Analysis

The Egyptian Army Is Making a Fortune in Sinai

Cairo sees investment in the peninsula as an investment in national security, but the military receives tax and other benefits that crowd out the private sector

Hamas security forces on the Palestinian side of the Egyptian-Gaza border at Rafah, April 21, 2016.
Khalil Hamra / AP

“You can’t even imagine the amounts of money that we’ve invested in Sinai,” said Egyptian President Abdel-Fattah al-Sissi at the National Youth Conference in Cairo on Saturday.

Sissi said tens of billions of Egyptian pounds had been allotted to develop the Sinai Peninsula as part of the grandiose plan he announced in 2018. The Egyptian development minister added that in next year’s budget some $318 million had been allocated to projects in Sinai, some 75 percent more than for last year. Half the money is for the north and the rest for the center and south.

Kuwait and Saudi Arabia are partners in some of the projects and the rest are being funded by the government as part of its policy that sees investment in Sinai as an investment in national security.

There’s a gap between the government’s declarations and implementation, but it seems Sissi is the first Egyptian president since the Camp David Accords returned the peninsula to Egypt who plans to invest seriously in an area considered the most neglected in terms of government investment.

Egypt is still engaged in an exhausting war against terror groups in Sinai. Cities and sometimes entire districts are often under curfew, the trip between El-Arish and Egypt proper goes through dozens of military checkpoints, large funerals are prohibited, and entrance to cemeteries requires a special permit. Arrests and raids on homes are routine and unemployment is skyrocketing.

But the security forces and government now realize that restoring the Sinai economy, especially in the northern peninsula, may create jobs for the many Bedouin who joined terror groups or helped them as a way to support their families. And so, eight years after the Arab Spring, which was accompanied by waves of major terror attacks across the country, Sinai residents are starting to see the change brought about by the new policy.

Two important endeavors in the works are the New Rafah and New Bir al-Abed projects, where more than 10,000 apartments are to be built. These are to provide housing for the thousands of families who were expelled from the Sinai-Gaza border area so the military could establish a security zone several kilometers wide to stop the movement of militants between the two areas.

Another project the government announced in February is to allocate 20 dunams (5 acres) of land to every unemployed university graduate for establishing a farm with government guidance and supervision. But the government hasn’t yet managed to fill the requisite land quotas. It’s doubtful this move will be very popular, because agricultural work isn’t exactly the dream of a typical Egyptian university graduate. A similar project initiated by President Hosni Mubarak 15 years ago in the Nile Delta was a total failure.

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Infrastructure investments aren’t enough to create jobs for thousands of unemployed young people in northern Sinai. The state is trying to encourage foreign and Egyptian investors to build factories and service centers, it’s setting up free trade zones, and it's promising incentives to investors in northern Sinai. But investors aren’t rushing in, mainly because of the security threats and the transportation difficulties between Sinai and Egypt.

The situation is different in southern Sinai, particularly in the tourist areas along the Red Sea coast. These are safe areas that draw tourists and investors, and it’s here that Sissi decided to prefer the military over private investors.

Two orders by the president recently gave the army control over 47 islands in the Red Sea and over hundreds of thousands of dunams along the shore. In some places the military will build resorts and sports facilities, while some of the already operating tourist sites will now be managed by the National Services Projects Organization, a subsidiary of the armed forces.

This company was founded in 1979 to let the military create civilian sources of income by developing factories and construction projects. It has turned into a huge industrial conglomerate that’s assigned numerous government projects. While the projects of private companies are subject to income and corporate tax, the army’s profits from civilian projects are exempt from tax as well as government and parliamentary oversight. Thus the army has an unfair advantage as it competes with the private sector at a time when Egypt badly needs private investment.

Giving the army control over tourism sites is a new development with lots of profit potential. After the tourism crisis ended with the resumption of charter flights from Russia to Egypt, which had been suspended for more than two years after the deadly bomb attack on a Russian airliner in 2015, the number of tourists to Egypt rose sharply, as did tourism revenues.

According to the Egyptian Tourism Ministry, in 2018 tourism brought in some $12 billion, 50 percent more than in 2017; during the first half of this year tourism has brought in more than $7 billion.

Egypt is expecting more than 12 million tourists this year and next, most of them at the Red Sea resorts. The problem is that most of the profits will now be going to the military, thus strengthening its economic monopoly. The army will also be the one to decide who its subcontractors will be and who will manage the new tourism sites once they’re built.