Is the government building a parallel bureaucracy?
 
 

In March, the Egyptian government issued an official framework for a planned sovereign wealth fund that is fully owned by the state and will operate as an independent body — legally, administratively and financially.

While countries around the world manage sovereign wealth funds for various ends, Egypt has no budget surplus to speak of, and the move can best be understood as the latest in a series of attempts by the presidency to sidestep existing administrative structures in pursuit of its economic and political goals.

The strategy reflects an overall trend of governance in Egypt under Sisi’s rule where power is increasingly concentrated in the hands of the presidency and the military at the expense of other institutions, including the judiciary, the media and, in this case, the civilian bureaucracy.

Sovereign wealth funds are distinguished from other investment funds by their large size. Unlike other funds, they do not necessarily seek high returns, but instead are used to achieve various political and economic objectives. For example, they may invest in projects of strategic value in foreign countries in order to project national influence abroad.

A common feature of all states with large sovereign wealth funds is that they enjoy major surpluses. The biggest sovereign wealth fund in the world, valued at US$1 trillion, is owned by Norway and is largely funded by oil revenues. China has the second-largest sovereign wealth fund, which relies on non-commodity surpluses.

By contrast, Egypt has no surplus. In fact, it functions under a substantial budget deficit (9.7 percent of GDP in the 2017/18 fiscal year) alongside onerous debt, which, in 2018, constituted 37 percent of GDP at $92 trillion.

Nevertheless, the secretary of Parliament’s Economic Affairs Committee, MP Medhat al-Sherif, estimated that the value of Egypt’s sovereign wealth fund could reach LE1 trillion (equivalent to $50 billion, less than 5 percent of the value of Norway’s sovereign fund.) Due to its small size, some experts do not consider Egypt’s fund a sovereign wealth fund in the conventional sense, but rather a new administrative body. According to Minister of Planning Hala al-Saeed, the purpose of Egypt’s sovereign wealth fund is to manage and utilize state assets and attract foreign investment.

The establishment of new, independent administrative bodies to oversee tasks that are ostensibly within the purview of existing administrative agencies has become a recurrent feature of Abdel Fattah al-Sisi’s presidency. In a 2015 speech, the president described the state administrative apparatus as “an obstacle to Egypt’s progress.” Meanwhile, various laws and executive decrees put forward during Sisi’s presidency establish a clear pattern of effort by the executive to circumvent the state bureaucracy and its inability to effectively execute government policies and directives.

Experts say that the government’s tendency to carve out alternative, and more efficient, administrative pockets that operate outside the tangle of the state bureaucracy stretches back decades. The difference now is that this strategy is part of an overall project to transform the state power structure by building a parallel administrative apparatus, one that bypasses bureaucratic red tape — and oversight — with the goal of spurring economic growth. And the stakes are high.

What sovereign fund?

The law governing Egypt’s sovereign wealth fund comes in the wake of numerous statements from state officials expounding on the need to exploit accumulated state assets. Over just one 60-day period in 2016, the phrase “exploit state assets” was used 13 times in various government press releases. That same year, Sisi issued a presidential decree forming a committee to conduct an inventory of the properties of the Endowments Authority, the single largest owner of untapped state assets.

In November 2017, then-Prime Minister Sherif Ismail issued a decree forming a committee to survey all unused land and warehouses — including those owned by various ministries, governorates, subsidiary agencies and public sector firms  — and to develop a plan for their possible use.

In light of the state bureaucracy’s dismal track record, the idea of establishing an Egyptian investment fund to manage state assets is appealing in theory. The fund would work to attract investors wary of dealing with the labyrinthine state bureaucracy by guaranteeing an investment commitment by the government, according to a former government official who works on economic policy. This is the primary objective of the fund, he says, particularly after the difficulties faced by Arab sovereign wealth funds that have attempted to invest in Egypt.

The sovereign wealth fund currently in the works maintains the right to sell underutilized assets, which dovetails with the government’s privatization program. It also has the right to invest in them. The former official said that there are many underutilized assets that could be put to use through an investment fund.

In fact, the idea of a sovereign wealth fund was floated several times under former President Hosni Mubarak as a way to gear resources toward economic growth instead of using them to cover the fiscal deficit. This latest effort was preceded by other attempts to create entities to effectively resolve investors’ problems.

