and there will continue to be an outsize risk from militant groups. This will negatively affect the ability of Egypt to re-engage with gas exports to Israel or Jordan as the pipelines for these projects passed through Sinai before their disruption.
The Egyptian armed forces almost certainly do not have the tactical capacity to end the ongoing violence through purely military means, and the institutional culture of impunity that has been built around the President and his inner circle suggests that the current strategy of attrition is unlikely to be challenged in the near future.
Watch Points for Egypt in 2016:
- Struggle for influence between those parliamentarians representing the security state against those representing private sector interest groups.
- Corruption investigations are likely to enhance Sisi’s reputation while former Mubarak elites are rehabilitated into developing patronage networks.
- Continued insurgency in the Sinai and regional efforts to confront Islamic State risk further damaging Egypt’s faltering tourism industry.
- Devaluation of the Egyptian pound against the dollar is likely in order to improve liquidity and rally domestic equity markets.
Jack Kennedy is the lead Middle East & North Africa analyst at West Sands Advisory Ltd. An Arabic speaker, Jack has traveled the wider region and last worked in Egypt in 2014 with the European External Action Service.
West Sands Advisory is a business intelligence and geo-political risk advisory firm that has, since 2006, helped clients identify opportunities and reduce risk in emerging and frontier markets. More information at www.westsandsadvisory.com