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UCHE, CHIDIEBUBE JASPER

PG.Ph.D/10/57826

UNITED STATES OF AMERICA’S ASSISTANCE AND NEO-LIBERAL REFORMS IN EGYPT UNDER MUBARAK

FACULTY OF SOCIAL SCIENCES

DEPARTMENT OF POLITICAL SCIENCE

Paul Okeke

Digitally Signed by: Content manager’s Name

DN : CN = Webmaster’s name

O= University of Nigeria, Nsukka

OU = Innovation Centre

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UNITED STATES OF AMERICA’S ASSISTANCE AND NEO-LIBER AL REFORMS IN EGYPT UNDER MUBARAK

BY

UCHE, CHIDIEBUBE JASPER

PG.Ph.D/10/57826

DEPARTMENT OF POLITICAL SCIENCE

FACULTY OF SOCIAL SCIENCES

UNIVERSITY OF NIGERIA, NSUKKA

MARCH, 2015

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CHAPTER ONE

INTRODUCTION

1.1. Background to the Study

Notwithstanding Egypt’s reputation as a cradle of civilization in Africa, her political

economy had consistently remained in dire straits. Strategically, her “vital importance is due

to the Suez Canal, connecting the Red Sea and the Mediterranean” (Sen, 1978:415). The

cessation of British Rule in 1882, and the Free Officers Coup of July 1952; ended the seventy

years of popular agitations against the monarchical rulers. However, the emergence of

despotic rulers from Abdel Nasser to the era of Hosni Mubarak, truncated the

democratization process and inhibited sustainable economic development. Diamantopoulous

(2012:2) captures the external and internal challenges that faced Egypt in the 20th century

thus:

Egypt faced volcanic upheaval during the 20th century. The two World Wars, the rise of the nationalist movement, the anti-colonial struggle, the demarcation of its modern borders, the foundation of Israeli state, the Cold War, the Arab-Israeli conflicts as well as the resurgence of Islamists have led this part of the world to the centre of international interest several times in the course of recent history and have vastly affected its internal politics.

The Free Officers had no clear-cut economic ideology to drive the economy of the

fledgling republic. The ruling junta rather continued with liberal economic policies of the old

regime to attract foreign investments. With much touted nationalism and disposition to

popular appeal, the “officers remained very pre-occupied with consolidating power and

expelling the British from the Canal Zone” (O’brien, 1966:69).

In a bid to be seen populist, President Abdel Nasser carried out labour and social

legislation; and a radical agrarian reform that endeared the government to peasant masses.

Cook (2012:47) notes that it was “part of a broad effort to undermine the prevailing economic

elite - a primary constituency of the monarchy and parliamentary order that the Free Officers

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had just overturned”. Vatikiotis (1961:75) observes that the land reform law brought about a

limited ownership of land to a maximum of 200 feddans (approximately200 acres). Equally,

the 1956 Constitution introduced ‘controlled capitalist economy’ which entailed government

supervision and guidance of economic activities (O’brien, 1966:85). However, the regime’s

overarching executive powers and suppression of democratic forces as well as a burgeoning

United States-Egypt romance bred criticisms from the Left and raised flak of resistance

against President Nasser.

At the death of President Gamal Abdel Nasser in 1970, the two domineering factions

of the political-bureaucratic class were enmeshed in supremacy battle over the line of

economic ideology the Egyptian state would take, to rescue her from doldrums. While a

faction of pro-Nasser policies preferred a sustained socialist economy, with the government

taking over the remaining private sector-led key areas of the economy like agriculture,

construction and internal trade; the other faction favoured “a return to the market mechanism,

the dismantling of the public sector and encouragement of foreign direct investment as the

only solution to the deepening economic crisis”(Farah,2009:38). By May 1971, President

Answar Sadat who succeeded Nasser had discreetly drifted from the socialist path, crippled

pro-Nasser policies and promulgated Law 65 of 1971 that ensured inflow of foreign direct

investment to Egypt (Farah, 2009:38); and as noted by Cook (2012:121) “it provided a

political benefit to Sadat as he sought to develop a constituency among the middle, upper and

wealthy professional and business-owning classes”.

The looming fiscal crisis in Egypt influenced the adoption of open door (economic

opening) policy otherwise known as (infitah) under Answar Sadat. Egypt’s economy became

exposed to liberal international economics, marking an end to Egypt-Soviet ties. Indeed, the

liberalization of the economy in Egypt in the early 1970s to avert a systemic collapse was

reflected by Soliman (2011:28) thus: “the great reversal undertaken by Sadat from East to

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West, from alliance with Soviet Union to alliance with the United States, partly represents an

attempt to escape the fiscal crisis that threatened the stability of the regime”. Aligning with

the West, led by the United States of America (USA) became the most self-survivalist option

but it snowballed to a diplomatic stand-off between Egypt and Arab neighbours. Farah

(2009:39) notes that the decision to foster peace with Israel brought about not only isolation

of Egypt from Arab community but also resulted to the stoppage of Arab aid to Egypt.

United States, the latest Egyptian ally squared up with the challenge and made up for the loss

of Arab aid by granting Egypt an estimated aid of US$2.1Billion per annum(Farah,2009:39).

This marked a formal take-off of the bilateral but asymmetrical tie between Egypt

and United States, which had underscored the crises of democratization and economic

restructuring in Egypt, for over three decades. From then, successive American Presidents

sustained the U.S-Egypt alliance, which had been in line with the observation of Aja (1998:3)

that “American Presidents have the overriding power to act in a manner considered best for

the national interest, prestige and glory in international emergency”. Describing Sadat’s

regime liberal economic choices, Soliman (2011:29) notes that “what Nasserists and Sadatists

avoid saying is that Egyptian State under Sadat, with the slogan of economic opening, had

reached levels of inflation unprecedented under Nasser, whose slogan was socialism”.

By a twist of fate, Hosni Mubarak assumed the reins of power after the assassination

of President Answar Sadat in October 1981. He inherited a weak economy bogged by

external debt overhang and a spiraling inflation rate. The gloomy picture of Egypt’s economy

was represented thus:

Egypt in the 1980s was transformed into a rentier economy, relying on external sources of income while neglecting its productive sectors: agriculture and manufacturing. The economic liberalization measures were not geared to a strategy of export-oriented industrialization on the East Asian model, but to a relatively open economy that was quickly de-industrializing (Farah, 2011:40).

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To salvage the economy from bankruptcy that had a total external debt of US$49

billion, and a total external debt of GDP ratio which had reached 150 percent” (Farah,

2009:41), President Mubarak who had initially foot-dragged the implementation of the neo-

liberal economic reform; in view of the ugly experience and pressures of the 1977 Bread

Riots, had to cave in to the demand for a wholesale neo-liberal reform by Bretton Woods

institutions - International Monetary Fund (IMF) and the World Bank. Egypt then embarked

on a comprehensive economic reform christened, ‘Economic Reforms and Structural

Adjustment Programme (ERSAP) in the 1990s. The IMF, World Bank and Paris Club, the

pillars of the United States neo-liberal philosophy granted variants of economic assistance

and loan facility while the U.S. government provided the military aid to Egypt, to secure its

strategic interest in the Middle East. However, the economy came to face unbearable crisis in

the early 1990s, and describing the Egypt’s heavy dependence on United States for external

funding, Soliman (2011:27) notes that “During Nasser’s years, Egypt ranked first in the

world in terms of soviet aid, while under Sadat and Mubarak, it ranked second in terms of

American aid”. Thus, President Anwar Al-Sadat forged closer US-Egypt relationship that led

to Sadat’s charge to Soviet advisers in Egypt to quit, while in turn he welcomed U.S.

President Richard Nixon’s request to U.S. Congress for approval of $250 million aid to

Egypt. Apart from the annual $1.3 billion military aid, the U.S. annual economic assistance

also hovered between $250 and $700 million from 1981and 2010 when Mubarak held sway.

Extant literature on this subject (Soliman, 2011; Cook, 2012; Farah, 2009; Kassem,

2004; Brownlee, 2012; Harrison, 2010; Harvey, 2007; Offiong, 2001; Kaboub, 2012;

Olukoshi & Nwoke 1994) underscored the fact that what is regarded as neo-liberal reform in

Egypt is a deliberate policy by the West led by the United States to protect its interest of

ensuring regional stability among the Gulf states at the detriment of the people of Egypt who

were not only impoverished but also emasculated from exercising their democratic rights.

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The United States Government supported Mubarak’s autocratic rule and high-handed

approach of implementing the neo-liberal prescriptions. The military (Mubarak’s

constituency and core loyalists), and a few members of the privileged class, with their foreign

accomplices bought off the national assets that were privatized and took over the control of

the key sectors of the economy, as part of neo-liberal economic reforms. With the free flow

of money from United States in form of loans, grants and debt rescheduling, public spending

remained unabated. Mubarak manipulated series of electoral processes to perpetuate himself

in office while the opposition was clamped down. His dictatorial and poor democratization

records notwithstanding, the United States continued with its unflinching support to

Mubarak’s administration, to the extent of muzzling the voices of dissent from the Egyptian

informed citizenry. Gradually, Egypt under Mubarak became a mix of authoritarianism and

implementation of neo-liberal development framework.

Neo-liberalism or ‘new liberalism’ is the “resurrection of the orthodox ‘laissez faire’

economic ideology that prevailed until the great slump of the 1980s” (Harman, 2008:3). It

entails the adoption of free market economies and restriction of state intervention to

“defending private property, national defence and in the monetarist version of neo-liberalism,

overseeing the money supply” (Harman, 2008:3). Historically, the old paradigm of the

ideology of economic ‘liberalism’ was rubbished at the end of the Second World War and it

became superseded in the 20th century with the writings of Rudolf Hilferding, Nikolal

Bukharin and Lenin that contended that:

State intervention was seen as necessary to provide the infrastructure for capitalist production (railways had long been nationalized in Germany and in Britain conservative governments nationalized the electricity grids and the airlines. The subsequent organization of the national economy for war, first in Germany and Japan, then in Britain and the U.S. showed the state intervention could provide a basis for renewed profitability and accumulation (Harman, 2008:5).

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International global economic change: and these policy reform are largely driven at the

rolling back of the state from economic management” (Harrison, 2010:18). As a result of this

newest thinking, the World Bank and the International Monetary Fund (IMF) came up with

“a revived advocacy of the market as the institution that would promote development”

(Harrison, 2010:20). To this end:

the central them of neo-liberalism is the opening up of spaces for capital that were previously restricted for geographical reasons or through state involvement or regulation, coupled with the increased integration of the state with business around an agenda of increased competitiveness within these newly opened spaces (Kilmister,2004:2).

Neo-liberalism is therefore:

a theory of political economic practices proposing that human well-being can best be advanced by the maximization of entrepreneurial freedoms within an institutional framework characterized by private property rights, individual liberty, unencumbered markets and free trade (Harvey,2007:22).

So, the key elements of neo-liberal reforms as implemented by Bretton Woods institutions -

IMF and World Bank are presented thus:

• In the structural reform, it entails “reducing direct control by government organs and placing the operations of public sector enterprises on a sounder commercial basis, redefining cost/pricing relations to eliminate distortions…encouraging foreign investment”;

• The fiscal policy component entails “reducing the ratio of fiscal deficit to

GDP, cutting subsidies…and changing the basis of valuation of custom duties from the official to the commercial exchange rate”;

• In monetary and credit policies, it entails “reducing the rate of credit creation and

raising interest rates…devaluation-cum-unification of the exchange rate supported by

managed floating” (Abdel-Khalek, 2001:2).

Since the introduction of neo-liberal reforms in 1990s in Egypt, the country had

experienced “noticeable improvement in several economic fundamentals including the

increase in growth to 5.9% in 1999/2000 compared to 1.9% in 1991/92” (Ramandan, e tal,

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2009:1). In fact, the foreign direct investment from the U.S. reached US$13.2 billion or 8.1%

of GDP in 2007/2008 from US$407 million or 0.5% in 2003/2004 (Ramandan, e tal, 2009:1).

The hitherto fiscal deficit had a downward trend that got to 6.8% in the 2007/08 Fiscal Year

from a peak of 9.6% in 2004/05 (Ramandan, e tal, 2009:1). However, the global financial

turmoil and its adverse effects coupled with the corruption of Mubarak’s government,

inadvertently stoked tensions and internal implosion in Egypt. Unemployment had risen, the

middle class had disappeared, strikes and demonstrations were commonplace, the country’s

debt profile had snowballed and economy had failed to grow as projected (Farah, 2009:24).

Critics argue that the financial packages from the West were not just a further illustration of

Western hypocrisy but a “conscious attempt to consolidate and reinforce the power of

Egypt’s dominant class in the face of popular mobilizations” (Hanieh, 2011:30). The

contradictions of United States Government’s assistance to Egypt and the implications of the

neo-liberal reforms under President Mubarak are thus problematized in this study. This study,

therefore investigates the relationship between United States of America’s economic aid to

Egypt as indicated by the (annual economic assistance that hovered in-between US$700 and

US250 million(from the Fiscal Years of 2000-2010); forgiveness of US$6 billion Egypt

debt; as well as influencing the Paris Club debt cancellation of US$10 billion); and the neo-

liberal reforms indicated by (trade liberalization; removal of subsidies in foods and energy;

privatization of public enterprises (PE’s) and deregulation of exchange rate regime in Egypt).

The period covered by the study is between 1981 and 2010: a time when the sit-tight and

despotic rule of Hosni Mubarak lasted in Egypt. The period represents the highpoint of

campaigns and accelerated implementation of market-reforms in most developing nations that

were recuperating from the twin injustices of colonialism and imperialism. The impression

espoused by the West, was that neo-liberal reforms were the needed launching-pad for

developing countries to overcome their developmental malaise. Curiously, Egypt’s glowing

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report from the International Monetary Fund (IMF), on its ‘impressive economic

performance’, later proved to have no effect on the productive sector and the per capita

income of Egyptians. The documentation of the relationship between United States of

America’s government assistance to Egypt and the implementation of neo-liberal reforms

under Mubarak is not only essential but also provides insights on the dynamics of external aid

and the economic reforms dictated by Bretton Woods institutions in Egypt.

1.2. Statement of the Problem

President Hosni Mubarak inherited an economy bedeviled by huge external debt.

The decline in oil prices, high interest rates and general economic downturn in the early

1980s made recovery almost unrealistic. Brownlee (2012:52) notes that “four-fifths of

Egyptian budget went to interest payments, the military, subsidies and public sector salaries”

while “the country suffered from a multibillion-dollar trade deficit, which eventually reached

$5.8billion”. Notwithstanding the efforts to revitalize the economy, Oweiss (2009:4) observes

that the economy 25 years after Mubarak took over, was still plagued by “a population

explosion, high rates of open and disguised unemployment, a crushing debt service burden,

high rates of inflation, substantial budget deficits, widespread price-cost distortions, low

productivity and acute external imbalances”. As a top wheat importer (9,000,000 metric tons)

and the fifth largest corn importer in the world (4,000,000 metric tons), Egypt’s structural

trade deficit’s main gaping holes were food and fuel (Oweiss, 2009:3). Indeed, the economic

turbulence of 1980s necessitated “neo-liberal ideas to not only produce powerful models of

development but also produce development in itself” (Harrison, 2010:82). Proponents of

neoliberal theory insisted that the bureaucratic management of institutions by the State will

play havoc with the market mechanism (Farah, 2009:18). The United States of America’s

government exploited her alliance with Egypt and the overarching influence in the two

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international institutions, driving neo-liberal reforms to push for Egypt’s adoption of market-

reform measures to jumpstart Egypt’s economy. Thus, Harrison (2010:83) argues that;

The consolidation of neo-liberalism has been affected through the growth of a powerful and nebulous international structure of publicly constituted regulative authority. The World Bank, largely due to the implementation of a regime of structural adjustment in the global South, transformed itself from a project-lending international bank to a key influence within policy-making and macroeconomic management throughout the developing world. The IMF moved from short-term exchange-rate creditor to policy-based lender as well, and has also acted to lend large tranches of conditional dollars to emerging market economies experiencing currency crashes.

Although a founding member of International Monetary Fund (MF) and World Bank,

Egypt’s drive towards stabilization and structural reforms started in the 1970s. The reforms

brought about a radical departure from Arab socialism and centrally-planned economy to a

market economy. However, the stabilization packages in 1977-78 and 1979-81 could not be

implemented wholly because of large capital inflows that Egypt received and so, it covered

her current account deficit without official support from the IMF (Abdel-Khalek, 2001:2). In

1984/85, Mubarak concluded protracted negotiations with the IMF and the World Bank in

1991 that ushered-in the Economic Reform and Structural Adjustment Programme (ERSAP).

The immediate gain of the stand-by agreement with the IMF (as part of ERSAP) was the

“reduction and rescheduling of Egypt debt through the Paris Club” (Abdel-Khalek, 2001:51).

The ERSAP created more social dislocations than it set out to remedy. The

withdrawal of subsidies in some critical services hiked the prices of electricity, transportation,

gasoline and telecommunications. The stoppage of automatic employments in the public

sector, introduced from the era of Abdel Nasser to young school leavers and college

graduates, created massive unemployment among the burgeoning youth population. In fact,

Egyptian unemployment “hovers above 20 percent, almost twice the official Egyptian

government estimate” while “44 percent of the country subsists on less than $2 per day”

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(Elaasar,2009:69). The privatization of public-sector companies, mostly at give-away prices

to cronies, squeezed the middle class and led to retrenchment of many workers. The import of

the ‘crony capitalism’ and the privatization programme was that “less than 20 percent of

Egyptians own nearly 80% of the country’s wealth”(Elaasar,2009:69). The 1992 land reform

brought about the renting of 34 percent of agricultural lands on exorbitant charges and

905,000 tenants that supported at least five million families were evicted (Farah, 2009:46).

The pegging of Egyptian Pound to the U.S. Dollar and the liberalization of foreign trade, with

the attendant relaxation of protective measures, exposed Egypt’s fledgling economy to unfair

competition of advanced economies. The public expenditure profile continued to

unprecedented proportion with reported cases of corruption and mismanagement of funds. It

was also observed that between 1999 and 2009, the “Egyptian pound has lost almost half its

value against the US dollar” (Elaasra, 2009:69). The 1998 IMF study of Egypt’s reform

programme still argued that the country had achieved the highest fiscal balance in 1996-97 in

the Middle East and North Africa after Algeria because of some promising indicators

(Soliman, 2011:45). However, critics faulted the glowing report on the premise that any

successful economic reform packages should be evident in increased production activities

and per capita income levels (Soliman, 2011:46). Generally speaking, Abdel-Khalek

(2001:52) insists that “the stabilization and adjustment package making up ERSAP carries a

high probability of overkill”.

While Egypt was gravitating under stringent reform measures under Mubarak’s

authoritarian rule, Brownlee (2012:41) notes that “the core interests of US-Egyptian alliance -

securing Israel and sustaining friendly relations with Arab oil exporters - indelibly shaped the

two governments’ collaboration”. The rise of economic liberalism, the Egyptian economic

impasse and the strong pressure mounted on International Financial Institutions (IFIs) by the

United States “to act as institutions to consolidate and ‘lock in’ a neo-liberal architecture”

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(Harrison, 2010:88), deepened the relationship between the U.S. and Egypt. The U.S.

provided Egypt with life-floating aid and interventions in the economy. Under the influence

of United States, the World Bank and the IMF through the ERSAP conditionality got Egypt

enmeshed in overdependence in external sources for funding at the detriment of boosting the

local capacity, revitalizing the productive sector and leveraging on the key sectors of the

economy like agriculture and tourism. Unfortunately, ERSAP “produced a very different

relationship between the World Bank and indebted states to that of the debt-led development

model” (Harrison, 2010:89).

Despite Egypt’s poor human rights records and entrenched manipulations of electoral

system in favour of the incumbent, United States had been at a fore front of giving economic

assistance to her. Kassem (2004:179) notes that the U.S. Ambassador to Egypt, David Welch

in 2002 justified Mubarak’s questionable political reform and human rights abuses by

insisting that the U.S. does not put pressure on her friends. And as the second largest

recipient of U.S. aid after Israel, Egypt receives annual worth of $2 billion aid (Kassem,

2004:179). The military alone receives aid of $1.3 billion annually, over the years. The

empowerment of the military in Egypt by the U.S. justifies the assertion that “the extreme

brutality with which the military crushes any opposition has helped ensure that the civilian

population can never constitute credible opposition to coup makers” (Egbo, 2001:173).

For decades, the United States condoned the government of Mubarak and provided

“the Egyptian regime more than $60 billion in aid and immeasurable political support to

secure its main interests in the region: Israel security and strong relations with Persian Gulf

oil producers”(Brownlee,2012:1). Notwithstanding the political support and economic

assistance, Mubarak received virulent attacks from the domestic front because of his alliance

with the U.S. In fact, it was viewed that the U.S. government emboldened Mubarak to

perpetuate himself in office, not minding his dwindling acceptability and the debilitating

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economic conditions among the Egyptians. Mubarak “made it difficult if not impossible for

political parties to function and interact outside of its offices” (Kassem, 2004:38). The

obnoxious emergency laws were activated and “allows the security forces to arrest

individuals who plan to partake in legitimate activities such as legislative or syndicate

elections” (Kassem, 2004:38).

As noted by Cook (2012:162) “the clear discomfort the strategic relationship caused

in some quarters of Egyptian politics - notably the Muslim Brotherhood, the Left, and the

Nasserist holdovers - revolved around questions concerning national sovereignty, pride and

most importantly, Washington relationship with Israel”. Mubarak employed anti-democratic

measures to consolidate power. He emasculated the legislature (the Peoples’ Assembly).

Laws that restricted press freedom were enacted. The constitutional roles of the judiciary

during elections were out-rightly jettisoned. Brownlee (2012:61) notes that “Because pro-

US autocrats were ‘containing extremism’ effectively, the White House supported the

Egyptian regime taking whatever steps were necessary to retain power”.

At the heart of the institutional hiccups to democratization and economic reforms in

Egypt was the military, which owns and controls twenty-five to forty percent segment of the

Egyptian economy (Abul-Magd, 2011:1). We have already noted that Egypt’s military

receives annual aid of $1.3 billion from the United States. The role of the military in the

Egyptian economy expanded during the nationalization programme of Gamal Abdel Nasser.

Senior military officers had easy access to acquire national economic assets just as the

military bourgeoisie exploited the secrecy of defense budget to cover significant economic

activities. The military’s rein on the economy remain unabated under the ERSAP. In fact,

Abul-Magd (2011:3) notes that military-owned enterprises were not only given subsidies and

tax exemptions but also remained untouched during the accelerated privatization programme.

Korski (2011:2) opines that “dealing with the military’s economic role is difficult and at the

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same time critical, if Egypt is to develop a fully-fledged democracy and create the kind of

rule-based, free market economy that can help the country grow by 5 percent annually”.

Ultimately, United States economic aid and the International Financial Institutions

(IFIs) propelled reforms in Egypt reduced majority of Egyptians to the ranks of abject

poverty, while a few and tiny privileged persons live in opulence and became ‘provocatively

rich’. Writers on United States military aid and authoritarian consolidation in Egypt under

Mubarak(Clarke 1997; Kassem 2004; Cook 2000; Hassan 2010; Burns 1985; Stacher 2004;

Whitaker 2005; Satloff & Clawson 1998; Korski 2011; Goodgame 2008; Brownlee 2012;

Shihab-Eldin 2013; Hamid 2013; Kausch 2013; Marshall 2012; Feistein 2011; Blanton 2000;

Aziz 2013; Rourke & Boyer 2002) allude to issues of corruption; regional stability in the

Middle East; military’s dominant role in the economy; Arab-Israeli Treaty; weak political

institutions in Egypt, as the causes of long years of authoritarianism in Egypt. Writers on

United States role in Egypt’s external debt management vis-avis Egypt’s economic reforms

(Seldon 1990; Mann & Lauter 1990; Kastow 1991; Gutner 1999; Antoo 2012; Soliman 2011;

Khail 2011; Chase 2006; Nelson 1968; Mingst 1999; Asher-schapiro 2012; Olukoshi &

Nwoke 1994; Abdel-Khalek 2001; Ake 2000; Ensign 1988; Abdallah & Brown 1988) see the

economic assistance on the bilateral level (US-Egypt) and the multilateral financial

institutions (IMF, World Bank & Paris Club) as avenues of strengthening U.S. grip on global

political economy and not necessarily alleviating economic difficulties in Egypt. Writers on

the relationship between United States economic ties and economic crisis under Mubarak

(Herz & Wagner 2010; Cook 2012; Brownlee 2012; Ojo 1999; Prins 2011; Bush 1994;

Momani 2003; Walker 1997; Khor 2000; Shenker 2009; Shehata 2011; Ayubi 1988; Jackson

2012; Walter 2008; Sandler 2008) tend to focus on the unequal exchange relations, the

pauperization of the majority by a few cronies of Mubarak and the limitations of Egypt’s

from exploiting a number of the trade agreements to better the living standards of her

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citizenry, as well as Egypt’s increased access to the U.S. and developed markets across the

globe.

Altogether, existing scholarship (Cook,2012;Klare,1994;Ibrahim 1996) attempts to

link the United States of America’s support for Mubarak’s sit-tight leadership and

aggravation of the crisis, while others( Farah,2009; Kassem,2004;Abdel-Khalek) underscored

the crisis as the outcome of exposure of Egypt’s ‘rentier’ economy to the vagaries of global

capitalism. Studies of contemporary Egyptian political and economic crises thus, emphasize

Mubarak’s dictatorship, rentierism and the global movement of capital. However, very little

efforts have been made at determining the synergy between United States of America’s

economic assistance and economic reforms in Egypt. The aim of this study is to examine the

United States of America’s Assistance and Neo-Liberal Reforms in Egypt under Mubarak.

The study therefore unfolds from the following questions:

1. Did United States of America’s military aid provide support for authoritarian rule in Egypt?

2. Was United States of America’s Government role in external debt management in Egypt conditionality for drastic economic reforms under Mubarak?

3. Was United States economic ties with Egypt implicated in the economic crisis under Mubarak?

1.3 Objectives of the Study The broad objective of this study is to examine the relationship between the United States

of America’s Government assistance and neoliberal reforms in Egypt under the

administration of President Hosni Mubarak that lasted between 1981 and 2010. Specifically,

the study aims to:

1. Examine whether the United States of America’s military aid provided support for authoritarian rule in Egypt under Mubarak;

2. Investigate whether United States of America’s Government role in Egypt’s external debt management, was conditionality for drastic economic reforms under Mubarak;

3. Determine if United States economic ties with Egypt was implicated in the economic crisis under Mubarak.

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1.4. Significance of the Study

This study has both theoretical and practical significance. At the theoretical level,

existing scholarship attempts to link the United States of America’s support for Mubarak’s

sit-tight leadership and aggravation of the crisis, while others underscored the crisis as the

outcome of exposure of Egypt’s ‘rentier’ economy to the vagaries of global capitalism.

Studies of contemporary Egyptian political and economic crises thus, emphasize Mubarak’s

dictatorship, rentierism and the global movement of capital. However, very little efforts have

been made at determining the synergy between United States of America’s economic

assistance and economic reforms in Egypt.

Thus, by exposing the motive behind the U.S. annual $1.3 billion military aid to

Egypt, and the strings attached to the aid; the imposed neo-liberal reforms; the cataclysmic

consequences on Egypt’s domestic economy; and the warped electoral processes skewed in

favour of the incumbent overtime; as well as the sustained campaigns of regime change that

the ugly effects engendered, thus come under review.

Practically, this study will contribute to knowledge about how the dependence on

foreign aid especially from the United States works at cross-purposes with the economic

sovereignty of Egypt. It will raise critical consciousness on the way to develop home-grown

approach in leapfrogging the country’s comatose economy without dependence on external

aid and the prescription of United States-influenced International Financial Institutions (IFIs)

– the IMF and the World Bank. Indeed, the desperation to satisfy the interest of aid-givers

brought about the uncritical imposition of market reforms which exposed Egypt’s developing

economy to the unregulated markets in the world. The study will therefore, expose the ills of

globalization, especially as it concerns the periphery nations. The consequence would be to

realistic policy actions by governments of the third world states to respond, and not react to

the forces of globalization, which unfortunately, we have come to live with.

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Thesis and Contribution to Knowledge

The study thus proceeds with the thesis that the United States of America’s

Government’s military and economic assistance to Egypt under President Mubarak’s neo-

liberal reform deepened the economic crises in Egypt. Therefore, minimal regulation of

economic activities based on democratic appraisal and efficient capitalism is the way forward

for Egypt and other countries with similar challenges.

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CHAPTER TWO

LITERATURE REVIEW

The aim of this study is to examine the relationship between the contradictions of

United States of America’s economic assistance to Egypt and the neo-liberal reforms under

Mubarak. In this light, we organize the review around the themes encapsulated in the major

variables of the research questions with a view to locate the gaps in the literature as follows:

� Foreign Military Assistance and Authoritarian Rule in Egypt

� Egypt’s External Debt and Economic Reforms

� United States-Egypt Partnership and Economic Crisis under Mubarak

2.1. Foreign Military Assistance and Authoritarian Rule in Egypt

Generally, writers on the United States aid to Egypt and Mubarak’s sit-tight leadership

tended to see corruption, manipulation of processes of elections, muzzling of the opposition,

and foisting of divide and rule tactics, as some of the factors that inhibit institutionalization of

people-centered democracy in Egypt. Thus, scholars have made efforts to locate the

circumstances that promoted the perennial years of authoritarian rule in Egypt. United States

had taken Egypt as a reliable ally in pursuit of its foreign policy in the Middle East. Clarke

(1997:200) had noted that Egypt was a pillar of United States Arab policy in order to protect

the security of Israel and ensure a safe passage of crude oil from the Persian Gulf through the

Suez Canal. Besides the foregoing reasons, United States stuck to Egypt alliance to contain

those nations (especially Iran and Iraq), within the Gulf region that had, at one other or the

other, threatened American interests as well as limiting the Soviet influence, through the

policy of containment in the Middle East and North Africa (Cook,2000:14). In a similar vein,

Gilpin argued that the erosion of United States hegemonic leadership in the 1980s as a result

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of unresolved problems of trade, money and debt made American policies to become self-

centered and thus:

Beginning with the Vietnam War and continuing into Reagan Administration, the United Sates had become more of a ‘predatory hegemon’ to use John Conybeare’s term(1985),less willing to subordinate its own interests to those of its allies; instead it tended more and more to exploit its hegemonic status for its own narrowly defined purposes…America’s exploitation of its dominant economic position was increasingly resented by its economic partners; yet they themselves were unable or unwilling to assume a greater share of the responsibilities of managing the system and were pursuing their own defined narrowly defined nationalistic goals (Gilpin,1987:345).

Further, he noted that United States obsession to sustain her global clout bred a decreasing

rate of economic growth and a low rate of national savings. Thus, “as Soviet military power

expanded, the United States had assumed increased costs to maintain its hegemonic political

and military position” and he, therefore, recommended among other things, that U.S. should

“cut back further on its overseas commitments” (Gilpin, 1978:347).

Brownlee (2012:6) writes that the contemporary US-Egyptian relationship began after

the 1973 war. It was sealed after the Iranian Revolution. The U.S. military aid to Egypt had

made authoritarianism to grow in leaps and bounds. Egypt gradually grew to a security state.

The “$1.3 billion in annual military financing helped keep the armed forces from seizing

power outside of a major domestic crisis”(Brownlee,2012:11). In analyzing the United States

entrenched role in Egypt’s polity, he noted that “during the thirty two years from signing of

the Egyptian-Israel Treaty to January 25 Revolution, the U.S. strengthened local incumbents

in four respects: national defense, coup-proofing, macroeconomic stability and domestic

repression”(Brownlee,2012:11). Coup-proofing as explained by Quinilivan (1999:138)

typically entails creating internal security forces that would counterbalance the traditional

military command as well as reducing the incentives for a takeover. So, through aid U. S.

leaders sought to “moderate the behavior of Egyptian government” to guard against

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interfering with U.S. interests (Burns,1985:42). Ebeid (1989:23) notes that Mubarak’s

autocratic tendencies manifested earlier in the regime by the way he handled “the police

mutiny in February 1986, a constitutional crisis in December 1986, followed by the

dissolution of parliament and premature elections on 6 April, 1987”. In fact, the former Chief

Judge of Egypt’s Supreme Constitutional Court, Awad al-Mor had during the 50th

anniversary of 1952 revolution in 2002 carpeted Egypt’s abysmal record and Mubarak’s

regime thus:

I don’t believe the 1952 revolution had any positive features, since democracy is still missing. Even its social reforms led to the failure of our economy. The greatest failure of revolution is the lack of democracy, which I believe led to our defeat in 1967. Egypt has never experienced a democratic government from 1952 up till now. Democracy has existed in some form in different stages, but its core is still missing. The press is not free in reality; otherwise Article 80(D) of the penal code would never exist. The article criminalizing “harming Egypt’s image” in effect means no one can criticize the government, as in the old days when it was a crime to “dishonor the person of the king”. It is this article that is disgraceful to Egypt and taints its status within the family of nations. The revolution embraced the slogan “raise your head, my brother, for the age of oppression is over”, but it replaced it with heavy foot of Abdel Nasser that kept people’s head down(Cited in Kassem,2004:vi)

Abdul-Magd (2011) traces the history of military’s involvement in Egyptian economy

which had enabled her to deepen her control and foisted an authoritarian tradition in the

nation’s political environment. According to him, “the army’s control over the economy

began in the aftermath of the 1952 revolution/coup, which paves way for Egypt’s experience

with state socialism under the leadership of Late President Gamal Abdel Nasser”. He notes

that the nationalization programme of the era handed over all the economic assets and means

of production to the military as the strongest institution in that era. With the erosion of

socialist model under Late President Sadat and introduction of economic liberalization to

appease the West; and at the end of Egyptian war with Israel, “Egyptian leaders reasoned that

laying-off thousands of well-trained army officers is politically undesirable…thus the state

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established an economic body known as the ‘National Services Projects Organization

(NSPO)” (Abdul-Magd,2011:5). He notes that it was this body - NSPO that founded

commercial outlets run by retired senior military officers, which enjoyed exceptional

subsidies and tax exemptions from the government. Thus:

The military’s economic interests encompass a diverse range of revenue-generating activities, including the selling and buying of real estate on behalf of the government, domestic cleaning services, running cafetarias, managing gas stations, farming livestock, producing food products, and manufacturing plastic table covers…additionally, the military is heavily engaged in profiting from its control over vast amounts of land-thanks to a law that allows it to seize any public land for the purpose of ‘defending the nation’(Abdul-Magd,2011:3).

To Shihab-Eldin (2013:3), United States fondling of Egypt’s brutal military in the pretext of

promoting democracy is inexcusable. He further argues that U.S. is “selling a big lie to the

world: that they are promoting, rather obstructing, democracy in Egypt”. He indicted the U.S.

for stifling democracy and encouraging authoritarianism since:

For decades, it has trained and funded Egypt’s brutal military, aiding and abetting the most obstructive and corrupt challenge to democracy (as well dignity) in Egypt. Keeping the military strong and impervious to oversight undermines America’s credibility and Egypt’s democracy (Shihab-Eldin, 2013:3).

Indicating that America’s annual military aid of $1.3 billion to Egypt was used to service the

business empire of American companies, Press -TV (August 20,2013), outlines the top ten

American companies profiting from the aid package to Egypt from defense contracts between

2009 and 2011 as follows:

Lockheed Martin-$259 million; DRS Technologies-$65.7million; L-3 Communication Ocean Systems-$31.3million; Deloitte Consulting-$28.1million; Boeing-$22.8million; Raytheon-$31.6million; Agusta Westland-$17.3million; US Motorworks-$14.5million; Goodrich Corp-$10.8million; Columbia Group-$10.6million (Press-TV,2013:2).

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Thus, Hamid (2013:4) views America’s renewed democracy assistance to Egypt via President

Bush’s democracy development programme in the Middle East since 2003 as a half-hearted

overture that was not really meant to institutionalize democracy. Although, “by fiscal year of

2009,the level of annual U.S. democracy aid in the Middle East was more than total amount

spent between 1991 and 2001”(Hamid,2013:4), yet it could not engender enough domestic

activities towards regime change. To him, the U.S. was more interested in keeping pliant and

illegitimate government that would secure her strategic interests, instead of carrying out a

full-blown political reform which might produce a radical. In essence, democratization was

‘defensive’ and ‘managed’, and that resulted to autocratic government’s piecemeal reform, so

that the underlying power structure would not be changed (Hamid,2013:4). According to a

senior figure in Al-Ghad (Tomorrow) Party, “the problem isn’t with President Hosni

Mubarak policies. The problem is with American policy and what American government

wants from Mubarak to do. His existence is totally in their hands”(Hamid,2013:4).

Reflecting on efforts at ensuring the enthronement of democracy in Egypt, Sodaro

(2008:190) notes that despite President Bush’s renewed vigour to promote quasi-democracy

in the region, “Mubarak’s government rebuffed Bush administration’s efforts to fund some of

these NGOs, insisting on the right to block American money from going to groups it

considered threatening”. The calculation of Mubarak was to convince Bush administration

“that his strong presence at the helm of affairs of Egypt’s government was the only

alternative to Islamic extremism and terrorism”(Sodaro,2008:190). So, Mubarak embarked on

“crackdown of Islamic militants, issued new emergency laws that severely restricted the right

of political organization, the right of peaceful assembly, and other rights, that were

supposedly guaranteed by Egypt’s constitution”(Sodaro,2008:190). Meanwhile, the U.S.

showered Egypt’s government with $60 billion aid between 1979 and 2005 and more than

half of the aid package went to military assistance (Sodaro, 2008:190). Progressively, a

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succession of U.S. Presidents rewarded Egypt for its peaceful relationship with Israel while

Mubarak specifically “staged four successful referendums on his rule, winning upward of 95

percent of the votes each time, according to his government’s official tabulations (Sodaro,

2008:190). In a similar development, Keinle (2000:12) records the several undemocratic

practices that steeped Egypt deeper into authoritarianism. There was a clampdown on press

freedom, which peaked with proposed Law 94 on the press in 1995; the trial of Muslim

Brotherhood members by the military-a group which the government struck a deal with in the

1980s; the rescinding of mayoral election; and amendment in 1998 of the Supreme

Constitutional Court law to avert the enforcement of its rulings retroactively (Keinle,

2000:12).

Snider & Faris (2013:7) located the obstacle to USAID’s later plan to integrate

democracy promotion into its traditional assistance programme in Egypt. To them, executing

democracy assistance in authoritarian states like Egypt, which is also a strategic ally of U.S.,

was encumbered by the challenge to change the structure of power in place. USAID’s initial

programme for democracy assistance was concentrated on four key areas of “elections and

political participation, civil society, rule of law and governance”(Snider and Faris,2013:7).

According to them, this aid to Egypt in the first half of 1990s was focused on rule of law and

civil society. But USAID inadvertently exposed its poor commitment to promotion of

democracy when the funding for “democracy averaged $20million per year, a minute portion

of the nearly $2 billion given annually by the United States to Egypt.

Kassem (2004:38) notes that authoritarianism in Egypt under Mubarak was

emboldened by the backing of the military. He maintained that “the coercive apparatus of the

state remained embedded in presidential patronage and political control”. This, to him

brought about a scenario where the formal governmental structure was ‘demilitarized’ under

Mubarak yet, from the background, Mubarak enjoyed an intimidating measure of support and

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loyalty from the military. The state of emergency law renewal was commonplace under

Mubarak and thus:

The prevalence of emergency rule is overtly significant because it limits the role of the judiciary and further contributes in the consolidation of authoritarian power. According to Article 148 of the Constitution, the President can declare a state of emergency for a ‘limited period’ and upon the approval of the People’s Assembly…Egypt has remained under a ‘state of emergency’ as Mubarak requests (and is granted) an extension every three years to combat threats of violence and terrorism (Kassem,2004:38).

Furthermore, he noted that the most prominent political role for the military under Mubarak

is the use of military courts to try civilians, as a report indicated that between 1992 and 2000,

1,033 civilians were tried in military courts (Kassem, 2008:40). The amendment of laws

109(of 1971) to 116(of1981) expanded the police responsibility from ‘safeguarding public

security’ to maintaining public peace which it has abused to detain an estimated 12,000-

15,000 political prisoners across the Egyptian prisons (Kassem, 2008:118). Apart from the

emergency laws, Kassem (2008:118) observes that “the ban of most forms of political

participation, such as the gathering of individuals and the distribution of political materials

without prior state security authorization indicated that emergency rule was not simply to

contain suspected extremist activities, but also to control legitimate political activities”.

Imobighe (1999:29) concurs thus “in Africa, because the conduct of public affairs is not often

based on a firm commitment to the democratic principles of broad participation and the

satisfaction of the basic needs of the people, social strife and instability have remained the

hallmarks of most of the continent’s political systems”.

Making a case for the inevitability of Egypt’s military reform if Egypt wants to

democratize, Korski (2011:3) notes that “dealing with the military’s economic role is difficult

and at the same critical if Egypt is to develop into a full-fledged democracy and create the

kind of rule-based, free market economy that can help the country grow by some 5%

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annually”. He notes that transition of authoritarianism to democracy would be almost

impossible, given the central role of the military in the management and ownership of key

economic holdings. It is estimated that the military owns between 5% and30 % of the

country’s economic assets (Korski, 2011:3).To him, the secrecy in which billions of dollars

were diverted to the defense budget, controlled by the military-run companies that hardly pay

taxes and that equally, used conscripted labour needed to be reversed, in order to service the

billion dollar debt overhang in Egypt. He further asserted thus:

The military stands in the way of creating jobs in the private sector and reforming the public sector. But the real reason why the military cannot be avoided is political. Given the extent of Military Inc., thousands of civilians are bound in predatory partnerships with the military, in turn something strengthening it institutionally and increasing its appetite for power and profit while creating an undemocratic over-class. Upon retirement, senior officers are given considerable retirement packages and appointed as provincial governors of head of municipalities (Korski, 2011:3)

He observes that any kind of reform that would whittle down the larger-than-life influence of

Egyptian military would be resisted and he therefore proposed that the military should be

cajoled and persuaded not to block the initial steps toward reform. Therefore, “supporting

democratization will demand that the military’s key patrons can also commit to shifting away

from unconditional, unrestricted aid flows and send a clear message that business in the

Egyptian military will be more transparent and accountable”. Lastly, Korski (2011:6)

recommended three feasible ways of getting the military gradually withdrawn from Egypt

political economy. First is to ensure that the issue of military reform becomes part of the

debate during the forthcoming electoral campaigns into presidential and parliamentary

offices. Second is to organize a high level conference in Cairo; on the subject of military

transformation, with speakers from countries that successfully underwent military reform.

Thirdly, to follow the model of a National Dialogue among the Egyptian stakeholders to

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examine economic issues like tax raising, competition of labour practices and investigation

into the effects of Military Inc. on Egyptian economy.

Contributing on the main factors that blocked democratization in Egypt,

Diamantopoulos (2012:5) notes that “ Mubarak would not have been able to sustain power

for so long without the co-operation of the elites, the army and the bureaucracy, which were

loyal to his rule in order to maintain their own privileges coming from natural resources and

foreign aid” and therefore lacked “economic strategy that could lead to political

democratization”; and liberalization programme imposed by foreign powers and

international organizations created a system of crony capitalism. Stacher (1999:224-32)

locates three measures employed by Mubarak to cause internal divisions within the rank of

any political party that posed a threat to his party. The first tactic is to exploit the internal

wrangling of any party to weaken it the more. For example, Wafd Party in 2005 and al-Ahrar

Party in 2008. Two was placement of financial pressures on political parties that were

opposed to his party through banning of government adverts on those papers; and piling

pressures on them to pay their outstanding bills to government. The third option was for

government agents to infiltrate these parties to take over the leadership and thereby, inflicted

incalculable crisis that would benefit the ruling National Democratic Party (NDP). These

despotic practices of the regime informed why Elshahed (2011:2) reports that “Mubarak has

been a ruthless dictator who has cracked down on every one from secular political opposition

and the Muslim Brotherhood to heavy metal fans and gays”. In fact, Mubarak’s trick of

latching on the Western Orientalists notion that Arabs or majority of Muslim societies are not

capable of true democracy and that they need a heavy-handed watchful father figure”

evaporated at the Tahir Square (Elshahed, 2011:2).

