The new administrative capital: Outside the state budget or outside public accountability?
 
 

The government project to build a new administrative capital in the desert east of Cairo is well underway, with plans to construct ministries, residential neighborhoods, artificial lakes, conference centers, hospitals and hotels. When the project was launched in March 2015 by President Abdel Fattah al-Sisi, officials estimated the total cost would reach US$45 billion (nearly LE760 billion), though some current estimates put the price tag at $58 billion (nearly LE980 billion).

Despite the grand scale of the new city, which is being built on 700 square kilometers of state-owned land, and the heavy reliance on government funding, the project’s finances are not subject to any public oversight or accountability. Government officials also claim the construction project will not use any funds from the state budget, raising questions about what constitutes public funding, and how various government projects are kept beyond the reach of public scrutiny.

On the pretext of establishing the new capital, Sisi issued a decree in 2016 allocating 166,645 feddans of land west of the Ring Road and 17,571 feddans east of the same road to the Armed Forces National Land Projects Agency. The decree stipulates that the land constitutes “areas for the establishment of new urban communities” and were allocated for the new capital and the Sheikh Mohammed bin Zayed Settlement, which will link the new, unnamed capital with New Cairo, a city on the southeastern edge of Cairo.

The body in charge of the planning and development of the new capital is Administrative Capital for Urban Development, a shareholding company consisting of two parts: the New Urban Communities Authority, which is affiliated with the Ministry of Housing, on one side, and the Armed Forces National Land Projects Agency and National Service Products Organization, both military-affiliated bodies, on the other. Administrative Capital for Urban Development will also oversee the construction of the Sheikh Mohammed bin Zayed Settlement.

In Egypt, the military operates as a wholly autonomous body, and its budget and finances have long been outside the scope of parliamentary oversight. And since the ownership structure of the company overseeing the building of the new capital includes military-affiliated bodies, Parliament will not be able to review the project’s budget, according to MP Yasser Omar, a deputy in Parliament’s Planning and Budget Committee.

“The rules that apply to the Armed Forces budget also apply to the budget of the new Administrative Capital for Urban Development,” Omar tells Mada Masr.

Through the Armed Forces National Land Projects Agency and National Service Products Organization, the Armed Forces own a majority stake, 51 percent, in the shareholding company, while the New Urban Communities Authority owns the remaining 49 percent.

Omar believes that the overall profits of Administrative Capital for Urban Development can be calculated by examining the New Urban Communities Authority’s books — since it is affiliated with the Ministry of Housing and therefore subject to parliamentary oversight — and extrapolating out. But he says those numbers will not be available anytime soon, noting that Parliament has not begun reviewing the authority’s 2018 financial statement yet.

Despite the lack of transparency, Omar claims that the new administrative capital “does not take a single piaster from the state budget.” This is the prevailing view among government officials, including the spokesperson for Administrative Capital for Urban Development as well as Sisi himself, and is based on the premise that profits made by various government bodies and agencies are separate from other public funds and fall outside of the state budget.

“New Urban Communities Authority is a profitable body that finances itself by selling land; it does not receive state support,” Omar says. “Similarly, the [military-affiliated] Armed Forces National Land Projects Agency and National Service Products Organization make profits that enable them to reinvest. What the military receives from the public budget are allocations for salaries, armaments and other items, which are unrelated to its affiliates that earn their own profits.”

However, this notion is up for debate.

“There is clear confusion regarding the new administrative capital when it comes to the concept of the state budget — which this project is deemed to fall outside of — on the one hand, and the understanding of public resources or public funds, on the other,” Mostafa Kamal al-Sayed, a professor of political science at the American University in Cairo, tells Mada Masr.

“The project to build the new administrative capital is based on a partnership between state agencies. So, in all cases, it uses public funds, such as the land allocated to the project, which is a public resource,” he says. “The principle of budget unity — which requires adding all state expenditures and revenues to the state budget — necessitates the disclosure of all expenses and revenues to members of Parliament and to the general public,” Sayed adds. “This includes projects like the new administrative capital, especially in light of the debate over whether it should be a spending priority for the state or not.”

The laws governing the three public bodies that own Administrative Capital for Urban Development are worth examination.

According to the 1979 law that established the New Urban Communities Authority (NUCA), its capital consists of funds allocated to it by the state and pieces of land selected for the establishment of new urban communities, as well as other allocated land and transferred fixed or movable assets. The law also stipulates that NUCA’s resources shall consist of appropriations allocated by the state; proceeds of the sale; rent and use of the land and properties owned by the authority; proceeds of its activity and the return on activities or services delivered to third parties; as well as loans, donations and subsidies.

That same year also saw the establishment of the National Service Products Organization, which belongs to the Defense Ministry, with the aim of studying and executing projects requested by ministries, state bodies, local government agencies and public sector companies. The law stipulates that the National Service Products Organization’s proceeds are to be deposited in a private account in one of Egypt’s commercial banks. The minister of defense then issues a decision to disburse the funds “in a way that guarantees the proper implementation of projects as well as the upgrade and development of the Armed Forces.”

As for the Armed Forces National Land Projects Agency, which was founded in 1981, a legislative amendment in 2015 expanded its role, giving it the right to establish for-profit, shareholding companies, including partnerships with foreign capital. This opened the door for the agency to profit off its massive stock of land, whereas it had previously been limited to receiving financial compensation from the state treasury to establish military sites and the customary allocation of land for other economic purposes.

The spokesperson for Administrative Capital for Urban Development, Ayman Ismail, tells Mada Masr that the company’s activities are financed solely from the proceeds of land sales.

“The company’s capital allocation amounts to LE240 billion — 10 percent of which represents the paid-up capital — which is paid for by the three partners and has nothing to do with the state budget,” Ismail says.

Meanwhile, Sisi claimed in March that all new cities, including the new administrative capital, do not receive funding from the state budget. He said that the source of funding for the new cities’ infrastructure comes from the sale of land, the value of which increases in relation to their proximity to new road projects implemented by the state.

Yet officials’ claims that the new administrative capital does not incur any costs to the public budget are based on a questionable premise, according to some economists.

“State land should be considered a part of public funds in all cases,” says Ahmed Zaazaa, an urban researcher at 10Tooba. He says lands are a commodity akin to any natural resource and are therefore state-owned public assets that should not be treated as private property belonging to the agencies that manage them. He adds that the use of such assets should also be subject to public oversight.

Salma Hussein, an economic researcher at the Egyptian Initiative for Personal Rights, says that financing the new capital from outside the state budget is “not a cause for pride.” She says that, in all cases, spending on the new capital comes from public funds. “It is unacceptable — with no legal exceptions — to keep it outside of the public supervision that is imposed on public funding.”

Sayed, the university professor, also clarifies that “the participation of the Armed Forces in the project should never be used as an excuse to keep its details away from public scrutiny.”

He says some secrecy surrounding the military’s financial transactions is warranted given the special nature of the institution with regard to national security. Yet democratic countries allow for public control over military spending, even on armament, Sayed adds.

“The purpose behind the administrative capital project is entirely civilian and it cannot be deemed as a project that would affect armaments in any way,” he says, thus leaving no basis for its exclusion from public oversight.

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Beesan Kassab