The Evolution of Sisi’s Militarised Capitalism
Summary: despite a massive 2024 bailout for a severe debt crisis the Egyptian regime is avoiding structural reform, instead relying on its model of militarised state capitalism. To generate fast cash the government is hollowing out the civilian public sector by selling its most profitable companies to Gulf investors and relying on luxury real estate deals, a path that will likely increase the economy's fragility and its dependence on foreign states.
We thank our regular contributor Maged Mandour for today’s newsletter. Maged is a political analyst who also contributes to Middle East Eye and Open Democracy. He is a writer for Sada, the Carnegie Endowment online journal and the author of the recently published and highly recommended Egypt under El-Sisi (I.B.Tauris) which examines social and political developments since the coup of 2013. You can find Maged’s most recent AD podcast here.
It has been three years since the start of a debt crisis that engulfed the Sisi regime and with it the mass of Egyptians. Throughout the crisis, the regime has shown dogged insistence on maintaining its debt-fuelled model of militarised state capitalism, almost at any cost, going as far as to flirt with bankruptcy in the process. The regime’s calculus, which eventually proved correct, is that it would eventually be saved, and saved it was, with a bailout of over 50 billion USD in 2024. At the time of writing, even though the government has proclaimed its intention to privatise some of the military owned companies, not a single one has been offered to investors. The regime’s resistance to reform was noted in an unusually blunt report issued in July as part of a periodic assessment by the IMF, the latest in a long line of funding programmes.
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The military's economic influence in Egypt is growing through a process of "cannibalisation" of the civilian public sector, weakening the economy and creating a highly uneven playing field that deters investmentBehind this apparent calm, however, changes are taking place in the regime’s economic model in ways that will deepen and worsen existing dynamics, while birthing new ones, compounding the fragile and peripheral nature of the Egyptian economy and making a renewal of the crisis more likely. The most notable development is the sale of the public sector’s most profitable companies to Gulf investors, mostly the UAE, which has scooped up a total of 3.2 billion USD worth out of a total of 4.9 billion USD of state assets sold between 2022 and 2024. The Emirati investment includes investment in extremely profitable companies like Eastern Tobacco Company that has a strong monopoly on the tobacco market in Egypt, the dominant tobacco market in the Middle East and Africa. In September, the UAE acquired 30% of the company for 625 million USD, giving it a controlling stake. The same pattern recurred with other profitable companies, including CIB, one of the largest banks in the country. The deal was worth 911 million USD.
The sale of these profitable firms with dominant market positions poses a number of issues for the regime, and increases the fragility of the economy. The most obvious consequence is that the transfer of profits outside the country is bound to create pressure on the country’s already scarce hard currency sources. Second, it deprives the state of important sources of revenue, either directly from these companies’ profits or through exemptions given to investors. Finally, it grants a foreign state direct power over a captive market, reaping windfall profits at the expenses of the Egyptian consumer. Finally, this process of asset stripping means that the regime is slowly but surely selling its most profitable assets which leaves it with a very weak safety net for when the next crisis erupts, as is bound to happen.
Selling the crown jewels of the Egyptian public sector is coupled with another trend, namely its cannibalisation by the military. The most obvious example is the Future of Egypt for Sustainable Development, the business arm of the airforce, which over the past few months has either acquired controlling stakes or increased its stake in various companies. This includes the Arab Company for Land Reclamation, in which the Future of Egypt acquired almost a 90% stake, and ICMI, a company in the medical supply industry, in which the Future of Egypt acquired an 8.8% stake. This comes after the Future of Egypt was designated as the official procurer of wheat and strategic commodities for Egypt, replacing the General Authority for Supply Commodities (GASC), a civilian public entity which has decades of experience. Hence, the Egyptian civilian public sector is under dual pressure - from both sales of its most profitable companies and from cannibalisation by the growing tentacles of the military - effectively hollowing it out.
In addition to these two developing trends, the need for fast cash injections to meet the growing debt obligations has generated a policy of reliance on luxury real estate investment from the Gulf as a source of capital inflows. More specifically, the North Coast of the country, which is reported to have received 70 billion USD worth of investment in the last two decades. On top of the Ras El Hekma deal signed in 2024 and worth 35 billion USD, Qatar is in talks for another deal worth 3.5 billion USD. These investments have been met with large demand, with the prices in the North Coast increasing by 15.8% year on year. In September the sale of properties in Ras El Hekma achieved 210 million USD in the first 48 hours. This over-reliance on real estate as a source of capital accumulation, however, will have devastating consequences on the economy at large and will accelerate the process of militarisation. The most obvious consequence is that in the midst of a weakening currency and an uncertain future, the upper classes are likely to invest in real estate whose value is rapidly increasing, rather than in more risky economic activity. This will lead to an over accumulation of non-productive dead capital in real estate, when it is desperately needed elsewhere to spur economic growth. The abundance of these projects is also bound to increase competition with other real estate projects, leading to losses, especially if one looks at the regional level. The fate of Neom is a case in point, which has been scaled back, arguably because of the massive costs and the lack of clear return. Finally, these cash injections are shielding the regime from any suggestion of possible reform and allowing it to continue its spending spree on white elephant projects. The new city of Jirain, which is not dissimilar from Ras El Hekma, is a case in point. Even if these projects are successful, they will be islands of wealth surrounded by a sea of poverty, a recipe for mass social unrest.
The final result, however, is the weakening of the Egyptian economy and its increased reliance on the Gulf States and financial markets to survive. The regime’s economic model is evolving into something vicious, predatory and even more prone to crisis. The opportunity for a genuine economic revival is being eroded in the hope that building luxury developments and rich foreigners will do the job, cementing Egypt’s economic periphery status and making an even more devastating financial collapse inevitable.
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