Highlighting the military cooperation between the United States and Egypt, Momani

(2003:7) emphasized that the collaboration of the two countries “allowed for a quick military

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reaction, including naval passage through the Suez Canal, to developments in oil-rich Persia

Gulf, especially during the 1991 Persian Gulf War”. He noted that a declassified State

Department report indicated that United States described:

The thrust of our security assistance is to build a modern force with interoperable equipment capable of maintaining Egypt’s defense and of working effectively with U.S. forces in coalition warfare. Egypt’s strong military is a stabilizing force in the region. Its strength is at an apex when combined with U.S. forces in regional coalition operations, as was demonstrated during the Gulf War. We rely on Egyptian cooperation in providing quick transit of Egyptian airspace and through the Suez Canal. The U.S. military routinely conducts 6-8 transits of the Suez Canal and some 500 military over-flights of Egypt each month (Momani, 2003:7).

He further, noted that in exchange of the annual military aid, Egypt allowed U.S. forces

access and granted the ability to deploy equipment at strategic military posts in Egypt. Egypt

equally supplied most of the personnel and military power during the Arab war with Israel

(Momani, 2003:6).

In the Project Report entitled, “Assessing Democracy Assistance: Egypt1” Kausch

(2010:2) notes that the pressure from Bush administration of United States in 2003, provided

a window of social mobilization in 2004-2005, which rekindled hope of true democratization

in Egypt. In 2005, Egypt opened the political space for the media and civil society, and it was

allowed for the first time, a multi-candidate presidential elections (Kausch, 2010:4). But the

gains were short-lived, as the “2005 parliamentary elections in which the Muslim

Brotherhood’s independent candidates were able to win 88 seats”(Kausch,2010:4) caused a

reversal of political openings earlier embarked by Mubarak. The ‘War on Terror’

championed by the United States was a veritable alibi to tighten the noose of political which

he had hitherto opened. In fact, “a set of constitutional amendments in March 2007 further

reduced the space permitted to political parties and extended the state’s security

powers”(Kausch,2010:5). He equally observes that the total U.S. annual bilateral assistance

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to Egypt amounts to $1.56 billion but $1.3 billion (84 percent) went to military and security

aid. This lopsided nature of aid administration had, in his thinking empowered Mubarak’s

government to use the military to scuttle all genuine political activities that would leverage

the growth of democracy. For example:

USAID’s approach stands out for funding only associations registered under the restrictive Egyptian Association Law (Law 84), thereby giving the government an indirect control mechanism over its NGO funding. This self-constraining policy was introduced at the beginning of the Obama Administration, and has been sharply criticized by Egyptian NGOs, many of which are registered under legal forms (Kausch, 2010:6).

Notwithstanding that U.S. is the biggest donor in the area of democracy, government and

human rights in Egypt as observed by Kausch (2010:4), “there is a wide consensus among

democracy activists that, given all the entrenched obstacles to democratic change in

Egypt…and the country’s role in the region that favours the status quo in domestic power

structures, meaningful change is not expected in the short or mid-term”. The United States

was also accused by Egyptian democracy activists that “US’s apparent switch off policy from

democracy promotion towards a stronger focus on solving pressing regional issues” and

USAID decision to bow to government’s pressure of not funding any NGOs not registered

under the controversial association’s law” (Kausch, 2010:6), lent credence to United States

long-accused ulterior motive in funding Egypt’s military and cuddling the despotic rule of

Mubarak. On his part, Calderisi (2006:26) opines that “the superpowers protected their

shipping lanes and military bases, as well as their access to vital minerals and energy supplies

in Africa, by shoring up dictatorships across the continent”.

According to Cook (2012:219) the signing of Camp David Accords and 1979 peace

treaty with Israel made the United States to add a military component to its aid relationship

with Egypt. He notes that:

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Initially, military assistance was set at $1.5billion over three years in a mix of loans and grants, but it grew quickly. By 1985, the Reagan Administration converted all military loans to grants that exceeded $1billion, and within two years, military assistance would settle at now familiar $1.3billion annually (Cook,2012:219).

However, the aid to Egypt sparked off controversies and criticisms from a wide range of

American political class, legislators, civil and political activists in the Middle East and

questioned the objective and impact of the U.S. military aid to Egypt (Cook, 2012:221).

While some called for tapering of the aid package, as a demonstration of disapproval of

Egypt’s authoritarian rule; others argued for reconfiguration of the aid to address the

economic needs of the poor Egyptians. Specifically, Cook (2012:222) observes that the Late

Representative Tom Lantos-the founding chair of House Caucus on Human Rights

maintained that Egypt faced no security threats to warrant such huge amount of money as

security aid. Though Lantos motion could not sell through at the Congress yet back home the

Brotherhood, Nasserists, Leftists “were opposed to the strategic relationship on the grounds

that it compromised Egypt’s sovereignty and undermined its power (Cook, 2012:223). On the

other hand, liberals opposed it on the perception of U.S. support as a critical pillar of Egypt’s

authoritarian political system (Cook, 2012:223). No wonder, Goodgame (2008:3) portrays

US-Egypt ties as a mutually reinforcing unholy alliance to consolidate autocratic rule of

Mubarak. Thus:

Egypt is one of America’s most important allies-also one of its frailest. Its President Hosni Mubarak will have ruled the country for 27 years by October, but instead of looking for a democratic succession, his regime has only sought to pile-drive his legacy into the future, disarming the opposition with rigged elections and run-ins with the Mukhabarat, the ubiquitous internal security police (Goodgame, 2008:3).

In general, since the first spark of revolution was lighted, Hassan (2010:324) insists that “one

of the major challenges facing democratization efforts in Egypt presently and in the future is

the critical development of the relationship between the civilian sector and the army, as well

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as the role each of them plays in reinforcing the legitimacy of the regime and in preserving

social and political stability”. Rourke & Boyer (2002:324) view political consideration and

military content as factors that drive United States aid. They note that “the bilateral aid that

makes up the bulk of all foreign aid is often given more on the basis of political-military

interest than to meet economic needs or to promote human rights”. In 1998 specifically, they

observe that the highest percentage of U.S. aid went to only two countries that service her

geostrategic interest in the Middle East-Israel (23percent) and Egypt (17percent). When

contrasted with sub-Saharan Africa that received only 10 percent of U.S. bilateral aid that

year, logic deduces that United States stuck uncompromisingly to its strategic interest in

previous two countries. To even narrow down to the area that the aid was channeled to,

revealed that in that 1998, half of the U.S. aid that went to Egypt went to the military.

Blanton (2000:125) agreed that over 25 percent of all American aid in 1998 actually went to

the military and security sector.

In a similar vein, Aziz (2013:4) notes that “U.S. foreign aid decisions are based more

on national security and economic interests than democratic ideals”. Not surprisingly, it was

reported that the major U.S. Defense Companies - Lockheed Martin and General Dynamics,

with long standing contracts with the Egyptian military, finance them through annual budgets

from the US foreign aid (cited in Aziz, 2013:5). He further argued that the Foreign Assistance

Act (FAA) of the U.S. is manipulated by the Presidency and perhaps, the Congress to focus

and redirect U.S. annual economic, military and humanitarian aid. So, “the terms and

conditions of U.S. foreign aid package to Egypt are based on mutual interests that affect both

nations economic, political and national security interests”(Aziz,2013:5). That probably

accounted for U.S. hobnobbing of Mubarak’s regime for close to three decades despite the

obvious autocratic and undemocratic practices prevalent in Egypt under his watch. Guest

(2004:157) recommends that “for aid to be effective in lifting people out of poverty, it should

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be directed towards well-managed countries with lots of poor citizens”. But unfortunately, he

writes that “the adage that foreign aid is a transfer of wealth from the poor in rich countries to

the rich in poor countries is often true” as “ a lot of the aid is paying for conferences at five-

star hotels, study trips for MPs to Washington, and Toyota Landcruisers to ferry aid workers

around” (Guest,2004:158).

In asking whether democracy is feasible in Africa, Ake (2000:123) declares that what

the West and it development partners were doing in Africa in the name of democratization

were “partly as a hegemonic project but mainly for its instrumentality”. To him, supporting

democratization by the West is a carry-over of Cold War stereotypes, which the West and the

Soviet Union were implicated. Unfortunately, the kind of democracy which the West

supported was “by all indications…electoral democracy of limited depth which tends to see

political pluralism and free and fair elections rather ubiquitously”(Ake,2000:129). On his

part, Nnoli (2006:158) insists that liberal democracy would be difficult if the structure of the

state is undemocratic. He posits that:

The undemocratic character of African state inherited from colonial times makes capture of state power irresistibly attractive. This is because it rules out the politics of moderation and mandates the politics of extremism. Such politics does not know legitimacy or legality, only expediency. In it nothing is worse than losing. Therefore, the end justifies the means in a way that is not conducive to democracy, because politics is constituted as warfare. Inevitably, the specialists of warfare, the military, come to dominate politics (Nnoli, 2006:159)

The above review of extant literature on United States government’s military aid and

authoritarian consolidation in Egypt under Mubarak shows that most writers concentrated on

issues of corruption; regional stability in the Middle East; military’s dominant role in the

economy; Arab-Israeli Treaty; weak political institutions in Egypt, as the causes of long years

of authoritarianism in Egypt (Clarke 1997; Kassem 2004; Cook 2000; Hassan 2010; Burns

1985; Stacher2004; Gilpin 1987; Korski 2011; Brownlee 2012; Shihab-Eldin 2013; Hamid

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2013; Kausch 2013; Blanton 2000; Aziz 2013; Goodgame 2008; Rourke & Boyer 2002)

allude to issues of corruption; regional stability in the Middle East; military’s dominant role

in the economy; Arab-Israeli Treaty; weak political institutions in Egypt, as the causes of

long years of authoritarianism in Egypt. However, the relationship between U.S. military aid

to Egypt indicated by the annual aid of $1.3billion; and authoritarian consolidation indicated

by renewal of emergency laws every three years is yet to be given adequate systematic

treatment between 1981 and 2010; a period in which Mubarak held sway in Egypt.

2.2. Egypt’s External Debt and Economic Reforms

Writers on external debt management and the effects on third world countries have

deep-seated convictions that the West led by the United States usually conceal, at the point of

negotiations, the intricacies of the strings attached to such financial and technical overtures.

The after-effects have largely remained negative, even after decades of the debt relationship.

Burrell and Kelidar (1977:21-2) note that “the question of oil politics and the presence of

Israeli army in mainland Egypt were factors that acted together to convince Sadat of the

crucial role the US could play in the Middle East”. Hence, Sadat through the unilateral

abrogation of the Soviet-Egypt Treaty of Friendship and Cooperation in March 1976

estranged Moscow and embraced U.S. and its diplomatic assistance. It is pertinent to note

that United States interventions in economic quagmire of the sovereign states in the

developing countries had been usually two-pronged, bilateral and multilateral. In Egypt’s

case, apart from U.S. bilateral aid to the tune of $1.5 billion annually (Aziz, 2013:3), the U.S.

also appropriates the platform of multilateral intergovernmental organizations (IGOs)-

International Monetary Fund (IMF) and International Bank for Reconstruction and

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Development (IBRD), otherwise called, the World Bank, which it commands big influence;

to pursue its economic agenda in aid-dependent and recipient countries of the South.

Historically, IMF and World Bank came out of Bretton Woods Conference of 1944,

with the intention of quickening the recovery from the setback of the Great Depression. Thus,

the “IMF was created to supervise the operations of the monetary system, and provide

medium-term lending to countries, experiencing temporary balance of payments difficulties”

(Gilpin, 1987:132). From the onset, the “Fund established affixed exchange rates, and with

the United States guaranteed currency convertibility”(Mingst,1999:219), but that system

collapsed in 1971 when the exchange rates floated. For the World Bank, it had the traditional

role of providing loans to states proposing economic development projects with two

departments - International Finance Corporation (IFC) and International Development

Association (IDA), created in 1956 and 1960 respectively (Mingst,1999:217-8). Lately, the

World Bank drifted from its original focus of reconstruction to development and raises

capital fund from the contributions of member-state and through borrowing in international

finance markets. IMF also expanded its mandate from giving short-term loans to long-term

loans; and granting of ‘international stamp of approval’ for other multilateral and bilateral

lenders; and private banks (Mingst, 1999:219). So, with these new capacities of IMF and

World Bank, they insist on strict ‘conditionality’ in the business of loans, debt servicing and

debt repayment. Prospective beneficiaries are made to undertake the Washington Consensus’

Structural and Adjustment Packages (SAPs) supervised by the IMF and the World Bank. This

was how most third world nations, especially Egypt got entangled in debt management of

Bretton Woods institutions that are largely influenced by the United States.

Aja (2001:86) notes that “from 1947-1960, the IMF was over dependent on the

financial support and management of the U.S. The gold standard was evidently replaced by

U.S. dollar”. According to him, “the US was the strongest pioneer in both political will and

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financial empowerment”(Aja,2001:89). Though the IMF has membership of not less than 181

countries, “the most influential countries are the Big Five-the United States (18.25%),

Germany(5.67%), Japan(5.67%), France(5.10%) and Britain(5.10%)”(Aja,2001:90). The

corollary of the US paramount posture in IMF and World Bank is that US exploits its

dominant influence to pursue her global economic statecraft, especially in Less Developing

Countries (LDCs); Egypt inclusive.

Presenting a background of Egypt’s potentials and her state of fiscal crisis, Oweiss

(2008:11) emphasized that:

While Egypt of the past was recognized as a land of plentiful variety of agricultural products and abundance of food, it is currently heavily dependent on imports of wheat, flour and other products to feed its people. This would not in itself constitute an economic problem if Egypt’s exports could pay for its import of foods. However, its exports lag behind its imports and the gap between them keeps widening overtime.

Tracing the history of Egypt’s debt profile, Farah (2009:36) notes that the debt started

mounting, in the first half of 1960s; due to the import substitution policy and socialist laws of

income redistribution, as well as other socialist welfare packages that increased Egypt’s

financial burden tremendously. He further notes that with the absence of substantial foreign

direct investment to sustain growth in the economy, domestic savings and investment

remained relatively low. He equally observes that the bureaucratic elite that emerged to

manage public assets were enmeshed in bribery and corruption in their bid to amass wealth.

To add salt to injury, “the economic crisis was accentuated by Egypt’s involvement in two

major wars: the Yemen War (1963-67) and 1967 Arab-Israeli War”(Farah,2009:37).

Butter (1989:126) accounts that Egypt’s debt estimated as at June 1986 was at about

$40million excluding loans from Soviet Union and Eastern Europe. According to him, “about

a quarter of the total debt is made up of military loans, contracted at commercial rates. Half

36

of the military’s debt is owed to the United States, with interest rates fixed at 12-14 percent,

and with severe penalties for payment arrears”. He then posed a pertinent question: How did

Egypt get itself so heavily indebted? A number of reasons were advanced in Butter

(1989:127-8) thus:

1) The change from Soviet Union to the United States as the chief supplier of military

weapons, after the October 1973 Arab-Israeli War ensured the re-equipping of Egyptian

armed forces largely from US purchases, at a time of historically high interest rates;

2) Egypt’s indebtedness grew the investment in infrastructure projects;

3) The inability of agricultural products to keep pace with the rise in Egyptian population;

4) The oil wealth and vested interests ensured that the US brought vast proportion in aid, in

pursuit of hard currency that was pouring. Little consideration was given for the debt

servicing capabilities.

To stave off the debt burden, Mubarak resorted to pay-off via “IMF agreement and

Paris Club rescheduling with relatively mild terms attached…about $7500 million in arrears

and payment to OECD states rescheduled at Paris Club” (Butter, 1989:129). He expressed

dismay that despite the prospect of getting a bilateral solution to the Egyptian debt stock, it

was persuaded to “deal with a large proportion of its debt through relevant international

institutions, first and foremost, the IMF” (Butter, 1989:134). On May 1986, “a new free

market exchange rate-competitive with the previously dominant black market rate was

unveiled” (Butter, 1989:134).

Writing on the circumstances that surged Egypt’s debt, Farah (2009:39) notes that

Egypt’s peace treaty with Israel that led to the isolation of Egypt from the Arab world and the

cessation of Arab aid made the United States to compensate Egypt with aid estimated at

37

US$2.1billion per annum. She notes that increased revenues from skyrocketed oil prices,

Suez Canal, tourism and remittances from workers abroad ensured large external flow of cash

into Egypt’s domestic economy; but Egypt failed to plan for the rainy day. She further

observes that:

While receiving these unprecedented external flows, Egypt also increased its foreign debt from US$3 billion in 1974 to US$19 billion in 1981, US$37 billion in 1986. This spiraling foreign debt was the result of soaring imports…Egypt in the 1980s was transformed into a ‘rentier’ economy, relying on external sources of income while neglecting its productive sectors: agriculture and manufacturing (Farah, 2009:40).

By the early 1990s, the total external debt was US$49 billion, with large amounts of foreign

aid peaking to $5.4 billion in 1990 (Farah, 2009:43). Mubarak turned to the IMF and the

World Bank for assistance. A product of the agreement with the two Bretton Woods

institutions, as noted by Farah (2009:42) was the implementation from April 1991, a

comprehensive stabilization and economic reforms and the reform of exchange rates in Egypt

christened - the Economic Reform and Structural Adjustment Programme (ERSAP). Thus:

The main targets of ERSAP were to improve the balance of payments so that Egypt could repay its foreign debt, reduce inflation rate and reduce public debt. This required the lifting of price controls, a reduction in government expenditure (including the reduction of state subsidies), a reduction in public investments, the imposition of new taxes such as the sales tax, and a freezing of wage rate. At the same time, the government had to sell public enterprises and liberalize foreign trade (Farah, 2009:80).

True to the reservations expressed, the policies of Bretton Woods institutions implemented in

Egypt exacerbated the problems and government deepened the poverty in Egypt (Farah,

2009:47). However, with the participation of Egypt in the Gulf War in 1991 on the side of the

coalition against Iraq, half of the country’s debt was forgiven while the other half was

rescheduled under the prompting of the United States (Farah, 2009:80).

38

The work on Stabilization and Adjustment in Egypt by Abdel-Khalek (2001:22)

notes that the earlier stabilization packages of 1977-78 and 1979-81 were not fully

implemented as a result of large capital that was received after 1979, that covered its current

account deficit with IMF official support. He further notes that the state of economic affairs

toned down in 1984/85 for four reasons: one, the old outstanding debt particularly that of

Gulf Organization for Development in Egypt (GODE) became due; two, the long-term capital

flows tapered off; three Egypt’s inability to meet debt repayments obligations in 1981-82 and

1982-83; and four, oil prices plummeted considerably (Abdel-Khalek, 2001:25). In carpeting

the economic reforms of 1990s otherwise called ERSAP, this author had argued in his

previous work that:

The package failed to take serious account of some important structural features of Egyptian economy-notably food deficit, dollarization, and the prevalence of significant idle capacity…ERSAP package may have followed the wrong sequencing by stressing trade, interest rate and exchange rate ‘reform’, long before dealing with the real economy in other words, exchange appears to have taken precedence over production (Abdel-Khalek, 2001:42).

Contributing on the supreme ironies of US policy in Egypt, Dunne (2011) insists that

the less commitment to promoting political liberalization and the erroneous assumption those

economic reforms would jumpstart the former, has turned the logic of prioritizing the

economic over political reforms on its head. He notes that although the neoliberal reforms

helped Egypt to achieve a steady 7 percent GDP growth rate between 2005 and 2008, yet the

ruling National Democratic Party (NDP) brand of economic reform was marked by cronyism

and corruption. He ended with a view that United States should dissuade Egypt’s new

leadership from “undertaking commitments -Nasser’s pledge to guarantee government jobs

for all university graduates -that will impose unbearable burdens on future governments”

(Dunne, 2011). In a similar vein, Ismail (2011:2) paints the gloomy state of deterioration of

events and economic life with stupendous stench oozing from Mubarak family and their

39

cronies who regarded Egypt as their fiefdom. He bemoaned a tiny elite that includes the

“representatives of foreign companies with exclusive import rights in electronics, electric

cables, and automobiles” to accumulate immense wealth (Ismail, 2011:2). In fact, his

summary of Egypt was that ‘Egypt was governed as a private estate’ and added that:

Under sweeping privatization policies, they appropriated public enterprises and vast areas of state-owned lands. A small group of businessmen seized public assets and acquired monopoly positions in strategic commodity markets such as iron and steel, cement and wood. While crony capitalism flourished, local industries that were once the backbone of the economy were left to decline. At the same time, private sector industries making environmentally hazardous products like ceramics, marble and fertilizers have expanded without effective regulation at a great cost to the health population (Ismail, 2011:2).

So, while Mekay (2011:1) observes that “at least some 30 profitable public companies a year

were sold between 1996 and 1999”, Serafimov (2013:2) opines that anti-neoliberal

sentiments were accentuated by “worsening living standards, unemployment, pervasive and

deepening poverty, lack of opportunity and state abuse”.

According to Cook (2012:159-160), Egypt and the IMF had struck a deal in 1987 to

“reschedule its debt in exchange for a series of reforms” but in just within six months, the

deal was terminated by IMF because of Egypt’s foot-dragging. Equally in 1994, he notes that

Egypt contravened the agreement with the IMF for ‘Enhanced Structural Adjustment Facility

Trust’- a loan of $100 million meant for low income countries. This made the IMF officials

to walk away from the talks since Egypt could not carry out the reform as part of the

conditions in the previous agreements (Chase, 2006:211). Despite the compelling need to

embark on sweeping reforms, Cook (2012:160) underscores the reason that accounted for

Mubarak’s piecemeal reform. He says that “the President needed no further that the 1977

‘Bread Riots’ to understand that while prosperity may be the long-term outcome of economic

reform, instability was an immediate possibility”. Furthermore, “broad sweeping privatization

40

and devaluation of the Pound were bound to evoke popular ire, especially in the labour

sector”. President Mubarak understood that it was more politically expedient to sustain the

social order than to cave in to the pressures of the IMF and by extension the United States-

which had significant stake within both the World Bank and the Fund” (Cole,2012:160).

Analysing the U.S. role in Egypt’s external debt management, it was noted that

President Mubarak’s acceptance of his country’s participation in ‘Operation Desert Shield

and Desert Storm’, (a coalition with Kuwait, Saudi Arabia, Qatar, the United Arab Emirates,

Oman, Bahrain, Morocco, Syria as well as the United States); that forcefully ejected Iraq

from Kuwait soil in 1991, brought a big relief to Egypt’s external debt stock. Cook

(2012:161) notes that at the end of the 1991 Gulf War:

The United States and Arab creditors wrote off or cancelled $20billion of Egyptian debt, and Washington convinced the Paris Club-an informal group of creditor countries, to forgive $10billion, or half, of what Cairo owed to a group of European countries, the United States, Canada and Japan. The benefits of the debt relief were immediate. Cairo was able to borrow more money on international markets, but because its external debt had been slashed by as much 50 percent, it could do so at lower interest rate. The combination of much needed additional cash at more favourable repayment terms eased the pressures on Egypt’s budget.

Also, writing on the economic decline in Egypt in the mid-1980s, and the politics of

economic reforms, packaged by the IMF and World Bank, Soliman (2011:44) notes that

Egypt could not finance its imports because “petroleum prices dropped by 50 percent,

causing petroleum revenues to fall to $1.2 billion, down from $2.26 billion the year before,

and Suez Canal revenues fell from $1billion to $900million”. He further states that when the

agreement was eventually signed in May 1987 with the IMF, government was obliged to

implement a number of measures:

41

On the fiscal side, it had to reduce public spending, liquidate loss-making public-sector companies, and liberalize the rest of the private sector. On the monetary side, it was expected to devalue the Egyptian Pound with respect to Dollar. The purpose was to attract billions of dollars that Egypt held abroad, especially in the form of remittances from the Egyptian workers in the Gulf. Egypt was further required to raise the interest rates to encourage savings and curb consumption (Soliman, 2011:44).

Soliman (2011:45) further notes that as a result of Egypt’s perceived impressive performance

“an IMF study of 1998 proclaimed that in 1996-97, Egypt had achieved high level of fiscal

balance in the Middle East and North Africa after Algeria”.

In their contribution on the literature of Egypt’s spiraling debt profile, Abdallah &

Brown (1988:37) write that “aid from Arab oil-producing states increased significantly

averaging over $1 billion a year, between 1973 and 1979”. But after the Peace Treaty with

Israel in 1979, they further noted that “United States became the main donor and now

provides some $2 billion annually, with a further $1 billion coming from the World Bank and

other Western countries, notably, France and Germany, in various terms”. This heavy

dependence on borrowing to finance Egypt’s budget soon put the nation trouble. With debt

totaling about $45 billion (including military loans), Abdallah & Brown (1988:37) observe

that the balance of payment deficits and very low foreign exchange reserves (equivalent to

less than one month’s imports at the end of January 1987), it became difficult to service the

debt and by end of 1986, arrears rose up to $6billion. This precarious economic outlook led to

seeking external assistance, especially from the U.S. and hence:

Egypt signed a formal Letter of Intent with the IMF in February 1987, and an 18-month stand-by arrangement for approximately $325 million was approved in May 1987.This was accompanied by rescheduling on generous terms of official debts (including military) supported by new loans from the World Bank and other donors to close the remaining financial gap (Abdalla & Brown, 1998:42)

42

More so, in an official document from the Government of Egypt (GOE) in 1989, the then

Minister of State for Foreign Affairs, Boutros Boutros-Ghali stated that during the

negotiations with the International Monetary Fund, Egypt sought for America’s support, and

in turn United States Government insisted on adoption of market reforms to cushion the

economic difficulties. Thus:

United States is considered Egypt’s first trade partner. American imports represent approximately 23 % of total volume of imports and mainly, include food products such as wheat, corn and tobacco. Egyptian exports to the United States amount to $498 million and the main products are oil, cotton and textiles (Boutros-Ghali, 1989:50).

And in 2010, as part of annual consultations made under Article IV of IMF’s Articles of

Agreement, the IMF emphasized that “sustained and wide-ranging reforms since 2004 had

reached fiscal, monetary, and external vulnerabilities, and improved the investment

climate”(IMF,2010). According to the Report, “these bolstered the economy’s durability and

provided breathing space for appropriate policy responses”. Notwithstanding this glowing but

misleading report on Egypt economic status by IMF, Asher-Schapiro (2012:2) insists that the

whole economic reform packages failed to deliver the results and accentuated economic

dispossessions on the larger segments of the citizenry. In fact, Mubarak deluded and even got

deeper into the privatization bazaar on false hope that it would leapfrog the economy. The

doldrums in Egypt was captured thus:

By the late 1990s, the first wave of economic reforms had failed to deliver results. From 1990 to 1991 and from 1995 to 1996, both rural and urban poverty increased by over 10% and real wages sagged. IMF economists argued that Egypt needed to raise the pace of reform by accelerating the privatization process. In 1996, IMF reached a deal with Mubarak regime to extend additional credit to Egypt in exchange for an aggressive privatization agenda (Asher-Schapiro, 2012:2).

He further argued that the “IMF’s penchant for elite-based decision-making appears to be on

collision course with Egypt’s on-going political awakening” just as Christine Lagarde, the

43

IMF Chief Executive Officer lamented the mistakes of her Organization in Cairo on August

2012; about two years away from 2010 when the IMF trumpeted Egypt’s ‘success’, due to the

implementation of economic reforms in Egypt. In fact, Lagarde accepted that:

One thing that the IMF has learned as a result of the Arab transition…is that numbers do not tell the whole story and we have to really examine precisely what is behind the numbers. Who benefits from growth? Who benefits from subsidies? How are the fruits of growth allocated in a particular country? (Quoted in Asher-Schapiro, 2012).

A clear case of sharp practices and corruption-ridden privatization programme was the sale of

‘The Arab Company for Offshore Commerce’ under the previous tenure of Al-Ganzoury as

head of the cabinet in Egypt. According to the Egyptian Centre for Economic & Social

Rights, as noted by Khail (2011:3) “ninety percent of the company’s shares were sold in

1999…without a real profit value; even more the buyer was offered a grant of EGP

11,583,000 in return for the purchase”. Apart from the fact that only 50% of the total amount

was initially paid, he could not pay the balance even one year after the deadline, and

fortunately for the country, the Administrative Court had reversed the sale in December 2011

(Khail, 2011:3). So, what Mubarak regime did in the name of privatization is to auction off

the public assets to cronies at give away prices, in order to meet IMF’s conditionality to

access credit facility.

In a seminal work on globalization, Stiglitz (2002:42) faults the claim of the IMF that

“it never dictates but always negotiates the terms of any loan with the borrowing country”.

He insists that what usually occurs is “one-sided negotiations in which all the power is in the

hands of IMF, largely because many countries seeking the IMF help are in desperate need of

funds”. To him, “the imbalance of power between the IMF and the ‘client’ countries

inevitably creates tension between the two, but the IMF’s own behavior in negotiations

44

exacerbates an already difficult situation”. Specifically, he notes the IMF’s blunders in

‘sequencing and pacing’, and it is explained thus:

Forcing liberalization before safety nets were put in place, before there was an adequate regulatory framework, before the countries could withstand the adverse consequences of sudden change in market sentiment that are part and parcel of modern capitalism; forcing policies that led to job destruction before essentials for job creation were in place; forcing privatization before there were adequate competition and adequate regulatory frameworks. Many of the sequencing mistakes reflected fundamental misunderstandings of both economic and political processes, misunderstandings that were particularly associated with those who believed in market fundamentalism (Stiglitz, 2002:73)

And if economic reforms were successful as claimed by the IMF in its studies, there would

not have been backwardness in cross-border economic integration when compared with

some Asian countries that were at the same level in economic performance in the 1960s - a

period that preceded the much touted economic reform. As noted by Noland & Pack

(2004:107), “in the 1960s, the level of per capita income in Egypt, South Korea and Taiwan

was virtually identical, but the latter two quickly pulled ahead, leaving Egypt a generation

behind”. They further note that although Egypt commands a greater population than the two

Asian countries, yet South Korea’s and Taiwan’s combined exports in manufactures within

two days exceed what Egypt does in a whole year. In sum, the World Bank reports that “the

nations of the region (Middle East) are conspicuously absent from international production

networks” (World Bank, 2003:16).

Contributing to the discourse of macro economic reforms, Ensign (1988:148) opine

that “the twin crises of foreign debt combined with the lack of real economic growth in

many developing countries have forced donors to re-conceptualize the objectives of foreign

assistance programs”. This brought about market-oriented reform as a new approach to

45

tackling the challenges encountered in economies of Less Developing Countries (LDCs). In

essence, this is reflected in USAID’s publication thus:

The renewed emphasis on the private sector approach to development is the outgrowth of the collective re-examination of the development record of over three decades of experience by a significant body of development professionals. That re-examination has revealed the excessive reliance on public sector activism and direct controls has led to generally disappointing results; and that conversely, market-oriented economic systems, when provided with appropriate environment by the public sector, have yielded remarkable successes not only in achieving growth, but in advancing the broader objectives of development (USAID, 1985:10).

Offiong (2001:156) notes while explaining the concept of ‘post neo-dependency’ maintains

that heavy foreign debt and deteriorating economic performance which left Africa at the

mercy of multilateral financial institutions is to him, a new neo-colonialism. To him, this

newest form of neocolonialism “is far more pernicious than the former, in that dependence is

much greater than in the case of neo-colonialism”, and that is what he termed post neo-

colonialism or post neo-dependency. In driving home the point that Africa is the worst hit of

Structural Adjustment Programmes (SAPs), he said that:

In the 1980s, as reported by Oxfam (1993), 36 sub-Saharan African countries initiated some 241 adjustment programmes. Most of these countries have had multiple programmes, with eleven of them implementing ten or more. Inspite of all this, the region’s foreign debts increased from $84billion (amounting to 91 percent of the value of exports) in 1980 to $199 billion (237 percent of the value of exports) in 1993…This has spelled worsened poverty. The IMF, and the World Bank, agents of the Summit of 8, have been wringing substantial concessions from Third world governments while exacting a few or none at all from First World Governments (Offiong, 2001:161).

In his review of the impact of economic reforms of 1990s on Egyptian economy,

Abdel-Khalek (1994:20) concludes that the stabilization and adjustments measures

encapsulated in ERSAP have a high probability of overkill. But in his later publication in

46

2001, he established that ERSAP, instead of reforming the economy led to de-

industrialization on the following summarized indicators: (1) the import substitution policies

in Egypt over the years resulted to high immediate-import content of domestic production.

The enduring lesson of Egyptian devaluation experience of 1990s connotes that import

substitution industrialization inadvertently threw up inelastic conditions that thwarts the gains

of devaluation as an expenditure-switching measure; (2) that the maxi devaluation of

Egyptian pound did not result in real depreciation. The pound rather appreciated

significantly; (3) because of the adverse effects of the ‘Dutch Disease’ the commodity-

producing sectors in value added continued steep downwards under ERSAP; (4) the raising

of domestic interest rates, raising energy prices, imposing a general sales tax and trade

liberalization has the tendency of spiraling to de-industrialization (Abdel-Khalek,2001:53-

159).

Olukoshi & Nwoke (1994:15) note that the IMF and the World Bank came to

dominate the activities of global political economy as a result of rise in monetarist ideas and

the emergence of conservatives in the end of 1970s and in the early 1980s in the Western

world that equally dedicated their activities towards monetarism. Examples of these

prominent conservatives, according to them, were Margaret Thatcher in Britain, Ronald

Reagan in the United States, Helmul Khol in West Germany, and later Brian Mulroney in

Canada. They observed that the IMF and the World Bank shed off their Keynesian origin and

initial mandates; and pursued with momentum the monetarist agenda. Thus:

The leading Western countries that dominate the Fund and the Bank not only ensured that the two institutions fell in line with the new economic thinking in their countries but also encouraged them to make the acceptance and implementation of market reforms pre-conditions for financial assistance (Olukoshi &Nwoke,1994:15)

47

Their major finding is that at the end of the day, Structural Adjustment Programmes

compound the problems they were set to solve and created new ones. Therefore, they opine

that Third World countries should shake off the toga of fetishism of the market and fashion

out a comprehensive developmental strategy that is people-oriented “without being

insensitive to the need for economic rationality, political accountability, and long-term

stability” (Olukoshi & Nwoke,1994:25). Perhaps, third world countries should be able to

develop their home-grown approach to avoid the trap of the instruments of economic

statecraft employed by powerful nations, which in the thinking of Mingst (1999:123)

“involve offering a ‘carrot’, enticing the target state to act in the desired way by rewarding

moves in the ‘right’ direction”.

Writing on the use of aid as a conditionality for assistance and economic reforms,

Spero (1977:144) notes that “the granting of aid and the conditions placed on that aid

provided important tools for influencing economic policies in recipient countries”. To him,

aid reinforced North-South dependence. As a “withdrawal or threatened withdrawal of aid

has been used to express disapproval or opposition to internal and external policies”, Nelson

(1968:69) concurred with the foregoing position by saying that “through the supervision of

aid projects, the U.S. aid bureaucracy became increasingly involved in decision making in

recipient countries”. Ultimately, “the failure of aid to alter dependence and the decline in aid

transfers led to southern disillusionment (Spero, 1977:147); and so, radicals condemned it for

its inability to encourage development, rather, it perpetuates underdevelopment by stifling

creativity and draining national savings.

From the above extant literature, it is obvious that writers on the United States role

in external debt management of Egypt’s debt see the economic assistance on the bilateral

level (US-Egypt) and the multilateral financial institutions (the IMF and the World Bank) as

avenues of strengthening their grip on global political economy and not necessarily

48

alleviating economic difficulties(Soliman 2011; Khail 2011; Chase 2006; Aja 2001; Nelson

1968; Mingst 1999; Asher-schapiro 2012; Olukoshi & Nwoke 1994; Abdel-Khalek 2001;

Offiong 2001; Ensign 1988; Abdallah & Brown 1988). However, the United States role

explained in terms of the relationship between Egypt’s external debt management indicated

by the rescheduling of half of Egypt’s debt by Paris Club; and drastic economic reforms

indicated by the privatization of public enterprises is yet to be given adequate systematic

scrutiny in Egypt.

2.3. U.S - Egypt Partnership and Economic Crisis under Mubarak

By geographical incidence, Egypt’s location is a cynosure of all eyes and interests of

industrialized nations. Weir(1988:79) notes that “ the strategic importance of Egypt, situated

at the meeting-point of Europe, Africa and Asia, with a coastline on two oceans, has ensured

that its rulers and people have seldom been free to enjoy in tranquility the self-sufficient

existence that the extraordinary ‘gift of Nile’ could provide”. Under President Nasser, Egypt

had a running battle with the United States but in the mid 1970s, Ayubi (1988:51) notes that

President Sadat began to “introduce some daring changes in Egypt’s international alliances

by dismantling its ties with the socialist countries and consolidating links with the United

States and the West”. Burrell & Kelider (1977:22) observe that the objective of Sadat’s

cessation of hostilities in October 1973 was two-fold: “Israel evacuation under pressure from

Washington, and a search for massive financial aid with which to rebuild Egypt’s economy”.

To woo the West, Sadat introduced a number of policies to attract foreign investment (Farah,

2009:38). Part of the policies were the establishment of ‘free zones’ and granting of a five-

year tax exemptions to new companies as well as assurances of “safeguard against

government actions such as nationalization”(Farah,2009:38). The Open Door (Liberalization)

economic policy came into force via Law 43 of 1974, with the intention of showcasing

49

Egypt’s readiness to “reintegrate its economy into the liberal international economic

system”(Farah,2009:38).Thus:

Sadat was convinced that, to attract foreign investment, Egypt had to ally itself with the West, particularly the United States. An important step toward forging this new alliance was his decision to conclude a peace treaty with Israel, a treaty that led to the isolation of Egypt from Arab World and the cessation of Arab aid, after his visit to Jerusalem in 1977(Farah,2009:38-9)

The Camp David Accords in October 1973 normalized Egypt’s relationship with

Israel; and the United States commitment to protect Israel in the Middle East made her to

embark on a number of sacrifices to hold Egypt, to abide by the treaty; and that informed US-

Egypt alliance, which incurred the wrath of Egypt’s Arab neighbours. Cook (2012:162)

reports that “throughout the 1980s and 1990s, Washington poured resources into Egyptian

social and economic development and worked hard to institutionalize the Egypt-Israeli

Treaty”. He further noted that “Mubarak-who triumphantly raised the Egyptian flag over

Sinai after Israel’s final withdrawal from Egyptian territory, always upheld Cairo’s

commitment to peace”. The corollary of the burgeoning US-Egypt alliance was that U.S.

granted variants of aid the aftermath of October 1973 war to improve her relations with

Egypt. Thus: (A) in order to boost the US-Egypt ties, Washington provided $85 million for

the reconstruction of the Canal Zone (Weinbaum, 1983:639); (B) in 1974,the Congress

authorized President Nixon to grant $250 million for development projects in Egypt, which

made USAID to kick-start socio-economic development programmes that have lasted for

decades (Bush:1994:15-37); (C) United States provided assistance to Egypt to the tune of

about $1billion between 1976-77 (Cook,2012:291); (D) in fact, preparatory to March 1979

peace treaty, United States aid to Egypt was far greater than to the rest in Africa and Latin

America (Burns,1985:192). This aid largesse from the United States set the tone of economic

ties with Egypt and got Egypt deeper into an aid-dependent ‘rentier’ economy that equally

50

redefined the dynamics of Egypt’s domestic politics and her posture in the Middle East

region. Cook (2012:233) underscores the fact that “the centrality of Israel in the US-Egypt

relationship set an unintended trap for the Egyptians…Washington would almost view Cairo

through the prism of Israel”.

Writing on the term, ‘Economic Imperialism’, Morgenthau & Thompson (1991:73)

insist that nations of concomitant paraphernalia of sovereignty cannot in actual sense pursue

for a long time any policy, domestic or foreign, that would be objected by an economically

stronger country that is a backbone of its economic activities. They note that:

The common characteristics of the policies we call economic imperialism is their tendency, on one hand, to overthrow the status quo by changing the power relations between the imperialist nation and others and, on the other hand, to do so, not through the conquest of territory but by way of economic control…economic imperialism as an unobtrusive, indirect, but fairly effective method of gaining and maintaining domination over other nations is particularly striking where two rival imperialisms compete with economic means for control over the same government

So, Momani (2003:4) suggests that the underlying purpose of United States foreign aid to

Egypt was to promote economic liberalization. This to him includes, “fiscal discipline,

reducing government expenditures, increasing tax revenue, liberalizing interest rates,

liberalizing exchange rates, liberalizing trade, promoting foreign direct investment,

deregulating the public sector and safeguarding property rights”. However, he notes that

“USAID was pressurized into implementing projects that were more symbolic in nature than

economically sound”. This partly depicted the impression that U.S. aid was not intended to

benefit the Egyptians. But Walker (1997:147) reports that though there have been continued

debates about the efficacy of US foreign aid to Egypt, it was a few that advocated for its

removal; because of the underlying belief among the U.S. policy circles that aid helps to

sustain peace in the Middle East. In its report on ‘Promoting Liberalization in Egypt: From

US Foreign Aid to Trade and Investment’, US Congressional Budget Office warns that:

51

Larger cut in aid could well be imprudent. Israel and Egypt remain very important US allies in a region still fundamentally unstable and dangerous. Moreover, Egypt’s political stability- a linchpin of the prospects for lasting Middle East peace- is hardly assured at this time, and its prognosis might worsen if economic conditions deteriorate further (US Congressional Budget Office, 1994:21).

Satloff & Clawson (1998:2) insists that much has changed, which makes aid less

important. They opine that two decades after the Camp David Accord, Egypt has improved

economically, having been let off the hook of external debt overhang, “(foreign debt is less

than foreign reserves, a situation helped by Washington’s Gulf War write-off of $6.7 billion

of military debt, 6 percent annual real growth and a per capita income ($1,280 in 1997), high

enough to put Egypt on the World Bank’s middle-income category”. They observed that

Egypt had taken strategic steps to implement a broad array of economic reforms, regained the

losses from Arab neighbours brought about by its peace treaty with Israel, just as the U.S.

economic assistance to Israelis was being phased out. To them, however, phasing out

Egypt’s economic aid along the line of Israel’s, would not just be inappropriate but will make

Egypt to face huge obstacles occasioned by the entrance of the job market by nearly a million

youths annually (Satloff & Clawson (1998:3). Besides, since the reform programmes had not

been completed, withdrawing aid to Egypt would slow down the privatization exercise in the

face of a still-suffocating state bureaucracy. They advocate that:

Egypt will continue to need substantial U.S. assistance to ensure the success of its reform effort and the overall importance of the strategic partnership makes investing in Egypt’s economic health a vital U.S. interest. Washington therefore should take the opportunity to refashion its assistance program in such a way as to provide a smaller, leaner package that emphasizes aid and trade, lowers the profile of U.S. donors (the AID mission is the largest in the world), invigorates the reform program, encourages Egyptian export industries, and makes Egypt a more appealing place for foreign investment (Satloff & Clawson (1998:3).

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According to a Fact Sheet of American Chamber of Commerce in Egypt, the Egypt – U.S.

trade relations had deepened since the signing of Camp David Accord, and the economic

partnership got expanded when the two countries in 1999 finalized Trade and Investment

Framework Agreement (TIFA) (Amcham Egypt, 2013: 3). The trade values between the two

countries are noted thus:

The United States is Egypt’s largest single trade partner with a volume of trade reaching USD 8.5 billion in 2012 and representing approximately 4% of Egypt’s GDP. U.S. exports to Egypt are the fourth largest in the MENA region representing 6.9% of the total, while U.S. imports from Egypt are 2.2 % of the region’s total, which is predominantly oil and gas. Egypt’s exports are among the most diversified across various industries in the MENA region (Amcham Egypt, 2013: 3).

