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The Egyptian military produces a staggering array of manufactured goods: kitchen cutlery, flat-screen televisions, agricultural and household chemicals, refrigerators, industrial machinery, railway cars, and election booths. And while many of the military’s factory webpages make a concerted attempt to promote their wares, the careful observer gets the feeling that the production of air conditioners and gas stoves has superseded the production of guns and ammo. Although the military has been co-producing weapons systems in its factories under license from Western arms manufacturers for decades, the production lines and maintenance facilities constructing and modifying American M1A1 tanks, British armored vehicles, French Alpha Jets, and Chinese versions of Soviet MiGs are remnants of agreements originally signed in the mid-1980s and early-1990s, initiated by the now-deceased former Field Marshal (and staunch US ally) Mohamed Abdel Halim Abu Ghazala.
The intervening decade saw few new agreements — and none on the scale of these previous projects. Owing primarily to a reputation for poor quality, the Egyptian military lacks a robust export market for its defense products, many of which end up in warehouses. Yet the military’s production lines continue to roll out weapons systems that exceed what even a bloated military can absorb: thanks to its continuing M1A1 co-production program with the US, Egypt is now home to more tanks than all of Sub-Saharan Africa and Latin America combined. The military’s economic planners know that a revival of their defense-industrial complex will not be achieved through an expansion of these aging operations, but rather through cultivating new smaller scale projects that partner the Egyptian armed forces with a diverse portfolio of second- and third-tier foreign defense manufacturers willing to transfer modern technologies in exchange for lucrative sales contracts with Cairo.
The centerpiece of this approach is the new three billion Egyptian pound “Mubarak Complex for the Defense Industry” being constructed somewhere along the Belbeis Desert Road, which runs from the northeast section of Cairo’s ring road and extends about 50 kilometers to Belbeis in Sharkeya province. This project has included the re-location of several of the military’s largest factories—including Shoubra Engineering Industries, Maasara Engineering Industries, Maadi Engineering Industries, Heliopolis Company for Chemical Industries, and Abu Zaabal Company for Specialty Chemicals — from residential areas on the outskirts of Cairo to this new, more remote location.
The factories are reconstructed at the new five hundred-acre industrial park, purpose-built for the military, whose leaders say the site will house twenty-eight factories by the end of 2012, with plans to ultimately add thirty-four additional manufacturing sites. The location will also include a new 200 million Egyptian pound laboratory and technical education complex, which former Minister of Military Production Sayed Meshaal said would help facilitate the transfer of relevant defense technologies. Before being replaced by Ali Sabri in December 2011, Meshaal also cited the continuing construction of the “Mubarak Complex II,” which he said would comprise eighteen munitions factories on a separate 1,500 acre plot.
The relocation process has occurred in tandem with an expansion in investment in the military’s factories — especially those facilities that produce small arms and raw materials used in weapons production. The Ministry of Military Production’s five-year development plan for the period 2002-2007 detailed the expansion in factory activities, including new production of steel and copper alloys and a wide range of chemical and explosives materials; the upgrading of machinery, including blast furnaces and chemical testing equipment; and new investments in infrastructure for the military’s electronics and chemical industries. Other production targets included the development of longer-range artillery and ammunition and a collaborative radar development project with an unnamed foreign partner.
Foreign firms are cooperating with Egypt in expanding the military’s ability to produce raw materials for use in weapons systems, including the Austrian-based company VAIS (a division of Siemens), which is providing technical assistance on the new 1.7 billion Egyptian pound steel rolling mill at the Abu Zabaal Engineering Industries factory, which will be outfitted with equipment supplied by the Egyptian subsidiary of the German firm Ferrometalco. [insert photo] The Ministry of Military Production has slated some of the factory’s future output for tank and armoured vehicle construction, as well as for use in shipbuilding.
Former Minister of Military Production Sayed Meshaal justified the cost of the new complex by citing dramatic (and therefore dubious) increases in output at the military’s production facilities, giving a figure of 483 million US dollars in “production” for the 2009/2010 fiscal year, and “revenues” of 345 million US dollars. Meshaal also pointed to the intensification of technology and development collaboration with foreign defense manufacturers, including firms from the United States, Russia, the UK, China, South Africa, France, and Italy, which necessitated the construction of new facilities for research, manufacturing, and testing.
