The timing seemed to be successful, when Egypt's sovereign fund announced on February 3 that it was preparing to offer the shares of ten military companies on the national stock exchange, and the Ministry of Finance and economists expected that the Egyptian economy would grow by 5.8% in the current fiscal year 2020-2021, twice the rate. Global".

With these words, political researcher Yazid Sayegh started his new study on floating military companies on the Egyptian Stock Exchange, which was published by the Carnegie Middle East Center on its official website.

Sayegh added in his study that the Corona pandemic spoiled or halted the project of President Abdel Fattah El-Sisi until the crisis caused the deterioration of the Egyptian Stock Exchange, recording the largest decline among all Arab stock exchanges by March 16, and losing 95 billion Egyptian pounds in one week ( The dollar equals 15.70 pounds).

He went on to say, "Six days later, Sisi announced a 20 billion pound (1.27 billion dollar) support for the stock exchange, in an attempt to revive stock prices, but the cumulative stock exchange losses amounted to 132 billion pounds until April this year, and it is no longer certain to move forward with the idea of ​​floating military companies. , And Sisi and the relevant government agencies should consider the Corona pandemic as an opportunity to completely reconsider the idea, or do what must be made to make it successful. "

According to the Lebanese researcher, Corona was not the only obstacle in the face of the project, as there were important obstacles standing in the way of military companies. Al-Sisi originally announced his idea in August 2018, so the passage of nearly a year and a half before the sovereign fund took over Evaluating its commercial suitability only indicates the difficulties of putting military companies on the stock market, as confirmed by the ministers' reluctance to adopt the idea.

The delay in offering military companies reveals a great irony, compared to the noticeable acceleration in launching more ambitious and much more expensive projects that Sisi adopted after his coming to the presidency. Work began in the expansion of the Suez Canal - for example - only three days after Sisi announced the project on television in August 5, 2014, forcing the Ministry of Finance to prepare legal procedures to receive citizen investments in record time.

As for the new administrative capital project, whose total cost will be twice that of the expansion of the canal, it has moved from advertising in March 2015 to the start of drilling at the chosen site east of Cairo after only a few months, according to the researcher at the Carnegie Center.

Sayegh emphasized that the offering of military companies on the stock exchange constitutes - in theory - an important and positive departure from the financial uncertainty and doubtful feasibility of the Egyptian military economy, and if the offering was completed in a correct way, it can fully reveal the financial conditions of these companies, and provide a reasonable way to increase the capital Its money, however, the technical problems, political challenges related to transparency, unequal competition, profitability, and legal ambiguity; all raise important doubts about the eligibility of military companies to offer on the stock exchange, and how economically this is feasible.

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Financial accounts
The first obstacles that might impede the Sisi project - as Sayegh says - "Military companies are unlikely, or even impossible, to provide a full financial statement, especially since the ten companies that may sell shares belong to the Ministry of Defense's national service projects, whose accounts remain It is kept secret for reasons of national security, and not subject to inspection by the Central Auditing Agency.

He added that the accounts of the National Service Projects Authority are outside the authority of all government financial, auditing and accounting devices, and are not subject to parliamentary oversight, as is also the case for the accounts of the Ministry of Defense, and the defense budget in general.

Sayegh stressed that putting the services of the National Service Projects Authority on the Stock Exchange necessitates opening their accounts to the same types and levels of auditing that other companies offered on the Stock Exchange are subject to, so that they are also suitable for offering. Actual, as well as about their debts and entitlements, and the fate of their profits.

However, he believes that the Sisi administration may seek to amend the rules of the stock exchange to allow the offering of military companies without doing a full financial disclosure, citing this statement by Sisi when he renewed the talk about his proposal at the end of October 2019, saying, "We are working on this issue, we said three Years, but the subject of offering on the stock exchange has many procedures that I do not want to speak about. "

This step is not easy in the eyes of the researcher, who commented, "Egypt has so far avoided exposure to international monitoring, as long as military companies compete to obtain shares in specific markets and government funding affects only their counterparts from national civil companies, except that the amendment of the offering rules On the stock exchange would highlight the problem abroad, and seriously damage the reputation of the Egyptian stock exchange, and the Sisi administration should step cautiously if it wants to solicit foreign investment.

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Economic dominance
Accounts are not the only problem, according to Sayegh. The Sisi administration must work to ensure equal competition between military and civilian companies, if the real goal of offering military companies on the stock market is to improve their viability and not be merely a ploy to extract capital from misguided investors.

He added that the military authorities enjoy privileges that give them important economic preferences compared to their civil counterparts in the private and public business sectors, as they are exempt from paying income or real estate tax, customs fees, and other government fees and deductions.

They also enjoy production costs that are much lower than civil companies, for example, they get the support of energy-consuming industries, such as the cement plant of the National Service Projects Authority that Sisi proposed to put on the stock exchange; the armed forces vehicles are used for transportation, and they are exempt from paying traffic charges on highways It is run by military agencies; easily gets hard currency and easy exchange rates, in addition to semi-free employment specifically for project body companies.

However, the most important privilege - according to the researcher - is that the law has the right for military organizations and their companies to receive - and in turn award - contracts, in what is known as the term "direct attribution", that is, without competition or bidding, and this provides a huge advantage in excluding civilian competitors from the business sector Private and public, as it guarantees to military bodies and companies incomes even if the goods and services they provide are of low quality.

This concession also provides the military with the ability to lever the arm of civil companies to accept unfair commercial conditions today, knowing that they will have additional contracts in the future if accepted, and that they will not be able to enter future tenders if they refuse.

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Privileges and risks
However, these concessions may not weaken the appetite of investors to buy shares in military companies, as Sayegh sees, it is very likely that most of those who buy shares in military companies will be Egyptian citizens motivated by national motives, and also because they will assume that the government will not let these companies fail, and that it (i.e. Companies) will still receive lucrative government contracts regardless of their actual efficiency or performance.

He added, "But that does not completely hide the risks to which investors will be exposed, especially since the companies of the National Service Projects Organization that may be offered on the stock exchange are subject to the military judiciary, and therefore the joint projects or partnerships that take place between the military authorities and private companies - including foreign - It is not subject to the Egyptian Companies Law, nor to the laws of foreign companies.

According to a commercial attaché to one of the western embassies in Cairo, spoke to him by Reuters in 2018; foreign investors felt that there was no point in resorting to arbitration in the event of a conflict with any military entity, but rather "to leave the country", as political relations were not enough either. To get major Chinese and Emirati investors not to withdraw from the new administrative capital project due to differences over land pricing and profit sharing with the Ministry of Defense and the military companies that manage it.

Sayegh stressed that despite the absence of transparency or any protective legal barrier, the temptation of easy and quick profit is what prompted European, Arab and Egyptian investors to express their interest in buying shares in these companies, even before they knew what was offered for sale from them.

He stressed that there is another motive for selecting the companies of the National Service Projects Organization to offer, which is Al-Sisi's permanent search for capital, which explains Al-Sisi's insistence on floating military companies even before completing an inventory of their assets and before making sure of their feasibility in a long time.