For example, in 2015, the Ministry of Planning and the Ministry of Local Development, in concert with the ministries of industry and trade, investment, social solidarity and youth, along with the Endowments Authority, launched a national initiative in collaboration with the private sector to establish Ayady for Investment and Development. According to its website, the goal of the company is “to stimulate investments and promote development in Egypt” and “achieve economic growth throughout the country in order to improve living standards for Egyptians.”

Meanwhile, in 2016, Sisi issued a decree creating the Supreme Investment Council, which operates under his leadership. The council’s remit includes monitoring the implementation of investment plans and programs by state agencies, ongoing work on economic megaprojects and the status of public-private partnerships. The council was also tasked with articulating a general framework for legislative and administrative reform of the investment environment and monitoring instruments for the resolution of investment disputes.

The former government official believes the government’s new approach to create a sovereign wealth fund could produce tangible results.

Yet the official also says the move raises many questions about how these agencies and entities will operate, including on issues of transparency and disclosure. The sovereign fund law allows the president to unilaterally transfer ownership of state-owned assets to the sovereign wealth fund if they are unutilized. If the assets are in use, the president needs only to coordinate with the minister whose ministry owns them. The fund then has the right to dispose of these assets through “sale, lease-to-own or partnership as an in-kind share.”

But the law does not subject the sovereign wealth fund to any kind of parliamentary oversight. The Planning and Budget Committee initially introduced changes to the bill that would require financial statements, an auditor’s report and a detailed annual report of the fund’s activities and plans to be submitted to the House of Representatives. However, Parliament removed the clause in the final vote on the bill, thereby placing the fund beyond any parliamentary scrutiny.

Amr Adly, a professor of political economy at the American University in Cairo, also believes that the new fund is less of a sovereign wealth fund than a new administrative body. “It’s akin to a combination of the Ministry of Investment and the Ministry of Public Enterprise, but with broader [legal] jurisdiction.”

For Adly, this process of “administrative restructuring” is creating an entity that functions as a central arm of the executive, and has the resources to make investment decisions.

A new bureaucracy

When examining the various laws and measures that could be described as “administrative restructuring,” a pattern emerges: alternative administrative and executive bodies are established with a broad remit that report directly to the executive, thus bypassing the conventional bureaucratic and executive apparatus.

A case in point: In October, MP Mostafa Salem, the secretary of the parliamentary Planning and Budget Committee, submitted a bill to create a general tax authority. The law would separate the tax authority from the Finance Ministry to make it an independent entity directly subordinate to the presidency. The authority would replace existing tax departments by overseeing general tax policy, implementing tax laws, and setting and collecting taxes, with a board selected by the president that would oversee public policy.

The key difference between this new authority and the existing tax department is that the former would not be subordinate to the Finance Ministry. Instead, it would answer directly to the presidency, allowing it to enjoy “a degree of independence and be administered with modern methods, to be free of the government bureaucracy,” according to the law’s explanatory memo. This approach is less about reforming existing institutions and bureaucratic and administrative structures than replacing them with parallel bodies.

The roles of the Engineering Corps of the Armed Forces detailed on the Ministry of Defense website follow the same pattern. In 2017 alone, the Engineering Corps executed 45 projects, most of them roads, bridges, and tunnels, in addition to other infrastructure and service projects.

The military’s Engineering Corps also oversees the construction of several social housing projects as part of the state’s widely touted “one million units” plan, according to sources quoted by Youm7, and presides over the construction of educational facilities, as well as several healthcare and sanitation projects.

The magnitude of the works undertaken by the Engineering Corps has sparked discussions about their economic impact on the private sector, and also raises questions about the role of the specific administrative agencies ostensibly responsible for overseeing these projects. For example, there is already a specific government agency responsible for roads, bridges and land transportation. Yet, due to its poor performance, Mubarak converted the authority into a holding company in 2002. Two years later, Mubarak issued another decree to restructure the authority absent any noticeable improvement.

The same holds for housing projects. There is an entire ministry dedicated to housing, utilities and urban communities, as well as the Urban Communities Agency, a state authority established in 1979 which is responsible for urban development, according to its website. Similarly, the Holding Company for Water and Wastewater, established by presidential decree in 2004, is the umbrella government agency responsible for all public-sector water and sanitation companies. Among other tasks, the company is responsible for distributing potable water. The same applies to healthcare projects and educational institutions.

These conventional agencies are reduced to playing a supporting role to the Armed Forces Engineering Corps. For example, the Urban Communities Agency receives the housing units from the Engineering Corps after they are ready for habitation, but it is Engineering Corps officials, not the Urban Communities Agency, that prepares them for inspection by the president. The same logic holds for other agencies whose work is overseen by the Engineering Corps.

