Under Sisi, firms owned by Egypt's military have flourished - 0 views
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Maadi is one of dozens of military-owned companies that have flourished since Abdel Fattah al-Sisi, a former armed forces chief, became president in 2014, a year after leading the military in ousting Islamist President Mohamed Mursi.
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In interviews conducted over the course of a year, the chairmen of nine military-owned firms described how their businesses are expanding and discussed their plans for future growth. Figures from the Ministry of Military Production - one of three main bodies that oversee military firms - show that revenues at its firms are rising sharply. The ministry’s figures and the chairmen’s accounts give rare insight into the way the military is growing in economic influence.
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Some Egyptian businessmen and foreign investors say they are unsettled by the military’s push into civilian activities and complain about tax and other advantages granted to military-owned firms
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In 2016, the military and other security institutions were given exemptions in a new value-added tax (VAT) law enacted as part of IMF-inspired reforms. The law states that the military does not have to pay VAT on goods, equipment, machinery, services and raw materials needed for the purposes of armament, defense and national security.The Ministry of Defense has the right to decide which goods and services qualify. Civilian businessmen complain that this can leave the system open to abuse. Receipts for a cup of coffee at private sector hotels, for example, add 14 percent VAT. Receipts at military hotels do not. Employees at the military-owned Al-Masah Hotel in Cairo told Reuters that no VAT was charged when renting venues for weddings and conferences.
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The Ministry of Military Production is projecting that operating revenues from its 20 firms will reach 15 billion Egyptian pounds in 2018/2019, five times higher than in 2013/2014, according to a ministry chart. The ministry does not disclose what happens to the revenues. The chairmen of two of the firms said profits go to the ministry or are reinvested in the business.
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“I don’t want to be a local shop. I want to be a company that has the capacity to export and compete internationally.”
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Egypt’s military, the biggest in the Arab world, has advantages.It enjoys financial support from Saudi Arabia and the United Arab Emirates, staunch supporters of Sisi since he toppled the group they see as a threat to the Middle East, the Muslim Brotherhood. Western powers see Cairo as a bulwark against Islamist militancy. Egypt receives $1.3 billion in military aid annually from the United States alone.
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The chairmen of two military engineering companies, Abu Zaabal Engineering Industries Co and Helwan Engineering Industries Co, said in recent years it had become much easier to access financing through the Ministry of Military Production.
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The Ministry of Military Production signed a memorandum of understanding with China’s GCL Group last week to build a solar panel factory worth up to $2 billion. The military has taken over much of the construction of intercity roads from the Ministry of Transport and now controls the toll stations along most major highways.
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Economists and investors say reforms tied to a $12 billion three-year IMF program signed in Nov. 2016 should lay the ground for economic expansion. But foreign investors are still shying away from Egypt, apart from those focusing on the more resilient energy sector. Non-oil foreign direct investment fell to about $3 billion in 2017 from $4.7 billion in 2016, according to Reuters calculations based on central bank statistics.
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foreign investors were reluctant to invest in sectors where the military is expanding or in one they might enter, worried that competing against the military with its special privileges could expose their investment to risk. If an investor had a business dispute with the military, the commercial officer said, there was no point in taking it to arbitration. “You just leave the country,” he said.
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Among projects the Ministry of Military Production announced in 2017 was a plan to plant 20 million palm trees with an Emirati company and build a factory to make sugar from their dates. It agreed with a Saudi company to jointly manufacture elevators. The military inaugurated the Middle East’s biggest fish farm on the Nile Delta east of Alexandria.
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In 2015, the defense minister issued a decree exempting nearly 600 hotels, resorts and other properties owned by the military from real estate taxes
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Military companies receive an exemption from import tariffs under a 1986 law and from income taxes under a 2005 law. Cargoes sent to military companies do not have to be inspected.
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At bustling Cairo squares, people line up to buy subsidized meat and other food handed out from trucks sponsored by the military. Sisi said he had instructed the military to enter the market “to supply more chicken to push down prices.”Some disagree with such measures on the grounds the military’s mission is to protect the country from external threats.“We have reached a point where they are competing even with street vendors,”