The Egypt’s exports to the U.S are also noted thus:

What is significant about Egypt’s exports is that they are diversified, unlike many other countries in the Middle East and North Africa region who export predominantly oil and gas. This factor indicates that the Egyptian economy has great growth potential in a variety of sectors. Nevertheless, oil and gas are important export products and Egypt’s annual petroleum exports since 2005 have been around one billion dollars, more than triple their 2004 value due to the surge in gas exports. In 2012, Egypt exported about USD 3 billion worth of goods. The predominant exports to the U.S. were oil and natural gas, apparel, fertilizers, textile furnishings, chemicals, fruit and vegetable preserves (Amcham Egypt, 2013: 3).

This has brought about U.S. goods trade surplus with Egypt to the tune of $ 2.5 billion in

2012 while U.S. Egypt imports from Egypt were $3.0 billion, and that resulted in Egypt as

the 42nd largest export market for U.S. goods (USTR, 2013:1); while Broadbent (2011:2)

notes that the Free Trade Agreements (FTA) between the U.S. and Egypt has blended the

military and economic engagement in the U.S. diplomacy toward Egypt.

Prins (2011:6) notes that Egypt’s uncritical move to deregulate and open up its

financial system to step up its quest as a magnet for foreign investment, bred devastating

impacts. He notes specifically that the “aggressive sale of its national banks as a matter of

foreign and financial policy between 2005 and 2008 (around the time that U. S. banks were

53

stoking a global sub-prime and other forms-of-debt leverage oriented crisis)”, would damage

Egypt’s domestic economy. He opines that the influx of foreign banks and take - over of the

banking system in order to ‘modernize’ would definitely pour in hot money to Egypt but it

would eventually be up against the ordinary citizens of Egypt while the powerful and deal-

makers would pop champagne. According to him, the highest international bidders purchased

70% of the stakes in Egyptian Bank in 2005 by Greek’s Piraeus Bank while the biggest bank

deal of 2006 “was the sale of one of the four largest state-run banks -Bank of Alexandria to

Italian Bank, Gruppo Sanpaolo IMI”(Prins,2011:6). He further notes that “international

luxury property firms depicted the country as a Mecca (of the tax haven variety) for property

speculation, a country offering no capital gains taxes, on real estate transactions, no stamp

duty, and no inheritance tax”. To him, this financial deregulation and the increased influx of

foreign banks and capital, which is a euphemism of ‘speculation’ adversely, affected the local

population and thus:

Unemployment in Egypt is hovering just below the 10% mark, like in the US, though similarly, this figure grossly underestimates underemployment quality of employment, prospects for employment, and the growing youth population with a dismal job future. Nearly 20% of the country lives below poverty line (compared to 14% and growing in the US) and 10% of the population controls 28% of household income (compared to 30% in the US). But these figures, as in the US, have been accelerating in ways that undermine financial security of the majority of the population, and have been so for more than half a decade (Prins, 2011:6).

Contributing on the topic of financial liberalization Khor (2000:45) reports that:

Many developing countries that underwent the process of financial liberalization did not precautionary measures or adhere to guidelines to minimize risks. Instead, they the opposite direction by deregulating, removing existing capital controls, allowing private banks and companies to take foreign-currency loans and allowing the trading abroad of their local currency

54

To him, this accounted for the inability of developing countries to absorb and defend the

huge international funds that expanded considerably. More so, Shenker (2009:4), while

writing on how Egypt is applauded as poster child of neoliberal at the expense of vast

majority of its people who wallow in abject poverty, notes that the few foreign investment

that entered Egypt were largely in sectors like finance and gas, which created few new jobs.

Besides, he notes that natural gas was sold at subsidized rates to the tycoon owners in iron

and fertilizer companies; just as prices of daily needs of the people; like bread and cooking

oil soared. In pointing out the policy of Mubarak and how it enriched the already rich and

impoverished the larger segments of the society-the masses, he records that:

2004 brought a new cabinet which swiftly cut the top rate of tax from 42% to 20%,leaving multi-millionaires paying exactly the same proportion of their income into government coffers as those on annual salary of less than 500 Pounds. Special economic zones were created; foreign investment reached dizzying heights ($13 billion in 2008 and in the past three years, economic growth has clocked in at a consistently high 7%. The minimum wage, incidentally, has remained fixed at less than 4 Pounds a month throughout. The global business community applauded Mubarak’s rule as ‘bold’, ‘impressive’ and ‘prudent’ (Shenker, 2009:4).

His argument is that the goal of each of the policy was Western-tailored, and led by the

United States, to service the bourgeoisie at the detriment of the masses; Mubarak’s family

and the ruling class in National Democratic Party (NDP) were equally accomplices.

Goldstone (2011:11) reveals that “Mubarak and his family reportedly built a fortune of

between $40 billion and $70 billion, and 39 officials and businessmen close to Mubarak’s

son- Gamal are alleged to have made fortunes averaging more than $1 billion each year”.

Yet, according to an arm of the United Nations, Food and Agricultural Organization (FAO)

as cited in Goldstone (2011:11) indicates that the “fast growing and urbanizing population in

the Middle East have been hurt by low wages and by food prices that rose by 32% in that

year alone”. He further notes that “discontent has been stoke by high unemployment, which

55

has stemmed in part from Arab’s world’s young population”(Goldstone,2011:12). To him,

safety nets like automatic employment for Egyptian College graduates was phased out in over

a decade to reduce government expenditure and United States long support to Egypt and

other Middle East ‘sultanistic’ dictators have marred U.S. credibility in the region and across

the globe.

Shehata (2011:26) records that the fall of Mubarak was caused by three factors: “increasing

corruption and economic exclusion, the alienation of the youth and the 2010 elections and

divisions among the Egyptian elite over questions of succession”. He further articulates the

economic crisis that trailed the structural adjustment packages by Bretton Woods institutions

in Egypt thus:

(1) Factory workers, landless peasants, government employees, and those who produce goods for the local market (as opposed to, for exports) suffered most; (2) Many saw their fortunes fall as a result of economic liberalization; (3) At the same time, new Egyptian business elite emerged: some exploited the period of economic reform and openness to turn their contacts with the regime and international markets into vast fortunes; (4) The majority of Egyptian population was increasingly marginalized while a small minority prospered like never before; (5) The economic reform and liberalization led to the emergence of unholy alliance between the ruling elite and the business elite; (6) Many workers-both blue-collar labourers and educated professionals took to organizing strikes and other protests to show their anger at their economic disenfranchisement; (7) In 2010 alone there were around 700 strikes and protest actions organized by workers across the country (Shehata, 2011:27-8).

In his seminal work on globalization, Martin Kohr notes that trade liberalization as

championed by Bretton Woods institutions “should not be pursued automatically, rapidly; as

an end in itself, or in a ‘big bang’ manner”(Kohr,2000:26). He advocated for a right time,

sequencing and scope that would be palatable to markets in the developing countries as

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“other factors as the strengthening of local enterprises and farms, human resource and

technological development, as well as the build-up of export capacity and markets” (Khor,

2000:26) should be taken into consideration. He opines that the reduction in tariffs as pursued

under General Agreements on Tariffs and Trade (GATT) should take into cognizance of the

fact that “high tariffs persist in developed countries in sectors such as agriculture and textiles

and for selected manufacture products, which are areas in which developing countries have a

comparative advantage”(Kohr,2000:3). Also, in an exploratory piece on debt and

‘democracy’ in Egypt, Hanieh (2011:3) notes that state institutions in Egypt were craftily re-

fashioned along neo-liberal line in order to act as enabling mechanism of the market. He

reports that the Institute of International Finance (IIF) - a policy and lobby organization that

brings together the largest financial institutions in the world, accelerated the neo-liberal

programme embarked by Mubarak’s regime and thus its “financial packages ostensibly

promote measures such as ‘employment creation’, ‘infrastructure expansion’ and other

seemingly laudable goals, but in reality, these are premised upon the classic neo-liberal

policies of privatization, deregulation and opening to foreign investment”(Hanieh,2011:4).

He establishes that “contrary to popular belief, money actually flows from Egypt to Western

lenders than vice versa…Western loans acted to extract wealth from Egypt’s poor and

redistribute it to the richest banks in North America and Europe”. He explains that Egypt paid

about $3billion a year in debt servicing in the last ten years yet it was discovered that the debt

kept increasing by 15% between 2000 and 2009, despite the fact that Egypt paid a total of

$24.6billion in debt repayments over the same period (Hanieh,2011:4). The striking

discovery is that Egypt’s “net transfer on long-term debt between 2000 and 2009, which

measures the total difference between received loans and total repayments, reached,

$3.4billion” a fact that vindicates the earlier stand that actual flows from Egypt to Western

lenders is higher than the money received as loans (Hanieh,2011:5). To him, this Egypt’s

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financial relationship with the global economy indicates that “Western loans act to extract

wealth from Egypt’s poor and redistribute it to the richest banks in North America and

Europe” (Hanieh, 2011). He insists that it was Egypt’s ruling elite led by Mubarak and his

closet coterie that benefited handsomely from the debt transactions (estimated in billions of

dollars); and that is what is called ‘odious debt’ by development economists; as the deal was

struck without regard to the needs of the population (Hanieh,2011:5). That was why it was

said that:

The test of people’s prosperity is not in extension of exports, the multiplication of manufactures or other industries, the construction of cities. No. A prosperous country is one in which the great mass of the inhabitants are able to procure, with moderate toil, what is necessary for living human lives, lives of frugal and assured comfort (Quoted in Hobson,1965:289).

Chinweizu’s treatise on ‘America’s Expansionism vs Third World’ observes that

“where international camaraderie aid and other soft tactics failed to secure American control

of resources from uncooperative third world nationalism, strong-arm bullying by military and

paramilitary agencies such as CIA, Green Berets and counter insurgency outfits have been

resorted to” (Chinweizu,1978:464). He however, notes that in most emerging third world

countries that cooperated with America the “penetration of their economies was smooth, easy

and well-lubricated” (Chinweizu, 1978:465). He identifies what Huntington called ‘military

dictatorship without brains’, as a strategic ploy to indoctrinate African military personnel that

train in American military institutions, so that the trained soldiers would maintain global

stability t and pursue American interests even against their own country. Thus:

The best instruments of such civic disorder would naturally be products of America’s military schools that have been chaperoned to power. These military dictatorships are expected to have brains enough to maintain pro-American civic order but not enough brains or

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patriotism to protect the interests of their own people (Chinweizu, 1978:469).

This was advocated by Huntington in the changing societies of the Third World thus:

The route to stable government is by coalescence of guns and numbers against brains. It is this possibility which offers the military in a radical praetorian society the opportunity to move their society from praetorianism to civic order (Huntington, 1968:241).

While defining the character of rogue states, Chomsky (2000:1) recognizes two uses of

the term in political discourse. First, is “a propagandistic use, applied to assorted enemies

and a literal use that applies to states that do not regard themselves as bound by international

norms”. He went further to say that “the U.S. regards itself as exempt from these conditions,

increasingly so since the Cold War ended, leaving U.S. dominance so overwhelming that

pretense can largely be dropped”. Successive U.S. Presidents had pursued her strategic

interest without observing international rules and this had been condemned by global

reputable organizations, like the United Nations (UN), European Union (EU), the

Organization of American States (OAS) and its judicial body-the Inter-American Judicial

Committee (Chomsky, 2000:2). Recounting that to “U.S. crimes are not of great

consequence, disobedience is”, he enumerated a number of countries with poor human rights

record and dictators that U.S. government supported in a clear breach of international norms

and established rules; just to protect her interest, including “incitement of atrocities”

(Chomsky, 2000:5). In 1999, a former U.S. Secretary of Defense, William Cohen, declared

that “U.S. is committed to ‘unilateral use of military power’ to defend vital values, which

include ‘ensuring uninhibited access to key markets, energy supplies, strategic resources’,

and indeed anything that Washington might determine to be within its ‘domestic

jurisdiction’(Quoted in Chomsky,2000:4).

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Asher-Schapiro (2012:3) notes that U.S. dominance in global politics and its influence

over Bretton Woods institutions had impacted negatively on Egypt. He notes that “in 1996 ,

the IMF reached a deal with Mubarak regime to extend additional credit to Egypt in

exchange for an aggressive privatization agenda”, when it was observed that the reforms in

the first years of 1990 plummeted rural poverty by 10% and real wages also sagged. He

further writes that between “1996 and 2011, nearly 345 Egyptian public enterprises were

privatized and sold on the Egyptian stock exchange” but this happened “under a cloud of

political repression and intense corruption”. There were also reported cases of shady deals in

the privatization programme and the tendency to trim down the work force. Specifically,

Asher-Shapiro (2012:3) notes that at Tanta Flax and Seed Company, “the new Saudi

Arabian owners cut the workforce by half and reduced health benefits, and it bred wave of

strikes”. In fact, he records that “between 2004 and 2010, there were more than 3,000 labour

actions in Egypt”, just as an Egyptian Non-Governmental Organization (NGO), Egyptian

Centre or Economic and Social Rights sued and got judgment in Cairo’s Administrative

Court, which blocked and quashed sales of some public enterprises. Cole (2011:13), in

reacting on how neo-liberalism created an age of activism insists that “moving public

resources into private sector created an almost endless range of opportunities for staggering

levels of corruption”. To him, international banks, central banks and emerging local private

banks aided and abetted their agenda”. He notes that young people have taken to streets,

parks, plazas and squares to protest “the extreme concentration of wealth to a few hands,

thanks to neoliberal policies of deregulation and union busting”. Equally, Ojo (1999:2) notes

that a formidable source of threat to African security is the unjust disparity and asymmetrical

power relations between the West and less developed countries. He insists that “the tensions

and conflicts are replicated and amplified at the domestic level since the state and its civil

economic society are permeable and permeated by the same external influences and

60

direction”. To him, this made sit-tight leaders in the periphery countries to “bank on the self-

interest of the West to frustrate demands by their own citizens for genuine, self-reliant

development and democracy”(Ojo,1999:24). Therefore:

While Africa suffers these setbacks, the Western advocates of structural adjustment policies widen and deepen the colonial openness of African economies and ensure lower world prices of their products through overproduction arising from inducing each individual country to increase production for export. This is the so-called fallacy of composition. But above all, they ensure the regular servicing of debts Structural adjustment, in short, does what it says: adjust and further ties the African economies to the global system as a dependent, peripheral capitalist wasteland (Ojo, 1999:23).

Writing on the political economy of Egyptian uprising, Maher (2013:7) notes that the

debt cycle is a mechanism employed by United States nay the international lenders to keep

Egypt under the chain of global capitalism and neoliberal transformation. His view is that

perpetuating the debt cycle will keep Egypt on the tab of requiring new credit for its debt-

servicing obligations and accessing of foreign loans. He specifically argued that debt cycle

deepens Egypt’s dependency and therefore cannot muster autonomous capacity to chart her

course. Hence:

Between 2000 and 2009, net transfers on Egypt’s long-term debt (the difference between received loans and debt payments) reached $3.4 billion. In the same period, Egypt’s debt grew by 15%, despite the fact that it paid a total of $24.6 billion in loans. This self-reinforcing cycle of dependency, which distributes billion from Egypt’s poor to Western financiers, gives these institutions tremendous leverage over Egypt’s government (Maher, 2013:2).

Soliman (2011:44-5) emphasizes that fiscal austerity in the 1990s and the quest for aid and

loans by former communist countries made Egypt to find it increasingly difficult to secure

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foreign assistance, just as its share of international aid plunged. According to him, this made

the United States to reason that economic aid could not be successful in helping Egypt and

therefore in 1999, the United States and Egypt agreed on a ten-year plan to reduce

assistance”. This brought about a shift from trade to aid as programme was focused on

increasing mutual trade and attracting foreign direct investment. However,

The middle class has grown increasingly worried by the deterioration of state institutions and the incapacity of the state to stimulate successful development, while at the same time turning to ask for more money, such as the newly imposed property tax. In the end, a new balance of power is being forged between the government and the middle class (Soliman, 2011:173).

Cook (2012:160) notes that notwithstanding the pressure and the need, the economic

reform for the better part of 1980s and early 1990s were carried out in a piecemeal manner.

For Mubarak, “the imperative of maintaining order far outweighed whatever economic

progress the IMF and by extension, the United States - which had significant influence within

both the World Bank and the Fund-promised”(Cook,2012:160). He further notes that

Mubarak “needed to look than the 1977 “Bread Riots” to understand that while prosperity

may be the long-term outcome of economic reform, instability was an immediate possibility”.

Noting the essence of US-Egypt ties, he notes that:

With the Iran-Iraq War in full swing, the Cold War heating up, and the ongoing challenge of confronting regional radicals and rejectionists, Egypt was more important to the United States than ever. Indeed, Cairo played an important role in checking Iran’s influence, containing Soviet penetration of the Middle East, and leading the Camp of Arab Moderates, which included Saudi Arabia, Jordan, Morocco and the small Gulf states (Cook, 2012:161).

He reports that during the U.S-led 32-nation coalition to force Iraq from Kuwait, it was an

economic windfall for Egypt as it was handsomely rewarded by U.S. for its participation in

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the Gulf War. In fact, “the Egyptian forces totaled 35,000 soldiers and officers, the fourth

largest contingent to participate in Operation Desert Shield and Desert Storm”. To that end:

Egypt was rewarded for its participation in the Gulf war. In the aftermath of the conflict, United States and Arab creditors wrote off or cancelled $20 billion of Egypt debt and Washington convinced Paris Club-an Informal group of creditor countries-to forgive $10 billion, or half, of what Cairo owed to a group of European countries, the United States, Canada and Japan. The benefit of the debt relief was immediate. Cairo was able to borrow more money on international markets, but became its external debt had been slashed by as much 50%, it could do so at lowest interest rate (Cook, 2012:177-9).

Analysing the deterioration of security situation in Gaza Strip in 2007, Brownlee

(2012:109) reports that “.S. policy makers began to think Mubarak was not doing enough to

weaken Hamas”, a view strongly canvassed by some lawmakers. Brownlee notes that before

then, some Congress man had questioned the continued flow of aid to Egypt with Egypt

consistently “backsliding on municipal elections, an extension of emergency laws, repression

of judicial freedoms and a crackdown on demonstrations and rallies”(Brownle,2012:111). But

some opposition lawmakers from the both U.S. Republicans and Democrats warned against

taking a resolution that would mar US-Egypt alliance that have served U.S. security.

Specifically, Roger Wicker argued that:

We do not have a lot of friends over there. But one friend we have over there is Egypt…Talk about national interests: when we went in with Operation Iraqi Freedom, some of our allies, Turkey, for example, would not let us through…By contrast, Egypt had allowed us to use the Suez for that purpose. They have allowed us continuous over-flights. And just recently, they have been instrumental in helping with the unilateral Israeli withdrawal from Gaza (Strip)…My friends, these people in Egypt have stood by us in a tough, tough neighbourhood. And I do not think this amendment is the sort of thing we do to our friends. It might make us feel good, but it is terrible foreign policy (U.S. Congress, 2006:H3537-H3538).

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At the end of the day, this argument appeared to have swayed the Congress from taking a

resolution that would severe the ties with Egypt. So, U.S. considered its security interest in

US-Egypt ties far and above other considerations, not minding that its neoliberal policies

accentuated by the duo’s alliance has deepened social dehydration in the domestic political

economy of Egypt. This seeming unending posture of U.S. in relation with Egypt accounted

for the crisis of underdevelopment and authoritarianism in Egypt under Mubarak. Like

Ihonvbere (2001:5), observes, “the triumph of the market and the demise of communism has

not only increased the power and influence of the donors, lenders and multilaterals, but also

posed severe challenges and opportunities for African continent” and “the reproduction and

rationalization of neocolonial economic relations and unequal exchange relations with

powerful profit and hegemony seeking transnational corporations have hampered the overall

economic environment”.

Although efforts were made by authors to discuss the United States economic ties with

Egypt and the economic crisis it generated under Mubarak, writers on the West-led neoliberal

reforms and the partnership with periphery countries, especially in the Middle East and North

Africa, (Chiweizu 1978; Cook 2012; Brownlee 2012; Ojo 1999; Prins 2011; Bush 1994;

Momani 2003; Walker 1997; Khor 2000; Shenker 2009; Shehata 2011; Ayubi 1988;

Morgenthau & Thompson 1991) tend to focus on the unequal exchange relations, the debt

repayment and servicing burden as well as targeting the control of resources of dependent

countries by the West led by the U.S. However, the relationship between U.S. economic ties

with Egypt indicated by annual economic aid of USD$200 million and the economic crisis

under Mubarak indicated by retrenchment of thousands of workers in public sector

companies is yet to be given adequate systematic scrutiny between 1981 and 2010; a period

of Mubarak’s sit-tight presidency.

Gap in the Literature

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This reviews above are the positions of relevant extant literature that seek to address the

question of United States of America’s Government’s assistance and the implementation of

Bretton Woods institutions-led reforms in Egypt under Mubarak.

Writers on United States military aid and authoritarian consolidation in Egypt under

Mubarak(Clarke 1997; Kassem 2004; Cook 2000; Hassan 2010; Burns 1985; Stacher 2004;

Gilpin 1987; Korski 2011; Goodgame 2008; Brownlee 2012; Shihab-Eldin 2013; Hamid

2013; Kausch 2013;Blanton 2000; Aziz 2013; Rourke & Boyer 2002) allude to issues of

corruption; regional stability in the Middle East; military’s dominant role in the economy;

Arab-Israeli Treaty; weak political institutions in Egypt, as the causes of long years of

authoritarianism in Egypt. However, the relationship between U.S. military aid to Egypt

indicated by the annual aid of USD $1.3billion and authoritarian consolidation indicated by

renewal of emergency laws every three years is yet to be given adequate systematic treatment

between 1981 and 2010; a period in which Mubarak held sway in Egypt.

Writers on United States role in Egypt’s external debt management (Soliman 2011;

Khail 2011; Chase 2006; Aja 2001; Nelson 1968; Mingst 1999; Asher-schapiro 2012;

Olukoshi & Nwoke 1994; Abdel-Khalek 2001; Ake 2000; Nnoli 2006; Offiong 2001; Ensign

1988; Abdallah & Brown 1988) see the economic assistance on the bilateral level (US-Egypt)

and the multilateral financial institutions (IMF, World Bank & Paris Club) as avenues of

strengthening U.S. grip on global political economy and not necessarily alleviating economic

difficulties in Egypt. However, the United States role explained in terms of the relationship

between Egypt’s external debt management indicated by the rescheduling of half of Egypt’s

debt by Paris Club and drastic economic reforms indicated by the privatization of public

enterprises is yet to be given adequate systematic scrutiny between 1981 and 2010 in Egypt.

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Writers on the relationship between United States economic ties and economic crisis

under Mubarak (Chiweizu 1978; Cook 2012; Brownlee 2012; Ojo 1999; Prins 2011; Bush

1994; Momani 2003; Walker 1997; Khor 2000; Shenker 2009; Shehata 2011; Ayubi 1988;

Morgenthau & Thompson 1991) tend to focus on the unequal exchange relations, the debt

repayment and servicing burden as well as targeting the control of resources of dependent

countries by the West led by the U.S. However, the relationship between U.S. economic ties

with Egypt indicated by annual economic aid of USD $200 million and the economic crisis

under Mubarak indicated by retrenchment of thousands of workers in public sector

companies is yet to be given adequate systematic scrutiny between 1981 and 2010; a period

of Mubarak’s sit-tight presidency.

Altogether, existing scholarship attempts to link the United States of America’s

support for Mubarak’s sit-tight leadership and aggravation of the crisis, while others

underscored the crisis as the outcome of exposure of Egypt’s ‘rentier’ economy to the

vagaries of global capitalism. Studies of contemporary Egyptian political and economic crises

thus, emphasize Mubarak’s dictatorship, rentierism and the global movement of capital.

However, very little efforts have been made at determining the synergy between United

States of America’s economic assistance and economic reforms in Egypt. This study

therefore, intends to investigate this gap in the literature.

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CHAPTER THREE

METHODOLOGY

3.1. Theoretical Framework

The framework for analyzing this study is Marxian structural theory of the state.

Structural Marxism was pioneered by the French public intellectual, Louis Althusser who had

one foot on the academia and another on the political party, and “many saw Althusserism as a

renewal of Marxism, a new perspective and approach which saved Marxism from stagnation

and increasing irrelevance” (Hardy, 2013:64). To him, the decline of existentialism, led to the

emergence of the structuralist thought that viewed the world from the prism of object and

their relations. Employing psychoanalysis, Althusser embarked on the self-assigned

deconstruction of classical Marxist texts by symptomatically distilling the missing links and

gaps as well as deciphering what was not written expressly on Marx works. Nico Poulantzas,

a disciple of Althusser continued with the newest radical interpretation of Marx papers.

Poulantzas proposition had three standpoints, according to Hardy (2013:67): First, he

maintained that “the state was neutral in the class struggle, that the bourgeois democratic

forms should be extended and developed, not overthrown”. Second, he relied on C. Wright

Mills position that “it is the mode of production in the form of wages which determines class,

not the relationship to the mode of production” to emphasize that “it is only the productive

workers (i.e. the blue collar workers in the factory) which are really part of the working class,

white collar workers are in fact part of the petty bourgeoisie”. The third position had an

enduring impression on the question of the state. He said that the “state existed in the political

and acted as a socially stabilizing function” and thus the role can be determined by its social

composition and the outcomes of its effort and activities – the unequal distribution of wealth

and anti-working class policies. He summarizes the proposition thus:

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The relation between the bourgeois class and the state is an objective relation. This means that if the function of the state in a determinate social formation and the interests of the dominant class in this formation coincide, it is by reason of the system itself: the direct participation of the ruling class in the state apparatus is not the cause but the effect, and moreover a chance and contingent one, of this objective coincidence (Poulantzas, 1973:23).

Structuralists “emphasize the relative autonomy of the state from economic structures and

from members of the dominant class”(McGowan&Walker,1981:357). Put differently, the

structural model highlights the inherent contradictions prevalent in any capitalist order and

how they moderate or drive the character of the state. It is the structures in any given state

that determine how a capitalist society is reproduced, and not the ruling class. In explaining

the structural approach, Asobie (1990:39) notes that the “model argues that the actions and

policies of the state are determined by the structures of the society, by the contradictions

generated by given economic structures of the society and class struggles, and not by people

in positions of power”. The adherents of this theory strongly believe that there is a high

probability of serving the interest of capital better when the dominant bourgeoisie are not part

of the ruling class. McGowan & Walker (1981:357) further argues that the tendency of

resurgence of working-class unity as a contradiction of the capitalist production would be

more effectively controlled through the state policy when the state is relatively independent

and parades an autonomous status; and not entangled in societal activities. In attempting to

define what ‘structure’ means in this context, Godelier (1972:336) notes that “Structures

should not be confused with visible ‘social relations’, but constitute a level of reality invisible

but present behind the visible social relations”. In essence, a distinction is made between

‘appearance’ and ‘essence’. While ‘appearance’ connotes visible social relations, ‘essence’

constitutes a level of reality that is not seen yet its impacts are felt in visible appearances

(Heilbroner, 1980:16-18). Thus, economic reality, for example is determined by a structure

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whose existence is known by its effects-appearances of empirical investigation (McGowan &

Walker, 1981:358).

Due to the abstract nature of the explanations of Althusser and Poulantzas, Erik Olin

Wright strives to outline the six ‘modes of determination’ as can be distinguished within the

‘global concept of structural causality’. They are the modes of structural limitations,

selection, reproduction / non-reproduction, limits of functional capability, transformation and

mediation (McGowan &Walker, 1981:359-363). These modes are the structural model of

U.S. economic policy. The general thrust of this radical perspective is in these three

hypothesis: (1) “only a decisive change in the class struggle can transform the state or the

existing capitalist structure”;(2) “the economic structure of a capitalist society and a capitalist

world system limit variation in class struggle, state structure and state policies”; (3) “the

policies of the capitalist state tend toward the reproduction of capitalist economies relations

and the capitalist state itself” (McGowan & Walker,1981:378).

A foremost political economist, Professor Claude Ake notes that the structure of the

colonial state was reinforced in the post colonial economy as the indigenous bourgeoisie that

took over government at the time of political independence had no sound economic base and

resorted to the use of state power for accumulation of wealth (Ake, 1981:128). Thus, in

Africa the state became interventionist and got involved in the class struggle. The neo-

colonial structures that are appropriated by the bourgeois class account for the dependence

and underdevelopment that limit the power and undermine the political legitimacy of the

bourgeoisie (Ake, 1981:125). To him, African states over-value political power acquisition,

and thus “the tone of politics is highly authoritarian and the hegemonic faction of the

bourgeoisie adopts a siege mentality” (Ake, 1981:129). So, the political economy of post-

colonial African states, especially Egypt is largely influenced by variants of structures that

are affecting the democratization and the quest for sustainable economic development.

69

Similarly, in his preface of the English edition of ‘Manifesto of the Communist Party’

in 1888, Friedrick Engels restated the fundamental proposition which forms the nucleus of

Marxism thus:

That in every historic epoch, the prevailing mode of economic production and exchange, and the social organization necessarily following from it, form the basis upon which is built up, and from which alone can explain the political and intellectual history of the epoch(cited in Beer,1955:5).

So, to Engels, it is the unseen structure of the mode of production that societal ordering or

reproduction is located and not the character of politicking, which is the effect of the

society’s structure. Also, in capturing the root of African underdevelopment and the structural

weaknesses that bedeviled the continent, Bode Onimode observes that imperialism largely

contributed to systemic disarticulation thus:

Right from the Roman Empire up to the contemporary stage, imperialism has always rested on the exploitation of one part of the world for the benefit of accumulation and greater consumption in another part. Since the accumulation of surplus value in different forms under different modes of production is the only source of development, it must follow of necessity that imperialism will generate development in the looting countries of Western Europe, North America and Japan, and produce the worst abuses of underdevelopment in the dominated and exploited countries in the periphery (Onimode, 1985:245).

The foregoing position is entirely agreed by Kwanashie (2010:40) as African states cannot

drive development because of “internal disarticulation, incoherence in the organization and

the structure of the state”. To him, Africa has remained weak in the face of western styled

democracy that has accentuated civilian dictatorship. In aligning his views with the

foregoing, Nnoli (2003:160) posits that the nature of democracy in Africa is shaped by

colonialism in “not only the character of production in Africa but also the various struggles in

contemporary Africa”. Therefore, the Marxist structural theory of the state advances the

proposition that ‘structure’ is the invisible factor that determines social relations.

70

Application of the Theory

The relationship between the United States of America’s Government aid and neo-

liberal reforms in Egypt under Mubarak is explained in the light of the Marxist structural

theory of the state.

First, the annual military aid of $1.3 billion to Egypt has assisted in building the

military as its strongest institution. The military is at the root of impeded democratization in

Egypt. Egypt, like other states in the Middle East established a strong military after the semi-

independent status gained by Muhammad Ali(1805-49) as a “supreme symbol of

independence and sovereignty”(Vatikiotis,1961:xvii). And these military officers were strong

factors in the domestic politics of Egypt as they saw themselves as “saviors and regenerators

of national existence”(Vatikiotis,1961:xvii). As soon as the military assumed power in Egypt,

they made relentless efforts to build a monolithic party structure that expanded from urban

centres to the hinterland. In fact, as early as 1820, Muhammad Ali had opened the first

military school in Aswan and trained the first 500 officers from his personal slaves

(mamalik)(Vatikiotis,1961:5). By 1952, the Free Officers Corps struck and took over the

reins of political power as a “culmination of a struggle between two factions in the Egyptian

army: the palace-appointed and supported officers versus the free Officers led by Gamal

Abdel Nasser”(Vatikiotis,1961:66). This assumption of political role by Egypt’s military was

reinforced by the trends in other sister Arab states, where military regimes were

commonplace. The establishment of bodies like Arab Socialist Union in 1962 by Abdel

Nasser through a presidential fiat and their transformation as appendages of the state

bureaucracy ensured that it lacked participatory approach as a representative organization.

Thus, from Nasser to Answar Sadat down to Mubarak that ruled the country for close to three

decades, Egypt had remained under the firm grip of the military, despite the periodic

elections to the presidency and parliament. Monshipouri (1995:14) notes that “though there

71

(are international and) societal pressures for reducing authoritarian controls, the process of

political liberalization (is) state-induced, and the state retains a considerable degree of

management over the process”. Kassem(2004:38) observes that the prevalence of the

emergency laws limits the role of the judiciary and discountenanced the procedure of the

criminal code in the trial of civilians. According to a study, between 1992 and 2000, 1,033

civilians were tried in military courts (cited in Kassem, 2004:40).

Under Mubarak, the military aid accounts for 80% of Egypt’s military procurement

cost(Aziz,2013:2) just as it receives excess defense articles that worth hundreds of millions of

dollars from Pentagon(Cook,2010:223). United States aid accounts for the military’s strategic

involvement in both the foreign and domestic policies of Egypt. Aziz (2013:2) reports that

Egypt benefits from extensive co-production initiatives from US arms company, General

Dynamic while Egypt’s foreign military financing grants are placed in an interest-accruing

account in the Federal Reserve Bank of U.S. The military controls the key sectors of the

economy, no thanks to the Open Door Policy (economic opening) of Sadat and Mubarak’s

economic reforms that ensured that they acquired key economic assets of the State at give

away prices. The military are involved in a number of economic enterprises, which are not

included in the formal annual military budget expenditure which “approximately amounts to

the U.S $4.04billion in 1999-2000” (cited in Kassem, 2004:42). So, the structure of strong

military institution had impeded genuine democratization and participatory governance as

clamoured by the intelligentsia and civil society groups in the country. Brownlee (2012:109)

notes that even Bush administration in the U.S. had objected to Mubarak’s cronies’ blockage

of aid to Egypt’s civil society organizations via law 84 of 2002. Any study of Egypt’s

political economy without recognizing the role of the military would not fly. The military

establishment had largely influenced the direction of Egyptian policies; the U.S. annual aid

and the control of the commanding height of the economy by the military are the underlying

72

forces that drive Egypt’s political economy; and since the U.S. interests are serviced by

Mubarak, the U.S. support helped to consolidate his autocratic rule.

Second, the United States geostrategic interest in the Middle East underlies the nature

of Egypt’s domestic politics. It is a structural feature that determines the trend of Egypt’s

political economy. U.S. tie with Egypt is a strategic move to protect Israel in the region.

Israel had been faced by hostile neighbours and a dependable ally from the Middle East

would be a veritable counter-measure to checkmate aggression. So, after signing the peace

treaty, otherwise known as Camp David Accord in 1978, the cooperation of United States and

Egypt became more symbolic and symbiotic. U.S. showers Egypt with economic and military

aid; and equally comes to Egypt rescue in times of fiscal crisis. The United States was not

bothered with the authoritarian nature of successive leaderships in Egypt as far as her interest

is protected. The U.S. endorsed pro-U.S. dictators and presidents-for-life at the detriment of

the socio-economic and political conditions in the stooge-countries. Brownlee (2012:61)

records that “because pro-U.S. autocracies were ‘containing extremism’ effectively, the

White House supported the Egyptian regime taking whatever steps were necessary to retain

power”. The U.S. War on Terror in the Middle East is equally advanced through Egypt.

Egypt had provided military, personnel, ground camping and air over-flights during U.S. led

coalition operation in the some countries in the region. Egypt also grants U.S. vessels easy

passage at the Suez Canal and easy flow of oil from the region to U.S. In turn, U.S.

negotiated debt rescheduling and debt cancellation in favour of Egypt. Cook (2012:219) notes

that in 1985, President Ronald Reagan converted military loan of $1 billion to grants. After

the Operation Desert Field in 1991, President Bush ordered Egypt’s military aid of $6.7

billion to be written off and that relieved her of annual $1 billion servicing obligations

(Brownlee, 2012:57). So, this structural arrangement had largely influenced the long years of

authoritarian rule in Egypt and the sweeping market-reforms that have in more profound

73

ways reproduced million of poor Egyptians that hardly boasts of $2 Dollar per day while

Mubarak’s cronies lived in opulence. The removal of subsidies in wheat, gasoline and energy

products affected the living standard of the majority. The privatization programme and sales

of Egyptian banks to international highest bidders led to mass sacking of workers, squeezing

of the middle class and exposed Egypt’s fledgling economy to forces of globalization that

driven by market offerings and power valence. The abolishment of tariff barriers also linked

the disarticulated economy to exchange relations with the developed economies. In effect, the

U.S. role in Egypt’s external debt management and ideological support for neo-liberal

reforms made Egypt’s situation more precarious.

Third, the United States economic tie with Egypt was implicated in Egypt’s economic

crisis under Mubarak. Brownlee (2012:1) records that since 1980s, U.S. has committed more

than $60 billion aid and political support to secure its interest in the Gulf region. The U.S also

has over 800 firms in Egypt with a stock of $14.6 billion in foreign direct investment

(Brownlee,2012 33). After the 2001 9/11 terrorist attacks, Brownlee (2012:35) notes that U.S.

donated $100 million to alleviate the aftermath economic distress, coupled with the annual

economic aid to the tune of $200 million (Cook,2012:124). The economic partnership is also

witnessed in the establishment of Qualified Industrial Zones (QIZs) in Egypt in 2004 that

gives Egypt-made goods with 8 percent Israeli content preferential access to American

market (Cook,2012:231). The economic reform package of (ERSAP) steeped the ties further

because of accelerated overtures loans, grants, debt forgiveness and rescheduling.

However, the Muslim Brotherhood significantly influenced the domestic politics of

Egypt and constituted a virulent opposition to Egypt’s relationship with Israel and the U.S.

Historically, the organization started modestly in 1927 “as a religious teaching and reform

movement but soon acquired organizational skill for the eventual formation of a strong mass

political movement with fanatic religious appeal”(Vatikiotis,1961:29). For instance, after the

74

1952 Free Officers Corps coup, the cooperation of the Muslim Brotherhood was sought in

order to stabilize the government. In 1954, the Brotherhood fell out with Abdel Nasser’s

regime for signing an agreement with Britain, a move which the Brotherhood mistook as

antithetical to Egypt’s interest. In fact, the agreement allowed “for a gradual withdrawal of

British troops from Egypt, but allowed them to return if Turkey or any Arab State came under

attack”(Farah,2009:73). The rapport between the Muslim Brothers became short-lived with

the visit of President Sadat to Jerusalem and the signing of the Peace Treaty in 1973. Farah

(2009:116) notes that “Al-Dawa and al-Itissam magazines issued by Muslim Brothers

attacked not only the signing of the treaty but also the ineffectual economic policies of the

regime and increasing income inequalities”. Cook (2012:238) records that “the Brothers

observed that Egypt’s diminished leadership in the region and the Islamic world is linked to

Cairo’s relationship with Washington, making Egypt a ‘subordinate’ or ‘secondary power’ in

the Arab and Islamic World”. With carrot and stick approach, Mubarak tried to manage the

Muslim Brothers because of the group’s ‘ignore-at-your-peril’ influence in the domestic

politics just as the Brothers view US rhetoric of promoting democracy in Egypt as

nauseating. Ebeid (1989:45) notes that “the new expanding role of Muslim Brotherhood is

sure to pose a serious challenge to the future of the nation’s democratic environment”.

The economic tie has significant impact in Egypt political economy. The purchase of

public enterprises during the privatization programmme led to social unrest as a result of

strikes, protests and lay-offs. In 2006 alone, 222 strikes and protests were embarked by

workers in state-owned enterprises (Kassem, 2004:53). The trade liberalization and

deregulation championed by the U.S. as conditions for granting economic assistance led to

disempowerment of the masses. The backing of Mubarak by the U.S. in the face of economic

dispossessions and human rights abuses bred anti-U.S. protests. So, while the U.S-Egypt

alliance was tied to support in protecting U.S. interest in the Middle East, the implementation

75

of privatization and private sector-led development could not make up for decrease in public

sector employment as government relaxed its policy of automatic employment to new

entrants in the labour market. Even the income distribution in the private sector investments

was not encouraging. Farah (2009:44) notes that “the Family Budget Survey of 1996 revealed

that 42 percent of workers in manufacturing were below poverty line”. The economic

hardships gave the radical opposition group - Muslim Brotherhood, a large following among

the students, peasants and vibrant youthful population.

But Mubarak as noted by Wickham (2002:104) decided to “accommodate the non-

violent mainstream of the Islamic movement as a means of defusing tensions and

consolidating his own position”. Islamist groups carried out serial attacks and committed a

number of cases of arson and assassinations, as protests and outright rejection of some

government policies or systemic issues that they were not comfortable with. Under

Mubarak’s regime in the early 1990s, it was observed that:

The fragmentary character of the Egyptian state- its size, porousness, and responsiveness to outside pressures and inducements- goes far toward explaining how the parallel Islamic sector was able to be established and illuminating the obstacles that have stymied the regime’s efforts to control it (Wickham,2002:111).

The perception of Islam as terrorism by the West largely influences the choice of United States

foreign policy in Egypt and the entire Middle East. It also reproduces the character of the

political economy just as the various levers of political power in Egypt are made to confront

the activities of Islamist groups. A series of legal and political hiccups were introduced by the

system to checkmate non-conformist Islamist group’s activities while some were outrightly

outlawed. There was also cautious awareness and arrangement by the U.S. and its protégé,

Hosni Mubarak to ensure that a radical with Islamic bent did not take over the reins of power

in Egypt. These issues underlie Egypt’s seemingly intractable crisis in the political economy.

76

Thus, the Egyptian policy and the political economy are determined by a combination

of structure of forces and contradictions in the system. However, Asobie (1990:40) observes

that the structural model is not useful in understanding how specific decisions are made in

government circle. It specifically assists the “analyst to delineate the outer parameters of

change in a country’s foreign policy” and “helps the analyst to identify the contextual

constraints that limit the range of variations in policy. While there are countries where

foreign military aid had not foisted authoritarian leadership, the dominant literature is of the

view that virtually all external military assistance had more often than not helped in

subverting the popular will and accentuated class struggles and contradictions which emerge

to reproduce the character of politics and redefine socio-economic policies. Thus, the

relationship between the U.S. Government military aid and authoritarian rule under Mubarak

is explained in the light of Marxist structural theory of the state.

3.2. Hypotheses

This study unfolds from the following hypotheses:

1). United States of America’s military aid provided support for authoritarian rule in Egypt under Mubarak.

2). United States of America’s Government role in Egypt’s external debt management was conditionality for drastic economic reforms.

3). United States economic tie with Egypt was implicated in the economic crisis under Mubarak.

3.3. Research Design

Research design is a logical drawing of inferences from investigation of causal

interactions between or among variables that are spelt out for examination. It is a course of

action that guides the researcher in the processes of collecting, analyzing and interpreting

data. According to Leege & Francis, 1974:66) “we must develop a research design which not

77

only calls for careful examination of all variables but plays around with them-at one time

making an independent variable dependent, at another time making it independent again; a

variable may sometimes be treated as an antecedent to the independent variable-dependent

variable relationship, and at other times it may be intervening between the two”.

This study is based on the single case ex post facto design, because it is basically

qualitative and non-experimental. Cohen and Manion (1980:24) view the ex post facto design

as those studies that that investigate possible cause-and-effect relationship through

observation of events or happenings and reflecting on the likely plausible causal factors.

This method of research design is employed in this study given the nature of

phenomena that is investigated-United States government aid and neoliberal reforms that was

implemented in Egypt. Both variables of U.S. government aid and neoliberal reforms are two

occurring events, which ordinarily cannot be put under the control of the investigator and that

necessitate the use of single case ex post facto design as a more appropriate model in this

study. There are series of ‘before’ observations and series of ‘after’ observations. Based on

concomitant variation, the structural causality of independent variable (X) and dependent

variable (Y) are tested based on ex post facto model. That is to say that (X) is the factor that

determines (Y) and logically infers that (Y) may or may not be determined by (X). It entails

that there is a high tendency that at the occurrence of (X), (Y) is more likely to follow

accordingly.