In July, Sisi ratified a law creating the Supreme Authority for the Development of Upper Egypt, a new authority dedicated to planning and implementing development projects in Upper Egypt as part of the state’s general development plan. According to the law, the agency has a special budget that is not subject to regular governmental rules and regulations. The president and members of the agency’s board are appointed by prime ministerial decree and the board consists of representatives of several ministries as well as the General Intelligence Service, the Chambers of Commerce and the Federation of Egyptian Industries.

Under the law, the board has the power to transfer, second or borrow agency staff from state administrative units. It may also “establish joint-stock companies, alone or with other partners, or in participation with existing companies, and it may contract other firms or expert bodies to undertake or implement its projects…without complying with governmental regulations and rules.”

A year earlier, in July 2017, Sisi ratified a law to create the economic zone in the Golden Triangle in Upper Egypt. According to a prime ministerial decree that created the General Authority for the Economic Zone of the Golden Triangle, the ownership of all state-owned lands and facilities within the zones defined by the law accrues to the authority. The authority can also create companies to further its goals, whether alone, in partnership with public or private legal persons (as defined by the decree), or with other partners.

Sisi’s new regime

The former economic affairs official wonders how these new measures and agencies fit in with the state’s overall policy framework. Taking the agency for Upper Egyptian development as an example, he questions the lack of clarity about its position vis-à-vis other state administrative institutions.

“There is a map of the different agencies that manage various state assets,” he says. “I don’t know what their channels of coordination are, nor the components of their plan.”

Such administrative duplication is the product of a long history of complex bureaucratic and administrative systems that were shaped by political and social factors after the Free Officers-led coup in July 1952. Adly notes that Gamal Abdel Nasser attempted to eliminate the Free Officers as an entity in favor of a presidential system that concentrated power in his own hands. This was done by retiring surplus officers or transferring them to the administrative apparatus, the ultimate effect of which was to turn the state bureaucracy into a series of fiefdoms operating under their commanding officers. Nasser also relied on the bureaucracy to be the state’s biggest employer.

This process fueled administrative corruption and reduced efficiency. By 1965, according to Adly, the relationship between the political leadership and the administrative apparatus became highly strained with the beginning of the second five-year plan. That plan, like the first five-year plan in 1960, aimed to double Egypt’s national income.

Nasser used central oversight agencies such as the Central Auditing Authority and the Administrative Control Authority to battle the state bureaucracy, and he openly criticized the administrative apparatus as a burden and obstacle to the 1952 revolution.

Notoriously inefficient and swollen in size, the state bureaucracy proved problematic throughout the rule of Anwar Sadat and Mubarak. The Mubarak government pursued a new strategy, particularly in the last decade of his presidency, to circumvent conventional bureaucratic obstacles by relying on parallel entities that could get the job done and by granting his son Gamal a much bigger political role.

“They call it pockets, or islands, of efficiency — using better-educated people coming from the private sector or embedded in networks that are not traditionally found in the administrative apparatus,” Adly says.

He believes that these new entities were not able to wholly bypass the traditional bureaucracy under Mubarak but, instead, they developed an unofficial status. The administrative apparatus formed pockets of control that were well-connected to government officials in decision-making circles in order to “grease the wheels” and facilitate the execution of orders.

In this way, Adly says, the political leadership was able to kill two birds with one stone: they could overcome the inefficiencies in economic life while also centralizing the decision-making process, binding it more closely with the political leadership.

But these networks ceased to operate after the January 25 revolution in 2011. Officials became uncertain amidst the turbulent political landscape and stopped taking bureaucratic measures for fear they would be held accountable, according to Adly.

Robert Springborg, a professor of political science at King’s College London who has studied the Egyptian state for decades, confirms that the problem of Egyptian bureaucracy is not a new one. He says that Egyptian administrative structures follow a stovepiping model, with numerous, parallel vertical channels to relay information upward while avoiding horizontal exchange.

This structure was an administrative weakness under Mubarak. It precluded the kind of effective communication between ministries and government agencies that would ensure the smooth implementation of decisions without overlapping jurisdictions and laws.

But Springborg believes the Egyptian administrative apparatus now has a bigger problem: it is encountering more direct rule by a particular institution — the military — which has long held the bureaucracy in contempt and views civil servants as useless. The military believes it can run things better, and now its chance has come. Springborg says that since Sisi took the helm, attempts to sideline the administrative apparatus have become increasingly frequent.