Many of these partner countries are also home to international shipping conglomerates and petroleum companies that have recently launched joint ventures with Egyptian state-owned firms in which the military owns substantial shares. The Kuwait-based conglomerate Kharafi Group — whose operations hub is in Obour City near the new defense complex site — has been an instrumental link in the Egyptian military’s efforts to gain access to foreign technologies and investment capital. Over the past decade the Egyptian military has established a number of “private” sector ventures with the group, which have facilitated the transfer of technologies from firms in Taiwan, Germany, and elsewhere. This is in addition to a number of joint ventures between Kharafi’s Egyptian divisions Kharafi National and EMAK, and the various subsidiaries of state-owned holding companies widely perceived to be under the control of the Egyptian military.
In addition to investments in factories and infrastructure, the Egyptian military is adapting its protocol for eliciting co-production and licensed manufacturing agreements from foreign defense firms. Instead of focusing on domestic production of very large-scale equipment in collaboration with OEMs (original equipment manufacturers — like Boeing, Lockheed Martin, BAE, etc.) the Egyptian military appears to be diversifying its portfolio of partners, approaching subsidiaries and smaller independent suppliers instead. The relative success of both Jordan and the UAE — which now manufacture and export a relatively wide range of weapons and equipment through various joint ventures with smaller-tier suppliers — may have influenced the Egyptian military’s renewed vigour for this type of collaboration.
This strategy has two potential benefits. First, the related projects are more likely to result in sustainable production activities, since they do not necessitate the transfer of the most sensitive technologies that require official approval from the host states of exporting firms. This improves the likelihood of getting export contracts, since sales to third parties will not be hampered by concerns over technology proliferation. Although co-production programs are still ongoing for large-scale, highly advanced systems like the M1A1 tank, these do not provide any real possibility for generating exports, since very wealthy countries would prefer to buy equipment built in the US and Europe, and poorer countries may not get the requisite technology waivers.
Therefore it makes sense for the military to concentrate on mid-range manufacturing such as small arms, as well as on tasks like upgrading and modifying armoured vehicles, which can also be achieved through agreements with the smaller firms that generally provide the armaments, electronics, and fire-control systems that are added to the tanks and fighter jets built by the OEMs. Second, subsidiary firms and smaller independent manufacturers are probably more willing to acquiesce to co-production demands in order to secure a sale, since smaller firms have fewer capital resources and subsidiaries may be under pressure from the parent company to compete with other divisions.
The contracts concluded by the Egyptian military during the previous decade appear to reflect this strategy. Examples include a waterjet-powered fire-fighting vessel (with 4X4 vehicle deployment ramp) built in 2004 by the Helwan Company for Machining & Equipment (Factory 999) based on design technology and materials provided by Teknicraft Design (of New Zealand) and the local Egyptian agent of Hamiltonjet (also of New Zealand); as well as a 2004 contract with US-based firm Accent Controls Inc. to “establish facilities required for the maintenance and repair of Egypt’s fleet of high-mobility multipurpose wheeled vehicles (HMMWVs)” — essentially military-grade Humvees — a maintenance line that had previously gone dormant. The Department of Defense said this latter contract would “help Egypt to expand its defense industry.”
The website of an Egyptian consulting firm revealed that it had worked on another product development plan, this one encompassing the military-owned firms Arab International Optronics and Benha Electronics Factory, along with Motorola and the French defense firms Thales (which owns half of Arab International Optronics) and Thomson CSF. Benha Electronics also signed a Memorandum of Understanding (MoU) with the Latvian firm SAF Tehnika in 2009 pertaining to the procurement of communications systems for use by Egypt’s police force, which would be supplied by SAF Tehnika but built in Benha factories. The MoU indicated that the contract would be the basis for a long-term joint venture that would make Benha the local hub for the Latvian firm’s regional operations.