78

The logic of adopting the single case ex post facto design in this study and in the test of

hypothesis, the independent variable (U.S. Government aid) and (dependent variable)

neoliberal reforms are observed simultaneously as the effects of the (X) on (Y) have

occurred before beginning the study. Therefore, the ‘before’ and ‘after’ observations of

neoliberal reforms in Egypt were carried out in a random yardstick to test the hypothesis.

In the course of this investigation, our first observation is on the inflow of external

aid to Egyptian State before 1981 under Nasser and Sadat. It was observed that even though

Egypt received external aid but it did not snowball into high level of inhibitive laws that

promoted dictatorship.

Our second observation is on U.S. aid and neoliberal reforms within the first ten years

of Mubarak (1981-1991) and observed that the incident of 1977 ‘Bread Riots’ made Mubarak

to opt for piecemeal implementation of the reform as it could engender domestic political

= Observation

= Random assignment of subjects to groups and random assignment of treatments to groups

= Before Observation

= Independent variable which is experimentally manipulated

= Dependent variable

= After Observation

Where

79

instability. To the chagrin of Bretton Woods institutions, Mubarak foot-dragged some reform

measures until such a time it became inevitable if Egyptian economy would escape grinding

to a halt. Our third observation is on the period (1991-2001) when Mubarak carried out

sweeping reforms. Hundreds of public sector companies were privatized, subsidies in key

areas of the economy were removed, Egyptian Pound devalued, exchange rate was lowered to

attract investors, trade was liberalized, etc. The hardship that ensued bred protests, strikes

and crack down of dissenting views. Cronies of the ruling elite and the members Mubarak’s

Party (NDP) became the overnight bourgeoisie. At this period, U.S. lavished Egypt with

military aid and economic assistance.

Our fourth observation deals with the period of (2002-2010) when Mubarak was ousted.

It was observed that the sweeping reforms led to upsurge of number of people leaving below

poverty line. Lots of workers were retrenched. Unemployment was on the high side.

Government became more desperate in crippling opposition in order to consolidate power.

Emergency laws were renewed to limit the political space. Egypt was steeped into economic

crisis yet Mubarak did not want to leave power and when he eventually planned to leave, it

was rumoured that he wanted to handover to his son, Gamal. The military that controls the

significant segment of the economy also supported Mubarak’s anti-democratic stance and

helped to consolidate his authoritarianism.

The indicators of the major variables are contained in the Logical Data Framework.

3.4. Methods of Data Collection

In this study, we adopted the qualitative method of data collection. McNabb (2005:341)

sees the qualitative research method as a “set of non-statistical inquiry techniques and

processes used to gather data about social phenomena”. It refers to gathering data in form of

words, pictures, symbols, oral account of events and on other materials of non-numerical

80

value by an investigator. The data helps the investigator to not only understand the nitty-

gritty of the area of study but also helps in interpretation and the systematic scrutiny.

According to Leege & Francis (1974:188), “the quality of data is inextricably tied to methods

and techniques used for generating data”.

As a model used in social sciences and other related disciplines, qualitative research

method is “very attractive in that it involves collecting information in depth but from a

relatively small number of cases” (Burnham et al (2004:31). He notes further that “analytic

induction is often used by qualitative researchers in their efforts to generalize about social

behavior. Concepts are developed intuitively from the data, and then defined, refined and

their implications deduced from the data” (Burnham et al (2004:41).

Thus, the data for this study were collected from documentary sources which include,

among others, institutional and official documents from international organizations such as

the Nigeria Institute of International Affairs, Lagos; Institute for Peace & Conflict

Resolution, Abuja: Center for Advanced Social Sciences, Port-Harcourt; and National

Defence College, Abuja. Also documents were also sourced from University of Nigeria

Library, University of Port-Harcourt Library while statistics were got from Egypt Center for

Economic and Social Rights, Egypt’s military website and US military website.

Apart from institutional and official documents, this study was based on secondary data

sources like textbooks, journal and magazines, articles and other written works on the internet

that deal with United States government’s aid and neoliberal reforms in Egypt under

Mubarak, among others. Besides the use of documents and other secondary data, the

researcher has been a keen observer of the trends in Egyptian political economy for a number

of years and had visited Egypt to grasp the socio-economic condition firsthand.

81

3.5. Methods of Data Analysis

This study adopted qualitative descriptive analysis. Qualitative descriptive analysis

“verbally summarizes the information generated in a research” (Asika, 1991:118). Thus, the

documents and information utilized in this study are systematically analyzed to avoid

distortion of facts and events as a result of wrong interpretation. Qualitative data are also

analyzed for empirically-correct inference and logical assertions. Certainly, Obasi (1999:178)

notes that “the need for clarity in the presentation of data can only be fully appreciated when

one recognizes that a properly generated data, which is free from the common problems of

unreliability and inaccuracy, can still not serve a useful purpose, if not properly analyzed and

presented”. Put differently, analysis “is the breaking down and ordering of the quantitative

information gathered through research” (Asika, 1991:11).

Therefore, the objective of the analysis is to ensure that constitutive elements that make

up the entire data are finely related for a better understanding of the variables that are being

examined. Consequently, the data utilized in our analysis were done systematically and

qualitatively to arrive at valuable arguments and deductions. Ultimately, it brought about the

conclusions that enabled us to make far-reaching recommendations that would expand the

frontiers of knowledge and possibly correct the adverse effects of United States aid and neo-

liberal reforms in Egypt. Besides, we shall use tables and figures appropriately for

presentations as the case may be.

82

LOGICAL DATA FRAMEWORK

RESEARCH

QUESTION

HYPOTHESES VARIABLES MAIN INDICATORS DATA SOURCES METHOD OF DATA

COLLECTION

METHOD OF

ANALYSIS

(1) Did United

States

Government

military aid

provide support

for authoritarian

rule in Egypt?

United States

Government

military aid

provided support

for authoritarian

rule in Egypt

(X)

United States

Government’s

military aid.

Before Mubarak

• Egypt rebuffed every aid with political strings attached under

President Nasser.

• Egyptian enjoyed Soviet assistance under President Nasser.

Under Mubarak

• US aid accounts for 80% of Egypt’s military procurement cost

• Grants for Egypt’s foreign military training kept in interest-accruing

account in Federal Reserve Bank of New York

• Co-operation-based training of Egypt’s military by US officers

• Egypt receives Excess Defense Articles from pentagon that worth

hundred of million of dollars.

• Egypt’s military benefits from co-production initiatives with a US

defense company-General Dynamics

• US trained 1,407 Egyptian agents in anti-terrorism courses between

1990 and 2004

• Textbooks and

journals

publications

• Official

documents

• Internet

sources

Qualitative method

and field research

Ex-post facto

design:

Marxist

structural

theory of the

state;

Qualitative

descriptive

analysis;

inductive and

logical

inference

(Y)

Constitutional

reform of

authoritarian

consolidation

Before Mubarak

• Article 77 of 1971 Constitution provided only two-terms for

presidency.

Under Mubarak:

• Renewal of emergency laws every 3 years

• Law 84 of Egyptian Association law 2002 was restrictive of political

parties registration and ensured limited NGO funding from abroad

• The 1981 amendment abrogated one single term for presidency

with unlimited terms

• Law 94 of 1985 was meant to clampdown on press freedom

• 1983 electoral law outlawed independent candidacy in Parliament

• Amendment to dissolve the Parliament by the President at anytime

without recourse to the people.

• Amendment of supreme constitutional court law in 1998 to

prevent the retroactive enforcement of its rulings.

• Text books and

journals

publications

• Official

documents

• Internet

sources

Qualitative method

and field research

Ex-post facto

design:

Marxist

structural

theory of the

state;

Qualitative

descriptive

analysis;

inductive and

logical

inference

83

RESEARCH

QUESTION

HYPOTHESES VARIABLES MAIN INDICATORS DATA SOURCES METHOD OF DATA

COLLECTION

METHOD OF

ANALYSIS

(2) Was United

States Government

role in external

debt management

in Egypt

conditionality for

drastic economic

reforms under

Mubarak?

United States

Government role in

external debt

management in

Egypt was a-

conditionality for

drastic economic

reforms

(X)

United States

Government role in

external debt

management in

Egypt

Before Mubarak

• Egypt carried out austerity measures to checkmate consumption and

sustained economic independence under President Nasser.

• Egypt’s economy was not distressed to the point of borrowing abroad to buoy

up the domestic economy

Under Mubarak

• Paris Club under US prompting forgave $10.1billion that is half of Egypt debt

and rescheduled the other half.

• Under U.S. influence, the Arab creditors-Saudi Arabia, Kuwait, Qatar, the UAE

and the Gulf Co-operation Council forgave $7billion in Egypt debt.

• Economic reform (ERSAP) that attracted loans from IMF and World Bank was

induced by the U.S. government.

• After Operation Desert Field, the Bush to administration wrote off Egypt’s

military aid of $6.7billion in 1991 that relieved Egypt of $1billion annual debt

servicing obligations.

• Textbooks and

journals

publications

• Official

documents

• Internet sources

Qualitative method

and field research

Ex-post facto

design: Marxist

structural theory of

the state;

Qualitative

descriptive analysis;

inductive and logical

inference

(Y)

Drastic economic

reforms under

Mubarak

Before Mubarak

• President Nasser pursued policy of nationalization

• President Sadat open door policy was not started as IMF conditionality.

Under Mubarak

• National budget for subsidies cut from 5.2% of total spending to 1.5% in the

1990s.

• Abolishment of tariff barriers for imported goods.

• Price deregulation shot up inflationary rates.

• Hike in energy prices (electricity and gasoline).

• Devaluation of Egyptian Pound with respect to US Dollar.

• Introduction of General Sales Tax.

• Egyptian State-run banks sold to international highest bidders in the mid

2000s.

• Between 1991 and 2003, 210 companies were sold off at $3. 1billion while

accelerated reforms led to sales of other 199 companies between 2004 and

2009 that netted $7billion to Government coffers.

• Textbooks and

journals

publications

• Official

documents

• Internet sources

Qualitative method

and field research

Ex-post facto

design: Marxist

structural theory of

the state;

Qualitative

descriptive analysis;

inductive and logical

inference

84

RESEARCH

QUESTION

HYPOTHESES VARIABLES MAIN INDICATORS DATA SOURCES METHOD OF DATA

COLLECTION

METHOD OF

ANALYSIS

(3) Was United

States economic

ties with Egypt

implicated in the

economic crisis

under Mubarak?

United States

economic ties

with Egypt was

implicated in the

economic crisis

under Mubarak

(X)

United States

economic ties

with Egypt.

Before Mubarak

� Egyptian State pursued socialist economy via Soviet influence under President Nasser. � Egyptian State dominant role in economy recoded low FDI from U S.

Under Mubarak � US sponsored Israeli –Egypt peace treaty in 1979 for US regional economic and

security interest. � U.S. stock of FDI in Egypt was $14.6bilion as of 2011. � About 733 Egyptian companies are qualified under Qualifying Industrial Zones (QIZs)

to export goods to the U.S. duty free � USAID funded electric power generation, telecommunications, and port facilities in

Egypt in the 1980s. � U.S. donated $100 million to Egypt to alleviate economic distress after 9/11 horror

attacks � Us gives economic aid to the tune of $200 million annually Egypt (Cook,2012:124). � The establishment of Qualified Industrial Zones in Egypt in 2004 gives Egypt-made

goods with 8% Israeli content preferential access to American market.

• Textbooks and journal publications.

• Official documents

• Internet sources.

• Qualitative method and field research

Ex-post facto

design: Marxist

structural

theory of the

state;

Qualitative

descriptive

analysis;

inductive and

logical

inference

(y).

Economic crisis

under Mubarak

Before Mubarak

• Subsidies were given on foods, gasoline and energy products. • Automatic employment for graduates in the State –owned enterprises.

Under Mubarak

• US-IMF demand for cut in public spending made unemployment to rise to between 16-20% in the 1990s.

• US insistence on removal of subsidies to qualify for continued economic aid snowballed to 40% of Egyptians living below $2 (Dollar) a day.

• In 2006 alone, workers in state-owned enterprises staged 222 strikes/demonstration against the dominance of U.S firms in the guise of privatization.

• US support to Mubarak’s privatization of public enterprises led to retrenchment of thousand of workers.

• Between 1998 and 2004, Egyptian workers staged about 1000 anti-U.S protests over its support for neo-liberal reforms.

• Trade liberalization championed by the US squeezed the middle class and many joined the ranks of the poor.

• The 1992 land reform law led to increase in landless peasants and handed large lands over to U.S investors.

• Sales of national assets to cronies and foreign conglomerates from U.S. without a corresponding growth to the economy led to the problem of youth bulge

• Textbook and journal publications.

• Official documents

• Internet sources

• Qualitative method and field research

Ex-post facto

design: Marxist

structural

theory of the

state;

Qualitative

descriptive

analysis;

inductive and

logical

inference

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CHAPTER FOUR

FOREIGN MILITARY ASSISTANCE AND AUTHORITARIAN RULE IN EGYPT

Hypothesis (1): United States Government military aid provided support for authoritarian rule in Egypt

4.1. History of Egyptian Military in Politics

The history of modern Egypt is related to Muhammad Ali’s enlistment of a large

group of military men, who sustained the warfare campaigns, and severed Egypt from the

iron-fisted rule of the Ottoman Empire. He opened the first military training school in 1820

at Aswan and trained the first crop of 500 officers selected from his personal slaves

(mamalik) (Vatikiotis, 1961:5). At independence in 1922, Egypt continued under the despotic

rule of strong men from Muhammad Ali dynasty until the Free Officers coup in 1952, which

ended the monarchical fiefdom and ushered in a republic under President Gamal Abdel

Nasser. The emergence of President Nasser was a culmination of the prevailing thinking in

the Arab world that the military had a key role to play in governance and social stability.

Hence:

The assumption of a political role for themselves was nevertheless encouraged by the fact that in neighbouring Arab states, army officers were replacing traditional civilian leadership on the grounds of treason, incompetence and ‘unrepresentativeness’ (Vatikiotis, 1961:61)

At the assumption of office, the Free Officers led by Gamal Nasser had no economic

blueprint to drive the economy except the “vague calls for independence, development and

social justice”(Farah,2009:31). The officers’ disposition to effect changes with nationalist

vigour brought about the enunciation of programmes to exterminate “feudalism and

imperialism build a strong military power and pursue economic development” (Farah,

2009:31). To achieve the three broad objectives already noted from the foregoing, Farah

(2009:32) notes that these measures were taken. One, to stamp out imperialism, the military

junta of Nasser negotiated the total withdrawal of British troops from the Suez Canal region.

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Two, to abolish feudalism nay large land ownership, the regime issued the first land reform

law in September 1952 that “put 200-feddan (approximately 200 acres) ceiling on land

ownership”. This helped to reduce unequal distribution of land to boost agricultural

development. Three, to fast-track economic development, the regime established the

Permanent Council for the Development of National Production in 1952.

However, these measures could not attract the private sector investment as expected

and it led to nationalization initiatives which snowballed into a large public sector. For

instance, the junta embarked on projects like the High Dam in Aswan that was set out to

irrigate arable lands and also provide hydroelectric power for industries, such as the Fertilizer

Plant at Aswan and the Iron & Steel Complex at Helwan, a suburb of Cairo (Farah, 2009:34).

Egypt had sought for a loan from the World Bank to finance the Aswan Dam Project and at

the same time wanted to purchase arms from the U.S. to strengthen the army. United States

declined from selling the arms to Egypt on the suspicion that Egypt’s army would be

empowered to the security discomfort of Israel. The resort of Egypt’s ruling junta to purchase

arms from Soviet Union angered the U.S. and Britain and the two countries dissuaded the

World Bank from funding the Dam project. (Farah, 2009:34). The diplomatic stand-off

emboldened Nasser to nationalize the Suez Canal and all the British and French assets in

Egypt. Though Nasser ruled as an autocrat, yet he embarked on a number of populist

measures to bridge the income inequalities and thus;

The free public education was expanded to include all stages of education, including higher education. Public health programmes were initiated and government took upon itself the provision of free healthcare for all those unable to afford private treatment. The regime also subsidized major food items, especially bread, and fixed low prices for most manufactured products. It committed itself to full employment by guaranteeing the employment of all graduates of high schools and universities. Minimum wages and generous labor laws ensured workers economic rights (Farah, 2009:36).

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Under Nasser, Egypt’s corporate ego was battered and its military might was

ridiculed as a result of her woeful defeat in the Six-Day avoidable war with Israel in 1967.

Brownlee (2011:18) notes that “in less than a week, Israel had trounced not only the Egyptian

military- including laying waste to much of Egyptian air force while it was still on the

ground- but also Jordan’s and Syria forces”. For the United States backing of Israel, Nasser

severed the Egyptian tie with her and faced Soviet Union to assist in rebuilding the decimated

army. Nasser’s war of attrition to restore some ground near the Suez Canal to deter air strikes

was his last military venture (Brownlee, 2011:18). At President Nasser’s death in 1970, he

was succeeded by his vice, Anwar Sadat through a national referendum. He introduced

(infitah) an economic opening to attract foreign investments. His decision to forge alliance

with the West especially, the United States, and the peace treaty with Israel led to the

stoppage of Arab aid to Egypt and ex-communication from the Arab community. Farah

(2009:39) notes that “to compensate Egypt for the loss of Arab aid, and as a reward for the

conclusion of a peace treaty with Israel, the U.S. granted Egypt aid estimated at US$2.1

billion per annum”. Through a ‘Corrective Revolution’ announced in 1971, Sadat set out to

consolidate power by purging Nasser’s loyalists from his governmental, political and security

establishments.

Just as Nasser committed the blunder of 1967 Six-Day War, Sadat also committed the

Egyptian army to war against Israel in 1973. Egyptian soldiers were already losing ground

until the U.S. negotiated a ceasefire - a direct consequence of oil embargo against the West

by Egypt’s Arab neighbours and the U.S. bid to buoy up her image as Israel’s arms supplier -

and also a confidence building measure with Egypt. The U.S-Egypt relationship was

revitalized after the war (Brownlee, 2011:22). To block off any further deal with the Soviet

Union, President Gerald Ford of U.S. “pledged $250 million in economic support to Egypt,

an unprecedented disbursement from the United States to Egypt but not a military package”

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(Brownlee,2011:24). By the end of 1976, the budget deficit of $2 billion made Sadat to slash

subsidies in foodstuff instead of the military spending (Brownlee, 2011:24). So, the military

spending was insulated from the reductions to maintain continued loyalty and allegiance to

Sadat’s high-handed regime. The slashing of subsidy on food products shot the prices to

astronomical levels and it sparked off the historic “1977 Bread Riots”. The crisis jolted Sadat

and brought out more dictatorial tendencies in him. Brownlee (2011:24) writes that “Sadat

rolled back his earlier reforms, criminalized strikes and demonstrations (on penalty of

imprisonment with hard labor), and confined electoral competition to government-sanctioned

parties”. The U.S. led by President Jimmy Carter decided to reinforce Sadat’s regime that

was battling with legitimacy crisis by providing arms to Egypt’s military. In a memo to

President Jimmy Carter by the U.S. Secretary of State, Cyrus Vance, he advocated the

strengthening of Egypt’s military thus;

The importance of American arms sales to Sadat is primarily political. He does not expect arms sales of an amount which would affect the arms balance in the area. He sees modest American arms sales as a means of strengthening support of the all-important Egyptian military establishment for him and the peace effort in which he is engaged. Sadat believes U.S-Egypt relationship has come a long way in the last three years but that principal missing ingredient is the lack of arms relationship… Sadat knows he must retain the loyalty of his military if he is to stay in power and thereby must continue his peace policy. He also knows Egypt must maintain some degree of military credibility if his diplomatic initiative must succeed. On the other hand, elements of the armed forces have expressed opposition to Sadat’s turning to the West precisely because it has resulted in curtailment of Soviet arms supply. Should there be no progress in negotiations within a reasonable time frame and, at the same time, there is further erosion of combat capabilities of the armed forces, the pressure for Sadat to change his policies or leave office will become inexorable. The ousting of power for Sadat in Egypt under these circumstances would start a destabilizing process in Egypt, the ramifications which are difficult to forecast but which could be extensive and very damaging to Unites States interests in Egypt and throughout the Middle East. For starters,

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it would probably begin the unraveling of all that has been accomplished since the end of October 1973 war (Heikal, 1983:25).

Notwithstanding Sadat’s regime human rights record, he received the U.S. backing to keep

her strategic interest in the Middle East unthreatened. Egypt bought light weapons from the

U.S. commercial suppliers between 1976 and 1979, which included 350 grenade gas

launchers, more than 150,000 gas grenades, and more than 2,400 hand guns with 328,000

rounds of ammo (Klare, 1984:74). His sit-tight tendency became very loud, when he through

a manipulated constitutional plebiscite, removed term limits in the constitution, which would

have ended his regime in 1982, before he was assassinated by Islamic militants in 1981.

The emergence of President Hosni Mubarak got the dominant role of the military in

Egypt more entrenched. As at 1985, expenditure on defense took more than a quarter of the

budget and placed Egypt eleventh in the world in that area (Quandt, 1990:36). To checkmate

the rising influence of religious extremists who allegedly assassinated his predecessor,

Mubarak committed an internal study to find the circumstances that led to the growth of

Islamic militancy, especially within the military. He made efforts to depoliticize the military

and the “curbing of military’s role in politics was sweetened by giving them economic perks”

(Hashim, 2011:3). The total allegiance of the military to Mubarak was bolstered by the

granting of autonomy to them to create and run “a lucrative military-industrial business

complex” (Demmelhuber, 2011:3). Military-Industrial-Business-Commercial-Complex

(MIBCC) is a “vast military-run commercial enterprise that seeps into every corner of

Egyptian society” that cut across the production of food (olive oil, milk, bread and bottled

water), cement and gasoline, vehicles (Cherokees and wranglers) and infrastructure (New

York Times, 2011:1). Moreover, military corporations were exempted from paying taxes or

the usual bureaucratic red-tape (Hashim, 2011:5). The military as a major player in Egypt

economy has been described as one of the major taboos in Egypt’s politics (Abdul-Magd,

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2011:1). It undermined Mubarak’s neoliberal policies just as the regime steered clear from

military-owned companies during the privatization of public enterprises. Abdul (2011:3)

observes that “the Egyptian military establishment does not behave in US-styled neo-

liberalism or free market policies, particularly those that would result in the army’s loss of its

valued companies and assets”. With the strong backing of the military, Mubarak remained in

power for close to 30 years. He muzzled the opposition, manipulated the electoral process

and used his cronies to control the key levers of the economy. At the twilight of his pervasive

tenure, a strong opponent Mohammed Nosseir from the Democratic Front Party notes thus;

Egypt is a proud nation with a long and proud history. It is currently failing. This decline has little to do with its people and everything to do with its government and leadership. Corruption, graft, lack of opportunity, political repression,are hallmarks of the Mubarak regime - a political system that stretches back to the Free Officers coup of July 1952. As a result, Egypt needs political, economic and social reforms. This will have the combine effects of rooting out corruption, opening up the political arena to voices other than NDP, and necessarily uplifting the Egyptian people who have been suffering at the hands of an unjust government. An Egypt that is stronger, more equitable and representative of the people’s views will also be equipped to resist the predatory policies of the United States and Israel in the region thereby restoring Egypt’s leading role in the Arab world (Cook, 2012:200).

4.2. U.S - Egypt Military Co-operation

Three critical circumstances in the Middle East necessitated the US-Egypt strategic

partnership. One is the withdrawal of Great Britain from the Persian Gulf in 1971. Two, the

oil embargo as an instrument of war by Arab nations during the Yom Kippur War that ended

in October 1973; and three, Iran, which had been the centerpiece of U.S. geo-strategy in the

region fell into a revolution that produced a leader with anti-west sentiment in 1979. After a

13-hour non-stop flight from the Moody Air Force Base, Georgia, to Cairo West Airfield, the

United States twelve F-4 fighter jets landed for a three-month sorties termed ‘Operation

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Proud Phantom’ in July 1980 and that signaled a joint military cooperation between the U.S.

and Egypt “designed to counter Soviet influence in the Persian Gulf and absorb the

aftershocks of Iran’s revolution” (Brownlee, 2012:1). The then President Anwar Sadat of

Egypt had expressed confidence that the military exercise would bring about a transfer of

Egyptian pilots from the aging Soviet jets that they used for over 25 years (Daytone Beach

Morning Journal, July 11, 1980:12). This event was a natural corollary of the Israeli-Egypt

Peace Treaty signed on March 26, 1979, which was followed with letters on the side-line;

that sealed the understanding between Egypt and United States on one hand; and Israel and

United States, on the other hand. The main elements of the Peace Treaty, otherwise known

as Camp David Accord were:

• Israel agreed to withdraw its troops from the Sinai Peninsula that was captured during the six-day war in 1967;

• Israel evacuated its 4,500 civilian inhabitants and restored the Peninsula to Egypt;

• Israel returned Egypt’s Abu-Rudeis Oil fields in Sinai;

• Israel guaranteed a free passage between Egypt and Jordan as well as agreeing to limit its security forces to a smaller distance of (3km) from the Egyptian borders;

• Egypt guaranteed freedom of passage of Israeli ships across the Suez canal;

• Egypt recognized the straits of Tiran and Gulf of Aqaba as international waterways;

• Egypt demilitarized the Sinai Peninsula, especially within 20-40 km from

Israel. (Wikipedia,2014:18) en.m.wikipedia.org/wiki/Camp_David_Accords, retrieved 26/06/14.

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The strategic alliance of U.S. and Egypt was not without some skirmishes. The Arab

League suspended Egypt from its fold till 1989. Egypt’s Arab creditors blacklisted her just

as the rapprochements with U.S. and Israel sparked off virulent opposition and agitations,

especially from the Muslim Brotherhood in Egypt. The attempt by President Sadat to

clampdown the dissenting voices from Islamic extremists led to chains of ugly events that

resulted in the assassination of President Sadat on September 1981, but the U.S-Egypt

alliance was not affected even when Mubarak succeeded the late President Sadat. On a

positive note, both President Anwar Sadat of Egypt and Prime Minister Menachem Begin of

Israel jointly received the 1978 Nobel Peace Prize on account of successful crafting of Camp

David Accords. From thence, Egypt and Israel had remained the highest recipients of United

States grants and aid in the Middle East. Specifically, the strategic pact had brought about

“an annual average of $2 billion in economic and military aid from America” (Sharp,

2011:5). But recently, Feinstein (2011:485) observes that “economic aid had taken backseat

to the aid directed towards the military”. In fact, under Mubarak, Brownlee (2011:11) insists

that the “$1.3 billion in annual military financing helped keep the army from seizing power”.

The U.S-Egypt cooperation is encapsulated in a number of under-listed programmes:

(A) Operation Bright Star

Operation Bright Star is US-Egypt military collaboration activities that started in

December 1980 as an offshoot of Camp David Accords. The exercise entailed coalition

training of the infantry, airborne, artillery and armoured forces of the United States and Egypt

every two years. It is intended to strengthen ties between Egypt and US Central Command to

“demonstrate and enhance the ability of Americans to reinforce their allies in the Middle East

in the event of war”(en.m.wikipedia/org/wiki/Opeartion_Bright_Star, retrieved 20/06/2014).

Although Operation Bright Star started with only the U.S. and Egypt with more than 78,000

troops participating, its success has attracted other countries like the UK, Greece, the

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Netherlands, France, Germany, Italy Jordan and Kuwait.(www.modernegypt.info/egypt-us-

relations/military-partnerships, accessed 20/06/14). Ultimately, the coalition interoperability

has over the years blended the soldiers of both the U.S. and Egypt. The synergy has rubbed

off in the fine operational capabilities displayed during peacekeeping operations, War on

Terror, solidarity to the US allies battling with some security threats and during outright

warfare. Brownlee (2011:45) notes that after the departure of United States two aerial radar

and command stations that was deployed to forestall any surprise attack from Libya at the

outset of Mubarak’s regime, “4,000 U.S. troops began arriving for Operation Bright Star”.

(B) Suez Canal Passage and Military Over-flight Permissions

The Suez Canal in Egypt is one of the most strategic and highly valued waterways in

the globe. And Egypt had flaunted it as a trump card to deal with her enemies or favour her

allies when it mattered most. Brownlee (2011:8) writes that during combat operations “the

Egyptian government shared intelligence and enabled the movement of U.S. forces from the

Mediterranean to the Persian Gulf”. He further notes that “when the U.S. military was

fighting in Afghanistan and Iraq in 2005, Egypt provided an average of twenty over-flight

permissions a day to U.S. aircraft crisscrossing its territory” (Brownlee, 2011:8). In 2003,

Egypt provided access via the Suez Canal to the 4th Infantry Division that was denied

passage to northern Iraq through Turkey; and later accessed the southern Iraq through

Kuwait.(www.modernegypt.info/egypt-us-relations/military-partnerships, accessed 20/06/14).

Despite Egypt’s disagreement with the operations in Iraq in 2003 and Afghanistan in 2005, it

still gave US the Suez Canal access, in the spirit of the military co-operation. Similarly, Cook

(2012:43) agrees that “Egypt remained critical to the defense of Western interests in the Gulf,

primarily because the Suez Canal provided the fastest and most reliable way for oil and gas to

reach Europe and the primary means to flow forces to the region in the event of a crisis

there”. Besides, scholars from Washington Institute recounted Egypt’s over-flights overtures

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and unfettered passage along Suez Canal granted to the U.S in the Middle East military

engagements. Thus, “during Operation Desert Shield and Desert Storm, U.S. aircrafts flew

200,000 sorties across Egypt to the Gulf and during October 1997 crisis in Iraq, Egypt

granted passage through the Canal for US George Washington in an unprecedented 12 hours”

(Satloff and Clawson,1998:1).

(C) Coalition Operations

Egypt has remained a rallying point for the US-Arab ally in all critical engagements of

U.S. in the region, especially in the war against terror and free flow of oil from the Gulf

Region. Besides the Suez Canal access and over-flight rights, Egypt had at the U.S. instance

contributed forces to the United Nations peacekeeping operations. Cook (2012:243) indicates

that in the late 2008, and early 2009 Israel’s ‘Operation Cast Lead’, targeted at Hamas in

Gaza, with the blessing of Washington leaders, “the Egyptian government remained steadfast

in keeping the border closed lest a flood of Palestinians, including militants, enter Sinai to

escape the Israelis”. Mubarak also offered the services of Egypt’s intelligence agencies to the

U.S. during the interrogation of al Qaeda suspects (Cook, 2012:244). Egypt had in liaison

with the U.S. provided security assistance in times of emergencies to her allies. Thus;

Cairo sent forces to prop up the Mobutu regime in Zaire in 1977, to Morocco in the war against radical Algeria in 1979, to oppose Libya operations in Sudan in 1983, to defend Saudi Arabia in 1990, to police Somalia in 1992 and to pacify Bosnia in 1994 (Satloff &Clawson,1998:1)

U.S- Egypt co-operation was also recorded by Khattab (2011:14), thus:

• During the period from 2001-2005, Egypt allowed time to cross the 36,553 military aircraft American Egyptian airspace;

• Egypt gave statements promptly to a number of U.S. warships to cross the Suez Canal during the same period and has provided security protection for those crossing battleships;

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• Egypt has deployed nearly 800 troops and military troops in the Darfur region of Western Sudan in 2004;

• Egypt has trained 250 elements in the Iraqi police and 25 Iraqi diplomats in 2004;

• Egypt has established a military hospital during the occupation of Afghanistan and sent doctors to the database Bagram military base in Afghanistan between 2003 and 2005, where he received about more than 100 thousand infected health-care.

In summarizing the United States continued strategic alliance with Egypt’s military, a de-

classified State Department Report asserted that;

The thrust of our security assistance is to build a modern force with interoperable equipment capable of maintaining Egypt’s defense and of working effectively with U.S. forces in coalition warfare. Egypt’s strong military is a stabilizing force in the region. Its strength is in apex when combined with U.S. forces in regional coalition operations, as was demonstrated during the Gulf War. We rely on Egyptian cooperation in providing quick transit of Egyptian airspace and through Suez Canal. The U.S. military routinely conducts 6-8 transits of the Suez Canal and some 500 over-flights of Egypt each month…At our request, Egypt contributed significantly to UN peace keeping operations in Somalia,. Egypt also participated in peace keeping operations in Bosnia, and provided troops or observers in Georgia, Liberia, Mozambique, Western Sahara and Namibia (quoted in Momani, 2003:89).

(D) M1A1 Co-production Program

Egypt entered into a joint venture agreement with a U.S. defense company - General

Dynamics in 1984 for a US$150 million contracts for construction of a factory in Egypt to

produce and assemble parts and tank kits for M1 Abrams main battle tank.

(en.m.wikipedia/M1A1_tank_coproduction_programme_in_egypt, accessed 21/06/14). But

the program started in 1988 with Egypt’s plan to acquire 1,200 tanks (Sharp, 2011: 29). An

American defense company - General Dynamics of Sterling Height, MI is the core contractor

handler. The program was financed through part of the U.S. annual aid of $1.3 billion to

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Egypt. Part of the terms of the program is to ensure that “a percentage of the tank’s

components are manufactured in Egypt at a facility outside the skirts of Cairo and the

remaining parts are produced in the United States and then shipped to Egypt for final

assembly” (Sharp,2011:29). The rationale was to develop Egypt’s industrial base and save

cost in production by using the Egyptian cheap labour. The factory serves the purposes of

production of construction vehicles and a repair plant for Egypt’s M60 Patton main battle

tank (GAO, 1993:4). To date, the co-production program yielded approximately 1,130

Abrams tanks (de Larrinaga &Wasserly, 2011:3). Though the co-production program is run

on inflated costs when compared with imported equipment from the U.S. and probably other

industrialized nations, but Marshall (2012:4) reasons that “ the increased cost that generally

accompanies co-production agreements (meant to compensate foreign firms for transferring

proprietary technologies) suggests that Egypt military rulers are seizing the opportunity to

expand their technological toolbox while they hold the formal reins of government-regardless

of additional cost”.

(E) Foreign Military Financing (FMF)

The United States military assistance program in Egypt accounts for 80% of the

country’s total annual procurement budget (Schenker, 2013:1). According to Sharp (2011:29)

the U.S. Foreign Military Financing is into three categories - acquisitions, upgrade of existing

equipment and follow-on support/maintenance contracts. The annual $1.3 billion aid to

Egypt’s military also carries a proviso that mandates Egypt to purchase U.S-produced

military hardware and technical assistance in coordination with the State and Defense

Departments (Schenker, 2013:1). These grants are kept in interest-accruing account in the

Federal Reserve Bank of New York (Sharp, 2013:16). The interest accrued in this account is

used as deposits for additional equipment from the U.S. and once, payments are made; the

funds are moved from the Federal Reserve Bank to a Trust Fund (Schenker, 2013:1). There is

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also a special provision called ‘cash-flow finance’ which underwrites purchases from

American defense contractors while payments are made from FMF grants. At any time,

Egypt has outstanding $2.5 billion for purchasing of weapons and other services from the US.

The major procurements include;

Purchase and local assembly of more than 1,100 M1A1 tanks, 224F-6s, 10 Apache Longbow helicopters, thousands of Humvees, various munitions (e.g. stinger MANPADS; Hellfire and Harpoon missiles), communications and radar systems, and naval vessels (Schenker,2013:2)

In furtherance of U.S. foreign military financing assistance, Egypt benefited from the

Excess Defense Articles (EDAs) from the Pentagon. In explaining the meaning of Excess

Defense Articles (EDAs), Kelly (1993:1) notes that “EDAs are those articles no longer

needed by the U.S. armed forces and not originally procured in anticipation of military

assistance or sales requirements. EDAS are either sold under foreign military sales program

or transferred as grants under the various provisions of the Foreign Assistance Act of 1961, as

amended”. EDAs are sold to recipient countries at 5 to 10 percent of the original cost. These

are intended to build the capacity of soldiers in U.S. allies or North Atlantic Treaty

Organization (NATO) member- countries. Cook (2012:223) notes that “the Egyptian military

receives Excess Defense Articles from the Pentagon that can be worth hundreds of millions

of dollars”. Usually the military services identify and make tentative allocation of EDAs

while the Defense Security Assistance Agency (DSAA) does the coordination of the

proposed transfers. The transfers are made as grants or through Foreign Military Sales while

the recipient countries “are responsible for transportation costs and other related costs such as

packing, crating and handling” (Kelly, 1993:1). It was further noted that;

Section 516 of that act, known as the Southern Region amendment, authorizes grant transfers of defense articles to countries in and around NATO’s Southern Flank for the purpose of modernizing their defense

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capabilities. These countries are Israel, Egypt, Greece, Turkey, Portugal, Morocco, Oman, Pakistan and Senegal (Kelly, 1993:1)

Aside the annual $1.3 billion FMF grant, Egypt also receives $1.9 million annually for

International Military Education and Training (IMET) (Deen, 2013:30). It was noted that in

1982, “343 Egyptian officers traveled to the United States to take advanced courses and

interact with the U.S. counterparts” (Brownlee, 2011:45).

(F) Monopoly of Egypt’s Defense Contracts by the U.S. Companies

United States has two standard practice of selling her military equipment – Foreign

Military Sales from U.S. Department of Defense stockpiles and Direct Commercial Sales

from the manufacturers (Manek, 2013:1). These approaches are taken to sustain the growth of

arms industry in the U.S., control its hegemony in global market sales and to raise

employment levels (Manek, 2013:1). As the U.S. annual military aid to Egypt gets directly to

Egypt’s coffers, the fund is rechanneled to the U.S. defense companies that in turn handled

the supply of military equipment to Egypt. An online article by Jacob Chamberlain reiterated

that the “money never gets to Egypt. It goes to the Federal Reserve Bank of New York, then

to a trust fund at the Treasury, and finally, out to U.S. military contractors that make the tanks

and fighter jets that ultimately get sent to Egypt” (quoted in Deen, 2013:1). This has made it

difficult for U.S.to stop giving aid to Egypt domestic outcry of domestic opposition and

international condemnations from the civil society. Besides, Egypt is the world’s fourth

largest operator of F-16 and hence, the U.S. does not want to lose her ties with Egypt

(Manek, 2013:2). Writing on the monopoly of U.S. defense companies in arms supply in

Egypt, Thompson (2012:5) notes that “the Pentagon contract database contains 13,500 entries

that include ‘Egypt’, which suggests how deeply Washington is involved in supplying the

Egyptian military with some of its weapons, including M-1 tanks and F-16 fighters”. For

instance, in 1991, a U.S-owned AA1/ACL Technologies was awarded $14,000,000 firm

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fixed-price contract – F42620-990C-0112 (Test & Support Equipment and Integration

Services) supports depot level maintenance facilities at Helwan Air Base, Egypt

(www.defense.gov/contract.aspx?contractid=1627, accessed 24/06/14); while General

Dynamics, another U.S-owned defense company is helping in the co-production of M1A1

Abrams battle tanks, which is described as one of the cornerstones of U.S. military assistance

to Egypt (Deen,2013:1). Notwithstanding the downturn of defense budget across the globe as

a result of economic turmoil, in 1991 fiscal year, another U.S. defense company, Lockheed

Martin’s F-16 obtained orders for 24 aircrafts at the cost of $1billion for Egypt (Briganti,

1999:1). A number of other U.S. defense companies that are beneficiaries of the aid money

from the U.S. are noted. They are; “McDonnell Douglas (now Boeing) for the Apache

helicopters, Beechcraft for the 1900c aircraft, General Dynamic Land Systems (for the M1A1

main battle tank components to be assembled in Egypt” (Manek, 2013:2).

The Institute of Southern Studies has noted the 10 biggest U.S. defense companies

profiting from the military aid to Egypt from 2009 to 2011. From the supply of military

helicopters; to the provision of vehicle surveillance hardware; to the maintenance of

equipment and supply of spare parts, as well technical training and capacity building of

officers, these companies have monopolized the businesses in Egypt’s security sector. It is

presented in a tabulated form thus:

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Table4.1. Top Ten U.S. Companies Profiting from Military Aid to Egypt via Defense Contracts

S/no Company Amount Details

1. Lockheed Martin $259 Million Provision of 20 F-16s and Night Vision Sensor Systems for Apache helicopters. Lockheed Martin is the biggest beneficiary of U.S. government defense contracts receiving a record $36 billion in 2008. 74% of its revenue come from military sales

2. DRS Technologies $65.7 Million The U.S. Army contracted this US-operated, Italian-owned military services company to provide vehicles surveillance hardware and other resources to Egypt in December 2010

3. L-3 Communication Ocean Systems

$31.3 Million The Company provided Egypt with a $24.7 sonar system and military imaging equipment

4. Deloitte Consulting $28.1 Million The second largest professional services firm won a $28.1 million Navy contract to provide planning and support for Egyptian aircraft programs

5. Boeing $22.8 Million While most people know Boeing for its commercial flights, it is also the second largest defense contractor in the world. It won a $22.5 million Army contract in 2010 to provide Egypt with 10 Apache helicopters. The Aerospace also received a contract to provide logistics support to Egypt

6. Raytheon $31.6 Million The world’s largest missile provider gave Egypt and Turkey 178 STRINGER missiles, missile launch systems and 264 months of technical support for the Hawk missile system

7. Agusta Westland $17.3 Million Jointly by the same Italian Company that operates DRS Technologies-secured a contract to provide helicopter maintenance for the Egyptian government

8. US Motor Works $14.5 Million It landed a $14.5 million contract in 2009 to provide engines and spare parts for the Egyptian Armament Authority

9. Goodrich Corp. $10.8 Million The US Air Force and Goodrich brokered a $10.8 Million contract to obtain and distribute reconnaissance systems for the F-16 jets the Egyptian Air Force uses

10. Columbia Group $10.6 Million It provides $10.6 Million worth of unmanned vehicle systems, along with technical training to the Egyptian Navy

Source: (PressTV,2013:4) www.pressTV.com/detail/2013/08/20/319685/10-us-companies-profiting-from-military-aid-to-Egypt, accessed 17/08/13

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Table 4.2. Excess Defense Articles (EDA) Notifications and Actual Deliveries to Egypt in Fiscal Years (FY) 1990-92. Fiscal Year 1992

Section 516 grants

Item Acquisition value notified

Quantity notified

Quantity delivered

Delivered Value

Status

F-4E flight trainers $123,600 3 1 $16,480 Shipped in fiscal year 1993

F-4E electrical system trainers

175,000 2 1 35,020 Shipped in fiscal year 1993

F-4 landing trainers 309,000 3 2 82,400 Shipped in fiscal year 1993

F-4E sea/ canopy trainers 200,850 3 3 80,340 Shipped in fiscal year 1993

F-4E attitude reference trainers

370,800 4 2 74,160 Shipped in fiscal year 1993

F-4E navigation system trainers

1,660,236 3 1 221,365 Shipped in fiscal year 1993

F-4E draft chute trainers 20,600 2 1 4,120 Shipped in fiscal year 1993

F-4E armament trainers 293,550 3 2 78,280 Shipped in fiscal year 1993

F-4E autopilot trainers 664,350 3 3 265,740 Shipped in fiscal year 1993

F-4E altimeter trainers 706,658 2 0 Canceled

F-4E Communication trainers 70,413 3 0 Canceled

F-4E navigation trainers 417,540 2 0 Canceled

F-4E engine trainer 36,050 1 1 14,420 Shipped in fiscal year 1993

F-4E weapons trainers

648,900 3 2 173,040 Shipped in fiscal year 1993

M15A2WR trucks 13,276,800 600 510 564,570 Delivery in fiscal year 1993

F-4E fire control trainers 51,500 2 0 Canceled F-4E gun system trainers 50,000 2 2 20,000 Shipped in fiscal

year 1993 F-4E air data computers 133,000 2 2 53,200 Shipped in fiscal

year 1993 F-4E ESTA AN/ARM-182

tester 112,291 1 1 44,196 Shipped in fiscal

year 1993 M1002 wreckers 9,906,500 50 0 Canceled M35A1 trucks 353,040 40 0 Canceled M151 A2WR trucks 13,276,800 600 510 564,570 Delivery in

fiscal year 1993 F-4E aircraft 1 0 Not delivered Sales Navy ship spares 334,960 Status unknown Navy aircraft spares 182,978 Status unknown Total $30,098,716 735 534 $1,727,331 Fiscal year 1991

No Notifications

Source: Kelley, J.E. (1993) “Security Assistance: Excess Defense Articles for Foreign Countries, Fact

Sheet for the Chairman, Sub Committee on Europe and the Middle East, Committee on Foreign Affairs, House of Representatives, United States General Accounting Office, March; www.gao.gov/assets/90/89508.pdf, accessed 24/07/14. p.9-10

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Table 4.2. continued Fiscal Year 1990

Section 516 grants

M60A1 tanks

$247,100,000 700 700 $148,400,000 Delivered under Conventional Forces in Europe Treaty

M151A2 trucks

3,437,368 212 212 103,000 Delivered

M85 machine guns

730 Delivered

M240 machine guns

730 Delivered

Wheeled vehicles

14,354,579 1,173 0 Canceled

Total $264,891,947 3,545 912 $148,503, 000 Fiscal years 1990-92

Total $294,990,663 4,280 1,446 $150,230,331

Source: Kelley, J.E. (1993) “Security Assistance: Excess Defense Articles for Foreign Countries, Fact Sheet

for the Chairman, Sub Committee on Europe and the Middle East, Committee on Foreign Affairs, House of Representatives, United States General Accounting Office, March; www.gao.gov/assets/90/89508.pdf, accessed 24/07/14. p.9-10

4.3. State of Emergency Law and Criminalization of Political Dissent

Reza (2008:535) traces the root of Emergency Law in Egypt to the British who

imposed Martial Law when it occupied Egypt’s territory from 1882 to 1922. By Law No.162

of 1958, the Emergency Law was first enacted in Egypt; and it was applied during the 1967

Arab-Israeli war and immediately after the gruesome murder of President Anwar Sadat in

1981(en.m.wikipedia.org/Emergency_Law_in_Egypt, retrieved 27/06/14). Except for its 18-

month break between 1980 and 1981, the law had remained effective since 1967 till its

expiration on May 31, 2012. The Emergency Law was adopted in the 1971 Constitution of

Republic of Egypt. It vested the power to declare a state of emergency on the President,

subject to the approval of the parliament - the Peoples’ Assembly. A section of the

Constitution is reproduced here-under;

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The President of the Republic shall proclaim a state of emergency in the manner prescribed by the law. Such proclamation must be submitted to the People’s Assembly within the following fifteen days so that the Assembly may take a decision thereon. In case of the dissolution of the People’s Assembly, the matter shall be submitted to the new Assembly at its first meeting. In all cases, the proclamation of the state of emergency shall be for a limited period, which may not be extended unless by the approval of the Assembly.