“The state administrative apparatus is currently debilitated,” Springborg says. “It’s clear that the political leadership wants to sideline it. What’s happening is that in the sectors where the leadership has no direct interest, the bureaucracy is left to do what it wants without effective guidance. In the absence of resources, high wages and qualifications, there are constant crises. An efficient bureaucracy needs sound regulation and qualified personnel, clearly defined roles and responsibilities, and the resources to achieve things on the ground. This isn’t happening.”

Ashraf al-Sherif, a professor of political science at the American University in Cairo, says that the January 25 revolution posed a genuine threat to the existence and interests of the state by bringing to the fore forces and movements that threatened state hegemony. The current government has therefore adopted a different ideology and vision of its interests, Sherif says, making it distinct from its predecessor.

For him, the most important distinction is the total eradication of politics. He defines politics as the institutional management of competing interests through negotiation to reach public policies based on the broadest possible alliance, whether in a democratic, autocratic or totalitarian system.

“[The current government] is doing something new that’s never been done in Egypt’s history, even under the British occupation, which is the elimination of politics and the elimination of political mediation,” Sherif says.

In the absence of any role for political organizations, it is the military, the police and the judiciary that have assumed the task of state governance and control of citizens. Instead of the various diffuse power networks active under Mubarak, the power structure is now strictly hierarchical, with the military and its intelligence apparatus at the apex, supported by the police and judiciary.

It also relies on a parallel administrative and bureaucratic apparatus. But unlike the Mubarak era, this apparatus is not located within pro-business ministries that are close to power, such as was the case under former Prime Minister Ahmed Nazif’s Cabinet, with its close ties to Gamal Mubarak and influential businessmen. Instead, it is primarily the military that creates and manages this parallel bureaucracy.

Adly agrees that the new political regime differs from its predecessors in the way power is distributed within the state apparatus and between state and society. He says there is “undoubtedly a military component” in the new government, one that gives the impression of having abandoned the unofficial networks on which the Mubarak regime relied and operating with greater discipline.

Adly also says that the new regime has revived some regulatory agencies, like the Administrative Control Authority, to regulate the performance of state bodies. The greatly expanded role of the ACA in recent years is a case in point.

Mohamed Erfan, the former head of the authority, has spoken about reviving the role of the Administrative Control Authority and suggested it had been previously frozen (though he did not say when this happened) due to a widespread belief that it was hindering investment. He also spoke about various roles played by the Administrative Control Authority that seemed well outside its core mission, such as facilitating business for investors.

In 2018, a government committee was formed with representatives of the Administrative Control Authority and the Ministry of Investment and International Cooperation to monitor and resolve problems in establishing businesses using the new investor service centers, which were created by the latest investment law. Erfan spoke about the service centers at a conference attended by Sisi in February, to mark the inauguration of some of them by Minister of Investment and International Cooperation Sahar Nasr.

Sherif believes this political trend of building parallel institutions will have long-term repercussions. The sprawling bureaucracy has constituted a loyal base of support for political regimes in Egypt for more than half a century. If the bureaucracy loses its administrative and political role, it will be effectively neutralized, which could, in turn, mean the loss of this presumed base.

For all of its deficiencies, the bureaucracy remains the sole apparatus capable of effectively governing the country through its official and unofficial networks in working-class and informal neighborhoods, rural areas and small cities, says Sherif. If the current trend means that the regime will abandon its governing capabilities, the state apparatus itself will become a purely repressive one.

“This is of the utmost seriousness,” Sherif says. “Even the communist system was based on two pillars, a repressive one and a governing one, to keep things running.”

Sherif believes that keeping things running requires politics — meaning negotiation and the representation of various social forces, including pro-government forces, to reach an agreement for power sharing. But the current government is not interested in sharing power. Summing up the present situation, he says that the regime does not want politics, but also wants to undertake radical reforms. Showing a reckless disregard for the apparatus that can actually govern the country, it is busy creating its own parallel, opaque bureaucratic entities through a series of top-down decrees.

For his part, Adly believes that the way Gamal Mubarak and his associates dealt with the state apparatus was the more serious experiment and more fervently devoted to the neoliberal model. But the swift end of that government proves that resolving issues with the state administrative apparatus requires a major political program that enjoys mass support, one that can stand up to the apparatus in order to dismantle and rebuild it, whether from the inside or from without.

AD
 
 
Mohamed Hamama 
Osman El Sharnoubi