A State Department cable from the American embassy in Belgrade released by WikiLeaks suggested that in 2008, Thales and Arab International Optronics were planning to import 520 kits for the Russian-designed SA-7 man-portable air-defense systems (MANPADs), allowing Optronics to gain experience and technological know-how in assembling the systems. The WikiLeaks cables also revealed that the South Korean firm Hanwha (operating as a subcontractor under industrial giant Samsung) had requested approval from the State Department to transfer US-origin technologies to Abu Zaabal Company for Specialty Chemicals in 2008.
The specific technology in question — a method for testing propellants — was to be used in a production line for the manufacture of 155-millimeter ammunition (howitzers). This project was meant to expand the scope of local content used in the production of howitzers, connected to an earlier deal signed with the majority state-owned Finnish company Patria Vammas (the giant European defense consortium EADS owns the remaining shares of Vammas), which granted the Egyptian military a license to manufacture its howitzers and other mortars. The Ministry of Military Production recently announced that Abu Zaabal Engineering Industries is now producing gun tubes for these 122-millimeter and 155- millimeter howitzers, as well as mortars for use on M1A1 tanks—all using locally produced steel.
Far from slowing down in the face of economic uncertainty or concerns over political stability on the part of arms exporters, co-production agreements and technology transfers may be intensifying under the leadership of the interim military government. In February 2011, Egypt requested the modification of an earlier contract signed with the American firm Swiftships (a subsidiary of Singapore-based Halter Marine). The original thirteen million US dollar contract, signed in 2008, was for four twenty-eight-meter patrol craft, but the modified contract allowed for an Egyptian shipyard to “assemble” two of the patrol craft and “co-produce” the other two—at an increased cost of twenty million US dollars. In the fall, Egypt announced the purchase of six Onuk MRTP-20 fast-intervention crafts “with technology transfer” from the Turkish company Yonca-Onuk JV. Three of the units are to be assembled at the military-owned Alexandria Shipyard. The increased cost that generally accompanies co-production agreements (meant to compensate foreign firms for transferring proprietary technologies) suggests that Egypt’s military rulers are seizing the opportunity to expand their technological toolbox while they hold the formal reins of government—regardless of the additional cost.
MAINTAINING HIGH-PROFILE CO-PRODUCTION PROGRAMS
Naturally, the military is unlikely to forego continued joint production of high-profile systems like the M1A1 tank, which has more to do with institutional prestige and employment for officer-engineers than it does with tactical or strategic concerns. In the summer of 2011, the US government announced the tenth round of Egypt’s co-production of the General Dynamics M1A1 tank, which included kits for 125 new tanks at a cost of 1.3 billion US dollars. Then-Minister for Military Production Sayed Meshaal stated that plans were to increase the military’s share of the tanks’ production from eighty percent to ninety per cent—a threshold that newly-appointed Minister of Military Production Dr. Ali Ibrahim Sabri indicated has since been met.
Like the M1A1 program, there are other similar examples of continuing large-scale projects with OEMs, notably in the area of armored vehicles. These include a 2005 agreement with United Technologies to co-produce M88A2 tank recovery vehicles, and a twenty million US dollar contract signed with Oshkosh Defense in 2009 to co-produce the M1070 tank transport and refueling vehicle. Both projects will be carried out at the Egyptian Tank Factory (Factory 200) where Oshkosh already co-produces the MTT (medium tactical truck) with the Egyptian army. Additional contracts have also been awarded for the construction of new facilities for depot-level maintenance (the most sophisticated form) of military vehicles, as well as for the expansion of existing facilities, including a 2011 contract that went to US-based Advanced Technology Systems Company to build a new facility for repairing and overhauling tank transporters and recovery vehicles. Although these projects are relatively large in scale, they are directly connected to Egypt’s continued M1A1 tank production. As the number of tanks increases, so too must the number of tank recovery vehicles available in the army’s arsenal — if not for truly strategic reasons, at least to perpetuate the illusion that procurement is somehow tied to issues of equipment and logistics. The significant influence wielded by the Egyptian army, as opposed to the other service branches, also helps ensure that their own equipment demands are a high priority.