(en.m.wikipedia.org/wiki/Egyptian_Constitution_of_1971, accessed 08/04/13)

The Emergency Law granted Mubarak enormous powers to consolidate his dictatorial

rein in Egypt, and at the declaration of the emergency rule, the President was expected to

undertake the following actions;

(1) Restrict people’s freedom of assembly, movement, residence, or passage in specific time and places; arrest suspects or (persons who are) dangerous to public security and order (and) detain them; allow searches of persons and places without being restricted by the provisions of the Criminal Procedure Code; and assign anyone to perform any of these tasks.

(2) Order the surveillance of letters of any type; supervise censorship; seize journals, newsletters, publications, editorials, cartoons, and any form of expression and advertisement before they are published, and close their publishing places.

(3) Determine the times of opening and closing public shops, and order the closure of some or all of these shops.

(4) Confiscate any property or building, order the sequestration of companies and corporations, and postpone the due dates of loans for what has been confiscated or sequestrated.

(5) Withdraw licenses of arms, ammunitions, explosive devices, and explosives of all kinds, order their submission, and close arms stores.

(6) Evict some areas or isolate them; regulate means of transport; limit means of transport between different regions (Quoted in Reza, 2008:538).

The implication of convocation of emergency powers as stated in the foregoing entails:

• Extension of police powers;

• Suspension of constitutional rights;

• Prohibition of all non-governmental political activity;

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• Suppression of right of free speech and media censorship;

• Ban on street demonstration and non-approved political organizations;

• Ban on receiving financial donations from abroad or organizations not registered with government. (en.m.wikipedia.org/Emergency_Law_in_Egypt, retrieved 27/06/14) ;

• Accused persons are tried in military courts without a right of appeal (EL Deeb, 2012:1).

As stated, the law gave the government the power to detain individuals without trial for a

long period of time. On its part, government justified this stance on the need to gag the

extremists from acquiring political positions. Under the law, the assets of the financiers of

opposition groups, like the Muslim Brotherhood were seized without recourse to the rule of

law. Also, the Emergency Law’s major target was to interfere with the statutory rights of the

judiciary and the inalienable rights of individuals to resort to the law courts for redress.

Ultimately, the democratic rights of franchise and fair hearing were stifled by the application

of the Emergency Law.

The 1971 Constitution of Egypt which had continued till date, with minor

amendments in 1980, 2005 and 2007 provided the impetus for the Emergency Law and firm-

grip political power. The Constitution excessively empowered the President, to the detriment

of the legislative and the judicial functions. As noted in Kassem (2004:23), out of the

constitution’s fifty articles, the President is recognized in thirty five articles about (63

percent) while the ministers have four articles (7 percent), the judiciary has four articles (7

percent) and the two arms of the legislature have fourteen articles (25 percent). The

implication is that from the beginning, the Constitution is structured to overlord the

presidency above other organs of government that are supposed to complement its activities

through checks and balances. “The President under the 1971 Constitution retains authority to

promulgate as well as object to laws (article 112); the president’s power to rule by decree

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(article147), declare a state of emergency (Article 148) and appoint or dismiss the entire

cabinet (Article 141) are also preserved (Kassem,2004:24).

The domination of Egypt’s political landscape by the executive was noted as the cause

of her stunted growth in politics and economy and thus;

A country possessing enormous human capital, Egypt has yet to realize its vast potential as a political and economic actor in the region and further afield. Its progress on this path is severely hampered by political lethargy and economic stagnation, largely the result of almost absolute executive domination of the political arena. Egypt continues to be a state dominated by an extremely powerful executive who enjoys expansive constitutional(and extra-constitutional) grants of authority, thereby exerting significant control over all facets of government from the nominally autonomous legislature to the judicial branch, though almost all observers agree that executive control of the latter is far more attenuated. Despite promises of political and economic liberalization, the Mubarak regime can now be easily situated in the deeply rooted Egyptian political tradition characterized by a paternalistic “pyramidal” hierarchical structure, which harkens back to previous regimes, if not far more ancient antecedents (Davidson, 2000:81).

A number of key undemocratic measures encapsulated in the subsequent sub-themes have

been identified as the predominant style of stifling dissent and muzzling opposition to

Mubarak’s autocracy and sit-tight syndrome. They are;

(A) Security Forces’ Brutality and Clampdown on Civil Rights

Mubarak requested and was granted an extension of Emergency Laws every three

years to tackle threats of violence and terrorism (Kassem, 2004:38). Holder (1994:60) reports

that under the Emergency Law “Egypt has arrested 20,000 to 30,000 political prisoners and,

after trials in military courts, executed more than 35 convicted extremists since 1992”.

Mubarak’s desperation to hang-on to power ensured that “mass Brotherhood trials have

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become an election-year tradition in Egypt” (Quoted in Kassem, 2004:38). Besides, “the

amendments of laws 109 (of 1971) to 116 (of 1981) expanded police responsibility from

‘safeguarding public security’ to a vaguely term ‘public order’…resulted in the estimated

12,000-15,000 political prisoners in Egypt” (quoted in Kassem, 2004:40). Commenting on

the hangover of Emergency Law in Egypt since Mubarak’s ouster, it was reported that;

It instituted a culture of abuse of police force, giving it widespread powers to arrest criminals and political opponents. It was basically main tool for successive Egyptian regimes to perpetrate a police state, spreading a culture of fear of authorities and rendering any political opposition almost immediately a threat to national security… Mubarak’s regime justified the continued use of the law to crackdown on terrorism, drug trafficking and to impose speedy justice on activities deemed threats to national security (EL Deeb, 2012:1).

Major crackdown of the opposition and workers under the Emergency Law by the

security forces are listed below;

• In 1985, security forces denied a March permit, sealed off a mosque and detained more than 500 demonstrators (Reza, 2008:545).

• In December 2008, 22 people were convicted in security court on charges of assaulting police officers, robbery and possession of unlicensed weapons while in 2004, 26 men linked to the banned Islamic Liberation Party were convicted (www.globalsecurity.org/intell/world/emergency.html, accessed 26/06/14).

• During the labour strike of April 2008 in Delta town of Mahalla, 49 individuals were arrested and prosecuted in connection to clashes that broke out between the workers and the police (www.globalsecurity.org/intell/world/emergency.html, accessed 26/06/14).

• 54 prominent leaders of Muslim Brotherhood were arrested and convicted in military courts trials before the 1995 parliamentary to stop them from joining the People’s Assembly (Reza, 2008:545).

• In summer of 1989 when the steel workers went on strike, the Ministry of Interior detained more than one thousand of them and their supporters (Seddon,1990:98)

• 20 Islamist activists arrested and charged for trying to revive the outlawed Muslim brotherhood before the 2000 elections (Reza, 2008:545).

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• The number of Islamists arrested rose from 3,600 in 1992 to 17,000 in 1993 (Cassandra, 1995:12).

• The emergency trial of Professor Saad Eddin Ibrahim, the founder of Ibn Khaldun Centre for Development Studies and 4 other for receiving foreign NGO funding attracted international condemnations. Their 7 years imprisonment with hard labour from the state security court was overturned by Egypt Court of Cassation on March 2003 (Reza, 2008:546).

• Saad Eddin Ibrahim was also sentenced to two years imprisonment by Egyptian court on August 2, 2008 for harming Egypt’s reputation through his public writings. The court gave order that he would deposit o bond of $1,900 to remain free while his appeal lasted and the U.S. instantly expressed her disappointment with using lawsuits to sabotage freedom of expression (Sharp, 2009:10).

• Between 1992 and 2000, 1,033 civilians were tried in military courts; 92 received death sentences and 644 were sentenced to prison (quoted in Kassem, 2004:40). “

• By the end of 1993, Mubarak had exceeded Sadat in numbers of arrests and detentions (25,000 to 19,000 and of casualties from political violence (2,386 to 250 that has taken place on his watch. His war on Islamic Group brought 1,106 casualties that year alone (including more than one hundred civilian deaths), accounting for 41 percent of Egyptians all Egyptians killed and wounded in internal political violence since 1952” (quoted in Brownlee, 2012:61).

• The amendments of 34 articles in the Egyptian constitution on March 26, 2007 in a popular referendum widely viewed as managed by pro-government forces attracted the criticisms of the U.S. officials and Amnesty International. While the U.S. carpeted both the content and expediency of the amendments, the Amnesty International described it as a “great erosion of human rights in 26 years” in Egypt. For instance, the “amended Article 179 allows the president to have civilians tied in military courts and eliminates protections against arbitrary search and arrest in offenses related to terrorism. Revised Article 88 curtails judicial supervision of general elections and transfers oversight responsibility to electoral commission”. This subverted the ruling of Egypt’s Supreme Constitutional Court in 2000 which ordered that elections should have direct judicial oversight. “Revised Article 62 changes the electoral system from a candidate-centered system to a mixed system of party lists and individual districts”. This was targeted at restricting the members of the Muslim Brotherhood from running as party candidates. (Sharp, 2009:11).

(2) Militarization of Civil Life and Gagging of Opp osition

The militarization of civil life had continued under Mubarak. Brownlee (2007:4) notes

that thirty-three percent of cabinet members came from the military backgrounds, with a

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small circle officers and apparatchiks running most state institutions. Even the recruits into

the central security forces were given the primary assignment of quelling protests and

demonstrations with approximately 450,000 serving as conscripts in the obligatory military

service that can last up to three years (Soliman, 2011:63). Elshahed (2010:4) laments that;

“The police, secret police, detention centers in the desert, riot police, secret service and many

other branches of this security apparatus are what Egyptians deal with on a daily basis. These

forces are so notorious for their abuses that the mere presence of a large police truck sends

fear into the heart of a passer-by”. In June 2010, the 28-year old businessman, Khaled Saeed

who was beaten to death by police detectives, who caught him in internet café; resulted to the

arrest of thirty protesters that were taken to secret location, for thorough beating, is

illustrative here (Elshahed, 2010:4). This had considerably snowballed into multiplicity of

political violence in Egypt by the Islamists. A report indicates that;

During the first four years (1982-1985) of Mubarak’s term, there was hardly any violence- a total of thirty-three casualties, averaging eight casualties annually. The third four years (1990-1993) were by far the bloodiest, not only of the Mubarak presidency but also of this century. There were 1,164 casualties-averaging 291 casualties annually. To put it differently, of the first twelve years of Mubarak presidency, the last four appropriated nearly 92 percent of all casualties due to politically-motivated violence involving Islamic activists (Ibrahim, 1996:72).

The opposition parties were emasculated through Mubarak’s arm-twisting, manipulation of self-

perpetuation laws and outright reckless abandon of the Egyptian Constitution. In fact, Hassan

(2010:325) notes that most of the political parties got their licenses through lawsuits after their

applications were turned down by the Political Party Committee instituted by Mubarak to

inhibit the activities and growth of opposition parties. As noted by Elassar (2009:72) the

International Crisis Group (ICG) called the 2005 elections “a false start for reform” and that

also “presidential elections are merely symbolic so long as the opposition is too weak to

produce plausible candidates”. It was observed that;

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Although Egypt tolerates a number of political parties – the Arab Socialist Party (Hizb Misr al-Arabi al-Ishtiraki), the Liberal Party (Hizb al-Ahrar), the Progressive National Unionist Party (Hizb at-Tajammu’ al-Watani at-Taqadummi al-Wahdawi, the New Wafd Party (Hizb al-Wafd-al-Jadid, Tomorrow Party (Hizb al-Ghad, Kafaya, and the Democratic Front Party (Hizb al-Jabha al-Democrati) – Mubarak hand-picks high-level officials from within his National Democratic Party to serve in all high-level and most mid-level posts. After decades of democratic drought, opposition parties are in effective and have little organization capacity. When they organize, they face a lack of resources and oppressive government receives little public exposure (Elassar, 2009:71).

Mubarak also stifled the opposition by meddling with judicial organ of government.

When the 2008 municipal elections were eventually held after a long delay, the independent

candidates that were close to the outlawed Muslim Brotherhood and the registered opposition

parties had difficulties registering for the election. In fact, more than 3000 candidates were

prevented from participating in the election and when they sued and got 2,664 judgments in

their favour, Mubarak refused to implement the rulings (Elassar, 2009:72). There were

reported cases of pressures mounted on the judges from the Mubarak’s government to

legitimize the fraud committed by the ruling NDP during the elections, since the law

empowered the judges with the oversight of elections. Elassar (2009:71) observes that in an

apparent move to demand for an end to the intimidation of judges, judges led the protests and

sit-ins after the 2005 presidential election against the prosecution of their senior colleagues -

Hisham Bastawisi and Mahmud Mekki, members of Egypt’s highest appellate court, the

Court of Cassation; who insisted on investigating the fraud in the presidential election and

advocated for electoral and political reforms in Egypt.

The Muslim Brotherhood (M.B.) which is the most formidable opposition is Egypt had

been at the receiving end of virulent attacks of Mubarak’s regime. Though it started in 1928

as a religious and socio-political movement with Islamic bent, yet it had continued to exploit

its mass appeal, organizational prowess and anti-West stance to galvanize domestic support

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against Mubarak’s autocratic regime. Carpeting the conviction of opposition leaders like the

deputy guide of Muslim Brotherhood - Khairat al-Shatir and four others in 2008, by the

military courts under the Emergency Law, Human Rights Watch notes that;

The Military Tribunal raised a number of important due-process concerns. Article 14 of the International Covenant on Civil and Political rights, which Egypt ratified in 1982, affirms that everyone has the right to be tried by a competent, independent and impartial tribunal established by law. The Human Rights Committee - the body authorized to monitor compliance with the Covenant - has stated that the trials of civilians by military courts should be very exceptional and occur only under conditions that genuinely afford full due process. No one should be tried for an offense for which they have already been acquitted. And trials conducted in absentia deny defendants an adequate opportunity to present a defense (Human Rights Watch, 2008:1).

(3) Muzzling of Press Freedom

One of the strategies employed by Mubarak to stifle the political space and

advancement of alternative political views was through press censorship. The Emergency

Law No. 162 of 1958 had as one of its cardinal provisions, the right to censor or close down

newspapers houses in the name of national security (Human Rights Watch, 2003:2). And

Mubarak exploited fully to perpetuate himself in the office. The Government of Egypt

owned the controlling shares in the three major daily newspapers in the country – Al Ahram,

Alkhbar and Al Gomhuriya. It noted that the editors of these papers were chosen by the

President Mubarak through the Higher Press Council, headed by the Shura Council Speaker

while the staff were chosen from the members of the ruling National Democratic Party

(NDP) (Amin,2006:6). Besides, two of these newspapers monopolized the industry in the

Arab world and made up the 80% of daily circulation in Egypt with Al Alhram circulating

about 750,000 daily while Al Akhbar circulated 750,000 daily (Amin,2006:6). The

opposition newspapers that operated still had impeded access to information from

government sources and logistic challenge. Also, Egyptian government’s monopoly of

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broadcast media ensured that government in power and the ruling NDP controlled the

instruments of opinion molding to the detriment of the opposition. The Egyptian Radio and

Television Union (ERTU) was the governing authority established by government to

regulate the activities of broadcast media.

From the repealing of the 1995 repressive media law to a more flexible law in 1996,

which gave greater impetus for press freedom, to the relaxation of stringent conditions for

registering a newspaper company (clearance by all security and intelligence agencies),

Mubarak tried to project his regime as press friendly, but underlying these smokescreen

measures were difficulty in obtaining licenses. That made some independent and prospective

newspapers publishing houses to print abroad and distributed in Egypt or had some copies

printed inside Media Free Zone in Nasr City (Amin, 2006:16). Many laws that were

inimical to the growth of democracy were made and amended, to protect the ruling elite and

their political interests; and most of these laws were targeted against the robust operations of

the journalists that act as the watchdog of the society anywhere. Amin (2006:24) notes that

“penalties for press crimes range from the extreme execution to permanent or temporary

hard labour to imprisonment, confinement, fine, removal, and dismissal”. Thus:

The majority of journalists considered the law 93/95 a drawback to the freedom of the press, and following several discussions in the People’s Assembly, a new press law was passed on June 18, 1996. The law 96/96 is a modified version of the law 148/80. The law prohibited the preventive detention of journalists for press offenses except for those accused of breaking the penal code on insulting or libeling the President. Former laws were reaffirmed prohibiting criticism of public officers, especially the Head of State. The new law outlawed news stories that abuse public officials, insult the Peoples’ Assembly, military courts, authorities, or public agencies, vilify foreign Heads of States, damage the nation’s reputation or insult the President. The law also allowed for journalists to be tried in military courts and for newspapers and magazines to be banned without any form of due process. After protests from the Press syndicate, President Mubarak rescinded some onerous provisions, but left many others in place, including criminal penalties for insulting the president, his family and foreign Heads of State (Amin, 2006:24).

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Few months before the Egyptian parliamentary election in 2010, the National

Telecommunications Regulatory Authority issued a directive to all private media that they

had to obtain licenses from the Ministry of Information and the Supreme Press Council to

send out short messaging services (SMS) but the opposition criticized it as inhibitive

measure to scuttle the mobilization of their supporters; and in October 19, GOE suspended

the licenses of 12 channels and banned 5 stations. The arm-twisting was a ploy to crackdown

the media and gave the Mubarak’s ruling party an advantage in the elections.

4.4. Manipulation of Elections and Parliamentary Control

Shortly after the death of President Answar Sadat in 1981, Hosni Mubarak, the then

Vice President and the Secretary General of the ruling National Democratic Party (NDP) was

nominated by the Party and 98.4 percent of the Egyptians voted ‘yes’ to his emergence in

October 14, 1981 (Cook, 2012:157). The ratification of Mubarak for the presidency was

massively supported for three reasons, according to Cook (2012:158). One, he built an

immense goodwill over the years in the Air Force. Two, Egyptians were intent on pulling

back from the brink, as a result of Sadat’s assassination and three, Mubarak reached out to the

opposition and promised to relax the Emergency Law, which was reinstated at the death of

President Sadat.

But things turned out worse under Mubarak. As noted by Hassan (2010: 324) “one of

the major challenges facing the democratization efforts in Egypt presently and in the future is

the critical development of the relationship between the civilian sector and the army, as well

as the role each of them plays in reinforcing the legitimacy of the regime and in preserving

social and political stability”. The 1984 parliamentary election was the first election

conducted by Mubarak in a proportional representation electoral system, and five political

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parties - NDP, Liberty Party, NWP, SLP and the Nationalist Progressive Unionist Party

(NPUP) participated (Hassan, 2010:322). The ruling NDP won 87% of the votes and clinched

all but 58 of the 448 elected seats, through the ruling NDP’s tactics of mobilizing the huge

bureaucracy and the electoral law that restricted certain political parties from participating in

the election (Hassan, 2010:322-3). Following the Constitutional Court’s annulment of the

previous parliamentary polls, the second parliamentary elections were held on April 1 1987,

“the opposition share of the elected seats in the parliament rose from 13% in the 1984

elections, to 22.32%, while the number of seats held by the ruling party decreased from 87 to

77.78%” (Hassan, 2010:323). Though the election marked a formal recognition of the

opposition like the Muslim Brothers and Egyptian Marxists, which had been shut out from

the previous elective positions, but the opposition forces complaints of the electoral laws,

rigging and the governmental pressures on the legislative polls that made President Mubarak

to dissolve the People’s Assembly; and ordered for fresh elections in November 1990 that

was boycotted by the opposition (Hassan, 2010:323).

In October 1987, Mubarak was returned for a second term of six years through a

national referendum that recorded 97.1% votes cast from the 88.5% turn out of registered

voters (Nohlen e tal, 1999:345). This was after his mandatory nomination by the two-third

majority in the People’s Assembly. Mubarak was also returned for another six-year third term

in October 14, 1993 through a referendum of 96.3% votes cast from a turnout of 84.2%

registered voters ((Nohlen e tal, 1999:345). But opposition against Mubarak’s manipulation

of the People’s Assembly and the electorates, all in a bid to further perpetuate himself in

power started brewing during the election for the fourth term. As usual, he was returned in a

referendum after his re-nomination by the People’s Assembly with the support of the four

main opposition parties except the Nasserist Party. Justifying the position of the Nasserists,

Diaeddin Dawoud - the leader emphasized that “the conclusion was that we had to say ‘no’,

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because the salient policies which we have opposed for the past 18 years remain unchanged,

and there is no hope that they will be changed in the near future; voting ‘yes’ would have

meant that we approve of these policies” (quoted in EL-Din, 1999:7). The Nasserist leader

described the change of position of the leading opposition parties - Wafd and Tagammu as

“tactical moves in the hope that they would gain a larger number of parliamentary seats in the

next general elections” (quoted in El-Din, 1995:7). A report of the 1995 parliamentary

elections by Independent Commission for Election Review (ICER) and other monitors noted

the improprieties in the elections thus:

Representatives of… opposition candidates were also expelled or turned away from polling stations, where ballot boxes arrived stuffed with voting papers or else disappeared prior to the count. Numerous polling stations were ransacked by paid thugs, and several opposition candidates were prevented from voting while the police stood by. Finally candidates elected by the minister of interior without any indication of the number of votes or percentage they had received (Kienle, 1998:226).

To douse tensions generated by Mubarak’s sit-tight leadership and to cave in to the U.S.

pressure for electoral reforms, Mubarak promised to embark on reforms that would usher in

multi-party elections. The 2005 multi-party presidential election ended with 88.6% victory

for Mubarak. That brought about his fifth term in office, and the election was characterized

by low voter turn-out, with only 23% (official figures) of Egyptian voters participating

(Kelly, 2005:1). Noting the circumstances that led to the first multi-party election in Egypt, it

was reported that;

In early 2005, the President sought to make good on the ruling party’s commitment to reform. In a home town speech at Menoufiyah University, Mubarak directed the NDP’s law makers to amend Article 76 of the constitution in a way that would allow for multiparty presidential elections. This was unprecedented in Egyptian history. No Egyptian leader dating back to the Pharaoh Menes -who ruled around2900 BC - had never permitted a challenge to his rule. After the amendment passed with 83 percent of the vote the following May,

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President Mubarak embarked on his first competitive presidential campaign (Cook, 2012:173).

In amending the law that brought about multi-party elections, the lower house of the Egyptian

parliament - the People’s Assembly also amended the law that stipulated the conditions for

establishment of political parties. Independent candidates could also contest provided they

meet the stringent requirement which the opposition criticized for being skewed in favour of

the incumbent and the ruling National Democratic Party (NDP). Cook (2012:185) writes that

“independent candidates were required to gather support from 250 elected politicians from

the People’s Assembly; the Shura Council; and Provincial Councils, all of which the ruling

National Democratic Party controlled”. A clause in the amended Article equally gave a ratio

of support and geographical distribution from the legislative bodies to qualify for independent

candidacy. Thus, to qualify for independent candidacy, the person must have sixty-five

signatures of support from the People’s Assembly, twenty-five from Shura Council and ten

from members of Municipal Councils in at least 14 of Egypt’s 27 governorates (Quoted in

Cook, 2002:185). The obnoxious clause elicited attacks from the opposition as Mubarak took,

through the back door, the promised electoral reform that would engender robust competitive

elections. Macfarquhar (2005:13) writes that “the country’s tiny opposition groups lambasted

the measure, saying it fell far short of the public expectations for real democracy in Egypt,

making it impossible for independent candidates to run and eventually for approved parties as

well”. The opposition criticized the rules and called for a boycott of the election planned for

one day, as the country did not have enough judges to supervise the elections, but the

government insisted on continuing as it claimed to have invited outside election observers

(Macfarquhar, 2005:13).

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Kelly (2005:2) reported that large scale of fraud and intimidation characterized the

election that recorded the abstention of about 37 million Egyptians, out of about 45 million

registered voters. While the Tagammu Party and the Nasserists boycotted the election based

on amendments, which prohibited the opposition from fielding presidential candidates, lack

of full judicial supervision of the elections, and the continuing state of emergency in the

country (Cook,2012:185-6); the nine contenders had Ayman Nour of Ghad Party clinching

second with 7.6 % votes, Numan Gomaa of Wafd Party came a distant third with 2.9%, the

remaining contenders could not register up to 1% votes (Kelly,2005:1).

Table 4.3: Summary of 7 September 2005 Egyptian presidential election results

Candidates, Nominating Parties Votes %

Hosni Mubarak, National Democratic Party (Al-Hizb Al-Watani Al-Dimuqrati)

6,316,714 88.6

Ayman Nour, Tomorrow Party (Hizb al-Ghad) 540,405 7.3 Numan Gomaa, New Wafd Party (Hizb al-Wafd al-Jadid)

201,891 2.8

Total (Turnout 22.9%) 7,059,010 Source: (en.m.wikipedia.org/wiki/Elections_in_Egypt#Past_elections, retrieved 07/06/14)

According to the report of Egyptian Organization for Human Rights (EOHR), the 2005

presidential election was trailed by corruption and irregularities outlined here-under;

• The factory workers and public servants – President Mubarak’s supporters were driven to the polling stations with vehicles hired by government.

• Business owners were threatened to delist their companies by regulatory agencies if they did not vote.

• Members of the ruling NDP wore campaign buttons and party paraphernalia to the polling booths in a clear breach of electoral law.

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• Names of opposition candidates were not on the ballot papers in a number of districts.

• Poor voters were induced with cash, food and fuel to vote for Mubarak.

• Wafd and Ghad Party members were beaten by pro-government goons.

• Monitors from opposition end were denied supervisory access

• Government-appointed religious officials issued fatwas to persuade members to vote (Kelly,2005:4)

Table 4.4: Summary of the 7 November to 9 December 2005 People’s Assembly of Egypt Election Result

Parties Votes % Seats Gains Losses Net

Gain/Loss

Seats

%

National Democratic Party(Al’Hizb Al Watani AlDemocrati)

311 ? -42 ? 68.5

New Wafd Party(Hizb al-Wafd-al-

Jadid)

6 ? -1 ? 1.3

Progressive National Unionist Party (Hizb al Tagamma’ al Watani al Taqadommi al Wahdwawi)

2 ? -4 -? 0.22

Tomorrow Party (Hizb al-Ghad) 1 0 -1 -1 0.2

Independents (Muslim Brotherhood- al-ikhnwan al-muslimun)

88 71 ? ? 19.4

Independents (other) 24 ? ? ? 5.3

Still in contest 0

Unelected members 10 0 -1 0 2.2

Arab Democratic Nasserist Party or Nasserist Party

0 0 -1 0

Liberal Party (Hizb al-Ahrar) 0 0 -1 -1 0

Total (turnout %) 454

Source: (en.n.wikipedia.org/wiki/Egyptian_parliamentary_election, 2005, retrieved 17/06/14

Whitaker (2005:4) observes that from the beginning of the election, the dice was loaded in

favour of Mubarak whose political party, NDP monopolized the political life in Egypt. Even

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the largest opposition group, the Muslim Brotherhood was banned from fielding a candidate

in 2000 parliamentary polls. He summarized the lopsided play ground thus;

In Egyptian Parliament, the NDP has 404 seats, while the four parliamentary opposition have a combined total of 18.(There are also 32 independent MPs, of whom 10 are appointed by the President). To describe these smaller parties as “opposition” is a bit misleading… the NDP owns substantial assets, presently worth as much as 100 Million Egyptian Pounds while other parties struggle to make ends meet (Whitaker, 2005:5).

The immediate validation of the election marred by irregularities by the U.S. drew the

ire of the civil society groups and strongly underscored the U.S. double-standard promotion

of democracy at the global stage. As noted by Kelly (2005:4) the United States Secretary of

State, Condoleezza Rice, declared in a statement that “the process that culminated in the

September 7 vote was characterized by freer debate, increased transparency and improved

access to the media, in contrast with the previous polls. The practice of universal suffrage in

Egypt, without limitations on gender and ethnicity, is a hopeful sign for the region”.

Depicting the U.S. bias and selective morality in justifying or condemning elections in the

Middle East, Kelly (2005:4) posited that the U.S. act of denouncing the equivalent elections

in Iran and Lebanon earlier in the year but extolling Egypt’s own has “everything to do with

furthering U.S. imperialism in the region”.

Beyond the irregularities that characterized the elections and the emasculation of the

legislature to consolidate Mubarak’s rein, a number of legal and bureaucratic booby traps

were set and skewed in favour of the ruling NDP. The Political Parties Committee (PPC)

established by law to register and regulate the activities of political parties was completely

controlled by the ruling NDP and used to checkmate the political activists actions (Stacher,

2004:419). Besides, the clauses in the amendment that required would-be parties to obtain

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one thousand signatures of Egyptian citizens from any part of the country; and disclose of

sources of funding - that must not be from foreign donors, were all geared towards

consolidation of autocratic rule of Mubarak of NDP (Cook, 2012:186). There were 34

amendments in the constitution passed by the People’s Assembly on March 7, 2007 (Cook,

2012:187), and some of these amendments could not relax the restricted rights and political

freedom to the opposition. In fact, the clause that “allowed the President to dissolve the

Parliament at any time without having to answer the public through a referendum”, gave

President Mubarak enormous powers to disband the institution that ought to checkmate

executive abuses and general oversight (Cook, 2012:187). In a response to a question in

Washington on August 2009, Mubarak talked about his power and capacity to dissolve the

People’s Assembly thus;

I can’t say that I will not dissolve the parliament. There might be some circumstances. I don’t have any at the moment, but there might be some circumstances that call for dissolution of the parliament, but at the moment there is no single point that merits the dissolution of the parliament. The dissolution of the parliament becomes imperative only when there is a pressing demand” (quoted in Cook, 2012:187-8).

Notwithstanding the implementation of the Emergency Law, the elections to the

parliament had a representation of about 20% of the opposition in the 1980s; but the

extremism of the group like the Muslim Brotherhood in the 1990s, with its intimidating

followership; compelled Mubarak to enact laws, and employed extra-legal means to cut the

group to size, and reduce its vibrancy in the political scene (Kienle, 2001:54). Although the

2000 elections were the first to be supervised by judges via the new amendment, yet there

were complaints of arrests of Muslim Brotherhood members and intimidation of voters

outside the polling booths. The National Democratic Party (NDP) won the overwhelming

majority of 388 seats out of the 454 seats or (87.8%); the New Wafd Party (NWP) won

seven seats, NPUP won six seats, Nasserists won 3 seats, while the independents candidates

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won a total of 37 seats, with Muslim Brotherhood clinching the 17 seats out of 37(Hassan,

2010:323).

Just like the 2005 presidential election, the parliamentary polls witnessed an

encouraging showing for the opposition that posed a huge threat to the ruling NDP.

Elections to the parliament were crucial to the opposition as it would help in leveraging its

influence in government and again, any party that fails to win up to 8% of the seats would

not gain certain privileges in the legislative chamber (El-Din, 2005:11). As shown in the

result of the 2005 parliamentary election, the increased place for the opposition in the

parliament to enable it counter-balance the power game in Egypt was achieved. The ruling

NDP lost about 42 seats while the chief opposition, the Muslim Brotherhood, which was

proscribed but had its candidates ran as independents, won an unprecedented 88 seats, to the

chagrin of Mubarak and his party members.

The People’s Assembly, which is Egypt’s most representative parliament was largely

dominated by the ruling National Democratic Party (NDP). Most of the laws passed by the

Assembly were executive bills. A report by the Cairo-based Ibn Khaldun Centre for

Development Studies indicated that in 1990, the 242 executive bills were all passed into law

while it was only one that was passed out of the seven proposed by the legislature itself

(Davidson,2000:82). In 1991, the legislature passed all the 451 executive bills while the

Assembly also passed only one out of the seven proposed by itself (Goodson & Radwan,

1997:7).

The 2010 parliamentary elections in Egypt, which was heavily manipulated by Mubarak

was the last straw the broke the camel’s back in Egypt. It inadvertently prepared the ground

and galvanized the opposition and the entire citizenry for the revolt that sacked Mubarak in

the early 2011. President Mubarak considered the election very critical for the upcoming

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Egyptian presidential election in 2011. Zeitouni (2010:1) notes that Mubarak wanted to send

a signal to the world that his regime is strong, dependable and viable; and therefore

manipulated and marginalized others, “from the Muslim Brotherhood group (an Egyptian

political-religious party banned by law) to the other opposition parties, which include the

group of Mohammed El-Baradei, the former IAEA’s Director General who is upsetting the

party and who may run for presidency next year against Mubarak”.

The first round of the election was held on 28 November 2010 while the second round

held on 5 December 2010, amidst boycott by some political parties but the Muslim

Brotherhood and New Wafd Party continued with the first round of the election. However,

they called for a boycott during the run-off or the second round of the election. Before the

elections took place, opposition groups and civil society activists issued a lot of demands,

which included:

• Amendment of Article 76 of the Constitution to make it easier for party and independent candidates to get on the presidential ballot.

• Amendment of article 77 to establish term limits for the presidency, which were removed from the Constitution in 1981.

• Amendment of Article 88 to restore full judicial supervision of elections. This would help tame election fraud and vote rigging, which are common in Egyptian elections.

• Amendment of Law 177 of 2005 in order to facilitate the formation of new political parties.

• Amendment of article 179: Amendment in 2007 to Article 179 included an “anti-terrorism” measure, which allows for arbitrary arrest, searches and wiretapping without warrant, and transfer of any civilian court case of the president’s choosing to military tribunals. Unlike the Emergency Law, it is a permanent measure and not temporary measure requiring parliamentary approval. (en.m.wikipedia.org/wiki/Egyptian_parliamentary_election_2010, accessed 06/07/14).

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When these demands were not heeded, a presidential hopeful, Mohamed El-baradei, who

later boycotted the election, circulated a petition in the build up to the election, in the spring

of 2010, where he made a case for seven specific reforms that would guarantee free and fair

election. They included:

• End the state of emergency.

• Ensure full judicial supervision of elections.

• Provide for domestic and international monitoring of elections.

• Ensure that all candidates have sufficient access to the media, particularly during

the presidential election campaign.

• Allow Egyptians abroad to vote through embassies and consulates.

• Work toward a political system built on democracy and social justice.

• Provide the right of nomination for political office without obstacles, in accordance with Egypt’s obligations under the International Convention on Civil and Political Rights; limit the president to two terms. (en.m.wikipedia.org/wiki/Egyptian_parliamentary_election_2010,accessed 06/07/14).

At the end, the election recorded a clear win that was stage-managed to exterminate the

opposition, with over 80% of the seats allocated to the ruling NDP. There were reported cases

of fraud, vote-buying, rigging and intimidation by security forces. Even the State Department

of U.S. said that it was dismayed by the level of state-sponsored disruption of the electoral

process, election-day interference and intimidation by security forces (Quoted in Shenker,

2010:1). In fact, it was observed that the police dispersed over 1,000 persons that stayed

back to observe vote-counting in Mahalla (Al-jazeera, 2010:2). An author and researcher on

Middle East affairs, Shadi Hamid noted the manipulation of the parliamentary election and

the desperation of Mubarak thus:

These election results indicate that the regime is frightened about the impending transition, and they’re not in the mood to take any chances

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over their own survival as we enter what will be one of the most challenging periods in Egypt’s modern history. Previously, Egypt’s level of political repression was never at the level of Syria, Tunisia or Iraq; it was always careful to retain some superficial democratic trappings. But now the government is sending a strong message that opposition will not be tolerated (Quoted in Shenker, 2010:1).

The election process was skewed in favour of the ruling NDP and when the results were

declared, it became obvious that the opposition parties would not participate in the 2011

Egyptian presidential election for failing to win at least 5 % of the seats in the People’s

Assembly, either by independent candidates or all the opposition parties collectively. With

this scenario in place, the 2011 presidential election would have been a single-candidate

walk-over for Mubarak, but the Arab spring truncated that vaulting ambition.

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Table4.4.3: Summary of the 2010 People’s Assembly of Egypt Election Results

Parties Votes % 2010 Seats

2005 Seats

Net Change

Seats %

National Democratic Party (Al’Hizb Al Watani Al Democrati)

420 330 90 81.0%

Independents (NDP) 53 0 53 10.2% New Wafd Party (Hizb al-Wafd-al-Jadid) 6 5 1 1.1% Progressive National Unionist Party (Hizb al Tagammo’al Watani al Taqadommi al Wahdawi)

5 1 4 0.9%

Tomorrow Party (Hizb al-Gahd) 1 1 0 0.2% Arab Democratic Nasserist Party or Nasserist Party

0 0 0 0.0%

Liberal Party (Hizb al-Ahrar) 0 0 0 0.0% Social Justice Party (Hizb Al-‘Adala al-Ijtima’iyya)

1 - 1 0.2%

Democratic Generation Party (Hizb El-Geel al-Democrati)

1 - 1 0.2%

Democratic Peace Party (Hizb El-Salaam al-Democrati)

1 - 1 0.2%

Independents (Muslim Brotherhood al-ikhwan al-muslimun)

1 88 -87 0.2%

Independents (other) 15 19 4 Still in contest 4 Unelected members 10 0 0 1.9% Total (turnout %) 518 Source: (en.m.wikipedia.org/wiki/Egyptian_parliamentary_election_2010, retrieved 07/08/14.

From the foregoing theoretical and empirical analysis on the United States of

America’s annual military aid of $1.3 billion to Egypt and how it stifled efforts made to

enshrine constitutionalism and democratization in Egypt, we validated the first hypothesis of

this study which states that United States of America’s military aid provided support for

authoritarian rule in Egypt under Mubarak. In validating the hypothesis, it should be noted

that all levers of power were muzzled by the military institution which grew unchallenged,

coupled with the huge amount at its disposal on annual basis. With an untouchable army that

ran an unaudited economy, as well as about 2 million personnel, including 500,000 in the

professional army, Egypt had the biggest military in Africa and one of the largest in the Arab

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world. It needs to be understood that the militarized environment or Egypt’s despicable status

as a police state, as well as the United States backing of its despotic rulers deepened and

elongated the sufferings and economic deprivations of the citizenry which exploded during

the 2011 Arab spring. Therefore, the hypothesis examined in this section is accepted. This

situation brought about the high-handed approach in the management of Egypt’s economy

and the woes that befell the economy, as would be examined in the next chapter.

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CHAPTER FIVE

EXTERNAL DEBT MANAGEMENT AND NEO-LIB ERAL REFORMS

Hypothesis (2): United States Government role in external debt management in Egypt was the conditionality for drastic economic reforms.

5.1. Fiscal Crisis and Debt Burden

President Mubarak came to the office at a time of a heavy pressure on the state’s lean

finances. And for a developing country whose public spending is largely on consumption

without a commensurate revenue base, Egypt faced fiscal crisis. The all-powerful role of the

Egyptian state as the driver of the economy, that relied greatly on rent revenues did not help

matters as “the only Middle Eastern country to surpass Egypt in the ratio of public spending

to GDP was Israel” (Soliman, 2011:40). Egypt’s key sources of revenue were oil, Suez Canal

dues, tourism, Diaspora remittances and foreign aid (Farah, 2009:32). Reflecting on Egypt’s

economy during the beginning of the fiscal crisis, the African Development Bank (ADB)

notes that:

The decade of 1980s was one of the external shocks (in the form of declines in oil prices, high interest rates and general economic decline), in the world economy. For example, Egypt weighted average export price for crude petroleum collapsed from $34 a barrel to $12 in May 1986. The Egyptian economy did not respond adequately to these shocks. The consequence was massive fiscal and current account deficits, which also paved way for accumulation of external debts (ADB, 2000:2).

In fact, “Egypt in the 1980s was transformed into a rentier economy relying on external

sources of income while neglecting its productive sector: agriculture and

manufacturing”(Farah,2009:40). At that juncture, Soliman (2011:36) notes that Egyptian

capitalists “focused their energies on speculation and investment in quick profit schemes

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such as consumer imports and real estate construction”. Egypt’s main source of income was

termed rentier because:

These were considered rentier because they were not derived from a productive activity inside the country and they do not contribute to establishing any productive activity. The rentier revenues acquired by the Egyptian state are composed of revenues derived from petroleum, the Suez Canal, and foreign aid. In other words, we are addressing public non-tax revenues, not deducted from the society but rather descending as a gift from heaven (Soliman, 2011:23).

Muhammad Ali’s quest to fund his development projects led the country into external

borrowing, for the first time, and with the rise of export economy, Egypt’s debt profile

began to build by the second half of nineteenth century (Metz, 1990:80). Egypt’s inability to

repay its debt in the 1880s was largely exploited by Britain, the main creditor, to occupy the

Egypt’s territory, and managed the substantial external reserves that got rebound after the

second World War, due to increased export of goods and services to the Allied Powers and

minimal imports occasioned by food shortages at the global level (Metz, 1990:80). Metz

(1990:82) notes that Egypt’s external borrowing started again in a small scale in the 1960s

after its foreign reserves got depleted and since then, loans to Egypt rose astronomically

under Sadat and Mubarak. Tracing how Egypt became steeped in debt, it was reported that:

Most of Egypt’s debt was owed to other governments or guaranteed by them, especially when military debt was taken into account. For example, in 1987, debt to private creditors was about 21 percent of the civilian total, and debt to multilateral organizations was about 17 percent of the civilian total. Prior to the peace treaty with Israel in 1979, the largest creditors were Arab countries; since 1979 the Arabs were replaced by OECD members. In 1987, Egypt owed US$10.1 billion to the United States. Of this, about US$4.6billion, or about 23 percent of Egypt’s combined debt, was military debt. Within Egypt itself, the largest debtor was the government and the public sector generally. For example, public debt, apart from the military made up of 78 percent of the total; the rest was borne by private enterprises and banks (Metz, 1990:83).

