Egypt Generals Running Child Care Means Transition Profit Motive

The Egyptian military, which promises to steer the nation to a new democratic future after the resignation of President Hosni Mubarak, has its own economic interests to protect as well.

The armed forces have a substantial stake in the civilian economy through a host of government-owned service and manufacturing companies, at least 14 of them under the auspices of the Ministry of Military Production. Their websites list product lines that include civilian goods.

Military-run companies are in such businesses as janitorial services, household appliances, pest control and catering. El Nasr Company for Services and Maintenance, for instance, has 7,750 employees in such sectors as child care, automobile repair and hotel administration, according to its website. Other military companies produce small arms, tank shells and explosives -- as well as exercise equipment and fire engines.

These companies add up to “a very large, unaccountable, non-transparent ‘Military Inc.,’” said Robert Springborg, a professor in the department of national security affairs at the Naval Postgraduate School in Monterey, California, and author of “Mubarak’s Egypt: Fragmentation of the Political Order.”

The generals “will try to massage the new order so that it does not seek to impose civilian control on the armed forces,” he said. “It’s not just a question of preserving the institution of the Army. It’s a question of preserving the financial base of its members.”

Interim Authority

Mubarak on Feb. 11 answered 18 days of protests involving hundreds of thousands of Egyptians by relinquishing his 30-year hold on the nation’s presidency, handing interim authority to Egypt’s Supreme Council of the Armed Forces.

The council dissolved parliament two days later and suspended the constitution, saying it will rule for six months or until elections are held. The body said on Feb. 12 that it intends to lead the nation through a democratic transition. Mubarak, like Egypt’s three other leaders since the 1952 revolution, came to power from a career in the military.

As much as one-third of Egypt’s economy is under military control, said Joshua Stacher, an Egyptian-military expert and assistant professor at Kent State University in Ohio whose work has been published in five academic journals. Revenues from military companies are a state secret, along with the armed- forces budget, he said.

Making Arms

It isn’t uncommon for governments and militaries to own or run their own defense-related industries and arms makers. In Singapore and Israel, for example, nationalized production of fighting hardware has been seen as a way to protect national security by avoiding dependence on foreign producers.

What sets apart the Egyptian military, the Arab world’s largest, is that its companies also offer an array of products or services in the domestic consumer economy -- and without civilian oversight.

The latest assessment of defense production and military companies in Egypt from defense-information firm IHS Jane’s in London, and a 1998 report produced by the U.S. embassy’s commercial affairs section in Cairo, list three military-owned firms that sell to both armed forces and the public.

One is El Nasr Company for Services and Maintenance, which operates under the brand “Queen Service.” It has at least 18 service businesses, including child care centers, according to its website.

General Ahmed El-Banna, general manager of El Nasr, said in a telephone interview that the military owns 75 percent of the company while the rest is held by a group of shareholders made up of retired officers. Families of retired officers can inherit shares after the principals die, El-Banna said.

Medical Gases

Two other consumer companies were named by the reports: El Nasr Company for Intermediate Chemicals, whose website says it produces chemicals, fertilizers, industrial and medical gases and household pesticides, and Arab International Optronics, a lens and advanced-optical maker.

No one answered the phone at Arab International Optronics and the number given by telephone information for El Nasr Company for Intermediate Chemicals didn’t answer.

The Ministry for Military Production lists on its website more than a dozen “military production companies,” including Abu Zaabal Co. for Engineering Industries, Benha Co. for Electronic Industries and Maadi Co. for Engineering Industries. Abu Zaabal was established to secure the armed forces’ artillery needs, according to the website. It also produces water and fuel tanks.

Bench Presses

Maadi makes parts for medical and agricultural equipment as well as home appliances, radiators and exercise equipment, including bench and leg presses. Benha owns factories and produces telecommunication equipment, microwaves and personal computers. Egyptian Tank Plant makes red fire-fighting vehicles.

In a 2008 cable signed by U.S. Ambassador Margaret Scobey, the embassy in Cairo told Washington that the Egyptian military was “becoming a ‘quasi-commercial’ enterprise itself.” The secret cable was dated September 2008 and was released last December by WikiLeaks, the anti-secrecy group that publishes classified documents on its website.

Although the cable didn’t detail individual firms, it said the embassy’s sources “told us that military-owned companies, often run by retired generals, are particularly active in the water, olive oil, cement, construction, hotel and gasoline industries.”

The cable quoted one professor at a university whose name was redacted speculating that the business ties helped ensure “regime stability and security” by gaining armed-forces cooperation.

Stifling Reform?

It also offered this view from embassy staff: “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.”

The armed forces’ business interests would be at risk if demands for opening up the economy ran too deep, said Samer Shehata, an assistant professor at the Edmund A. Walsh School of Foreign Service at Georgetown University in Washington, before Mubarak stepped down. Born in Egypt, Shehata is the author of “Shop Floor Culture and Politics in Egypt.”

“The military as an institution, the high-ranking officer corps, certainly has vested economic interests that could be changed or could be put in jeopardy,” he said. “If the military was completely removed from politics, then there is no question that these interests would be put in jeopardy.”

Defense Aid

Egypt’s 1979 peace treaty with Israel has brought the country an average of about $2 billion per year in economic and military aid. About $1.3 billion is designated for defense, according to reports from the U.S. Congressional Research Service and the Government Accountability Office. The armed forces council says all international treaties will be honored.

El Nasr Company for Services and Maintenance is one of those benefitting from the nation’s close relationship with U.S. armed forces. El-Banna said it provides food services and accommodations for visiting U.S. personnel during operation Bright Star, a massive joint combat exercise held in Egypt every two years. Personnel from France, Germany, Greece, Italy, Jordan, Kuwait, Pakistan and Turkey also participate.

Military companies play a significant role in consumer food production, said Springborg, the Naval Postgraduate School professor.

Because the Egyptian military wanted to be self-sufficient in meeting the dietary needs of personnel, it runs “chicken farms, dairy farms, horticultural operations. And it of course has its own bakeries,” he said.

The military’s “business interests are very large,” said Bassma Kodmani, executive director of the Paris-based Arab Reform Initiative and a senior adviser at the French National Research Council. Those businesses, though, help build the nation and help keep capital within its borders.

“The army is not seen as corrupt,” she told a group of reporters in Paris last week. “It might seem strange to people in the west, but in Egypt it’s not considered shocking that the army builds highways or new housing projects.”

To contact the reporters on this story: Cam Simpson in London at csimpson13@bloomberg.net Mariam Fam in Cairo at mfam1@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.

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