What future for Egypt’s wealth?

By Ayman el-Amir


Poverty In Egypt

The wealth of nations changes hands in times of turmoil or great transformation. It is seized by conquest, in wars, confiscated by rulers, transformed by changing economic conditions or redistributed by whoever commands power in the name of a revolution. In 1534, Henry VIII confiscated all property of the Catholic Church when, in a dispute with Pope Clement VII in Rome over his wish to divorce his first wife, Catherine of Aragon, he declared himself the head of the Anglican Church which he established to replace the Catholic Church. During the French Revolution in 1789, les sans-culottes chased noblemen out of their lands, guillotined or banished them. In 1805, Mohammed Ali, the founder and first ruler of modern Egypt, massacred the Mamelukes, confiscated all their land and property and reallocated it to his family and loyalists. More recently, the Occupy Wall Street movement in the U.S. marked the first anniversary of its founding and nationwide protest action, deepening the crisis of the capitalist system. Meanwhile, the Bill and Melinda Gates Giving Pledge initiative, jointly launched with Warren Buffet in 2010, has enlisted 92 American billionaires to give away at least half their fortunes to charity, education and public services. Wealth is changing hands, with a smile.

Wealth changed hands in Egypt a few times since it gained nominal independence from Britain in 1922. The founding of Banque Misr in 1920 by Talaat Harb marked the beginning of a shareholders’ capitalist economy in a country largely dependent on agriculture and where the majority of the population tilled the land, virtually as land serfs. While vast swathes of land remained the main source of wealth, Talaat Harb’s Banque Misr founded, financed and initially managed major industrial and trading companies through public financing, not private ownership. It established textile, insurance, shipping, publishing, movie-making industries and Egypt’s first airline, EgyptAir, among scores of other projects. It was the second Egyptian industrial renaissance after Mohamed Ali's. Then came the 1952 Free Officers’ Movement that introduced land reform to break up the political and economic weight of the super-class of landlords. It established state control over business, banking and industrial activities, eventually leading, 10 years later, to state capitalism under the pseudo name of socialism. Nationalization and sequestration measures created a bloated public sector marked by over-employment and inefficiency, managed retired officers of the army. The regime needed a trusted class of loyalists to shore it up, particularly after the wave of nationalizations. But the regime also had a mammoth achievement in building the High Dam and laying down the foundation of heavy industry.

In the 1970s, president Anwar Al-Sadat reversed the trend and introduced the “open door” policy which stimulated the ravenous appetite of a few hundred capitalists who skimmed the economy, gradually privatized the public sector, created a speculative economy and replaced heavy industry with consumer products based on foreign franchises ranging from cosmetics to ice cream. Sadat's power base consisted of a range of businessmen who represented the underpinnings of his regime. Their main interest was to tear down Gamal Abdel-Nasser’s public sector, which was showing signs of weakness and corruption, and take over its best assets. Agricultural land was eroded, industry deteriorated, subsidies were reduced and inflation began to climb. They were merely interested in opportunities to make huge profits, not building the national economy. With rising inflation, Sadat’s power base began to erode too: the poor were getting poorer because of the reduction in subsidies and the rich because of the slow pace of their transition from the millionaires to billionaires' category.

Then came Hosni Mubarak. First declaring that a dead man’s covering had no pockets to stuff with money, he proceeded with his family and close friends to loot everything that qualified as a source of wealth, from the stock exchange to millions of acres of desert land. Every act of looting was protected under Mubarak’s authoritarian regime. The wealth of Egypt became a family property. The Mubarak family and its close business allies and friends became the new class that controlled the apportionment of Egypt's riches. Wealth was changing hands again. Not only was wealth monopolized, but poverty also spread widely. At one time, Egypt’s former prime minister Ahmed Nazif, now serving a jail sentence following conviction on corruption charges, said the Egyptian economy grew by almost seven per cent in 2010. These statistics are usually misleading. They measure GDP in total but they fail to analyze the trickle-down effect. A few well-connected businessmen may have made a few hundred billion Egyptian pounds in the poorly-regulated stock exchange or from the resale of thousands of kilometers of desert land earmarked by state enterprises for land reclamation or tourism development. Purchased for pennies by Mubarak's friends it is resold, a few years later, to foreign companies for hundreds of millions of dollars as valuable prime real estate. The proceeds are usually evacuated to a foreign bank in a foreign country, but are also added as a factor in the GDP composite. What the average Egyptian gets out of this inflated GDP is zero. It does not add services, benefits or money to take home to his family. These are the fortunes Egypt is trying to recoup from secret accounts in foreign banks.