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Aside the annual loans that came from Arab oil-producing nations which amounted to more

than US$950 million between 1975 and 1978, Egyptian government also received loan

commitments from Organization for Economic Cooperation and Development (OECD)

countries and multilateral institutions (Metz, 1990:82). At the cessation of Arab aid in 1979,

as a result of the peace treaty with Israel, most of the loans became underwritten by OECD

countries and between 1979 and 1985, Egypt’s annual borrowing hovered around

US$1.6billion (Metz,1990:82). But the U.S. compensated Egypt for the loss of the Arab aid

by granting an annual estimated aid of about US$2.1billion (Farah, 2009:39). Beyond the

hard times of 1970s, Egypt after the 1973 War witnessed increased oil prices, greater inflow

of Diaspora remittances from other Gulf States, high revenues from the Suez Canal and

tourism which brought about unprecedented level of GDP growth (Farah, 2009:39-40). In

fact:

Petroleum exports increased from US$187 million in 1974 to US$3,329 in 1981-82, workers’ remittances increased from US$189 million in 1974 to US$2,855 million in 1980-81, only to decline to US$1,935 million in 1981-82. Remittances increased sharply from US$2,973 million in 1985-86 to US$8,884 million in 1987-88, to drop again to US$3,743 million in 1989-90, Suez Canal revenues increased from US$85 million in 1975 to US$909 million in 1981-82 and from US$1,028 million in 1985-86 to US$1,471 million in 1989-90. Tourism revenues increased from US$265 million in 1975 to US$611 million in 1981-82 and to US$1,472 million in 1989-90 (Karima, 1997:6).

The foregoing unprecedented turn-over of revenues bred its problems. Egypt continued

its foreign debt accumulation from US$3 billion in 1974 to US$19 billion in 1981 to US$37

billion in 1986; and the trade deficit occasioned by soaring imports and near-disappearance of

traditional exports shot up the pressures on the reserves from US$4,978 million in 1985-86

to US$8,296 million in 1998-90 (Quoted in Farah,2009:40). By 1986, Egypt was broke and

could not finance its imports. Soliman (2011:44) writes that “petroleum prices dropped by

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nearly 50 percent, causing petroleum revenues to fall to $1.2 billion, down from $2.26 billion

the year before, and Suez Canal revenues fell from $1 billion to $900 million”. At the outset

of the 1990s, the total external debt of Egypt was US$49 billion, while the total external debt

to GDP ratio had reached 150 percent (Farah, 2009:41). More disgusting was that “Egypt’s

external debt was $22 billion when Mubarak took office, peaking in 1988 at $46 billion

before leveling off around $30 billion for most of the 1990s” (Cook, 2012:159); and a quarter

of this debt came from loans for military equipment (Amnesty International, 2013:2).

Egypt’s financial stress was not helped by the kind of self-styled and autocratic rule it

had under Mubarak, who was desperate to hang-on to power with carrot and stick methods.

Thus; “an authoritarian regime such as Egypt’s that depends on hand outs to secure its control

over society has very little flexibility when it comes to tightening the purse strings”

(Soliman,2011:43). Adam Hanieh observed that Egypt entered into what development

economists call ‘odious debt’-which means a debt accumulated by a dictatorial regime

without the needs of the population, rather it was by the backing of the International Financial

Institutions (IFIs). With the two levels of support given to Egypt in form of “extension of

loans, that is “(an increase in Egypt’s external debt) and the promised investment in so-called

Public-Private Partnerships (PPPs)” which are pre-conditions for neoliberal reforms, “more

money actually flows from Egypt to Western lenders than vice versa” through privatization

programme and trade liberalization that opened Egypt’s fledgling economy to the merciless

forces internationalization (Hanieh, 2012:4). Thus, “Western loans act to extract wealth from

Egypt’s poor and redistribute it to the richest banks in North America and Europe” (Hanieh,

2012:4). He went further to describe the status of Egypt’s debt as at 2011 thus:

Currently, Egypt’s debt runs at around $35 billion (U.S.) and over the last decade, the country has been paying around $3-billion a year in debt service. From 2000 to 2009, Egypt’s level of debt increased by around 15% despite the fact that the country paid a total of$24.6-billion in debt repayments over the same period. Egypt’s net transfers

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on long-term debt between 2000 and 2009, which measures the total difference between received loans and repayments, reached $3.4-billion. In other words, contrary to popular belief, more money actually flows from Egypt to Western lenders than vice versa. These figures demonstrate the striking reality of Egypt’s financial relationship with the global economy – Western loans act to extract wealth from Egypt’s poor and redistribute it to the richest banks in North America and Europe (Hanieh, 2012:4).

According to the figures released by the Central Bank of Egypt (CBE) at the end of the

Fiscal Year (FY) of the 2010-2011, Egypt’s external debt reached $34.9 billion, which

increased by $1.2 billion from a the previous year, and EU, Japan and the U.S. are Egypt’s

largest creditors that amounted to $10.8 billion, $4.2 billion and $3.1 billion respectively

(Ahram Online, 2012:1). The profile of Egypt’s debt to Arab world which constitutes about

4.6 percent was about $1.6 billion (Ahram Online, 2012:1). Renaud Viven that works with

the Belgian branch of an NGO - Popular Campaign to Drop Egypt’s Debt (PCDED) notes

that “this debt contracted by the military council is purely odious because there was no

democratic representation” (Ahram Online,2012:1). This made Stephen Maher to argue that

the debt cycle helps the international lenders to chain Egypt to global capitalism and

compelled her to continue implementing neoliberal reforms; as well as the guaranteed access

to new lines of credit to service her long-term debts. To him, “this debt cycle results in an

outflow of capital from Egypt to international lenders” (Maher, 2013:54). Thus:

Between 2000 and 2009, net transfers on Egypt’s long-term debt (the difference between received loans and debt payments) reached $3.4 billion. In the same period, Egypt’s debt grew by 15 percent, despite the fact that it repaid a total of $24.6 billion in loans. This self-reinforcing cycle of dependency, which redistributes billions from Egypt’s poor to Western financiers, gives these institutions tremendous leverage over Egypt’s government (Maher, 2013:54).

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5.2. U.S. and the Management of Egypt’s External Debt

As already noted, Egypt was steeped in financial straits in the mid 1980s. The gloomy

state of economic affairs deteriorated to the extent that:

Old debt outstanding, particularly that owed to the Gulf Organization for Development in Egypt (GODE), fell due. At the same time, long-term capital flows tapered off, and in 1981/82-1982/83, they fell short of debt repayments obligations, which approached two-thirds of merchandise exports. In addition to this, oil prices turned suddenly and drastically downwards. For 1985/86, it was estimated that the drop in foreign exchange receipts in view of the deteriorating oil situation (both in terms of falling prices and reduced export volume) may reach some US$1200 million…oil fortunes in the case of Egypt also affected at least two of the country’s major source of foreign exchange; Suez Canal dues and workers’ remittances (Abdel-Khalek, 2001:25).

In a bid to leapfrog Egypt’s distressed economy, President Mubarak caved in to the pressures

of Bretton Woods institutions and signed an agreement with the International Monetary Fund

(IMF) on May 1987, after protracted negotiations, to embark on neo-liberal reforms. But

Mubarak’s piece-meal implementation of the reform, to avoid a repeat of the ‘1977 Bread

Riots’ collapsed the deal in just six months (Cook, 2012:160). Another round of negotiations

started in 1989 and concluded in 1991. At the time of the negotiations, Iraq invaded and

annexed Kuwait in August 1990; and the raw show of might elicited the U.S-led international

coalition against Iraq. Specifically on 2nd August, 1990, Iraq had deployed its military tanks

and troops to the next neighbour – the oil-rich Kuwait. Aja (1998:61) observes that “within

twenty-four hours, Saddam Hussein redrew the map of Iraq and made Kuwait the 19th

Province”. This expansionist move rattled the world and instantly received worldwide

condemnations, and the United Nations Security Council (UNSC) passed a resolution

mandating Iraq to unconditionally withdraw from Kuwait or face international coalition to

enforce outright compliance. Buttressing the shattered peace in the early 1990, it was

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reported that “the unconditional resolution 678 of the U.N. Security Council in 1990 which

authorized the U.S-led Allied Forces to use available force to compel Iraq out of Kuwait put

Iraq at the edge of the sword” (Aja, 1998:62).

Although prominent voices like the Muslim Brotherhood opposed Egypt’s

participation in the U.S-led Coalition against Iraq, yet Egypt acted as the rallying point of

Afro-Arab states in the short but decisive operation, due to early surrender and withdrawal of

Iraq from Kuwait soil. The massive air strikes and pounding of Iraq made Saddam Hussein to

capitulate easily. Aside the other nations of the world, the coalition included Kuwait, Saudi

Arabia, Qatar, the United Arab Emirates, Oman, Bahrain, Morocco, Syria and Egypt – that

contributed a total of 35,000 soldiers and officers, the fourth contingents in the operation

(Cook,2012:161). In fact, the “agreement from Hosni Mubarak to deploy forces to Saudi

desert provided the United States political cover to force Iraq from Kuwait in what ended up

being a forty-two day war that pummeled the Iraqi army and did considerable damage to the

country” (Cook,2012:161).

Historical accounts hold it that even though Mubarak maintained his leadership role in

assembling Arab nations against Iraqi invasion of Kuwait, he initially made futile attempts to

defuse the crisis, before Iraq eventually annexed Kuwait. The re-admission of Egypt to Arab

League in 1989 and the organization’s headquarters in Cairo restored Egypt’s leadership role

in the Middle East. He embarked on a rapid ‘shuttle diplomacy’ by arranging for a meeting

between the two leaders of Iraq and Kuwait- Saddam and Sheikh Sabah respectively

(http://invisible arabs.com/?p=472, accessed 21/06/14). Under the influence of Egypt, the 12

out of 20 states in the Arab League had an emergency Summit on August 10th, 1990 and

condemned Iraq but the most enduring aspect of Mubarak’s support for America at that

critical moment was the participation of Syria in the Coalition against Iraq (http://invisible

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arabs.com/?p=472, accessed 21/06/14). It was captured thus; “the shift decided by Damascus

was also an unpredicted, precious gift by the Egyptian regime to its powerful American ally

that would have never obtain alone such a goal” (http://invisible arabs.com/?p=472, accessed

21/06/14). Indeed, Egypt exploited the Gulf War and her strategic role in the Middle East to

strike a deal that extricated Egypt from the looming bankruptcy. Nagarajan (2013:30) notes

that Egypt extracted financial assistance and got the creditor nations to cancel half of its debt,

though with strings attached. Thus:

By 1990, Egypt was facing virtual bankruptcy. At this point, Iraq invaded Kuwait and the U.S. launched the 1991 Gulf War. Egypt exploited its strategic importance to Washington and extracted financial assistance. Egypt managed to get its creditor nations to cancel half of its external debt. Such largesse. However, it did not come free, but with strings attached. In return, Egypt had to conclude a structural reform agreement with the IMF. In May 1991, Egypt signed agreements with the World Bank and IMF. This time around, Egypt began a serious attempt to implement the program with close monitoring by IFIs (Nagarajan, 2013:30).

As a reward for Egypt’s strategic role in rallying Arab nations in the Coalition

against Iraq, President Bush of United States lobbied the Paris Club (an informal name of

consortium of 18 western creditor nations formed in 1956), to give a large-scale debt relief to

Egypt. Greenhouse (1991:1) described it as “one of the most generous the creditor nations

have granted”. In April, 1991, the half of $20.2 billion that is, $10.1 billion was written off by

the U.S. and its allies to compensate Egypt for the anti-Iraq Coalition and the losses it

incurred, which included; drop in tourist and Suez Canal dues as well as the huge sum of

money lost by the displacement of about 2 million Egyptian workers’ remittances from Iraq

and Kuwait (Greenhouse, 1991:2). It was noted that according to economists, the workers’

remittances stood between $2 billion and $10 billion annually (Greenhouse, 1991:2).

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The debt relief package was approved after Egypt agreed to embark on neo-liberal

reforms to bolster the economy. Such measures included enforcement of 10% sales tax,

increment in energy prices, and custom duties and reduction of subsidies in bread and meat

(Greenhouse, 1991:4). The modalities for the debt write off were;

15% of $20.2billion in government-to-government debt to be forgiven by July 1; another 15% by January 1, 1993; an additional 20% will be forgiven on July 1, 1994 (Greenhouse, 1991:4)

Aside the relief of $1 billion annual debt repayments obligations, the agreement with

Paris Club entailed extension of over 25 years of grace in repayment of the remaining part of

$20.2 billion not forgiven (Greenhouse, 1991:4). However, Greenhouse (1991:3) notes that

Egypt got a stiffer conditionality than Poland that enjoyed a similar grace at the same time.

The abandonment of neo-liberal reforms signed by President Sadat with IMF in the 1970s,

and Mubarak’s piece-meal implementation of the reform in Egypt in the mid-1980s informed

IMF’s hard stance; but ultimately, under the U.S. prodding, Egypt witnessed a debt relief; and

the gains were automatic. Egypt was able to borrow more money from international markets

at lower interest rate since its external debt had been reduced by 50% (Cook, 2012:161). In

fact, “the additional cash at more favourable repayment terms eased the pressure on the

Egyptian budget and helped pave the way for further economic growth”(Cook, 2012:162). It

was equally observed that Egyptian participation in the Gulf war attracted aid that reached

US$5.4 billion in 1990 and US$5 billion in 1991 but afterwards, it declined to about US$1.9

billion in 2004-2005 (Farah,2009:43), though military aid remained constant at $1.3 billion

annually.

Besides, in the build-up to the ‘Operation Desert Storm’, the President Bush

administration traded off the $7.1 billion in military debt owed by Egypt (Greenhouse,

1991:3). This was a big relief since a quarter of Egypt’s debt came from loans for military

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equipment accumulated under the regimes of Sadat and Mubarak (Amnesty International,

2013:4). Indeed, President Bush agreed to reward Egypt’s role in the economic blockade of

Iraq and the military’s huge presence in Saudi Arabia. Thus:

As the largest of the Arab nations and the one that has put the largest group of troops alongside American forces in Saudi Arabia, Egypt's support for the U.S-led campaign against Iraq is crucial. Egypt has borne a heavy burden from the embargo because hundreds of thousands of its citizens have been employed in Iraq and Kuwait. Many of them are now refugees, and the country will both lose the earnings it had expected they would send home and pick up the burden of supporting a large additional group of unemployed workers. The decision to forgive Egypt's military debt will substantially help Egypt's budget problems. Bush made the decision at his vacation home here after talking with Egyptian President Hosni Mubarak by telephone Thursday afternoon. The move is expected to be the first of several such gestures that Washington is considering for Middle East countries that have supported the U.S. efforts. (Greenhouse, 1991:3).

In a flurry of diplomatic activities, United States allies in the Middle East like the Saudi

Arabia, Kuwait, United Arab Emirates (UAE) and Qatar were persuaded and they forgave

Egypt’s $6 billion debt the same year (Greenhouse, 1991:3). The debt was incurred over the

years through the grants and loans of Gulf Arab countries. Despite, the debt forgiveness of $6

billion and annual pay off of $1 billion, Kuwait topped the list of Arab creditors by a total of

$854.1 billion, while Saudi Arabia and United Arab Emirates was owed $307.6million and

162.4million respectively, as of the end of 2010-11 Financial Year (FY) in Egypt (Ahram

Online, 2012:1).

Table 5.1: Composition of U.S. Foreign Aid to Egypt (in millions) c2) Aid Type 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 Military 1500 550 1325 1175 1300 1300 1300 1300 1300 1300 Economic 835 829 750 1315 815 815 780 747 1113 815 Food 253 301 255 227 196 152 218 4 0 0 Total 2588 1680 2330 2717 2267 2267 2298 2057 2413 2115 Source: Momani, B. (2003) “Promoting Economic Liberation in Egypt: From U.S. Foreign Aid to Trade and

Investment”, Middle East Review of International Affairs, Vol.7,No.3, September. P.101

http://egyptinrevolt.files.wordpress.com/2011/11/momani2.pdf accessed

12/05/12.

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Table 5.2: U.S. Foreign Assistance to Egypt ($ in millions)

Fiscal Year Economic Military IMET Total 1948-1997 23,288.6 22,353.5 27.3 45,669.4 1998 815.0 1,300.0 1.0 2,116.0 1999 775.3 1,300.0 1.0 2,076.0 2000 727.3 1,300.0 1.0 2,028.3 2001 695.0 1,300.0 1.0 1,996.0 2002 655.0 1,300.0 1.0 1,956.0 2003 911.0 1,300.0 1.2 2,212.2 2004 571.6 1,292.3 1.4 1,865.3 2005 530.7 1,289.6 1.2 1,821.5 2006 490.0 1,287.0 1.2 1,778.2 2007 450.0 1,300.0 1.3 1,751.3 2008 411.6 1,289.4 1.2 1,702.2 2009 250.0 1,300.0 1.3 1,551.3 2010 250.0 1,300.0 1.9 1,551.9 2011 249.5 1,297.4 1.4 1,548.3 2012 250.0 1,300.0 1.4 1,551.4 Total 31,320.3 41,809.2 44.54 73,174.0 Source: Sharp, J.M. (2012) “Egypt: Background and U.S. Relations” Congressional Research

Service, December 6, P.10, www.umn.edu/humanrts/research/Egypt/Egypt%20Background.pdf, accessed 22/03/14.

5.3. Neo-Liberal Reforms and Implementation of ERSAP

The Arab Republic of Egypt had pursued a public sector-led economy and home-grown

development strategy from the era of Muhammad Ali. The state intervention in the economy

was expected to protect infant industries, and the import-substitution policies were enunciated

to kick-start industrialization. Under President Sadat in the 1970s, the state opted for

economic liberalization that attempted to integrate Egypt into the international economic

system. During the regime of President Mubarak in the 1990s, neo-liberal reforms were

adopted to ensure minimal state intervention in the economy, and after the round of

negotiations in 1989, Egypt finally reached agreements with the International Monetary Fund

(IMF) and the World Bank on May 1991 and November 1991 respectively; to undertake

structural and adjustment programmes in Egypt. The comprehensive package was christened,

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‘Economic Reforms and Structural Adjustment Programme’ (ERSAP). There were seven

conditions which the Borrower – Egypt was expected to fulfill before loans would be released

for the first of ERSAP programmes. Thus, the Borrower was required to:

Open a foreign exchange account into which ERSAP proceeds were to be deposited; give an undertaking to pursue diligently the implementation of all policy measures envisaged in ERSAP; give an undertaking to share with the Bank the monthly information prepared for the IMF on macroeconomic developments; give evidence of establishment of programme implementation and monitoring units/organizations; and give to the Bank data and related information of the 1991/92 budget levels and the Public Investment Programme (PIP)1991/92 – 1993/94 period. The borrower was to give evidence of the enactment of the new Public Investment Law (PIL), adopt executive regulations for PIL and standard bye-laws for Holding Companies (HCs) and Affiliated Companies (AC), and the establishment of the Public Investment Office; and provide evidence of the Government approval of 1990/91 - 1991/92 privatisation programme and an undertaking to implement the approved programme on a timely basis. These conditions were clear and relevant and compliance with them could be expected save for the last two which required adequate time for consensus building within the political and the general public in order to gain social acceptance of the reform programme (ADB,2000:7)

The reforms were interrupted by several external and domestic shocks but resumed

strongly in 2004. Farah (2009:42) writes that the IMF “focused on monetary and fiscal

reforms and the reform of exchange rates while the World Bank “focused on the reform of

the Egyptian economy through investments, liberalization, and privatization”. ERSAP

represented significantly the extension of Sadat’s open door policy (infitah) adopted in the

1970s but its application under Mubarak went further “reworking institutional fabric of

Egyptian economy to become a truly private enterprise market-oriented economy” (Abdel-

Khalek, 2001:42). At the take off of ERSAP in 1991, World Bank voted $300 million in

support of the structural adjustments; granted $84 million loan for expansion of Egypt’s

natural gas industry and issued $140 million credit to support the new Social Fund for

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Development (SFD) to help rehabilitate the 670,000 Egyptian workers who fled the war-

stricken countries of Iraq and Kuwait (Kastow, 1991:2). Similarly, the Board of African

Development Bank (ADB) approved a loan of UA100 million to Egypt in September 1991

while The total contributions from abroad for the reform package was US$567 million –

African Development Bank pledged UA100 million, equivalent of $135 million, the World

Bank as note in the foregoing contributed US$300 million and European Union (EU) gave

US$132 million (ADB, 2000:2). The first tranche of the money was disbursed as planned but

the second tranche was cancelled at the instance of Government of Egypt (GOE) because of

Egypt’s improved finances (ADB, 2000:2). The same reason accounted for the cancellation

of the second tranche of the money from the World Bank. Both the World Bank and ADB

scaled down the contributions to $150 million and $50 million respectively (ADB, 2000:2).

However, the implementation of ERSAP on phases was hampered by the slow pace of

processing of the loan by Government of Egypt (GOE) and its preference of World Bank

facility to ADB (ADB, 2000:2). Outlining what ERSAP was set to achieve on Egyptian

economy, it was noted that:

The main targets of ERSAP were to improve the balance of payments so that Egypt could repay its foreign debt, reduce inflation rates, and reduce public debt. This required the lifting of price controls, a reduction in government expenditures (including the reduction of state subsidies), a reduction in public investments, the imposition of new taxes such as the sales tax, and a freezing of wage rates. At the same time, the government had to sell public enterprises and liberalize foreign trade (Farah, 2009:42).

Abdel-Khalek (2001:44) notes that ERSAP focused on macro-economic reforms, public

enterprise reform, domestic price liberalization, foreign trade liberalization, private sector

reform and the Social Fund for Development (SFD). Macro economic reform which is at the

centre of ERSAP entailed the management of the fiscal policy to achieve “trimming off the

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fiscal deficit, both overall and bank-financed part”; a marginal reduction in the ratio of public

expenditure to Gross domestic Product (GDP), while raising significantly the share of public

revenue (from about 25 percent to about 40 percent of GDP) (Abdel-Khalek, 2001:45). These

measures were geared towards cutting down government expenditure by a reduction in food

and fertilizer subsidies, and trimming down public investment outlays; and to ‘crowd in’

private investments, and public investment outlays was expected to be reduced by “5% age-

points in real terms between 1989/90 and 1992/93” (Abdel-Khalek, 2001:46). The

macroeconomic performance results showed that economy recorded “an average growth rate

of 2.8% per annum and 5.3% per annum during the programme period of 19990/92 – 1993/94

and 1994/95- 1998/99 period respectively”(ADB, 2000:10). On the area of interest rate and

monetary policy, ERSAP targeted;

Removing all interest-rate ceilings, imposing specific domestic credit ceilings that favour the private sector, eliminating direct credit line between the Central Bank of Egypt (CBE) and the government, and developing of market for treasury bills. Interest rates were liberalized and the first treasury bills auction was held in January 1991…In exchange rate field, ERSAP included devaluation, simplifying the exchange rate system and ensuring a competitive exchange rate (Abdel-Khalek, 2001:46).

Apart from front-loading of the conditionality on exchange rate, three months ahead of

formal agreement with the IMF, which ensured a dual exchange rate system (primary &

secondary market), the new system brought about fundamental changes. The Egyptian pound

was pegged to the U.S. dollar while the Central Bank of Egypt (CBE) acted to stabilize the

foreign exchange rate between Egyptian pound and U.S. dollar; and thus transformed into full

capital mobility, a new development in more than 40years (Abdel-Khalek, 2001:47). These

measures resulted in increased capital flows that considerably built the Egyptian foreign

reserves from US$3856 million in 1991 to US$13,381 million in 1994 and US$19,657

million in 1997 (ADB,2000:11). Embargo was also placed on international transactions,

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whether in payment or transfers of both current and capital. The efforts to stabilize the

economy yielded the reduction of inflation rate from 22% in 1990/91 to 9% during 1993/94

and 3.8% in the 1997/98 (ADB, 2000:10). Indeed, monetary and credit policies targeted

“maintaining prudent monetary growth and financial resource mobilization as a means of

reducing inflation, external deficits, and generating domestic savings” (ADB, 2000:11).

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Table 5.3: EGYPT: ECONOMIC REFORM AND STRUCTURAL ADJUSTMENT P ROGRAMM E

PROGRAMME PERFORMANCE EVALUATION REPORT ( ERSAP-PPER) SUMMARY OF FISCAL OPERATIONS (in Millions of Egyptian Pounds)

ITEM ACTUAL 1990/91

ACTUAL 1991/92

ACTUAL 1992/93

ACTUAL 1993/94

ACTUAL 1994/95

ACTUAL 1995/96

ACTUAL 1996/97

ACTUAL 1997/98

PROJECTED 1998/99

TOTAL REVENUE

30710 43385 46703 52567 55719 60893 64498 67963 71295

Central Government Revenue

23876 35676 41020 46384 49889 54486 57179 60035 62449

Tax Revenue 15504 24285 27334 31373 34279 38249 40518 43962 47149

Transferred Profits

6979 8863 9364 9070 10542 11133 11423 10780 9802

Other Non-tax Revenue

1393 2528 4322 5941 5068 5104 5238 5293 5498

Local Government Revenue

1092 1408 1782 1984 1951 2125 2354 2426 2601

Public Services Authorities

641 749 881 1050 1085 1097 1220 1428 1576

Investment Self-Financing

5101 5386 2338 2471 2138 2574 3116 3439 3923

Sales of Assets 0 166 682 678 656 611 629 635 746

TOTAL EXPENDITURE

50398 50963 52223 56264 58256 63889 66826 70783 75285

Current Expenditures

26963 32450 40788 45420 46258 50537 52356 54747 58621

Central & Local Government & Service Authority

23479 28581 36755 42494 43294 47121 48651 50879 54372

Public Authority Deficits

634 380 340 0 0 0 0 0 0

Subsidies 3287 4470 3859 3418 3639 4075 4379 4410 4564

Capital Expenditure Net

-437 -981 -166 -492 -675 -659 -674 -542 -315

Transfer for Restructuring & Social Fund

6090 0 150 338 520 515 645 650 700

Investment Expenditure

15067 15746 11097 10659 11299 12581 14070 15635 16030

Payment of Arrears Banking Bond

0 0 0 0 0 0 0 0 0

GASC Bank Borrowing

2278 2767 188 -153 179 256 -245 -249 -66

Overall Deficit 19688 7578 5520 3697 2537 2996 2328 2820 3990

Additional Budget for Investment

0 0 0 0 0 0 0 0 0

OVERALL DEFICIT INCLUDES RECAPITAL. CE

19688 7578 5520 3697 2537 2996 2328 2820 3990

GDP 98664 118288 157083 173117 200408 224917 253458 278189 305242

Overall Deficit (%) 20.0% 6.4% 3.5% 2.1% 1.3% 1.3% 0.9% 1.0% 1.3%

Source: African Development Bank (2000) “Egypt: Economic Reform and Structural Adjustment Programme”, Project Performance Evaluation Report, May 15, p.42,http://www.afdb.org/fileadmin/upload/afdb/Documents/Evaluation-Reports/05092259/EN-Egypt-Economic-Reform-and-SAP.pdf, retrieved 24/04/2014.

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On the public enterprise reform, the Public Business Sector Law; (Law 203 of 1991

replaced the amended Law 97 of 1983), and this amendment affected the autonomy and

restructuring of public-sector companies by the introduction of “privatization of PEs,

including asset sales, divestiture, and management contracts with private management teams”

(Abdel-Khalek, 2001:49). The Law made 314 on-financial PSCs to be grouped into new 27

Holding companies (HCs) that were later trimmed down to 17 in 1993 (ADB,2000:14).

Government of Egypt (GOE), with the assistance of UNDP and USAID funds used five

approaches to privatization – sales to anchor investors, sales through the stock market, sales

to Employee Shareholders Association (ESAs), sales of companies assets, and liquidation

(ADB,2000:14). More importantly, the National Investment Bank (NIB) was stopped from

funding public enterprises and the managements of these enterprises were urged to mobilize

resources from its earnings, loans and the capital market; just as the domestic price

liberalization removed the control of prices of industrial products to engender

competitiveness (Abdel-Khalek, 2001:49). The target was that by June 1995, the prices of

industrial products, excepting a few basic foods and cotton yarn, would be up for market

determinism. The prices of petroleum products and electricity were increased to be at parity

with the world prices. ERSAP also ensured increment in prices of cotton prices and abolition

of quota system in rice delivery just as the prices of fertilizer, annual feeds and pesticides are

removed from control to achieve parity with the world prices (Abdel-Khalek, 2001:50).

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Table 5.4: Comparison of old and new public enterprise laws S/No. Features Law 97 (old) Law 203 (new)

1. Autonomy Company managers are under the control of their respective public sector organizations (PSOs) and a technical ministry that has supervisory authority.

Company managers are autonomous and free to decide on all business matters; they have no links to technical ministries.

2. Company Objectives

Companies are supposed to help realize the State’s economic and social objectives, regardless of the impact upon their own efficiency.

Companies have only one objective: to maximize profits and, as a result, their value.

3. Financial status Companies are dependent upon the Government for operational subsidies and the financing of capital expenditure, out of captive sources of funds on subsidized terms.

Companies are financially independent of the Government and parent holding companies; the latter would not be allowed to routinely subsidize their affiliates. Company investments should be financed on commercial terms through capital markets.

4. Corporate Form Public enterprise established under Law No.97 of 1983.

Joint-stock company listed on the stock exchange in Egypt

5. Privatization Not allowed. Allowed. 6. Liquidation Not allowed, except under very

special circumstances. Allowed.

7. Bankruptcy Not allowed. Allowed 8. Employment Companies are uniformly

subject to the provisions of Law 48 on PSE employment.

Law 48 repealed, and companies are free to set their own terms and conditions of employment.

Source: Abdel-Khalek, G.(2001) Stabilization and Adjustment in Egypt: Reform or Deindustrialization, Lincolnshire, UK: Edward Elgar Publishing Limited p.48

ERSAP brought about the private enterprise reform that phased out public trading

monopoly to items like cement and fertilizers and eliminated the hurdles which the private

sector encountered, in accessing credit and getting licenses. This measure was intended to

institutionalize a level playing ground for all business ventures. Other measures to boost

private sector development included abolishment of regulations governing investment control

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by removing investment and production licensing for most of the goods. Restrictions on

quantities produced, types of customers and their geographic area were lifted while;

Cement and fertilizer prices were liberalized and quantity restrictions on the distribution and sales of these two products to traders were lifted. Furthermore, Parliament amended Labour Laws to provide free environment for the recruitment of labour without prior approval of Government. This allowed private firms to advertise their employment needs, seek special recruitment services. Examine job applications and assist in the selection of qualified prospective employees. Also the share of private sector in gross fixed investment increased from 58.8% in 1991 to 63.2% in 1994 and 68.4% in 1997 as against the targets of 40% in 1990 and 50% in 1993 and thereafter it was expected to continue increasing (ADB, 2000:14-5).

The role of the Egyptian state on the economy also decreased when the country became a

member of the World Trade Organization (WTO) in 1995. And Egypt’s compliance with

WTO regulations entailed removal of barriers like tariffs and non-tariff barriers. For instance,

in the textile industry, its protection was lost as well as politically-driven export promotion

(Nagarajan, 2013:31). Besides, the liberalization of the telecommunication sector led to the

auctioning off the bandwidths for cellular telephone networks that netted $1 billion to Egypt

coffers, and inflow of foreign direct investment to the tune of $3 billion to the country

(Rutherford, 2008:200-202).

To cushion the shocks and pains of ERSAP, the Social Fund for Development (SFD)

was put in place as palliative, especially to vulnerable individuals and groups. The immediate

target was the rehabilitation of Egyptian Diaspora workers that were displaced and sent back

home as a result of the Gulf crisis. Abdel-Khalek (2001:51) notes that, an initial sum of

“$600 million (equivalent of LE 2 billion) were pledged to the Fund by the Egyptian

government, UNDP, IDA and other bilateral and multilateral donors”. The SFD was tasked

with mobilizing resources locally and internationally in liaison with government agencies,

NGOs, private sector etc.; to tackle poverty through providing support to communities, halve

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unemployment and encourage the growth of small and medium scale enterprises. As at the

first quarter of 2008, SFD had disbursed about LE11.4 billion that is equivalent to US$2.5

billion; and an estimated 32% of those living in rural communities had benefited from the

interventionist package because each village or ward had at least one SFD programme

(Abou-Ali,etal, 2009:2). In its First Phase, about 53,250 small enterprises were established,

credits were extended to 59,150 entrepreneurs, out of which 25% were female and 4,775

unemployed graduates were trained, among other impressive results in infrastructure and

public works; while in the Second Phase, significant results were achieved, as at June 1998,

which included:

1.790 health workers have been trained and 119 health clinics equipped. Micro-credits of an average loan of LE 1,620 have been extended to 3,350 borrowers. Vocational training was conducted for 6,100 entrepreneurs and 4 workshops were equipped. About 10,284 entrepreneurs received credit out of which 30% were female and about 9,500 small enterprises were established. Further, 269kilometers of potable water networks were installed and 170 kilometers of rural roads constructed (ADB, 2000:15).

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Table 5.5: Principal Programs and Activities of the Social Fund for Development, 1991-2007

Main Program Main Activity Disbursements, 1991-2007

Activities,1991-2007

Community Development

Health LE 390 million

Education LE 200 million Other LE 210 million

Renovated health units(840) Health awareness campaigns Training of health personnel Illiteracy classes (1.5 million people enrolled) Single classroom schools Community schools Training of teachers for literacy classes Public buildings(rehabilitation; youth and community centers) Environment(covering waterways, weeding, river bank protection)

Public Works Potable Water LE 620 million Sanitation LE220 million Roads LE 500 million Other LE 660 million

Public networks(8,480 km) Ground tanks(375) Artesian wells(440) Shelter houses(200) Public networks(459) Treatment plants(16) Pumping stations(38) House connections(19,500) Construction and maintenance of rural roads (2500 km) NGO capacity building Environment(latrines, garbage collection, draining, pest spraying, tree planting) Training

Microcredit LE 1,062 million Loans (575,000)

Small Enterprises LE 7,100 million Support for small enterprises, including loans and technical support.

Source: Abou-Ali, H. e tal (2009) “Evaluating the Impact of Egyptian Social Fund for Development

Programs”, World Bank, Policy Research Working Paper, 4993, July, p.,4 elibrary.worldbank.org/doi/pdf/10.1596/1813-9450-4993, accessed 24.07/14.

Another element of ERSAP was the incremental reduction of subsidy for foods. This

became necessary as Egypt is known as the world’s largest consumer of bread per capita

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(NGN, 2010:2). Tracing the background of subsidy regime in Egypt, Sachs (2012:1) notes

that:

Since the economic crises of the 1970s, Egyptian officials have attempted to reform the bloated food subsidies regime. The new call from the post-Mubarak government emerges from the same basic prognosis: an untargeted subsidy is draining public coffers. The government spends $5.5 billion annually on food subsidies that support both the rich and poor. In Cairo, bread often costs no more than 1 American cent. Humans are not the only consumers of this highly subsidized imported wheat: loaves are used in place of animal feed. In an era of higher global food prices and low Egyptian production, the government faces the choice of reform, resulting in higher consumer prices and popular discontent, or continued expenditures on increasingly expensive imports (Sachs, 2012:1).

In the early 1990s, Mubarak cut the national subsidies from 5.2% of total spending to 1.5%

(Antoon, 2012:2). The experience of the ‘1977 Bread Riots’ that lasted for two days made

President Mubarak to tread cautiously with the subsidy regime, to avoid a repeat of history

and opening a flak of mass attacks and social instability. Gutner (1999:18) opines that “the

infamous 1977 riots deeply unnerved Egyptian policymakers and left a legacy of government

caution not only on food policy reform, but economic reform more broadly”. Mubarak’s

Government provided alternatives while pursuing full-scale withdrawal of subsidy. Gutner

(1999:2) notes that the food subsidy system in Egypt covered four staples: the flat baladi

bread, baladi flour, cooking oil and sugar. But as at 1980, food subsidy system contained 20

goods (Sachs, 2012:67). The need to reduce public spending led to the restructuring of the

subsidy regime. Though appreciable results were recorded in terms of saving cost for

government to tackle other developmental challenges, the cut in food subsidies adversely

affected the poor whom it was meant to act as a buffer from the social hardship.

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Between 1990 and 1994, government excised frozen meat and furthered the withdrawal

of coverage for fish, tea, and fino bread, while rice and shami bread subsidy were removed

(Sachs, 2012:65), and by 1995, subsidy only covered baladi bread, wheat flour (82%

extraction),edible oil and sugar (Adams,2000:24). Without informing the commercial bakers,

who generally concentrated on baking bread, Mubarak’s Government supervised and

implemented the reduction of wheat imports by mixing Egyptian-grown corn into the

subsidized flour (Jehl, 1996:A4).

After the 1993 and 1996 Egypt-IMF agreements that bolstered the confidence of the

international lenders, stiffer measures to remove subsidies were taken, which included

domestic energy prices and foods (including sugar) (Sachs,2012:66). In fact, in 1996, subsidy

reduction had gone that substantially that IMF focused more on macroeconomic policy and

privatization. Notwithstanding the cost of bread subsidy to the tune of $2.74 billion annually,

which according to Slackman (2008:A13) was far above the public spending on health and

education, the economic hardship made it difficult to get to the poor people to subsist on

below $2 per day. In 2008, Mubarak had to order the military to increase the production of

bread and create several distribution channels at the doorsteps of rural dwellers as poor

people received 20 pieces of bread for a pound (0.19) instead of four pieces for the same

price from commercial sellers (NGN,201:3). Many bakers had resorted to selling the

subsidized items at the black market in order to fleece the poor consumers. The high cost of

living occasioned by rising food prices led to the April 2008 strike and protests by thousands

of workers and resident of Mahalla El-kobra, a northern town of Cairo, which resulted in

three deaths, while eleven other died in the clashes that ensued while queuing to purchase

subsidized bread (Nasrawi, 2008:1).

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To augment the budget overruns on subsidy and cushion the debilitating conditions

on the workforce with steady wages, Egyptian government announced the salary increase by

30% of all government employees and imposed hike on taxes of cigarettes and the cost of

fuel by an average of 46% (NGN, 2010:2). Mubarak received the endorsement of the

legislature to “raise taxes, reduce subsidies on fuel, increase prices of cigarettes and remove

tax breaks from heavy industry to pay for the raises (Nasrawi, 2008:1). Though the

opposition in the parliament lambasted the emergency tax increase legislation, it was noted

that;

Under the plan, the price of certain grades of gasoline and diesel, used by most forms of transportation, will go up between 40 percent and 50 percent. Natural gas prices, used by most Egyptians for cooking as well as by factories, will increase 58 percent. The cost of cigarettes, a necessity for many in this country of heavy smokers, will increase by 10 percent. The bill aimed at raising $3.6 billion, will also impose higher licensing fees on cars and end tax breaks for certain heavy industries, including those in special economic incentive zones,

Trade reforms started in Egypt on August 1986 and continued with the adoption of

ERSAP in 1991. It took significant turns largely between 1998 and 2004, with the reduction

of tariffs from the highest rates of 110% in 1991 to the maximum rate reduction to 40% in

1998, and further reduced to 30% in 2008 (Nazier,2012:1). The trade liberalization gained

momentum after Egypt joined the World Trade Organization (WTO) in 1995 and signed the

WTO agreements. The agreements brought about “tariff reductions, restructuring custom

procedures, implementation of WTO-based customs valuation rules, and the removal of all

customer service charges and charges on imports” (Nazier, 2012:7). At the regional level,

Egypt had multilateral agreements in the 1990s with: Greater Arab Free Trade Area

(GAFTA), the Common Market of Eastern and Southern Africa (COMESA) and the Agadir

Free Trade Agreement (with Tunisia, Morocco and Jordan); while the bilateral agreements

existed between Egypt and European Union since 2004; the members of European Free Trade

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Association (EFTA) - Republic of Iceland, the Principality of Liechenstein, Kingdom of

Norway and Switzerland; Turkey, some Arab countries like Lebanon, Syria, Morocco,

Tunisia Libya, Jordan and Iraq (Nazier,2012:8-9). Generally, Egypt majorly concerned itself

with the binding tariff rates of all categories, but the non-agricultural products tariffs were

lower than the tariff on agricultural products (Nazier, 2012:8). Abdel-Khalek (2001:51) notes

that the trade liberalization had the following measures:

A) Reducing the list of commodities protected by import bans from close to 40 percent to less than 30 percent of industrial domestic output;

B) Changing the tariff structure so that the maximum tariff rate will initially be 80 percent and the minimum 10 percent C) Eliminating discretionary allocation of foreign exchange by the banking system;

D) Gradual elimination of non-tariff barriers other than import suspensions and import bans, starting with a 50 percent reduction imports NTBs before the formal start of ERSAP.

Specifically, in foreign trade liberalization, “GOE streamlined duty drawback and temporary

admission procedures”, and the import bans that were at 37.2% of trade-able output in 1990

went down to 22.7% in 1990/91band 10.1% in February 1993 (ADB, 2000:12). With the

lifting of import bans and quotas, export earnings increased from US$3.1 billion in 1991, to

US$3.3 billion in 1994, and US$5.1 billion in1998 (ADB, 2000:12). The domestic price

liberalization entailed removing of regulation on prices of all energy, industrial except

(pharmaceuticals) and all agricultural products (except bread, wheat flour, sugar and cooking

oil). It was further noted that;

In the energy sector, GOE raised the petroleum prices to 100% of the international prices, well above programme target. Similarly, GOE raised electricity prices to 74% of long-run marginal costs (LRMC) by 1994 in line with the programme targets. As for the transportation sector, GOE raised the tariff for the Egyptian National Railways (ENR) by 5% annually beginning from 1991 reaching 100% by 1998 as per the programme targets (ADB, 2000:13).

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Table 5.6: Trade liberalization measures under ERSAP between 1991 and 1998. March 1991 Reduction of the production coverage of import bans from 35.6% to 33.3 % of trade-able goods output.

March 1991 Lift suspension of letters of credit on LE 140 million worth of output.

May 1991 Import duty rates restored to levels in effect in early 1989, prior to their reduction by approximately

30%, and the tariff range reduced from 0.7-120 % to5-100%.

May 1991 Number of products subject to export bans were reduced from 20 to four.

May 1991 Number of products under quantitative annual export quotas was reduced from 17 to four. The remaining

four products were raw and waste wool, tanned skin, cotton waste and paper waste (newspaper only).

May 1991 All exports prior to approvals that were imposed on 37 product categories were eliminated except for one

(cotton yarn and fabrics) which is pending further study.

May 1991 The suspensions of letters of credit were eliminated.

May 1991 The list of products requiring adherence to certain special conditions for import was shortened from 12

to three.

May 1991 Production coverage of import bans were reduced from 32.7% in March 1990 (of total manufacturing

and agricultural production) to22.7 %in June 1991.

May 1991 Twenty-nine of the total 90 BTN lines having tariff preferences were eliminated.

May 30,1991 The advance import deposit rate for imports that are settled with letters of credit was reduced to 10%

from 35 % in respect of import for own use and to 20 % in respect of imports for trade.

July 4,1992 All export quotas except on treated hides were eliminated.

August 8,1992 The advance import deposit requirement for opening of letters of credit was abolished.

August 1992 The number of footnotes (preferential tariff rates) was cut from 60 to 30 and duty rates were increased on

about 100 items with a revenue impact of LE 200 million.

August 1992 Further seven items removed from list of items requiring prior government approval for imports (nine

products remain).

August 1992 Further four items have been removed from export bans list. Scrap metals and raw hides are the two

remaining items

August 1992 32 preferences have been removed from tariff preference list; 29 items remain.

August 1992 Export restrictions on cotton yarns and fabrics were eliminated.

August 1992 The drawback and temporary admissions system had been further improved and simplified.

1993 Export quota on the only remaining item (treated hides) eliminated.

February 1993 The tariff range was reduced from 5-100% to 5-80%.

December 1995 The tariff range was reduced from 5-80% to 5-70%.

