Egypt's Military-Industrial Complex

All eyes turned to Egypt's military as protests shook the regime and President Hosni Mubarak's grip on power. Described again and again as the most trusted and stable of the country's institutions, it is, at the same time, one of the most mysterious and veiled. It is also one of the most powerful and untouchable. While the Cabinet and ruling party were revamped, the military portfolio remained the same. Field Marshal Mohamed Tantawi remains both Defense Minister and Minister of Military Production, which makes him, in effect, CEO of a vast military-run commercial enterprise that seeps into every corner of Egyptian society.

It's hard to overstate how entrenched the military is. It is universally hailed for its heroism fighting against the colonial British, and later against the Israelis. Virtually all Egyptian families have contributed officers or conscripts to its ranks, which number nearly half a million soldiers in uniform and about the same number in reserves. The military also fields and sponsors several of the country's most popular sports organizations. And, during recent bread riots, it helped mollify angry crowds by ramping up production from its own bakeries. (See pictures of the confrontation on Tahrir Square.)

But despite the military's predominant role, the Egyptian public knows remarkably little about how the military actually operates. That's because writing about the military has long been off-limits to the press. The secrecy begins with the military budget, which Jane's estimates to be about $5 billion. However, one independent researcher has calculated that actual military expenditures could be four or five times larger. Part of the budget is made up of U.S. military assistance of $1.3 billion annually that provides financing for Egypt's major weapons systems. (The funding must be spent on U.S. goods and services and is therefore effectively a subsidy for U.S. defense contractors.) As for the parliamentary committee responsible for overseeing those expenses, it is stuffed with police and military officers; the prospects for meaningful civilian oversight anytime soon are dim.

Then there is the military's role in the economy. Military factories first sprang up in the 1820s to produce uniforms and small arms. Their role expanded with the state-led economy from the early 1950s and was consolidated when the military needed to place hundreds of thousands soldiers downsized after the peace agreement with Israel. (At that point, the active military had numbered about 900,000.) Now, military-run firms hold strong positions in a wide range of key industries, including food (olive oil, milk, bread and water); cement and gasoline; vehicle production (joint ventures with Jeep to produce Cherokees and Wranglers); and construction, in which it benefits being able to deploy conscripts during their last six months of service. Another source of the military's untold wealth is its hold on one of this densely populated country's most precious commodities: public land, which is increasingly being converted into gated communities and resorts. The military has other advantages: it does not pay taxes and does not have to deal with the bureaucratic red tape that strangles the private sector. (The military's corporate reputation is mixed: one of efficient management but with a Soviet-style focus on meeting production quotas vs. generating profits.) (See TIME's exclusive pictures of the clashes in Cairo.)

There are widely divergent estimates of the size — and quality — of the military's business empire. Anthony Cordesman at the Center for Strategic and International Studies says it is proportionately smaller than that played by the People's Liberation Army in China. He also says it has shrunk in recent years. But Paul Sullivan, a National Defense University professor who has spent years in Egypt, says it is huge, probably accounting for 10% to 15% of Egypt's $210 billion economy.

The revenue streams from its various holdings help the military maintain the lifestyle its officers have grown accustomed to, including an extensive network of luxurious social clubs as well as comfortable retirements — all of which helps ensure officer loyalty. (See pictures of a night in Tahrir Square.)

This structure of economic power and patronage came under threat from the attempts of Gamal Mubarak, the President's son and heir presumptive, to reform Egypt along lines that skirted the generals. The military was particularly incensed that a key ally of Gamal's, Ahmed Ezz, was able to snap up state-owned steel assets, strengthening his commanding position in the industry. Not only was the military interested in the same firms, but as a major buyer of steel it would be vulnerable to Ezz's ability to impose near monopoly pricing.

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