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Middle East & Africa | Of militants and money-changers

Egypt’s army seems to want to make pasta as well

as war
Even as it struggled to assert control on Sinai, it seized large parts of the
economy

Apr 13th 2023 | DUBAI

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T he war was not going well. The enemy had made three major advances in
barely a year. The population was demoralised. Abdel-Fattah al-Sisi needed
to show leadership. His motorcade zipped across a desolate landscape until it
reached an army checkpoint, where Egypt’s president sought to rally the troops.
“Don’t think this crisis will remain,” he told a clutch of camouflage-clad
conscripts. “A day will come, and this crisis will become history.”
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The tone and ambience were martial. But the enemy, in this case, was not rebels
or invaders: it was the dollar, against which the Egyptian pound has lately lost
almost half its value. Mr Sisi was not urging the troops to fight harder but rather
exhorting them, and the rest of his 105m subjects, to endure a grinding
economic crisis. It was a curious scene that says much about the past decade of
his rule.

His visit on April 1st to the Sinai peninsula, a vast moonscape that is home to
less than 1% of Egypt’s population, was also a declaration of victory. The area’s
Bedouin natives had been marginalised for decades, barred from decent jobs
and pushed off their lands. Some took up arms after the overthrow in 2011 of
Hosni Mubarak, the longtime dictator. In 2014 they linked up with the jihadists
of Islamic State. The following year they briefly took over the town of Sheikh
Zuweid, on the coast (see map).

The army struggled to quash the insurgency with a scorched-earth strategy that
worsened local grievances. Human Rights Watch, a New York-based monitor,
said that in 2013-20 it destroyed at least 12,000 buildings and razed 6,000
hectares of farmland. Perhaps one-quarter of North Sinai’s 450,000 people were
displaced.
The turning-point came only when local tribes entered the fray. After years of
being kidnapped, extorted and killed, they started working alongside the army
to secure Sinai. The region is calmer today, though in December militants

claimed responsibility for a raid on a checkpoint in the city of Ismailia, their

first attack on the Egyptian mainland in three years.

That was the backdrop to Mr Sisi’s visit. Terrorism, he said, was all but defeated
in Egypt. There would soon be grand celebrations, and perhaps a museum to
commemorate the army’s sacrifice. “Terrorism,” Mr Sisi told his troops, “ended
with you.”

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Mr Sisi is fond of invoking the memory of Egypt’s post-revolutionary chaos to

justify his autocratic rule. As the economy sinks, though, many of his subjects
have soured on him. After investors pulled out capital last year, Egypt has had to
devalue its currency by almost 50% since March 2022. The central bank has
almost doubled interest rates over the period, including its most recent increase
of two percentage points (to 18.25%) on March 30th.

Investors are still wary. The pound seems to have further to fall: on the black
market, it trades some 16% below the official peg. Interest rates remain dwarfed
by inflation, which hit an annual rate of 32.7% last month. The price of food and
drink rose by 62.9% from a year earlier.

With real rates deeply negative, investors have little appetite for Egyptian debt.
On April 3rd the government sold only 1.1m pounds ($35,275) in bonds at an
auction, just 0.04% of the 3bn-pounds-worth on offer: would-be buyers wanted
much higher rates than the state was willing to provide.

The government reached a $3bn deal with the imf in December. Its
commitments to the fund include a pledge to shrink the army’s economic
empire, which crowds out private business. The men in khaki manufacture
pasta and cement, build roads and bridges and produce television shows. Yezid
Sayigh, a fellow at the Carnegie Middle East Centre, a think-tank in Beirut,
estimated in 2019 that the army oversees a quarter of public spending on
housing and infrastructure.

Egypt is not keeping its promise. The National Service Projects Organisation
(nspo), a military-owned firm, is building new factories to make fertilisers,
irrigation machines and veterinary vaccines. An army-linked company recently
won a contract to renovate the Cairo zoo.

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Replay

The government has talked for two years about selling stakes in Safi, a bottled-
water company, and Wataniya, which operates petrol stations. Both are run by
the army. Officials said this month they had received offers for each of them.
Even this step, though, may be less significant than it seems. A visitor to Cairo in
recent months might have noticed a growing number of Wataniya franchises
rebranded as ChillOut stations, which offer retail and fast food along with
petrol. Wataniya and ChillOut are both subsidiaries of nspo. The army looks to
b ti i t f fi it i ht ll d t f i th t it ill