October 1996 The tariff range was reduced from 5-70% to 5-55%.

1997 Only remaining item on export bans is raw hides. Number of items subject to prior government approval

is down to one

1997 Tariff range reduced to 5-50%

July 1998 Tariff range reduced to 5 - 40%

Source: Abdel-Khalek, G. (2001) Stabilization and Adjustment in Egypt: Reform or Deindustrialization, Lincolshire, UK: Edward Elgar Publishing Limited, pp.55-6

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5.4. Privatization of Public Enterprises (PE’s)

The public sector reform that brought about the privatization of Public Enterprises

(PE’s) in Egypt was a major element of ERSAP. After series of agreements with the

international donors, the privatization programme took off with the replacement of (Law 97

for 1983) with (Law 203 for 1991) in June 1991. About 314 companies with asset base of

LE 68 billion and revenues of over LE 60 billion were slated for privatization (CARANA,

2002:4). The privatization of PE’s was not as quick as anticipated in the early 1990s, but by

late 1990s, a time of significant boom in the global economy and high investments, Egypt

witnessed a completion of 30 transactions per year; and when the economy slowed down,

investors became risk averse (CARANA,2002:4). Richter (2006:1) reports that from the

GOE’s point of view, the year of 2005 had a record of being the most successful in terms of

the number of sold firms and the proceeds of the privatization. In fact, the partial

privatization of the Telecom Egypt (TE) in 2005 was a milestone in GOE’s effort in leading

the country to private sector driven economy (Richter, 2006:1). At the commencement of the

privatization exercise, IMF had predicted that it would unleash an explosion of productivity

but unfortunately, the underlying political oppression and massive corruption that trailed it

made the expectations illusory (Asher-Shapiro,2012:2). In 1996, IMF opted for extension of

additional credit to Egypt for aggressive privatization programme, when it was discovered

that the reforms between 1990 and 1995 sagged real wages and increased poverty by 10% at

the both urban and rural areas (Asher-Shapiro, 2012:2). The years of sales and the number of

privatized companies were noted thus;

Between 1996 and 2011, nearly 345 Egyptian public companies were privatized and sold on the Egyptian Stock exchange. Under the premiership of Ahmed Nazif from 2004 to 2011, Egypt experienced the most intense wave of privatization with 172 state-owned businesses sold for 60 billion Egyptian pounds (Asher-Shapiro, 2012:2).

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In the account of CARANA (2002:20), a summary of Law 203 of the privatization

achievements is represented thus:

A) 133 Majority Privatizations and 55 Partial Privatizations;

B) 38 Companies sold through majority offerings on the stock market for LE 6.3 billion;

C) 29 Companies sold to anchor investors LE 7 Billion;

D) 34 Companies privatized through sales to ESAs for a total of LE 950 Million;

E) 32 Non-viable enterprises liquidated and their assets released to the private sector;

F) 16 Companies partially via minority public offerings for a total of LE1.75 billion;

G) 22 Leases implemented;

H) 19 Assets have been sold for a value of LE 862 Million;

As of 2009, the privatization exercise had netted EGP 57.4 billion (approximately $9.4

billion) (El-Din, 2014:1). Notwithstanding the gains of economic growth by 7.2 per cent in

Fiscal Year 2007-08 - its fastest pace of growth in almost two decades, the complaints of

auctioning off the companies at cheap prices, and sales of state-owned firms to foreigners as

well as sales to cronies of government officials attracted public opprobrium (Bakir, 2009:3).

The programmes had been bogged by controversies. Critics insisted that sales of state-owned

firms to foreigners would not only hand the wealth of the nation to private investors at low

prices, it would also be at the detriment of servicing local needs as the priority of the new

buyers would be to concentrate on exports; just as selling-off non-profitable companies

without upgrading them, especially the textile sector that employed one third of the nation’s

industrial workers became a thorny issue (Richter, 2009:8). Thus:

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Privatization has aroused popular resentment among many Egyptians, who feel left out of the economic boom, complaining that wealth has not trickled down to the poor in a country where roughly 19 percent of the population live on less than $1 a day. Opposition groups have called for a halt to privatization, with some critics claiming that the sale of national assets is a threat to national security, and others alleging that the privatization process has been corrupt. Sale processes have often fueled heated debates in the press, which has openly accused the government of gratuitously selling Egyptian assets to foreign institutions, placing public welfare at risk (Bakir, 2009:3)

The exercise accrued LE 39.4 billion from the sale of 191 public sector assets in 2004,

compared to the LE 17.9 billion accrued from sales of 210 companies from 1991 to FY 2003-

04 (Bakir, 2009:2).

Following the credibility crisis that followed the privatization programme, the ruling

National Democratic Party (NDP) resolved to take populist step of selling its minority stakes

in the 86 profitable state-run firms, and those under the age of 21, which was about 41million

Egyptians, received free coupons redeemable for shares of the partially privatized firms

(Bakir, 2009:1). But the greater controversy came with the reversals of sales of public sector

companies by the law courts. Since the exit of Mubarak in 2011, the Administrative Court

had nullified at least 11 privatization deals (Ahram Online, 2014:2). Egypt’s Supreme

Administrative Court quashed the 2006 sale of state-run department store, Omar Effendi to a

Saudi Arabia’s Anwal United Trading Company. The purchase of the 90% of the iconic

Egyptian chain on a controversial price of LE 589.5 million violated the Egyptian law that

stipulated that its sale must be through a direct order and not public auction (Gamal, 2013:1).

The Company “rebranded the company as a budget clothing store, closed several historic

branches and rescinded the employees long-term contracts”, by laying-off thousands (Asher-

Schapiro, 2012:4). In fact, Egypt witnessed no less than 3,000 labour actions, which included

strikes and protests between 2004 and 2010 (Asher-Schapiro, 2012:4). Accusations of

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national assets disposed secretly at nominal prices did not spare the Qalyub Spinning Factory

and the Ammoun Hotel that were sold for just LE 4.5 million and LE 20 million

respectively, when in actual sense, the land of the hotel could accrue LE 20 million that was

paid for the entire property (Farah, 2009:50). The Administrative Court also ruled for a re-

nationalization of Nile Cotton Ginning Company, whose 100 percent equity was sold to the

public, in a clear contravention of the law by listing the public sector company in the

Egyptian Stock Exchange in 1997, while the listing was codified in 2006 by the then Prime

Minister, Ahmed Nazif (Ahram Online,2013:1).

Three other privatized companies – namely, Al-Nasr Company for Steam Boilers and

Pressure Vessels; Shelbin Al-Kom Textile and Tanta for Linen and Derivatives were declared

illegal by the Administrative Court in Egypt on grounds of under-valuation, attempts to

eliminate the workforce by the new foreign owners and dismantle the equipment (El-Fiqi,

2011:1). The court verdict which opened up the cases of other 90 companies with similar

controversies was instituted by the Egyptian Centre for Social and Economic Rights

(ECSER) maintained that;

Shebin Al-Kom Company was sold for LE 174 million even though its real value was estimated LE 600 million. Al-Nasir Company for Steam and Boilers was sold for $17 million while estimation of the Central Auditing Agency said it was worth double that price. Tant for Linen and Derivatives was sold at LE83 million in 2005 to Abdel-Illah El-Kahki, Saudi investor, while it was estimated at LE 211 million in 1996 (El-Fiqi,2011:1).

Besides, ECSER noted the Administrative Court’s ruling against another but one of most

clear cases of corruption and waste of public money/capital – that is the case of privatizing

‘The Arab Company for Offshore Commerce’. It was reported that;

Ninety percent of the company’s shares were sold in 1999-during the previous regime of Al-Ganzoury as head of cabinet, without a real profit value; even more, the buyer was offered a grant of EGP

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11,582,000 in return for the purchase. Even though the value of this company is no less than EGP 400 million, it was sold for EGP 13,630,000 and the rest was to be paid over the course of a year (Khalil, 2011:1)

As part of the privatization of public enterprises, GOE facilitated the divestment of

public shares in joint venture banks to less than 51 percent, and in 1996 they persuaded the

downward reduction to 21 percent (Mohieldin & Nasr, 1998:15). Government also

established two companies to manage bank investments in 140 joint sector companies that

had capital above LE 6 billion. According to the classification of the Central Bank of Egypt

(CBE) in 2002, as noted by Fethi etal (2009:3), Egyptian banking sector had 62 banks – 28

commercial banks, 4 state-owned banks, 31 business & investment banks and 3 specialized

banks. Smarting from the ‘Egyptianization’ and nationalization measures of 1950s and

1960s (Mohieldin & Nasr, 1998:2), the 4 state-owned banks in Egypt were the largest in

terms of size and market share. The ownership profile of the banks indicated that “four of

the commercial banks are publicly owned and 24 are private and joint, while the business

and investment banks comprise 11 private and joint venture and 20 branches of foreign

banks…the three specialized banks are publicly owned” (Mohieldin & Nasr, 1998:2). The

last major privatization, which was the first privatization of fully government-owned bank,

was the sale of the 80 % stake in the Bank of Alexandria by Italy’s Intesa Sanpalo at the cost

of $1.6 billion in 2006; and it is one of the largest banks in Egypt with asset base of 5.2

euros (US$6.5 billion) as at June 2006, and 210 branches across Egypt (en.m-

wikipedia.org/wiki/Bank_of_Alexandria, accessed 09/08/2014).

For sure, the implementation of ERSAP attracted inflow of foreign aid to Egypt

from US$5.4 billion in 1990 to US$5 billion in 1991, and GDP growth rates statistics from

the Ministry of Industry & Trade improved from 3.2 percent in 2000-2001 to 4.9 percent in

2004-2005; the years of 2005-2006 and 2006-2007 also had GDP increment of 6.8 percent

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and 7.1 percent, respectively (Farah, 2009:43-4). However, the negative impact of ERSAP

on employment growth was one of its sore points. The abandonment of the initial

compulsory jobs in the public sector for college graduates led to massive unemployment, as

the middle class was squeezed and many joined the ranks of the poor(Farah,2009:42). The

privatization programme heightened job insecurity and increased the number of the

unemployed. The performance of the manufacturing sector became dismal as it induced

export-oriented economic thinking and 42 percent of workers in the sector were living below

poverty line (Farah, 2009:44). It was equally noted that “price deregulation and the adoption

of flexible exchange rates added to inflationary pressures in the domestic economy” (Farah,

2009:47). Besides, the increment in electricity, transportation and communication prices, in

order to be at parity with international prices, did not factor-in the low wage levels and the

falling real per capita incomes of Egyptians (Farah, 2009:51). Above all, the reversal of

privatized firms by law courts on grounds of under-valuation, lack of transparency and

proven favouritism to members of the ruling NDP and the cronies of Mubarak had continued

to undermine the credibility of the whole exercise.

The corrupt-laden privatization programme introduced a new lexicon to Egypt’s

political economy called – ‘Crony capitalism’, which is described as “an economy in which

success in business depends on close relationships between business people and government

officials” and connotes such overtures like “legal permits, government grants, special tax

breaks and other forms of state interventionism”. Diwan et al (2013:2) note that “Cronyism is

characterized by a system of gift and exchange between politicians and businesses”. What

helped to shed light on the corruption of political and business elites was the various court

cases that followed the exit of Mubarak. Chekir & Diwan (2013:2) note that corruption

charges bordered on:

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Land appropriation at unfair prices, financial fraud, unfair competition, unfair borrowing from state banks, unfair access to subsidized energy unfair access to state procurement, conflict of interest and receipt of bribes, illegal funding of political campaigns and manipulation of financial markets for the benefit of insiders.

In Egypt, the term ‘crony capitalism became elevated to the national political discourse by

social crusaders and economic rights activists, to underscore the illicit accumulation of

wealth and national assets under Mubarak, especially during the aggressive implementation

of market reforms. A columnist in the New York Times alluded to ‘crony capitalism’, when

he explained that with the majority of American Congressman in the class of millionaires,

they had one-sided discussion- “demanding cuts only in public assistance to the poor, while

ignoring public assistance to the rich” (Kristof, 2014:2).

At the expense of the majority of Egyptians, Mubarak dispensed illegal favours to

friends of government, foreign conglomerates, especially from the U.S. and senior members

of the ruling NDP during the accelerated neo-liberal reforms under the Prime Minister

Ahmed Nazif that served from 2004. National assets were sold to accomplices, without due

process and appropriate haggling and pricing. Some of the sold assets, which were later

revoked by the courts failed basic requirements and internationally accepted rules of

privatization of public-sector companies. And to underscore the complicity of the

International Monetary Fund in the shady deals of privatization, the body expressed

happiness with the implementation of the reform under Nazif and thus:

The direction of economic policies in Egypt changed sharply in 2004 with the appointment of a pro-reform cabinet led by Prime Minister Nazif. The new economic team moved aggressively on key structural reforms in areas of trade, taxes, and subsidies, and launched plans to restructure the financial system, privatize most state companies, modernize the fiscal accounts, and strengthen monetary policy (quoted in Farah, 2009:50).

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Ismail (2011:1) notes that Egypt was governed as a private estate. Mubarak and his cronies

appropriated blue-chip public companies, and vast areas of state-owned lands, under the

sweeping privatization policies. This tiny group acted like hegemonies and assumed the

monopoly of key positions in “strategic commodity markets such as iron and steel, cement

and wood” and thus, “while crony capitalism flourished, local industries that were once the

backbone of the economy were left to decline”. Giving a gripping account of the socio-

economic dislocations accentuated by the ‘crony capitalism’, Ismail Salwa notes that:

Mubarak presided over a process in which the national wealth passed into a few private hands while the majority of the population was impoverished, with 40% living below the poverty line of less than $2 a day, rising rates of unemployment, and job opportunities for the young blocked. In the last few months of 2010, Egyptians protested for an increase of the minimum wage to less than $240, but the now departed Nazif government decreed that less than $100 was sufficient as a basic income. This is, at a time when the prices of food staples and utilities tariffs increased at very high rates. Indeed, as one local economist asserted, every single commodity and service cost significantly more under the Nazif government – which is the government of business that ended progressive taxation and replaced it by a single unified income tax (Ismail, 2011:2).

While these primitive accumulations of national economy were going on, the

justifiable social and economic needs of the people suffered, and the state apparatus was used

to repress and suppress agitations in the face of mind-bogging and ‘provocatively rich’

businesses of a negligible few, who were partners in the corruption cartel. To that end:

Public social services underwent masked privatization, taking health and education beyond the reach of vast segments of the population. Many poor families were forced to give up the hope of educating children and had to send them to menial work to contribute to the income of the household. There was little public investment in most services, and in infrastructure such as roads and for clean water in towns and villages (Ismail, 2011:2).

Two outstanding cases illustrate the level of cronyism under Mubarak. The cases of the

former member of the Parliament Ahmad Ezz , a steel magnate and former Minister of

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Housing, Ahmed El-Maghrabi, the main owner of Palm Hill, the second largest real estate

developer in Egypt (Chekir & Diwan, 2013:2). Thus:

Ahmad Ezz…whose companies dominated the steel industries after 2000, controlling at some stage 65% of the local market, and who is accused of having improperly acquired the largest public steel corporation at an artificially low price, used market power to generate excess profits and lobbied to raise external tariffs to gain protection from foreign competition and for Parliament to pass watered down anti-monopoly legislation…the main owner of Pal Hill, Ahmad El-Maghrabi, was Minister of Housing and has been accused of exploiting his ministerial position to sell his company as well as others of individuals connected to the NDP large tracts of land in various parts of the country at exceptionally cheap prices (Chekir & Diwan, 2013:2-3).

The military under Mubarak also played significant roles in the economy to the

detriment of the general well-being of the citizenry. Egyptian military was involved in a

number of businesses in different sectors of the economy. These businesses which were kept

confidential, untaxed and unaudited cut across industries from “cement to shipbuilding, from

fertilizer to fridges, and from tourism to televisions”(Hammond & Wan,2012:2). In fact,

according to some estimates, the 1997 presidential decree that awarded the army the right to

manage all unused lands gave 87% de facto control of the country’s entire land mass to the

military (Hammond & Wan,2012:2); and so, majority of the poor and peasant could not own

lands. In capturing the military’s deepened but destructive role in Egypt’s economy, it was

stated that:

The Egyptian army is also an economic empire that accounts for nearly 20 percent of the Egyptian economy. The military establishment owns vast amount of agricultural land and real estate, tourism companies, trading companies, and much more. It also operates an industrial complex producing everything from ammunition to washing machines. This economic empire is not immune to the corruption that has been the main feature of all major state institutions during the Mubarak era. Indeed, the secrecy that protects the army budget and finances makes it probably one of the most corrupt of these institutions (Naguib, 2011:9).

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Table 5.7: The Proceeds of Privatization Program from 1991 to 2009 Prime Minister Period Total of Privatized

Companies Total Value of Sale (Billion EGP)

Ated Sedky November 9, 1986 -January 4, 1996 (total of 110 months)

37 2.260.0

Kamal Al-Ganzoury January 4, 1996 – October 5, 1999 (total of 45 months)

115 10.098.869

Atef Ebeid October 5, 1999 – July 14, 2004 (total of 57 months)

58 5.493.131

Ahmed Nazif July 14,2004 – January 29,2011 (total of 78 months)

172 39.499.0 (Monitoring ends in July 2009)

Total 382 Companies EGP 57.353 Billion Source: Khalil H (2011) “Al-Ganzoury and Privatization” Cairo: Egyptian Centre for Economic and Social Rights, December 7; http//ecesr.com/report/5022 accessed 10/08/13,pp:3-4).

Table 5.7. above explains the number of public enterprises privatized under the tenures of different Prime Ministers and the Presidency of Hosni Mubarak in Egypt. As would be observed, Ated Sedky privatized 37 companies representing about 10% of the whole exercise that started in1991; Al-Ganzoury privatized 115 companies that amounted to 30 percent, in his less than 4 years in the cabinet; Ated Ebeid privatized 58 firms that is nearly 15%; while Ahmed Nazif capped it up with 172 companies that amounted to 45% in his 6-year tenure. That sums the privatized firms to 382 as of 2009.

Table 5.8: The Totals of Privatization Program throughout the Fiscal Years, since its launch and until 2009 Fiscal Year Total Number of Privatization

Operations Value of Sale in Million EGP

1991-1994 11 418 1994-1995 14 867 1995-1996 12 977 1996-1997 29 4595 1997-1998 23 2487 1998-1999 33 1824 1999-2000 40 4708 2000-2001 18 370 2001-2002 10 952 2002-2003 7 113 2003-2004 13 543 2004-2005 28 5643 2005-2006 65 14612 2006-2007 53 13607 2007-2008 22 3984 2008-2009 4 1653 Total until June 2009 382 57353 Source: Khalil (2011) “Al-Ganzoury and Privatization” Cairo: Egyptian Centre for Economic and Social Rights, December 7; http//ecesr.com/report/5022 accessed 10/08/13,p16.

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From the theoretical and empirical exposition of the U.S. role in granting and

securing debt forgiveness for Egypt and the implementation of neo-liberal reforms to

jumpstart the ailing Egyptian economy, we validated the hypothesis which states that United

States of America Government’s role in Egypt’s external debt management is conditionality

for drastic economic reforms. Hence, it needs to be stated that the inability of the GOE to

meet its debt servicing obligations in the face of mounting external debt overhang and

massive discontent at home, Egypt was lured into signing a comprehensive implementation

of ERSAP in 1991, which it pigeon-holed for years. And the participation of Egypt in the

1990 Gulf War was another point. So, U.S. wrote off half of Egypt’s debt and persuaded the

Paris Club to do the same, after extracting a written commitment from Mubarak to fast-track

the market-reforms. The hypothesis advanced in this section is therefore accepted. The next

chapter will examine the implications of the US-Egypt ties and the economic crisis that has

remained intractable in Egypt.

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CHAPTER SIX

US-EGYPT PARTNERSHIP AND ECONOMIC CRISIS UNDER MUBA RAK

Hypothesis (3): United States partnership with Egypt was implicated in the economic crisis under Mubarak

6.1. Development Assistance and U.S. FDI in Egypt

Right from the time of the launch of ‘Open Door Policy’ and signing of Camp David

Accord, the U.S. had remained Egypt’s strong ally. The relationship of both countries was

principally attuned to service the mutual security and economic interests. The American

Chamber of Commerce (AmCham) in Egypt that is saddled with promotion and development

of commerce and investment between the U.S. and Egypt describes the uniqueness of Egypt

thus:

Egypt is an economic leader in the Arab world. Not only is it a gateway to the Middle East and North Africa region culturally, linguistically and geographically, it is a regional export hub for companies wanting to break into surrounding countries including MENA, Sub-Saharan Africa, and Europe. Egypt is also the most populous Arab country offering educated, tech-savvy and multilingual labor. Its economy is diversified; it manufactures and exports more than just oil and gas like many of its neighbors. In addition, Egypt is strategically located on the Red Sea and operates Suez Canal which offers the United States access to one of the most important water ways in the world crucial for its economic and military interests (Amcham, 2013:6).

As already noted in this study, Egypt received annual aid of roughly $2 billion from the U.S-

($1.3 billion for the military, $815 million for economic) after the 1979 peace treaty, but

while the military aid had remained constant, the economic aid had been gradually scaled

down in the subsequent Fiscal Years (FY) to about $250 million, especially after neo-liberal

reforms showed impressive signals on the economy.

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The economic assistance from the U.S. was in two broad categories: USAID projects

and cash transfer to specific areas that included health, education, economic growth,

democracy and governance (Amcham, 2013:1). In the over three decades of operations in

Egypt, U.S. through United States Agency for International Development (USAID) had

carried out a number of projects. The projects included:

1) Invested USD 5.75 billion in physical infrastructure programs including electric power, water, wastewater and sanitation, telecommunications and transport;

2) Provided approximately USD 605 million since 1987 for telecommunications;

3) Invested USD 1.8 billion in power sector projects accounting for roughly one-third of total present capacity;

4) Invested around USD 3 billion in water and waste water activities which had helped make clean water accessible to 98 % of all Egyptians. (The wastewater system constructed in Cairo constitutes the largest construction project in the world);

5) Sent thousands of Egyptians to the United States for advanced university studies;

6) Invested billions in technical and financial assistance to modernize Egypt’s economy to create jobs in fields like high technology and manufacturing (AmCham Egypt, 2013:1).

However, the implementation of these projects had some strings attached. The compulsory

measures were taken included:

Increased tax revenues by 40% by reforming the tax structure, adopting best practices, and streamlining operations; expanded horticultural exports from USD8.2million in 1975 to USD 1.79 billion in 2010; increased electric power production ten-fold since 1975 and raised per capita energy consumption by 600% (Amcham, 2013:1).

The U.S. development assistance was also manifested through the U.S. Congress

appropriation of about $200 million since 1992 for the Commodity Import Programme (CIP),

which enabled the Government of Egypt (GOE) and USAID to foster a competitive private

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sector, in addition to assisting U.S. imports in Egypt (Gootnick, 2004:1). USAID and GOE

jointly managed the fund accrued from the loan repayments and in 1998, the U.S had to

negotiate for a reduction in its economic assistance to Egypt including the CIP (Gootnick,

2004:1). In fact:

CIP provided loans to Egyptian importers of U.S. goods and the term of loan repayment is to supply funds to Government of Egypt during the fiscal years 1999-2003…about 650 Egyptian firms used the (CIP) to import $1.1 billion in U.S. products from approximately 670 U.S. exporters. Between 1999 and 2003, about three quarters of these funds supported Egypt’s general and sector budgets and about 15% supported USAID-administered activities and operating expenses in Egypt (Gootnick, 2004:1).

But the 2003 USAID survey notes that “about two-thirds of CIP importers said that they would

have imported not have imported U.S. goods without the program, but half said that it helped

to increase their firms production capacity, and one–third said that it helped increase their

firm’s employment levels” (Gootnick, 2004:1). However, the CIP programmes were limited

by four constraints. Thus: (a) Slow pace of economic reform inhibited private sector

development. (b) Inconsistent foreign exchange policies of Government of Egypt hampered

firms’ ability to do business in Egypt. (c) Bad loans and economic slow-down made it

difficult for banks to grant further loan. (d) CIP was not designed to reach large informal

sector, it limited its ability to foster a competitive private sector (Gootnick, 2004:1).

On his part, Joshi (2011:1) contends that CIP provided funds for Egyptian firms to

import U.S goods at the cost that hurt local businesses, and work contracts were sold to

American companies at less competitive prices and what would obtain at open international

bidding outside U.S. companies. To him, CIP did not help to increase jobs or modernize

Egypt’s financial sector.

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Table 6.1: Examples of Projects and Activities by CIP-generated Funds from Egypt’s Special Account, Fiscal Years 1999-2003 Fiscal Year Type of support/ recipient Total

Funding(nominal dollars in millions)

Purpose

1999 Sector support/Ministry of Health

10.3 Equip medical centers and public hospitals, as well as the National Centre for Liver and Communicative Diseases

2000 USAID Activity/Egyptian Center for Economic Studies

14.4 Ensure the steady flow of resources to sustain the centres’ operations

2001 Sector support/Ministry of Communications and Information

10.1 Train new graduates in information technology and programming, purchase of equipment and vehicles

2002 Sector support/Ministry of Public Enterprise

7.7 Fund (1) studies related to restricting family companies, (2) Leadership training for these companies, and (3) a technical office in the Ministry

2003 USAID Activity/American University in Cairo

34.2 Construct a new campus

Source: Gootnick, D. (2004) “Foreign Assistance: Observations of USAID’s Commodity Import

Programme in Egypt” Highlights of a Testimony Before the House Committee on International Relations, United States General Accounting Office, Thursday June 17,p.12 www.gao.gov/assets/120/111052.pdf, retrieved 18/08/2014.

The United States through USAID carried out democracy promotion programmes in

Egypt that brought about the reformation of the Mubarak’s ruling National Democratic Party

(NDP), the introduction of multi-party presidential elections and allowing the establishment

of 5,000 civil society organizations, but they yielded little results in advancing democracy as

the technical assistance to the legislature and judiciary institutions – the bastion of

democracy, had little or no positive results (Aknur &Okalan,2012:53). USAID spent an

average of $24 million in the fiscal years of 1999-2009 for political reforms and governance

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programmes, but between 2000 and 2005, it concentrated on “effective legal services,

strengthening NGOs, increasing local government service delivery and enhancing citizen

participation”, with award of $181 million in good governance, rule of law, human rights, and

democracy promotion programs (Aknur &Okalan, 2012:53). However, “USAID/Egypt

achieved its highest percentage of goals for its civil society direct grants program activities by

completing 73 of 91 planned activities (80 percent) during the 2008 fiscal year” (Aknur

&Okalan, 2012:53). Though U.S. made contributions to Egypt in forms of aids, bilateral

agreements, direct cash grants and partnership initiatives, yet they failed to institutionalize

democracy in Egypt under President Mubarak. Instead, USAID was implicated in the

controversial purchase of Nile Cotton Ginning Company (NCGC) during the privatization

programme in Egypt, which was annulled by Egypt’s Supreme Administrative Court in

2013(Ahram Online,2013:1). In fact the, Court declared that “the financing and supervision

of the programme by foreign agencies, notably USAID, undermined Egypt’s sovereignty”

(Ahram Online, 2013:1).

Egypt’s adoption of liberalization policies from the era of President Sadat attracted a

number of FDI, notwithstanding the weak character and the vulnerability of the country’s

economy to external shocks. United States, a major ally of Egypt had a maintained a lead in

foreign direct investment inflow to Egypt. The leading sectors of U.S-Egypt business,

according to the U.S. Commercial Service included:

a) Architecture/Construction/Engineering Services;

b) Electricity Power Systems;

c) Franchising;

d) Medical Equipment and Supply;

e) Renewable Energy;

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f) Safety and Security Industry;

g) Telecommunications Equipment and Services;

h) Water and Wastewater Resources.

It was estimated that the stock of U.S.FDI stood about USD$14.6 billion as of March 2012,

which was 24% of U.S. direct investment in Africa (Amcham Egypt, 2012:1). Excluding

petroleum production and refining, the stock of U.S. capital distributed across 1,005

companies, the U.S. capital stood at US$1.8 billion as of January 2012. Apart from other

American petroleum companies that included Devon, Amerada Hess, IPR, Merlon, Pan

Pacific and El Paso; the Apache Corporation - an oil and gas exploration and production

company is the largest independent American investor in Egypt with a total investment stock

of US$8 billion as of 2011, with over 11 million gross acres, that occupies about one-third of

the area in the Western Desert (Amcham Egypt, 2012:1). The financial services, which holds

a different 31% of US non-petroleum capital in Egypt is the second largest sector after

manufacturing. Thus:

Manufacturing companies hold 49% of the U.S. non-petroleum capital in Egypt, with engineering, pharmaceuticals and textiles as the top recipients. Large U.S. investors in these sectors include 3M, American Standard, Coca-Cola, Colgate-Palmolive, General Motors, Gillette, Johnson &Johnson, Pepsico, Pfizer, Proctor & Gamble, Bristol-Myers, Squibb and Xerox. Services are another important sector for U.S. investment in Egypt, holding another 23% of the stock of U.S. capital in Egypt. Petroleum services continued its high levels in 2010, and, accounted for 79% of the stock of U.s capital services. Huston-based Bristow Group Inc., one of the world’s largest providers of helicopter services, is a major contributor to petroleum services, while AIG, American Express, the Bank of New York, Coldwell Banker and the International Finance Corporation (IFC) are significant participants in the financial sector. Alcatel-Lucent, Cisco, Hewlett-Packard and Microsoft are all present in the telecom and information technology sector (Amcham Egypt, 2012:1).

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Even the fast food business in Egypt is dominated by U.S-based franchisors including

Baskin-Robbins, Burger King, Chili’s, Cinnabon, Cold Stone creamery, Dairy Queen, TG.I.

Friday’s Hardee’s hard Rock Café, KFC, Little Caesars, McDonalds, Outback Steakhouse,

Pizza Hut, Starbucks and Ruby Tuesday (Amcham Egypt, 2014:2).

Table 6.2: U.S. Direct Investment Inflows to Egypt (USD billion) Total FDI to Egypt U.S. Direct

Investment Inflows Share of the U.S. Inflows to Egypt

2007/08 17.8 6.45 36.2% 2008/09 12.8 3.52 27.5% 2009/10 11 1.42 12.9% 2009/11 9.6 1.79 18.6% Jan-Mar 2011 1.8 0.16 8.9% Jan-Mar 2012 3.1 0.21 6.8% Source: American Chamber of Commerce in Egypt, Fact Sheet (2012:1)

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Table 6.3: U.S. Contribution in Companies’ Capital

(Stock end of January 2013) Sector Number of Companies

with U.S. Capital U.S. Contribution to Capital (USD million)

Engineering 47 293.6 Pharmaceuticals 18 189.7 Textiles and Clothing 53 138.2 Chemicals 67 71.6 Food and Beverages 33 60.1 Building Materials 10 55.6 Metallurgical 26 37.5 Mining 4 3.5 Wood Manufacturing 8 0.7 Total Industry 266 850.0 Petroleum Services 41 324.8 Commercial Services 110 44.7 Transportation 18 20.8 Consultancies 94 10.2 Health Services 22 10.9 Journalism and Media Production 35 2.4 Education 11 2.0 Public Services 55 2.2 Storage 3 1.2 Human Services 2 0.0 Total Services 391 419.2 Banks 5 239.3 Financial Services 14 85.5 Investment Funds 16 32.2 Total Finance 35 357.0 Real Estate Development 26 43.4 Contracting 46 34.6 Infrastructure 12 5.8 Housing 2 1.7 Total Construction 86 85.5 Information Technology 122 32.7 Communication 23 5.0 IT Services 32 2.0 Total IT 177 39.7 Total Tourism 72 37.1 Land Reclamation 30 10.4 Agro-Industry 1 7.1 Live stock Production and Fisheries 7 2.6 Other Agriculture 1 0.5 Total Agriculture 39 20.6 Grand Total 1.066 1,809.5 Source: American Chamber of Commerce in Egypt, Fact Sheet (2013:3)

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6.2. Trade Partnership and the Qualifying Industrial Zones (QIZs)

Trade liberalization was an element of neo-liberal reforms in Egypt, which was geared

towards actualization of greater opening of her economy to international markets; though

Egypt’s trade relationship between the United States gained momentum since the signing of

peace treaty with Israel. A scholar of U.S-Egypt trade partnership notes their volume of

trade thus:

Egypt is the 48th largest trading partner of the United States, which had an annual trade surplus with Egypt amounting to $3.13 billion in 2009. The United States is Egypt’s largest bilateral trading partner. Egypt is one of the largest single markets worldwide for American wheat and corn and is a significant importer of other agricultural commodities, machinery, and equipment. The United States also is the second-largest foreign investor in Egypt, mainly in oil and gas sector (Sharp, 2011:30).

The U.S. imports from Egypt stood at $2.2 billion in 2010 (Jackson, 2012:7), whereas the

volume of trade reached USD8.5 billion in 2012, which approximately represented 49% of

Egypt’s GDP (AmCham, 2013:1).

There were two major bilateral trade agreements that had existed between the duo

countries were: Market Access Agreement for Textiles and Clothing signed in 1973, and the

Bilateral Investment Treaty signed in September 1982 (AmChamEgypt,2013:1). But the

September 1994 U.S-Egyptian Partnership for Economic Growth and Development had the

goal of “promoting economic stewardship and job creation in Egypt while strengthening the

mutually beneficial commercial linkages between both countries” (AmCham, 2013:1). Also,

a bilateral tie between the two countries was also signed in July 1999 – Trade and

Investment Framework Agreement (TIFA), to herald free trade agreements between the U.S.

and Egypt. However, the Generalized System of Preferences (GSP) that was signed in 1976

but have remained relevant throughout the era of neoliberal reforms in Egypt and Qualifying

Industrial Zones (QIZs) formed in December 10, 2004 have deepened and enhanced trade

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relations for mutual economic benefits of the U.S. and Egypt. The U.S. Generalized System

of Preferences (GSP) means;

A preferential treatment program where certain products are eligible for duty-free to the U.S. under specific qualifications…Qualifying Industrial Zones (QIZs), a one-way free trade agreement that combines Egyptian and Israeli components in manufactured goods from designated industrial zones that enter the U.S. duty-free (AmCham Egypt, 2013:2).

The GSP exempts members from the general rules of World Trade Organization (WTO)

based on the Most Favoured Nation (MFN) principle. The arrangement generally grants

such advantages in trade relations like low tariff or high import quotas, and equal trade

treatment between the country granting the overture and the recipient country. The GSP

package created massive jobs, for the United States, and led to the importation of goods

worth $19.9 billion in 2012 (USTR, 2013:1). The GSP programme which was authorized

through July 2013 brought about:

a) Enhanced access to the U.S. market;

b) Expanded choices for U.S. industries & consumers;

c) Provides duty-free treatment for 3,400 types of products from 129 countries;

d) $22.5 billion in total U.S. GSP imports in 2010 (Jackson, 2012:3).

To qualify for duty-free treatment under the GSP package, a number of conditions must be

met, and thus, they:

a) Must be a GSP-eligible product;

b) Must be a product or grown in Egypt;

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c) If using non-Egyptian in-puts, local content and processing must be 35% of the value;

d) Must import directly into the U.S. from Egypt W/O commerce of another country;

e) Benefit must be claimed by the importer;

f) Keep production / accounting records to assist importer to verify claim (Jackson, 2012:9).

There are products that are categorized as eligible and ineligible products in Egypt

under the GSP programme. The ineligible ones included “manufactured items & inputs,

jewelry, many agricultural products, chemicals, minerals, marble, many carpets”, while the

ineligible ones included “most textiles & apparel, watches, footwear, handbags, luggage,

gloves & leather goods”(Jackson,2012:4). Egypt’s GSP inputs was valued at $51 million

(2%) of total imports, and top imports in 2010 specifically were aluminum products, fruit

juices, building stone, and mineral water (Jackson,2012:7); while Egypt top GSP exports to

the U.S. in 2010 were;

a) Aluminum products (3% duty): $14.1 million entered under GSP; 99% utilization;

b) Building stone (4.9% duty) :$5.8 million entered under GSP: 95% utilization;

c) Vegetables (11.3% duty): $2.4 million entered under GSP; 99% utilization (Jackson, 2012:8).

Furthermore, the under-listed products that were exported to other trading

partners in large quantities could also be to the U.S. duty-free under the GSP program:

a) Agriculture: other fruits & vegetable juices, sugar confectionaries, coffee preparations;

b) Hand-woven cotton fabrics, cotton flax;

c) Iron & steel products: fittings, flanges,& elbows for tubes/pipes, chain, screws, washers wire, grinders;

d) Copper alloys, copper wire/bars/rods/cathodes, etc;

e) Wooden furniture; mattresses and supports;

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f) Pure oils & essences; ethyl alcohol (Shahin, 2008:16).

But the opportunities presented by GSP were not fully exploited by Egypt, as out its total

export to the U.S, which amounted to USD 61 million, only 2.6% fell under GSP, and “it is a

statistical indicator of the underutilization of U.S. GSP in Egypt”(Walter,2008:2). In 2008

specifically, Egypt’s exports to the U.S. had fallen to a mere 2.4% of its total exports, while

Egypt’s neighbours and competitors like Turkey exported 20%; Indonesia 40%;Lebanon 30%

and 60% for West Bank(Sandler,2008:7). In recognizing the limitations of Egypt under GSP,

El Nozany (2008:9) notes that the problem that Egypt faced stemmed from the fact that GSP

is a non-negotiable unilateral system – a sort of ‘take it or leave it’ option; as the eligible

products did not include some items like leather and certain agricultural products, which are

germane to Egypt’s foreign trade. But Hammad (2008:11) had a different view about the

causes of Egypt’s underutilization of GSP. He maintains that poor infrastructure, lack of

expenditure, failure to meet quality standards, the inability of manufacturers to act as good

marketers and other such shortcomings were fundamentally inhibitory to export trade.

Over the years, some scholars had noted the criticism against GSP that mainly bordered

on its potentially counterproductive nature. The drawbacks that can mar the merits of GSP,

according to Herz & Wagner (2010:3) included: first, the compulsory compliance with the

complex rules of origin (ROO), which entailed some ‘administrative procedures’ and

‘specific technical requirements’; and the variants of ROO from the GSP granting countries

could lead to prohibitively high costs for exports. Second, the multiplicity of regional trade

ties could lead to trade diversion from the GSP receiving countries. Third, the

implementation of the different side conditions by GSP donor countries as it pertained to

human rights and labour rights could bring about a more restrictive template that is more

stringent than the internationalized core labour rights. Four, and more fundamentally, GSP

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schemes were more favourable to promotion of exports from the industrialized nations than

the developing countries. In conclusion, they noted that:

While low-income countries are the main target of GSP schemes, higher income countries might be better to deal with specific design of GSP. With a higher degree of industrialization, better infrastructure and more advanced administrative capabilities, countries are better to comply with ROO and specific side conditions (Herz &Wagner, 2010:5).

Indeed, despite the improved access of Egypt to the U.S. markets as a result of the preferential

agreements, the U.S. International Trade Commission reports that:

“Of the top 100 products imported from Egypt (94% of the total exports), only 16 products enter United States duty-free. Of the remaining products, 22 face tariffs of less than 5%, 29 face tariffs ranging from 5 to 15% and 26 products face tariffs exceeding 15% (Hoekman & Konan,2005:52).

The American Chamber of Commerce in Middle East and North Africa (MENA)

compared the volume of exports and imports between the U.S. and Egypt, and thus; Egypt’s

main imports from the U.S. were agricultural products (19%), mainly cereals; transportation

equipment (21%); computer and electronics products (10%); chemicals (6%) and fabricated

metal products (5%); while on the other hand, Egypt’s top exports to the U.S. were apparel

and clothing articles(34%); petroleum products (42%); and iron & steel (14%) (AmCham

MENA, 2007:5-6). As a corollary, “during 2006, Egypt’s exports to the U.S. rose to 14.5%

from 2005 to approximately $2.4 billion: total non-petroleum Egyptians exports amounted to

$1.4 billion, representing 59% of Egypt’s export structure to the U.S.”, while “Egyptian

imports from the U.S. amounted to $4.1 billion in 2006, up from $3.16 billion in 2005”

(AmCham MENA, 2007:5-6).

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Table 6.4: Egyptian Imports, 2010 (in millions of U.S. Dollars) What Egypt

Imports from the World

What the United States Sends to Egypt

U.S. Market Share

AGRICULTURAL & LIVESTOCK 6144.1 1502.2 24% BOOKS/PAPER 1280.7 93.3 7% CERAMIC 123.3 2.2 2% CHEMICALS 6695.4 651.6 10% COTTON/TEXTILES 2907.4 67.2 2% ELECTRICITY/MACHINERY 13577.7 959.6 7% FOOD 4119.6 390.7 9% FUEL 7130.7 227.2 3% GLASS 156.6 2.7 2% METALS 7197.4 904.4 12.6% OTHER 3670.5 160.8 4.4% TOTAL 53003.4 4961.9 9.4%

Source: Broadbent, M (2011) “The Role of FTA Negotiations in the Future of U.S.- Egyptian Relations”, Centre for Strategic & International Studies, Washington D.C.;p.7; csis.org/files/publication/111212_Broadbent_USEgypttrade-web.pdf, accessed 10/06/14.

Table 6.5 : U.S. Imports, 2010 (in millions of U.S. dollars) What the United

States Imports from the World

What the United States Imports from Egypt

Share of Total U.S.

AGRICULTURAL & LIVESTOCK 280001.2 22.8 0.08% BOOKS/PAPER 19866.9 22.2 0.11% CERAMIC 4490.9 0.6 0.01% CHEMICALS 200115.5 277.5 0.14% COTTON/TEXTILES 95161.7 1064.9 1.12% ELECTRONICS/MACHINERY 772908.2 8.2 0.00% FOOD 68228.9 46.9 0.07% FUEL 336346.5 785.1 0.23% GLASS 5277.9 2.5 0.05% METALS 147985.7 22.1 0.01% OTHER 164726.5 59.2 0.04% TOTAL 1843009.8 2312.0 0.13%

Source: Broadbent, M (2011) “The Role of FTA Negotiations in the Future of U.S.- Egyptian Relations”, Centre for Strategic & International Studies, Washington D.C.;p.7; csis.org/files/publication/111212_Broadbent_USEgypttrade-web.pdf, accessed 10/06/14.

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On the other hand, Qualifying Industrial Zones (QIZs) were created by the U.S.

Congress in 1996, with the amendment of United States – Israel Implementation Act of 1985.

QIZs in Egypt are located at the Greater Cairo Zone, the Alexandria Zone, the Suez Canal

Zone, Central Delta Region and Upper Egypt. Cook (2012:231) notes that QIZ in Egypt

provides goods manufactured in Egypt with 80% Israeli content, access to the U.S. It grants

goods produced jointly by Israel and Egypt a duty-free access to the U.S. the rationale for

QIZ is to “allow certain products originating from identified industrial zones in Jordan,

Egypt, the West Bank and the Gaza Strip, duty-free entry into the U.S.”(Ghoneim &Awad,

2010:1). QIZs were established and took off in 2004, and two reasons largely accounted for

the establishment of QIZ, according to Amcham (2013:1):

1) To build a platform to support the Middle East Peace process, and;

2) To provide means to stimulate the economy, develop and expand various sectors, and create

jobs. Furthermore, the rule of origin of QIZs products is explained thus:

Articles entering the U.S. under QIZ must be grown, produce or manufactures in a QIZ and meet the rules of origin requirements. The products must also be substantially transformed in the manufacturing process and directly exported to the U.S. without passing through any other location before arrival at the U.S. border. Value added may be in form of labour, or material component…upon entering the U.S., the material and processing costs incurred must be totaled no less than35%, with 11.7% originating in Israel and 11.7% in Egypt in the original requirement. The remainder of the 35% can come from the West bank, Gaza Strip, Israel the QIZ or the United States. Israel content was negotiated downward to 10.5% as of January 2008 (Amcham Egypt, 2013:2).