Continuing these high-profile production activities in parallel with more middle-range projects also increases the likelihood that Egypt’s military factories may be able to secure a spot in the increasingly globalized defense industry supply chain. The new gun tubes built at Abu Zaabal Engineering Industries, for instance, were used in the production of artillery rounds meant for the M1A1 tank, and according to Egyptian military officials, these new rounds met NATO specifications and passed US inspection. This could give the Egyptian generals greater bargaining power in future negotiations—perhaps convincing General Dynamics’ executives to purchase the gun tubes (a practice known as counter-purchase in defense industry parlance) and use them for upgrades made to the armament systems of tanks sold to other countries.
Similarly, according to a US embassy cable released by Wikileaks, the impetus for the 2006 purchase of a Chinese firm called SiTex by Kharafi Group’s Egyptian division was to secure technology transfer. As noted above, Kharafi Group has several joint ventures with the military, and the design for the Helwan-built fire-fighting vessel provided by the New Zealand firm Teknicraft includes radio technology manufactured by a firm called SiTex. Perhaps the Kharafi Group executed the purchase of the Chinese firm so the technology could be incorporated into subsequent boats manufactured by Helwan for export. Such reciprocity would not be unusual, and Kharafi Group benefited immensely from its military ties when soldiers were deployed to protect the company’s critical infrastructure during the recent uprisings. Securing a new form of technology for use by the Egyptian military is a small price to pay for such security guarantees.
There are signs of growing collaboration with non-Western suppliers as well, including a 2005 agreement to co-produce 120 Chinese K-8E trainer/light attack aircraft at the AOI Aircraft Factory in Helwan that also includes electronic and mechanical technologies for use in civil aviation. In 2010, several industry outlets reported that Egypt and Pakistan were advancing negotiations on the licensed production of the JF-17 multi-role fighter, and Lieutenant General Hamdy Waheba, chairman of the Arab Organization for Industrialization, told China’s state-run news agency that negotiations with an unnamed foreign partner were underway to produce Egypt’s first fighter drone.
Like all co-production programs, the 2005 agreement to co-produce Chinese jet trainers at the AOI Aircraft Factory in Helwan had an inflated price tag. However, the added cost appears to have secured a number of non-strategic goals for the military: first, the AOI factory assembling the planes claims that ninety-four percent of the work will be performed in Egypt—which represents a substantial increase over the proportion of manufacturing work (and therefore technology) transferred under previous co-production arrangements. Second, the nearby Factory 360 (the Helwan Metallic Appliances Company) now has a brand-new production facility churning out air conditioning units under license from Hisense, a Chinese state-owned company. Lastly, in 2011 the Aviation Industry Corporation of China signed another agreement with the AOI to collaborate on a range of aviation applications, including the establishment of a research and development facility in Egypt.
HAVE WEAPONS, WILL EXPORT
The Egyptian military’s current expansion plans reveal a few general policy trajectories: the construction of new factory infrastructure, research and training facilities, and testing labs to enhance foreign collaboration; an effort to gain access to defense technologies by seeking out projects with smaller defense firms; efforts to expand weapons maintenance facilities to break into defense industry supply chains; and renewed attempts to boost Egypt’s meager record of arms exports. This last component—exports—not only generates hard currency earnings, which, like many items on the military’s balance sheet, disappear into a budgetary black hole, it also enhances the military’s institutional reputation.
Currently, criticism of the military’s commercial ventures is widespread, with jokes and rumours circulating about military-owned warehouses brimming with substandard consumer goods. However, the new Minister of Military Production, Ali Sabri, has been keen to insist that the majority of the military’s energy and capital goes into weapons development and production. Sabri’s own appointment may provide a clue to the military’s future manufacturing strategy. Although both Meshaal and Sabri served as directors in the National Service Projects Organization (which is responsible for a large segment of the military’s civilian production), Sabri served in the war against Israel in 1973, and—unlike Meshaal—there are no pictures of Sabri distributing Egyptian banknotes to NDP supporters outside polling stations. If the military wants to gain public support for channeling resources into ramped-up arms production while avoiding criticism about squandering public funds, Sabri certainly presents a better public face than his predecessor.