Mubarak lost power and the wealth of his family and coterie is being tracked down both at home and abroad by a new class -- the Muslim Brotherhood. As the old class is unlikely to regain its former power for political reasons and on charges that it usurped wealth by corrupt practices, the wealth of the nation will pass to the hands of the new masters. While they will not have the free hand Mubarak and his clique had to manipulate the fortunes of the nation, they have demonstrated political savvy in the parliamentary elections, presidential election, and gained a significant measure of representation in the Constituent Assembly charged with drafting a new constitution and on the boards of professional unions. However, the Brotherhood's Freedom and Justice Party faces the mammoth task of reducing the poverty of 34 million Egyptians, creating job opportunities for 16 million more, establishing and maintaining a state of security, creating a viable healthcare system, modernizing education, drafting an all-nation constitution that embraces universal values and creating a safe environment for foreign investment -- all in the next four years of Mohamed Mursi’s tenure. So far, President Mursi has the government, the security system, the armed forces and temporary legislative powers tucked under his belt. However, his Freedom and Justice Party will have to win a comfortable majority in the next legislative assembly, scheduled to be elected in October, if a new constitution is passed. Above all, Mursi’s administration will have to be approved to receive the $4.8 billion standby arrangement it has applied for with the IMF, and the estimated $16 billion in foreign aid and investment funds, particularly those promised by the Gulf Arab states.

For the Gulf Arab States it is a win-win situation. Egypt is the largest consumer market in the Middle East, which Gulf trading companies can flood with consumer goods, regardless of whether food or cellular phones are the top priority for poor Egyptians. This will be the function of promotion and advertising that will reshape the needs and priorities of Egyptians.

Gulf States, particularly Qatar, are keenly interested in the success of Muslim Brotherhood governance in Egypt. However, their investment model will be “quick money in, quick money out”. They will focus on lucrative soft business, including tourism, hotels, investment banking, financial institutions, oil and gas projects, real estate, imports, trading and marketing, and travel services. The advantage is that profits will be siphoned off to the home corporation and, in case of trouble the investment assets could be liquidated or withdrawn. Local partners will come from the Muslim Brotherhood, including Deputy Supreme Guide Khairat Al-Shater, prominent businessman Hassan Malik and others who believe that private business is best suited to haul Egypt out of its economic doldrums. Both the Gulf Arab investors and Egyptian partners will steer clear of social services, investment in infrastructural projects and modernizing industry. Joint Arab and Egyptian private sector ventures will lead Egyptian business development, but not development projects. It is the private business mentality, and assurances, that won U.S. approval of Muslim Brotherhood rule over the military establishment. This approach will theoretically free the next government of creating job opportunities and focusing on problems of infrastructure and social services. By reducing subsidies as a conditionality of the IMF loan, and balancing the budget by cutting down on services, the government will still face the perennial problem of poverty. The failure over 30 years of the Mubarak regime to create adequate job opportunities and raise standards of living by transferring the country's wealth to the hands of the private sector is an example the ruling Brotherhood should learn from.

The Occupy Wall Street protest movement has shot arrows at the exploitative capitalist system that concentrates vast public wealth in the hands of the few. The few lucky ones have seen the writing on the wall. It will be a long time before a Muslim Brotherhood regime, if it lasts, sees what a disaster it made by auctioning the wealth of the nation.

(The writer is former correspondent of Al-Ahram in Washington, DC, and former director of the U.N. Radio and Television in New York. This article was published on Al-Ahram Weekly’s Sept.27 – Oct. 3, 2012 issue.)