Cook (202:231) explained that “a button made in Israel sewed onto an Egyptian

manufacture shirt would qualify for export to the United States under the terms of QIZ

requirement”. He estimated that the 717 companies in QIZs deals have generated $1 billion

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revenue. QIZs have brought leverage and significant gains to the Egyptian economy, as

companies that had no previous experience of export business, entered the U.S. market,

courtesy of QIZ. The volume of Egypt’s export had increased tremendously, especially textile

and clothing. Other sectors like the food industry, foot-wears, leather products,

pharmaceuticals & plastics or organic chemicals were boosted. In fact, after the

commencement of QIZ on December 2004, exports moved from USD 288.3 million in 2005

to 963.4 million in 2012 just as it accounts for 33% of Egypt’s exports (Amcham, 2013:2).

Specifically, textile and clothing which had high tariffs in the U.S, dominated the 80% of QIZ

companies and the volume of Egypt’s export in textile and clothing moved from USD 582.6

million in 2004 to exceed $1 billion in 2011 (Amcham, 2013:2).

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Table 6.6 below captured about 717 companies listed as QIZ eligible in Egypt. They are 172

in Alexandria; 154 in Central Delta; 295 in and around Cairo; 92 in Suez Canal Region. Of

all the 717 Companies, only 223 companies are actually engaged in exports (Salinger,

2008:4).

Table 6.6: QIZ Listed Companies, By Location Industrial Zone Qualifying Industrial Zones # Companies Alexandria Alexandria 77

Dakhhia Governorate Central Delta 4 Damielta Governorate Central Delta 2 Gharbia Governorate Central Delta 28 Monufia Governorate Central Delta 14 El Obour Greater Cairo 15 Shoubra El kheima Greater Cairo 91 10th Ramandan Greater Cairo 140 15th of May Greater Cairo 11 6th of October Greater Cairo 23 Badr City Greater Cairo 4 Giza Greater Cairo 10 Kalioub Greater Cairo 12 Nasr City Greater Cairo 43 Other Cairo Greater Cairo 35 South Giza Greater Cairo 21 Gesr Suez Greater Cairo 10 Ismaila Suez Canal 22 Port Said Suez Canal 55 Suez Suez 5

Total 717 Source: Salinger, L. (2008) “Scoping Study of Egypt’s Qualifying Industrial Zones: Trip Report” Prepared

for Qualifying Industrial Zone Unit of Egypt’s Ministry of Trade & Industry, September; p.4,pdf.usaid.gov/pdf_docs/pdacs436.pdf, accessed 06/07/2014.

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In the following Table 6.2.4, ready-made-garments and textiles constitute more than

80% of the total of the registered firms in Egypt. Only the 23% or 166 firms out of the 733

firms have actually exported their products under QIZ. In the mid-2007, there were only 155

firms that exported their products through QIZ (Ghoneim &Awad,2010:7).

Table 6.7: Distribution of Firms Registered in QIZ in 2008 Sector Number of Firms Animal Products 2 Articles of Stone 12 Base metals 14 Chemical products 13 Electrical equipment 8 Footwear and headgear 14 Furniture 9 Leather 7 Machinery equipment 8 Paper products 1 Plastic products 14 Prepared food stuff 26 Stationery 2 Vegetable products 18 Ready-made-garments and textiles 585 Total 733 Source: Ghoneim, A.F,& Awad,T.(2010) “Impact of Qualifying Industrial Zones on Egypt and Jordan: A

Critical Analysis”, vi.unctad.org/digital-library/?task+dl_doc_name+impactqualifying-industrial, accessed 08/06/14

Goods that must qualify for QIZ duty-free treatment shall have a minimum percentage

of Israeli input. Salinger (2008:3) notes that it was originally 11.7 percent for Jordan QIZ

goods but lowered to 8% in 2004 (7 percent for high-tech products) while Egypt QIZs stood

at 10.5 % in January 2008. The aim of QIZ which was to boost economic cooperation

between Israel and Arab neighbours was scarcely realized especially as it concerned Egypt. A

number of difficulties and problems arose from the implementation of QIZ in Egypt. Thus:

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1) A few companies that had extensive commercial connections with Israel business, with near

absence of organized professional bodies to cement and promote contacts;

2) Business travel between the two countries still witnessed complex and lengthy travel approval

procedures;

3) Increased difficulty in sourcing 10.5% of their content from Israeli company: reasons – high

cost of inputs from Israel (25-50%) higher than those sourced from Asia and limited

availability of appropriate goods (Salinger, 2008:13).

6.3. Standard of Living in Egypt

The World Bank in 2007 described Egypt as the world’s top reformer (Their,

2011:8). But despite the relative macroeconomic gains, as a result of the neo-liberal policies,

majority of Egyptians, in tens of millions, still wallowed in abject poverty. The structural

reforms implemented under Mubarak “dismantled social protections, gutting and privatizing

Egypt’s health care system and other social services along with many of the state-owned

industries” (Maher, 2011:49). By the standard of comparing economic growth among

countries, Egypt ranked considerable high as its Gross Domestic Product (GDP) went up by

four-fold between 1981 and 2006, in terms of purchasing power parity (Maher,2011:49); yet

the rising inequality occasioned by the exclusion of the poor (who are greater in number),

peaked the unbearable levels of poverty and social misery. The 40 percent of Egyptians lived

on less than $2 a day, while majority of the young and educated people were unemployed

(Rivlin, 2011:2). Noting that the unbearable height of economic distress in Egypt stoked

agitations that led to Mubarak’s abrupt ouster, the gloomy state of affairs was captured thus:

The urban poor – city dwellers without sufficient stable income were – impoverished by Mubarak-era infrastructure and subsidy polices. Due

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to overcrowding and demand-induced rent spikes in established neighborhoods, many poor urbanites built make shift settlements on the outskirts of Cairo and other cities. Because Mubarak has not significantly expanded Cairo’s infrastructure since the 1980s, these new neighborhoods do not receive constant running water and electricity. Poor urbanites also have difficulty obtaining food due to the withdrawal of Nasser and Sadat-era subsidies. In the early 1990s, Mubarak cut the national subsidies from 5.2% of total spending to 1.5%. Of the limited subsidies that remained, only 17% directly aided the bottom fifth of the population. Together with the rising global food prices, rent increases and the withdrawal of subsidies produced a 75% increase in the cost of living for Egyptians during the last two decades of Mubarak’s rule…Among the rural poor, this trend pushed many members of the urban poor into activism, including a protest by workers in the Aswan tourism sector and the participation of poor Cairones in the January 25 uprising (Antoon, 2012:2).

And to buttress that the issues of bread and economic conditions under-lied the social

dislocations witnessed in the country, it was noted in Alex Serafimov’s work that:

A Poll conducted by the International Republican Institute (IRI) showed that economic grievances rated the highest in people’s minds. For example, while 63 percent of people cited ‘unemployment’(the most of any choice) and 30 percent cited ‘poverty’ as the biggest problem facing Egypt, the lack of ‘Democracy’ and ‘Free Elections’ were only cited by 6 percent each… A Pew Research Centre Poll also saw economic aspirations put ahead of democratic demands finding that more Egyptians say that improved economic conditions (82%) and a fair judiciary (79%) are very more important than say that about honest, multi-party elections (55%) (Serafimov, 2013:2).

Workers in the public-sector companies were the immediate hit of the privatization

programme. The workers share of GDP moved down from 48.5 percent in the 1980s to 28.6

percent in 1995; and became less than 20% in 2007 (Their,2011:2). Between the mid-1990s

and 2005, nearly 50% of the workers in the public-sector were scaled down, because of the

partial and or full privatization of approximately 200 out of 315 companies, which led to

worsening economic conditions, rapid rise in unemployment and further impoverishment of

the working class (Naguib, 2011:7). By early 2011, it was observed that about 5.8 million

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state workers (which is more than 95%), including their families were reduced to the ranks of

the poor (living below $1 a day per person) (Their, 2011:2).

Also, the rise in global food prices that hit record levels accentuated the poor

economic conditions of the populace. In 2007, food prices that triggered of massive bread

riots jumped to 27 percent (Manier, 2011:50). Schapiro (2011:1) notes that during that

period, an average household in Cairo spent 40 percent of its income on food; but the 30

percent rise of foods in the few months that preceded the Egyptian uprising, fueled the

volatile dissatisfaction. Before then, workers in textile and clothing sectors, building workers,

transport workers, food processing workers and Cairo metro System workers had staged

strikes and pickets to demonstrate their anger against the growing inequality and the

exploitative policies that followed the Prime Minister Ahmed Nazif’s aggressive reforms in

2004. In fact, despite the opposition of Egyptian Federation of Trade Unions (EFUT), the

country witnessed more than 3,000 labour actions between 2004 and 2010 (Maher, 2011:50).

Specifically, the December 2006 strike of 25,000 workers in Misr Spinning and Weaving

Company in Mahalla al-Kubra, (that had more than a quarter of Egypt’s public-sector

workforce); when the government failed to fulfill the promised increment in annual bonus,

was the largest single revolt of state employees (Naguib,2011:7). Again, the April 6, 2008

protests in Mahalla, which rallied thousands of people within hours shook the foundation of

the country and riveted what remained of the regime’s legitimacy (Gopal, 2011:15). So, the

rise in food prices and the removal of subsidies made 55 million or 75 percent of Egyptians to

spend larger chunk of their incomes on food alone (Maher, 2011:50); but its unintended

consequences were the awakening of working-class consciousness and the massive resolve of

the disenchanted to repel the feared internal security - the bastion of Mubarak’s autocratic

rule. Indeed, government was forced to rescind and expand subsidy regime to cushion the

shocks of the astronomical world food prices.

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Despite the expansion of subsidy regime after the 2008 riots, Maher (2011:52) notes

the introduction of $2 trillion Quantitative Easing Program (QEP) by the United States, which

flooded the market with liquidity and inflationary price of assets, valued in dollars, steeped

the economic distress and brought a sharp rise in commodity prices. A number of disquieting

revelations showed the falling standard in social and economic rights of the populace, bred by

the application of the market-driven measures, some of which included:

a) Public spending on health, education and social security declined between 2003-2007,in stark contrast to the rise in spending on defense and national security;

b) Egypt’s anti-poverty policies have failed to make progress, and the number of people living on less than $2 per day in Egypt has risen in the last 20 years;

c) Members of the informal sector have suffered a deterioration of their real earnings over time; and

Only 16 percent of women in Egypt work, women’s salaries are far lower than men’s for

comparable work, and women are far more likely to be unemployed. The gender wage gap

ids the widest of all lower-middle-income MENA (Middle East and North Africa) countries

(Wisniewski, etal, 2011:3).

BTI (2012:25) notes the three major structural constraints to governance in Egypt

and it included – the excruciating level of poverty, especially among the rural populace of

Upper Egypt; the poor education system that failed to absorb the surging youth population

and the compelling need for jobs to march the teeming population that grew by 1.8 percent as

of 2009. Though the real GDP per capita remained stable but its inability to have trickle

down effects on the incomes of the majority of the populace still could not abate the growing

youth unemployment that hovered between 10 percent and 15 percent; just as observers

outside Egypt insisted that unemployment was above 20 percent (BTI, 2012:23)

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Figure 6.1: Sheep-herders in a Cairo neighborhood; the economic frustrations that helped fuel the 2011 revolt have grown more acute.

Source: Kirkpatrick, D. & El Sheik, M. (2012) “Economic Crisis Adds Dangers on Egypt’s New Political Path”, New York Times, January 24, p.2 www.nytimes.com/2012/01/25/world/middleeast/egypts-new-path-cmplicated-by-

economic-problem, accessed 09/09/14.

Though Egypt’s real GDP growth increased from 4.1 percent (2004) to 7.1 percent

(2007) and 7.2 percent (2008), it fell significantly to 4.7 percent in 2009 because of the global

economic meltdown, which affected revenues from manufacturing, tourism and the Suez

Canal (BTI,2012:23). Consequently, the social security programmes failed to meet the

yearnings of the majority of the population. In fact, the low investment in health estimated at

2.4 percent of GDP in 2007, and education 3.8 percent of GDP in 2008 could not meet the

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needs of one-third of Egyptians that were poverty-stricken (BTI, 2012:22). The condition was

worsened by the inconsistent inflationary rates. Despite the floating of Egyptian Pound in

2003 after it was pegged to the U.S. Dollar at the beginning of the market reforms, the

inflation that was below 5 percent in 2002 rose up to 11.3 percent in 2004, dropped to 5

percent in 2005; and rose up to 9.3 percent in 2007 and 18.3 percent in 2008, but depreciated

to 11.8 percent in 2009 (BTI, 2012:25). Besides, Farah (2009:47) notes that “Egypt’s high

import bill and the greed of whole sale and retail commercial agents exacerbated inflation

rates, especially 2003 and beyond”. The high rate of inflation stoked the living standards and

pressured government into subsidizing some products it initially left off.

In the 1990, “15-20 percent of Egypt’s high school and college graduates were

unemployed”(Antoon,2011:2); while the rise in food prices, increment in rents and subsidy

withdrawal raised the cost of living by 75 percent, even two decades preceding Mubarak’s

ouster (Anstoon,2011:1). Within the period of the high cost of living, Egyptians demanded

for a minimum wage of no less than $240, but the cabinet led by Prime Minister Ahmed

Nazif insisted that less that $100 would suffice as monthly basic take home pay (Ismail,

2011:1). Already, a Family Budget Survey in 1996 recorded that 42 percent of the workers

lived below poverty line.

During the partial and the full privatization programmes, Government of Egypt

adopted a number of measures to reduce and weaken the workers’ rights, as the case might

be. Farah (2009:45) writes that government allowed workers – civil service and state-owned

corporations - to take long leaves of absence without pay, while some were transferred to

rural areas to speed up labour migration and resignations of those who felt discomforted.

Outright dismissals, early retirement options as well as reduction of emoluments were played

out, towards achieving the displacement of the large workforce, and expectedly, it heightened

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their economic difficulties in Egypt. For instance, in 1998, 8,700 workers in Misr Helwan

Spinning and Weaving Factory were given three weeks leave, but only 2,800 were re-

absorbed at the end of the period (Farah,2009:46). As a corollary, the collective actions of

workers moved from 202 in 2005 to 222 in 2006; and moved to an unprecedented level of

614 in 2007 (Naguib,2011:8).

The 1992 amendment of the 1952 land reform that regulated the relationship

between the landlords and the tenants was a major fundamental change that economically

disempowered greater number of Egyptians who subsisted solely on agriculture. It affected

more than half or 57 percent that lived on the countryside (Prosterman, 2011:1). The law

passed in 1992 adopted a five-year-phase removal of registered tenancy rights, a major

proviso in the initial law. The amendment was “intended to liberalize the agricultural sector

fully and to consolidate landholdings, in the expectation that the majority of small holders

would abandon their plots after the large increase in land rents”; however, the law

immediately tripled the land rent to a “level twenty-times than that of the land tax” and

ensured that at the end of 1997, rent would be determined by market mechanisms (Farah,

2009:46). It was also reported by Naguib (2011:5) that “tens of thousands tenant farmers and

their families were evicted from the lands they tilled for generations and returned to original,

mostly absentee landlords”. It would be recalled that the 1952 land reform of Abdel Nasser

made the landless poor to become full landowners and created ‘registered tenancy’ that made

insecure sharecroppers to have perpetual rights on their farmlands, on lower fixed rents

(Prosterman, 2011:2). But the revocation of the law by Mubarak resulted to 34 percent of

agricultural lands to be rented and 905,000 tenants that supported at least five million

families were evicted (Farah, 2009:46). The negative impacts of the 1952 land reform as

reported by Posterman (2011:2), were “widespread eviction of former registered tenants,

increased rural poverty and indebtedness, and spurred an increase in urban migration by the

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young. Average rents eventually quadrupled”. Consequently, the average rent before 1992

was LE 200 feddan annually, but it increased to average of LE 600 between 1992 and 1997

(the transition years); after the period of transition, the annual rents averaged between LE

3,000 - 4,000; and “almost half of the affected tenants became landless” (Farah,2009:47).

Thus:

Between 1992 and 1997…About 1 million heads of tenants households (about 6 million people, or close to one in ten Egyptians) went from being secure, moderately prosperous farmers, who enjoyed owner-like status and paid a low fixed rent, to being traditional insecure sharecroppers (Prosterman, 2011:2).

The attendant protests and the discontent against the evictions and the increment in

land rents, occasioned by the market reforms, made the Government of Egypt (GOE) in 1996

to announce the extension of transition period to extra five years, that is 2002, but

government could not live up to its promise. It was only about 12,000, less than 2 percent of

those affected landless peasants that received land from government (Mitchell, 2002:265).

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Table 6.9: Egypt’s Economic Indicators between 2007 and 2010 Economic indicators 2007 2008 2009 2010

GDP $ mn. 130477.8 162818.2 188984.1 218894.3 GDP growth % 7.1 7.2 4.7 5.1 Inflation (CPI) % 8.9 8.7 9.4 - Foreign direct investment % of

GDP 8.9 5.8 3.6 2.9

Export growth % 23.3 28.8 -14.5 -3.0 Import growth % 28.8 26.3 -17.9 -3.2 Current account balance $ mn. 411.6 -1414.6 -3349.3 -4503.8 Public debt %of

GDP 87.1 74.7 75.6 73.8

External debt 4 mn. 33998.0 33365.0 33307.8 34843.9 Total debt service $ mn. 2920.5 3244.2 2910.2 2972.4 Cash surplus or deficit %of

GDP -4.6 -6.4 -6.6 -

Tax revenue %of GDP

15.3 15.3 15.7 -

Government consumption %of GDP

11.3 10.9 11.4 11.2

Public expnd. on edu. %of GDP

3.7 3.8 - -

Public expnd. on health %of GDP

4.9 4.8 5.0 -

R & D expenditure %of GDP

0.23 - - -

Military expenditure %of GDP

2.5 2.3 2.1 -

Source: BTI (2012) “Egypt Country Report”,

neareast.fao.org/Download.ashx?File=Rakin_upload?countryReports?49.pdf, pp.17-18 accessed 02/03/2014.

6.4. Workers Strikes/Protests and ‘Youth Bulge’

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Egypt’s Trade Union Federation (ETUF) was the only legally recognized body that

enjoyed the monopoly of representing workers for nearly sixty years (Beinin, 2012:1).

Practically, its mission was to control workers and ensure that they remain loyal to the

constituted authorities in Egypt, but the workers indefatigable resolve to take their destiny in

their hand, in the face of economic difficulties, occasioned by the economic reforms and pro-

U.S. policies made the workers to more often than not, revolt against its leadership, in order

to demonstrate their anger at any given time. Despite the efforts by the Supreme Council of

Armed Forces (SCAF) to suppress workers, and the challenge of funding, the labour

movement had remain the most organized, most impregnable and the most sophisticated anti-

government social group in Egypt. The workers defied the ETUF’s legal monopoly during

the groundswell that led to Mubarak’s ouster to form the Egyptian Federation of Independent

Trade Unions (EFITU) – “the first institution that emerged to emerge from the revolt”

(Beinin, 2012:1). Indeed, ETUF “was unable to prevent militant labor dissidence in the late

Mubarak era” (Beinin, 2012:3). EFITU came into being on 30 January 2011, when four

independent unions led by property tax collectors union came together; and labour movement

got boosted by the immediate declaration of support to the new body by the night-shift

workers at Misr Spinning and Weaving Company - the country’s largest state-owned

company in the industrial center of Mahalla”(Ali, 2011: 3). This underlying motivation for

the development of an independent labour movement began in the late 2007 when the

General Union of Real Estate Tax Authority (GURETA) workers embarked on a national

strike to demand for wage parity with fellow tax workers employed directly by the Ministry

of Finance, who earned higher (Beinin, 2012:5). The eleven-day sit-ins at the premises of the

Finance Ministry by about 8,000 workers led to a 325% wage increase (Beinin, 2012:5).

Between 1998 and 2010, over 2 million and perhaps, about 4 million Egyptian workers were

involved in 3,400 to 4,000 strikes and collective actions (Beinin, 2012:3). These waves of

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demonstrations were accentuated by a technical recognition (though with no legal backing) of

the independent workers union by the Ministry of Manpower and Migration, and by 2008,

30,000 of some 50,000 clerical officers from the local authority had joined the labour

movement, which led to the formation of labour unions across various professional

organizations (Beinin, 2012:5).

Figure 6.2: Suez Canal Workers Sit-in and Protests

Suez Canal Company workers began an open-ended strike in front of the company's headquarters in Ismailia City, Egypt, in early 2011. The canal stayed open as several hundred workers demonstrated, demanding the resignation of their immediate boss, a pay rise and social equality Source: NBC News, February 2, 2011.

The grievances of the workers stemmed from the proposed privatization of public-sector

companies that started during the era of President Anwar al-Sadat’s ‘Open Door’ economic

policy. The experience of the ‘1977 Bread Riots’ made him to haltingly set out to restructure

the economy. However, the era of sweeping neo-liberal reforms, advocated by the IMF and

the World Bank, and the U.S. were the most trying and provocative moments for Egyptian

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workers. The signing of the economic reform and structural adjustment programme ERSAP

by Hosni Mubarak in 1991 ushered in privatization of public enterprises via Law 203 of

1991 which set the framework for the privatization of about 314 public enterprises (Beinin,

2012:4). At the beginning of the implementation of ERSAP, ETUF initially resisted the

enactment of the Unified labor Law 2003 which empowered the employers to engage

workers on indefinite ‘temporary’ status contract and also dismiss them (the workers) at the

employer’s sole discretion, without recourse to the prevailing international best practices of

rules of engagement workers services. Though it was not strictly enforced, ETUF strived and

inserted some clauses in the new law, which prohibited mass firing after privatization and

compensation to those who might be eventually laid off. Mosafa Ali reports that most strikes

took place in government-owned enterprises and or in the newly privatized corporations, and

their grievances centre around five critical areas. Thus:

First, workers want a 1,200-pound ($204) monthly minimum wage. Second, they want to replace corrupt CEOs – many of them are also members of Mubarak’s National Democratic Party. Third, the strikers, many of whom have been working on temporary contracts for years, want job security. Fourth, many workers are demanding that privatization and outsourcing be reversed, and that they become government employees again. Fifth, among many strikers, there is a desire to get rid of pro-regime union officials and sympathy for the formation of new, independent unions (Ali, 2011: 2).

The strike and protests by Egyptian workers increased considerably after the Prime Minister

Ahmad Nazif came on board in 2004 and accelerated the reforms, which escalated the

palpable tensions already in place. Joel Beinin notes that:

Immediately after Nazif government took power, contentious action escalated. The highest estimate of the total number of labor protests from 1988 to 1993 is 162 – an average of 27 per year. From 1998 to 2003, the annual average for collective actions rose to 118. But in 2004, there were 265 collective actions; over 70 percent occurred after the Nazif government took office in July. The movement was initially

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centered in the textile industry, which had been targeted for privatization, but by 2007, it encompassed virtually every industry, public services, transport, civil servants and professionals (Beinin, 2012:5).

The workers strikes and collective actions took political and radical dimensions when

in February 2011, they joined other civil society groups and the teeming impoverished youths

to demand for unconditional exit of Mubarak from his nearly 30-year uninterrupted rein in

Egypt. A labour leader Kamal Abbas said that “they were motivated to strike when they

heard about how many billions the Mubarak family was worth” and wondered how much

longer they would be silent (NBC News extract, 2011:3). There were protesters chants like

“O Mubarak, tell us where you get $70 billion dollars as reported by NBC News of 9

February 2011 in Cairo.Thus:

Egypt’s were infuriated by newspaper reports that the Mubarak family has amassed billions, and perhaps tens of billions of dollars in wealth while, according to the world bank, about 40 percent of the country’s 80 million people live below or near the poverty line of $2 a day. The family’s true net worth is not known (NBC News extract, 2011:3).

The involvements of Egyptian workers in different sectors of the economy in the sweeping

uprising and sit-ins that forced Mubarak’s dethronement were captured thus:

The labor strikes broke out across Egypt as many companies as many companies reopened since night curfew were impose almost two weeks ago. Not all the strikers were responding directly to the protesters’ calls. But the movement’s success and its denunciations of the increasing poverty under Mubarak’s rule resonated and reignited labor discontent that has broken out frequently in recent years…In Cairo, hundreds of state electricity workers stood in front of the South Cairo Electricity Company, demanding the ouster of its director. Public transport workers at five of the city’s roughly 17 transport hubs also called strikes, demanding Mubarak’s overthrow, and vowed that buses would be halted Thursday. It was not clear if they represented the entire bus system for this city of 18 million. …Several hundred workers also demonstrated at a silk factory and a fuel coke plant in

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Cairo’s industrial suburb of Helwan, demanding better pay and work conditions…In the city of Suez, strikes entered a second day on Wednesday. Some 5,000 workers at various state companies – including textile workers, medicine bottle manufacturers, sanitation workers and a firm involved in repairs for ships on the Suez Canal – held separate strikes and protests at their factories (NBC News Extract, 2011: 3-4).

On the other hand, ‘youth bulge’ represents a demographic phenomenon that makes

the already low demand for labour worldwide more precarious, as the proportion of persons

at youthful age bracket increases rapidly, far above other age brackets, without corresponding

new jobs; and this, in turn exacerbated the unemployment crisis. Ortiz & Cummis (2012:1)

note that “youth bulge has severe implications for labour markets worldwide. Each year

approximately 121 million adolescents turn 16 years old – 89 percent of which are in

developing regions – and can enter the world’s labour market”. The situation raised alarming

concerns as it was expected that 1.1 billion new potential workers will join the labour market

between 2012 and 2020 (Ortiz & Cummis, 2012:1).

With over 33% of youths in the Middle East under 15 years, it has one of the youngest

population in the world; as Egypt paraded well over 54% of youths under the age of 24

(LaGraffe,2012:73). And 80% of those who are unemployed were youths that resorted to

labour migration as a quick-fix solution, though it failed to address the challenges (Said &

O’Neil, 2010:1). In fact, the university graduates and technical degree holders were the

worst hit due to overcrowding of public sector that used to grant automatic jobs to school

leavers but was stopped in the years of neo-liberal reforms. EconomyWatch (2010:2) notes

that the total unemployment in Egypt in 1960 was less than 200,000, and in 1976, it rose to

850,000 and by ten years later in 1986, the figure move to more than two million; with

annual average growth rate of workers to 523,000 while employment increased at a lower

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annual average of 435,000. Ghada Barsoum identified the causes of youth unemployment

thus:

Two factors have consistently contributed to the poor employment prospects of young Egyptians. On the supply side, the youth population continues to grow due to a demographic bulge. Egypt currently has its largest cohort of youth in its history and equipping this large group with the skills necessary to compete in a globalized knowledge economy is a formidable task within an overly burdened and under-funded education system. On the labor demand side, the slow pace of job creation in the formal economy, and persistent low productivity and underemployment within the informal sector are limiting young people’s options (Barsoum, 2013: 1).

Figure 6.3: The highest age bracket is between the ages 20 and 24, which underscores the high level of youth unemployment in Egypt.

Egypt's Population Pyramid, 2010

Source: Population Council (2010) “A Survey of Young people in Egypt: Final Report”p.4,,

www.popcouncil.org/research/survey-of-young-people-in-egyp-final-report, accessed 19/09/14

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With unemployment among the youth between the ages of 15 – 24 totaled at 24.8%, as

of 2010, and about one million youths reportedly losing their jobs in 2011 and extra 162,000

in the last quarter of 2012, Egypt has to contend with unprecedented army of angry youths

that can unleash their discontentment at a little provocation. This justifies that thesis of that

“one of the major factors of unemployment problem is that the labor force has grown at a

faster rate than the demand for labor and this trend is likely to continue in the coming years

too” (EconomyWatch, 2010:2). The youths had to wait for more than five years to secure

their first jobs after school. They could not live up to the societal expectations; neither could

they chart their economic future independent of their parents and relations. Thus:

The rising cost of housing–spurred by the increase in oil money coming into the country has made it difficult for younger people to buy a house. This is exacerbated by unsatisfactory credit markets, which often fail in their basic purpose. The inability of Egyptian youths to afford to live in their own houses made many of them to postpone marriage. This in turn made them to depend on the older generations for an extended period (Said & O’Neil, 2010:1).

While some scholars posited that the uprisings that ousted Mubarak was accentuated by

increase in the cost of wheat, LaGraffe (2012:73) noted that it was a combination of hikes in

food and fuel and the demographic challenges that sparked off the pent-up emotions. The

United States Institute for Peace captures the scenario thus:

Egyptians saw their real incomes severely eroded in the face of uncontrollable price hikes of basic necessities. The recent global recession made things much worse for many Egyptians, and the population living in poverty rose precipitously. These factors combined to help push Egypt restless population over the tipping point –many felt they had little more to lose…(i)n the end, Egypt’s youth were buffeted by the ‘perfect storm’. Unfair parliamentary election and the wave of political unrest in Tunisia may have lit the fuse but

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underlying socioeconomic inequities fueled the continued unrest (Gilpin, e tal, 2011:14).

So, youth bulge is one of the social problems in Egypt which the unequal tie between

Egypt and the U.S, and its attendant market-reform accentuated. It was not surprising

that the youths were at the fore front of the mobilization against Mubarak during the

popular uprising. Thus, as noted by Diskin (2005;291) “a comparism of thirty

collapsed democracies with thirty stable democracies indicated that social cleavages

are more likely to lead to collapse of the system than the nature of governmental

institutions”.

Table 6.9: Percent of Young People Reporting on Issues Very Important for Egypt, 2009 Social Issue Reported as Very Important Percent Ages 15-29

Poverty Reduction 92

Fighting Rising Prices 90

Fighting Corruption 88

Reforming the Education System 86

Strong Defense Forces 86

Reforming the Health Care System 85

A High Level of Economic Growth 78

Protecting Freedom of Speech 75

Protection of Political Rights 64

People Have a Larger Role in Government 63

Political Leaders With Strong Religious Beliefs 53

Source: Population Council (2010) “A Survey of Young people in Egypt: Final Report”p.4,,

www.popcouncil.org/research/survey-of-young-people-in-egyp-final-report, accessed 19/09/14

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From the foregoing theoretical and empirical exposition on the economic

partnership between the U.S and Egypt and its implications for the economic crisis on

the later, we validated the third hypothesis which states that United States economic

tie with Egypt was implicated in the economic crisis under Mubarak. Suffice it to say

that the U.S. FDI in Egypt targeted areas with which U.S. had comparative advantage

and measures like Generalized System of Preferences and Qualified Industrial Zone

did not lead to the growth of Egyptian economy, as the areas which Egypt could do

better had some hiccups that worked against her the partnership. The trade

liberalization component of the reform did not lead to industrialization and greater

productivity; and the local bourgeoisie collaborated with the foreign conglomerates to

rip off Egypt. The economy plunged, the living standard plummeted and those who

joined the ranks of the poor increased. The hypothesis examined in this study is

accepted based on strength of the data presented.

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CHAPTER SEVEN

SUMMARY, CONCLUSION AND RECOMMENDATIONS

7.1. Summary

The central theme of this study is to examine the United States of America’s

Government Assistance and neoliberal reforms in Egypt under the former President of Arab

Republic of Egypt, Hosni Mubarak (1981-2011). He inherited an economy bedeviled by

fiscal crisis. The crisis plunged to a choking level, as Egypt’s debt profile increased from

US$19 billion in 1981, to US$37 billion in 1986 and US$49 billion in the early 1990s (Farah,

2009:40-1). Desperate to leapfrog the economy, Mubarak, under the prodding of the U.S –

Egypt’s key ally since the consummation of the 1979 Camp David Accord – resorted to the

‘Washington Consensus’ economic reform model, by adopting the Economic Reforms and

Structural Adjustment Programme (ERSAP) supervised by the IMF and the World Bank.

Even after implementing the key elements of the reforms, the precarious state of affairs was

captured thus:

The military rulers have also presided over a period of financial turmoil. Inflation has surged into double digits, and the exchange rate for the currency, the Egyptian pound, is under heavy pressure. Foreign exchange reserves have plunged, as the government is spending about $2 billion a month in a losing battle to prop up the pound. Foreign currency reserves have fallen to about $10 billion dollars, after certain obligations, from about $36 billion before the revolt (Kirkpatrick, 2012:2).

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Despite the variants of policy measures and the IMF glowing report that Egypt had

achieved the highest fiscal balance in the Middle East between 1996 and 1997, the economy

failed to grow as projected. Instead the number of those living below poverty line of $2 a day

increased at a geometric ratio. The pegging of Egyptian pound to US dollar; the liberalization

of domestic and foreign trades; the removal of significant subsidy in food, fuel and energy

products; the reduction of public investment outlays and the removal of all interest-rate

ceilings to favour the private sector and the privatization of public enterprises, led to

immiseration of the majority of the citizenry and de-industrialization, as speculation

businesses took over real production.

It was against the background that this study set out to evaluate the underlying

intricacies of the U.S. economic assistance and the implementation of neo-liberal reforms,

notwithstanding the glaring political and socio-economic peculiarities of Egypt. Thus, the

study posed the following research questions:

1) Did United States of America’s military aid provide support for authoritarian rule in

Egypt?

2) Was United States of America’s Government’s role in external debt management

conditionality for drastic economic reforms under Mubarak?

3) Was the United States of America’s economic tie with Egypt implicated in the economic

crisis under Mubarak?

Correspondingly, the study hypothesized thus:

1). United States of America’s military aid provided support for authoritarian rule in Egypt

under Mubarak.

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2). United States of America’s Government role in Egypt’s external debt management was

conditionality for drastic economic reforms.

3). United States economic tie with Egypt was implicated in the economic crisis under Mubarak.

Also, the specific objectives of the study were to determine the influence of:

1.) United States of America’s military aid on authoritarian rule in Egypt; (2) United States of America’s management of Egypt’s external debt on drastic economic

reforms under Mubarak; and

(3) United States of America’s economic tie with Egypt on the economic crisis under

Mubarak.

The study adopted ex-post-facto research design. Secondary data were generated from

official documents, books, journals and conference papers. Documents from organizations

like the Central Bank of Egypt; Egyptian Consular Office, Lagos; Egypt’s Centre for

Economic & Social Rights, Cairo; Ministry of Foreign Affairs, Cairo; National Institute for

International Affairs (NIIA), Lagos and Centre for Advanced Social Science (CASS), Port

Harcourt; Human Rights Watch; Carnegie Endowment for International Peace; African

Development Bank were effectively utilized. Data were analysed using content analysis and

logical induction.

The Marxian structural theory of the state constituted our theoretical framework of

analysis. It argues that the actions and policies of the state are determined by the structures of

the society, by the contradictions generated by given economic structures of the society and

class struggles, and not by people in positions of power. The theory proposed that the policies

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of the capitalist state tend toward the reproduction of capitalist economies relations, and the

capitalist state itself (McGowan & Walker, 1981:378). And as noted by Ake (1981:128) the

structure of the colonial state was reinforced in the post colonial economy as the indigenous

bourgeoisie that took over government at the time of political independence had no sound

economic base and resorted to the use of state power for accumulation of wealth. In Egypt,

the military and its civilian collaborators had remained in power for decades, with the

backing of U.S., in order to maintain their foothold in the Middle East, and this influenced the

adoption of sweeping market-reforms and pampering of dictatorial leaders, at the detriment

of Egyptians.

With qualitative descriptive analysis and logical induction, we analyzed the generated

data and presented them in figures, tables and pictorials. Relying on the avalanche of

evidence at our disposal, the study found that:

1) United States of America’s annual military aid of $1.3 billion to Egypt over-empowered

Mubarak to consolidate his autocratic rein for close to three decades. The renewal of

emergency laws every three years, the clampdown on press freedom, the restrictive law

on the registration of political parties and civil society groups as well as the manipulation

of the electoral process underpinned the autocratic rule under Mubarak.

2) United States over-arching role in the write off and/or forgiveness of a significant amount

from Egypt’s external debt stock left Egypt with no choice than to adopt the drastic

economic reforms presented by the IMF and the World Bank. Thus, market-reform

measures like the privatization of public enterprises, reduction of national budget for

subsidies, price deregulation, hike in energy prices as well as the devaluation of Egyptian

Pound with respect to the U.S. Dollar accentuated economic crisis under Mubarak.

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3) The economic tie between the U.S. and Egypt, and the insistence on the removal of

subsidies in critical services, to qualify for continued economic aid snowballed to 40% of

Egyptians living below $2 per day. Besides, the introduction of trade liberalization

squeezed the middle class, just as thousands of workers were retrenched as a result of the

sales of public sector companies. More importantly, the 1992 land reform law brought

about an upsurge in the number of landless peasants while the U.S. investors bought off a

significant proportion of the Egyptian lands, especially in the urban and semi-urban cities.

7.2. Conclusion

The central problem of this study is to investigate the United States of America’s

Government assistance and neo-liberal reforms in Egypt under Mubarak. The U.S.

asymmetrical relationship with Egypt and the impoverishment of Egyptians through the

implementation of market reforms have been captured by the body of evidence in the tested

of hypotheses. Hence, it has been validated that the U.S. annual $1.3 billion military aid to

Egypt fortified Mubarak’s dictatorship and stifled all genuine attempts to institutionalize true

democracy in Egypt. Also, the U.S. role in obtaining debt forgiveness for Egypt led to the

adoption of drastic measures to revamp the economy, which eventually plummeted the

economic crisis in Egypt. The study also validated the hypothesis that the U.S. partnership

with Egypt was implicated in the economic crisis under Mubarak. At this juncture, it is

pertinent to note that even after Mubarak’s exit, Egypt’s political economy had continued the

path of U.S. bearing. The study concludes that the challenges of institutionalization of

genuine democracy and lifting of the people’s living standard in Egypt are germane and very

compelling. Thus, minimal regulation based on democratic appraisal and efficient capitalism

is the way forward.

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7.3. Recommendations

In the light of above findings, the study recommends that:

1) That Egypt should review her military alliance with the United States of America.

Strategic actions should be articulated in order to gradually delink its military from the apron

strings of the U.S, in terms of aid-giving, arms supply and logistics for officers training.

Without a reform of Egypt’s military, there would be no political reform that would work, as

Egypt’s military is the strongest institution and possesses a financial war chest to decisively

call the shots covertly or otherwise. A national conference should then, be convoked, to

discuss the future engagement and direction of the highly-divided country. Egypt should

adopt international best practices to institutionalize democracy and regime change. Egypt

needs strong institutions – independent electoral body, free press, vibrant political parties,

incorruptible judiciary, efficient law enforcement system, legislature with a focused mandate,

vibrant civil society and a military that is loyal and submissive to civil authority.

2) That Egypt should implement the structural reforms on phases. Embarking on sweeping

market-reforms in an economy with little or no social safety nets, and where the majority of

the citizenry live below $2 per day, will lead to endemic crisis and social dislocations. The

weak and the disadvantaged must be factored in before any policy measure would achieve

stability.

3) Egypt should review her economic partnership with the U.S. In doing so, Egypt has to

look inwards to exploit and channel the energies of her vibrant and teeming youth population

into areas that the country has a comparative advantage. Agriculture and production should

be taken as a national priority to create wealth. In the mean time, there is an urgent need to

establish micro-credit insurance schemes, (with contributions from both the public and

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private sectors as well as the donor agencies); and social security programme to cater for the

unemployed and unemployable youths to reduce social tensions and economic stagnation.

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BIBLIOGRAPHY

BOOKS

Abdel-Khalek, G. (2001) Stabilization and Adjustment in Egypt: Reform or Deindustrialization, Lincolnshire, UK: Edward Elgar Publishing Limited.

Aja, A. A. (1998) The U.S. Presidential Personalities and Power of Persuasion in Foreign Policy, Abakaliki: WillyRose & Appleseed Publishing Co.

_________ (2001) Selected Themes in International Economic Relations: Understanding Trends of Globalization & Regionalization, Enugu: Rhyce Kerex Publishers.

Ake, C. (1981) A Political Economy of Africa, Ibadan: Longman

_______ (2001) The Feasibility of Democracy in Africa, Dakar: CODESRIA.

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Brownlee, J. (2007) Authoritarianism in the Age of Democratization, Cambridge, Cambridge Press.

__________ (2012) Democracy Prevention: The Politics of US-Egyptian Alliance, New York: Cambridge University Press.

Burnham, P. et al (2004) Research Methods in Politics, New York: Palgrave Macmillan

Burns, W.J. (1985) Economic Aid and American Policy Toward Egypt,1981-1985, Albany: State University of New York Press.

Calderisi, R. (2006) The Trouble With Africa: Why Foreign Aid Isn’t Working, New Haven/London: Yale University Press.

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Chomsky, N. (2000) Rogue States: The Rule of Force in World Affairs, UK: Pluto Press.

Cook, S.A. (2012) The Struggle for Egypt: From Nasser to Tahir Square, New York: Oxford University Press.

Dieter, N, e tal (eds.) (1999) Elections in Africa: A Data Handbook, UK: Oxford University Press.

Egbo, S. (2001) Political Soldiering: Africa’s Men on the Horse Back, Enugu: John Jacob’s Classic Publishers.

208

Farah, N.R. (2009) Egypt’s Political Economy: Power Relations in Development, Cairo: American University in Cairo Press.

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Ibrahim, S.E.(1996) Egypt, Islam and Democracy, Cairo, American University in Cairo Press.

Kassem, M. (2004) Egyptian Politics: The Dynamics of Authoritarian Rule, London: Lynne Rienner Publishers.

Khor, M. (2000) Globalisation and the South: Some Critical Issues, Ibadan: Spectrum Books Limited.

Kienle, B. (2000) A Grand Delusion: Democracy and Economic Reform in Egypt, London: IB Tauris & Co Ltd.

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Mitchell, T. (2002) Rule of Experts: Egypt, Techno-Politics, Modernity: Berkeley, University of California Press.

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Obasi, I.N. (1999) Research Methodology in Political Science, Enugu: Academic Publishing Company

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BOOK CHAPTERS

Abdel-Khalek, G. (1994) “Egypt’s ERSAP: the Orthodox Recipe and the Alternative” in G. Abdel-Khalek & H. Kheir-El-Din (eds), Economic Reform and Its Distributive Impact in Egypt, New York: Holmes &Meier.

Asobie, H.A. (1990) “Decision-Making Models Revisited: An Analysis of the Application of Theories and Models of Foreign Policy Decision-Making to the Study of Nigeria’s Foreign Policy” in G.O. Olusanya & R.A. Akindele (eds) The Structure and Processes of Foreign Policy Making and Implementation in Nigeria,1960-1990, Lagos: NIIA.

Butter, D. (1989) “Debt and Egypt’s Financial Policies” in C. Tripp & R. Owen (eds.) Egypt Under Mubarak, London: Routledge Publishers.

Ebeid, M.M. (1989) “The Role of the Official Opposition” in C. Tripp & R. Owen (eds.) Egypt Under Mubarak, London: Routledge Publishers.

Godelier, M. (1972) “Structure and Contradictions in Capital in R. Blackburn (ed.) Ideology in Social Science, London: Fontana.

Kwanashie, M. (2010) “Historical Perspectives on the Scramble for Africa” in O.C. Eze & C.A. Anigbo (eds) New Scramble for Africa, Lagos: NIIA.

Olukoshi, A.O. & Nwoke C.N. (1994) “The Theoretical and Conceptual Underpinnings of Structural Adjustment Programmes” in A.O. Olukoshi, e-tal (eds) Structural Adjustment in West Africa, Lagos: Pumark Nigeria Limited.

JOURNAL ARTICLES

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Aknur, M. & Okalan, E. (2012) “The Limited Impact of USA on Political Liberalization in Egypt during the Mubarak Era”, Alternatives Turkish Journal of International Relations, Vol.11, No.2, Summer, http://www.academiaedu/4534903/The-

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Ayubi, N. N. (1988) “Domestic Politics” in L.C. Harris (ed) Egypt: Internal Challenges and Regional Stability, Chattam House Papers-39, London: Routledge & Kegan Paul Ltd.

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Chase, A. E. (2006) “The Politics of Lending and Reform: The International Monetary Fund and the Nation of Egypt”, Stanford Journal of International Law-93.

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OFFICIAL DOCUMENTS

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