One successful case in Egypt's arms export record has been its sale of military-grade jeeps. In 2010, Egypt signed a new foreign military sales (FMS) contract with Chrysler for thirty-three million US dollars worth of unassembled jeeps, tools, and spare parts destined for the AOI’s Arab American Vehicle factory. Two military-grade models—the Jeep TJL and the Jeep J8—are exclusively produced at the AAV factory, and have previously been exported to two-dozen countries, including Libya, where pro-government forces deployed the TJL during skirmishes with protestors in Tripoli. In contrast to many of Egypt’s other defense products, the jeeps have provided a good export opportunity, and go a long way in burnishing the military’s image as a competent producer.
The region’s current political realities also bode well for Egyptian weapons exports, and the military appears to be gearing up for the renewal of export contracts with Iraq (historically Egypt’s largest arms buyer) as well as an expansion of sales to Libya, where the new government will likely face fewer import restrictions than the previous regime. A delegation that included a number of members of the Ministry of Military Production recently visited Libya to investigate business opportunities related to that country’s reconstruction. Minister Sabri stated that the Arab Spring was in fact good for the business of military production, because reconstruction contracts would likely be forthcoming, and that the “states of the Arab Spring” represented a new opportunity for Egypt to export some of its M1A1 tank arsenal. Reports from the US embassy in Cairo in 2010 foreshadowed this renewed export drive. In documents released by Wikileaks, embassy officials indicated that TPT (third party transfer) requests from the Egyptian Armament Authority had increased considerably, signaling an expansion in Egypt’s efforts to export weapons that contained technology of US origin, including potential sales of M1A1 tanks to Iraq, ammunition to Saudi Arabia, and the provision of technical support for Turkey’s arsenal of Hawk Missiles.
The executives and managers overseeing Egyptian military production have also voiced rhetorical support for exports and foreign collaborations, citing Egypt’s advantages in labor costs and geographical location. A press release announcing the completion of the first Egyptian-built fire patrol vessels, referenced above, states that:
“For Mapso [the local Egyptian agent for Hamiltonjets] and Helwan [the military factory building the ships], the next challenge will be to target the export market. It is believed that the features of this vessel together with the moderate price allowed by Egypt’s lower labor costs and proximity to the Middle Eastern and European markets could make it a very attractive option.”
Philippe Maari, MAPSO’s director, also stated that, “Export is our future. We invite owners worldwide to contact us for their special craft requirements.” The military may also seek to supplement its export profile by selling items that have indirect security applications. For example, Maxalto—a joint venture between the Egyptian military and the Kharafi Group to produce smart cards using technology from the German company Siemens—already has orders from Iraq, Jordan, Kuwait, and Bahrain.
If SCAF is able to use its executive power to engineer a post-transition system that protects the military’s economic perquisites, the latter will use the tactics described above to augment the share of the economy already under military control. This is only likely to increase the longer SCAF remains in control of the political system, allowing the military to shape electoral outcomes and legal frameworks. And foreign arms manufacturers will intensify their collaborative activities with Egypt’s armed forces for the same reason that they have historically formed partnerships with regime power brokers—preferential access to state contracts and the levers of economic influence. Or put more succinctly: profit.
Foreign arms manufacturers have long demonstrated a remarkable willingness to violate international laws and legal norms to enhance their influence with Egypt’s officer corps. This in turn only increases the power of the officer corps itself, which gains illicit access to resources not available to other economic sectors or social classes. Incidents of illegal payments to military generals are numerous: there are currently several cases pending under the Foreign Corrupt Practices Act, and just two years ago, Chrysler’s parent company Diamler-Benz agreed to pay two hundred million US dollars to settle charges that it bribed foreign officials, including General Abdel Hamid Wasfi, the Chairman of AOI’s Kader Factory for Developed Industries, in exchange for securing future supply contracts.
Such incentives will only proliferate if SCAF manages to use its current power monopoly to expand its influence over the Egyptian economy. Even while our attention is (justifiably) focused on Egypt’s proximate political realities—electoral outcomes, the repression of demonstrators, an evolving modus vivendi between SCAF and the Muslim Brothers—the Egyptian Armed Forces is quietly pursuing a parallel track of military industrial expansion. The physical centerpiece of this project is somewhere out in the desert northeast of Cairo, but the financial epicenter is closer to home—in the boardrooms of defense firms, where executives outline plans to increase shareholder profits, and in the halls of government, where our elected representatives do everything they can to help.
- Provided by Foreign Policy In Focus
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