How Did Sisi’s Army Manipulate Egypt’s Sovereign Fund?

The resignation of Ayman Soliman, CEO of Egypt's Sovereign Fund, has ignited widespread debate concerning the underlying reasons and the future trajectory of the fund, which controls a significant portion of the country's government assets.

The controversy deepened when a source within the Ministry of Planning revealed to Mada Masr that the deliberate obstruction of the listing of several military-owned companies on the stock exchange by “state entities” played a critical role in Soliman’s departure.

This obstruction, along with continued interference by these entities in the fund’s operations and decision-making, was reportedly a key factor in his resignation.

Though the source did not explicitly name these obstructive entities, it is widely understood that they refer to military factions’ intent on maintaining control over the fund.

State Military Assets

The Sovereign Fund of Egypt, established in 2018 under President Abdel Fattah el-Sisi, was intended to manage the state’s underutilized assets and facilitate their investment. However, the military’s growing influence over the fund has raised concerns about its autonomy and effectiveness.

The creation of the fund granted the Egyptian president broad authority to transfer state-owned assets into its control, effectively bypassing standard legal and procedural oversight under the guise of streamlining investment processes.

This concentration of power has led to fears that the fund may be more akin to a holding company focused on asset liquidation rather than a genuine sovereign wealth fund, which traditionally aims to secure long-term financial stability for future generations.

Sovereign wealth funds are typically utilized by resource-rich nations to invest surplus revenues, often in foreign markets, to safeguard against economic volatility.

In contrast, Egypt's fund represents a unique case. It does not derive its wealth from resource surpluses but rather from the transfer of existing state assets, including companies, real estate, and land.

This focus on domestic assets has sparked skepticism among experts about the fund’s ability to meet the global standards of sovereign wealth funds.

The fund’s role is further complicated by Egypt’s 2016 agreement with the International Monetary Fund (IMF), which secured a $12 billion loan in exchange for reforms, including the withdrawal of state institutions, notably military entities, from the economy.

Sisi’s subsequent pledge to list military-owned companies on the stock exchange was seen as a move to appease the IMF. However, this commitment has seen little progress.

Listing on the stock exchange necessitates full disclosure of a company's financials—a transparency requirement at odds with the military’s preference for secrecy, justified by national security concerns.

Above the Law

Despite the formal agreement between the Sovereign Fund and the National Service Projects Authority (NSPA) in 2020 to restructure and market military-affiliated companies, the reality has been different.

The fund has predominantly sold civilian assets, while military enterprises have continued to expand into new sectors, often at the expense of private sector competitors.

The military’s influence has also extended to its preferential treatment in the market, where its companies benefit from tax exemptions, free services, conscript labor, and unrestricted access to land.

These advantages, coupled with government contracts often awarded under duress, have further entrenched the military’s dominance in the economy, according to political activist and analyst Basel Reda.

Reda adds that the military justifies its economic activities as necessary for breaking monopolies and stabilizing markets.

But the underlying motive appears to be securing profitable outlets for its own production, consolidating its economic power at the expense of broader market competition and transparency.

“Similarly, the Egyptian military establishment has repeatedly delayed the listing of its companies on the stock exchange, citing complex issues related to expenses, wages, and profits that ostensibly require more time for a fair evaluation,” Reda told Al-Estiklal.

However, this process has dragged on for eight years, despite President Abdel Fattah el-Sisi's directive to list military companies.

The urgency for action intensified in March 2022, when Egypt faced a severe economic crisis triggered by the flight of $25 billion in "hot money" following the outbreak of the war in Ukraine.

Desperate for economic stabilization, Egypt turned to the International Monetary Fund (IMF) and sought rapid investments from Saudi Arabia, Qatar, and the United Arab Emirates.

In exchange, the IMF and the Gulf countries demanded structural reforms, including the sale of military-owned companies and the reduction of their competition with the private sector.

In response, President Sisi convened a meeting in November 2022 with key military and government officials to discuss listing military-affiliated companies, including the National Petroleum Company and Safi, a company involved in the production and bottling of natural water.

Yet, despite these discussions, the Egyptian Sovereign Fund faced significant obstacles in selling these companies, largely due to the military’s reluctance to relinquish control.

Failed Negotiations

This reluctance has been exemplified by several failed negotiations. For instance, the Egyptian Sovereign Fund reached an agreement with the Qatar Investment Authority for a $2.5 billion investment in Egyptian state-owned companies, including a stake in Vodafone Egypt.

But the deal collapsed after more than a year of negotiations when the government refused to sell the 45% stake in Vodafone Egypt that the Qatari fund sought, opting instead to offer a smaller portion.

A similar situation occurred with the Saudi Telecom Company (STC), which was poised to acquire a 55% stake in Vodafone Egypt for $2.4 billion. But in January 2022, talks ended without an agreement.

The military’s tight grip on Telecom Egypt, which monopolizes telecommunications and internet services, is indicative of its strategic importance and unwillingness to cede control.

"The failure to transfer military assets to the Egyptian Sovereign Fund is in stark contrast to the fund’s success in selling civilian government companies, which have been offered to Gulf sovereign funds for billions of dollars,” Reda noted.

The stalled sale of the National Petroleum Products Company, following protracted negotiations with Emirati and Qatari investors, underscores the military’s hegemony. Disagreements over financial valuations and the lack of political backing for these deals have further complicated matters.

In October 2023, Hala El-Saeed, then Chairwoman of the Egyptian Sovereign Fund, announced that the sale of the National Petroleum Products Company would be completed within six weeks.

Yet, months later, reports surfaced that the Emirati ADNOC had withdrawn from the deal due to insufficient documentation and unresolved tax issues.

El-Saeed’s departure in last July, followed by the resignation of Ayman Soliman as CEO, highlighted the growing challenges within the fund, which has yet to successfully sell any military-affiliated companies.

The situation has deteriorated to the point where military authorities have not only reneged on sale agreements but also attempted to interfere in the technical management of the fund. This interference has sparked debate over the fund’s autonomy and its role in the broader context of state asset sales.

“The Egyptian Sovereign Fund was initially conceived as a mechanism to reassure the IMF and Gulf investors of Egypt’s commitment to economic reforms. The recent resignations and military intervention reveal a deeper truth: the military has no intention of retreating from the economy,” Reda concluded.