egypt corruption investigations graft business elite

Bribes and prejudice
assets frozen investor confidence above the law transparency

Anti-graft measures worry Egypt's economists

Egypt's anti-corruption purge has sparked debate between idealists calling for a full reckoning and pragmatists concerned about the effects on a tottering economy. This 2011 article is from Ahram Online, May 4.

by Michael Gunn

“Thief! Thief!"

Cries echo around the prim apartment-lined streets of an upscale northern Cairo neighborhood as a bowed but finely-groomed figure emerges into the winter night flanked by two black clad police officers.

Expensively-cut suit offset by clinking handcuffs, this once proud pillar of the business community is frogmarched past a baying crowd then bundled up steep metal steps into the dark interior of a police wagon. As the convoy rumbles away in a blare of horns, enraged citizens surge forward hammering the trundling vehicle with their bare hands. The chant builds: "Give us back our money!"

It's a scene that's been repeated across Cairo's wealthier enclaves since Mubarak's fall in mid-February as state prosecutors, egged on by overwhelming popular sentiment and compelling evidence, have swooped on dozens of members of Egypt's business elite.

The vast majority of cases involve figures from the former regime -- a sign of how tightly entwined business and politics had become during Mubarak's 30-year rule. The accusations are legion: elaborate and stunningly remunerative under-the-table deals, bribery, favoritism, and massive squandering of state funds.

Many view the Egyptian revolution incomplete if it fails to bring a full reckoning for decades of corrupt business practices. But dig too deep, claim some influential commentators, and Egypt risks destroying successful companies, scaring off investors, and causing long-term economic damage.

Insiders talk of a “culture of anxiety” within Egypt’s business community, as members speculate on whom the prosecutor general will target next. Several prominent businessmen Ahram Online tried to interview had already relocated abroad.

"There are people who are very worried right now," says Hesham Ashmawy, head of the Egyptian American Business Association, a frequent commentator on economic issues on Egyptian TV who is close to key business figures. "Many are already awaiting trial, others have run out the country. There will be people getting deeper into corruption to hide their previous corruption."

The fall has been sudden and humiliating. Steel tycoon and NDP chief whip Ahmed Ezz was one of the first to be detained and now languishes in Tora prison, southern Cairo. At least a dozen corruption suspects have joined him.

Even those under investigation who have remained free -- like Ahmed Heikal, the founder of investment bank Citadel Capital -- have been hit with travel bans. At least 25 former regime officials with suspect business interests have found their assets frozen.

Central bank limits on capital transfers, put in place to halt the flight of misbegotten funds, have had side effects on companies reliant on overseas suppliers, slowing deliveries, and further hampering trade.

Egypt’s post-revolution economy is tottering, with depleted tourism revenues and stalled manufacturing facing off against a widening budget deficit and popular pressure for expanded public employment and subsidy programs.

Most proponents of a full corruption purge argue on the basis of morality and justice but others believe there’s a compelling case for its long-term economic benefits. In this view, endemic corruption was a barrier to deeper foreign investment and eradicating the worst practices will boost investor confidence.

“It’s not true that investors are being sent away by the wave of investigations against businessmen,” says Mohamed Metwally, chairman of the Arab Company for Investment and one of the few prominent businessmen to participate in anti-Mubarak protests from the start.

“Countries abiding by the rule of law which have effective anti-corruption legislation actually attract money. It's a sign of safety for businessmen and investors that nobody is above the law."

A recent report by anti-corruption watchdog Transparency International (TI) cited foreign unease about investing in North African countries based on fears of the need for bribes, a favors system, and a lack of transparency.

That was certainly the case in Mubarak’s Egypt, according to Omnia Hussein, Egyptian coordinator for TI. "It was a system where business and politics fed on each other," she says. "Those in the cabinet and the legislature had massive economic interests in the private sector they were supposed to be monitoring."

Restructuring is likely to take years, if the example of post-Suharto Indonesia -- a corrupt dictatorship par excellence -- is any guide. Some 10 years after Suharto’s 1998 resignation, much of his fortune remained missing and his corrupt business practices were still mired in legal investigations.

Hussein says, “We need to differentiate between the enablers -- the corrupters -- and those who just played by their rules -- the corrupted."

Regaining investor trust can be done, says Hussein, by following a case-by-case approach. Laws that were tailored to people's business interests, such as those dealing with procurement and land settlement, allow investigators to target specific violators and beneficiaries.

Some businessmen so far untouched by scandal welcome the scrutiny but others complain of 'mudslinging' accusations used to settle personal scores against businesses that may have done nothing wrong.

A business analyst told the Financial Times last week: “The prosecutor doesn’t want to look bad, so he shoots first and asks questions later."

As one financial commentator puts it, the prosecutor general only has 18 hours a day and 365 days a year to do his work -- the immensity of Egyptian corruption may be beyond even the broadest investigations.

At the same time, New Egypt will have an uphill struggle trying to sideline practices of off-the-books agreements, nepotism, and favoritism, that long predate Mubarak’s rule.

"We’re not talking about just the last 30 years, we’re talking centuries,” says Hesham Ashmawy.

To see the whole article, click here

JJS: When insiders steal public revenue, I wonder how much it really matters whether or not that public revenue had been “rent” -- spending for land and resources. In such cases, popular American economist Henry George over a century ago suggested that public revenue be paid out as a dividend to citizens, skirting the corrupt politicians and their insider backers. Well, Egypt has oil, and an oil dividend is paid by Alaska; as a start, could Egypt adopt the Alaskan model?


Editor Jeffery J. Smith runs the Forum on Geonomics.

Also see:

US outspends everyone on arms, funding enemies, too

Switzerland allows teens to sell themselves

Corruption Leads to More Corruption

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