Emerging and frontier markets are renowned for neither their transparency nor navigability; their untapped potential is what continues to capture the intrigue of investors worldwide. In Egypt’s opaque and potentially exploitative setting, identifying the way in which influence is exerted becomes an increasingly worthwhile endeavour for understanding how the state functions.

Managing the risk-reward ratio of investing in Egypt is both a taxing and labour-intensive assignment but it is nevertheless a feasible one. Shadow Governance is releasing a series of reports to illustrate the informal mechanisms of influence, or power plays, that are seen to affect Egypt’s overall investment risk. These reports aim to give external investors a deeper understanding of the driving forces behind political and commercial decision-making in Egypt as well as a clearer picture of how power relations are leveraged domestically.

Resource distribution and elite interaction will be the focus of the upcoming release, and are briefly summarised below.

Resource Distribution as a State Imperative
Firstly, resource distribution is one of the most important forces that work behind the official narrative, i.e. a component of the deep state. The Egyptian political elite direct various resources to actors within the state in return for their continued loyalty and support for government led initiatives. The benefactors of this mechanism belong to a select group of ‘insiders’ who enjoy unparalleled levels of patronage and prestige. Quite often, those who are trusted by the ruling elite will be rewarded with a place in government. For example, laws passed prior to Egypt’s 2015 Parliamentary elections empowered wealthy independent candidates, intended to benefit many who openly endorsed President Sisi and the status quo he upholds. Under deposed President Mubarak, Parliamentary seats were akin to political immunity and in Sisi’s Egypt, a Parliamentary seat presents an opportunity to appease the executive.

Additionally, direct institutional appointments are made by the Executive for individuals keenly backing the political establishment. Egyptian steel tycoon Basil El Baz, Chairman and CEO of Carbon Holdings, sits on the board of the Tahya Masr Fund and Ahmed El Zend was Justice Minister less than 12 months ago. Both men have espoused a pro-regime position and were rewarded accordingly with a place in the inner workings of the state. This practice is ubiquitous in Egypt and found at all levels of business and across different sectors. More importantly, it is very often the key determinant between being awarded a state tender or not.

Tied into this is the culture of wasta, or nepotistic connections, that facilitates access to jobs or opportunities. Wasta can be as benign as helping secure a good parking space outside the office or as manipulative as providing preferential access to state tenders and commercial projects. For example, a Military clique permeates the Sisi administration and it is widely recognised as the preferred actor of the government. As such, a Military linked company, Dar Al Handasah, won construction and development tenders for the Suez Canal expansion projects in 2014 out of 14 highly qualified bidders – an unlikely outcome should Mohamed Morsi have remained Egypt’s President until the bidding process.

Access to capital provides a major incentive for business figures to adhere to state policy, as it has the potential to make them wealthy and privileged. IPOs in the mid 1990s brought vast sums of wealth to Gamal Mubarak and former Trade Minister Rachid Mohammed Rachid, and the Mubarak regime offered financial windfalls to those connected to the inner elite. With Egypt touting the idea of future privatisation programs, there is every chance that certain individuals will likely benefit at the expense of others due to their perceived compliance with the establishment.

Elite Interaction and Power Dynamics
Resource distribution ties into relations between Egypt’s various elites and merits a review of the dynamics between the country’s potential power players. Holding a position of prestige is invaluable for unlocking access to emerging opportunities in Egypt’s fast changing political setting, with key benefactors of regime sponsorship even enjoying retribution after committing state crimes.

Swathes of political and business elite figures from the Mubarak era have been exonerated by the government of President Sisi despite guilty verdicts issued in courts. Sameh Fahmi and Hussein Salem are noteworthy personalities to have enjoyed ‘pardons’ from Cairo’s judiciary after settling their cases with the Illicit Gains Athority (IGA). Many perceive this policy as an opportunity to buy freedom, but it meshes nicely with the government’s financial needs at present. Expect more reconciliations over the course of 2017.

The Military elites are key benefactors of prestige in a system effectively run by the Egyptian Armed Forces (EAF). Following Mubarak’s ouster, Field Marshal Mohammed Hussein Tantawi governed briefly, but Morsi soon ostracised him as well as several other military figures including General Sami Anan. The Sisi led coup not only gave a military man a centre-stage seat but brought Egypt’s premier institution back into the picture. Challenges to this current situation are not expected to succeed in the short term either.

As such, there is very little space to challenge the status quo, and the regime has been effective in marginalising opposition groups. Political Islam is back underground and seems unable to mount a significant challenge to Sisi, or the general political narrative, in the short-to-medium term. The Muslim Brotherhood, or ikhwan, are legally banned from political activities and a war in the Sinai against militant Islamism (tied into transnational groups such as Islamic State) is rolling back its presence in the peripheries. Political Islam is unlikely to dissipate altogether as a force in Egyptian society and so will remain underground until state sponsored repression is lifted.

The media and pro-democracy campaigners have also been on the receiving end of brutal crackdowns, albeit less regularly than the ikhwan, at what the regime perceives as intransigence and unfounded criticism of its policies. Tensions reached boiling point in April 2016 with the raiding of the Press Syndicate Headquarters in downtown Cairo and the arrest of two journalists, Amr Badr and Mahmoud Al Saqqa. The subsequent two-year sentence for Synidcate head Yehia Qalash at year’s end suggests the sage will spill over well into 2017.

Understand Power Plays
Foreign investors should ideally be aware of what is driving decisions in Egypt and how this has a bearing on control within the state. While the country has experienced a turbulent six years since 2011, shrewd and well-informed investors continue to reap rewards and avoid pitfalls.

Shadow Governance Intel’s reports aim to give investors an extra edge when making decisions regarding their in-country operations, and seek to fill a ‘knowledge gap’ between the investor and their environment.

Store Items:
Resource Distribution as a State Imperative
Elite Interaction & Egypt’s Power Dynamics