Building new capital cities is a sop for kleptocracy

Oliver Bullough

 

EGYPT AND THE IMF

Like many people of my generation (I am apparently a “cusper,” having characteristics in common with both Gen X and millennials, so make of that what you will), I was very influenced by Naomi Klein’s 2007 book “Shock Doctrine.” If you haven’t read it, she argued forcefully that the then-ongoing U.S.-led Iraq takeover was part of a neoliberal ploy to exploit crises to force through unpopular policies so as to benefit big business and immiserate ordinary people. The book has many villains: Milton Friedman, the U.S. and British governments, the Central Intelligence Agency and the International Monetary Fund among them. 

Part of the reason I found the book so compelling (leaving aside the fact that it confirmed everything I already thought about the 2003 Iraq War) was that her analysis of the 1990s in Russia supported what my Russian friends told me: greedy Western advisers turned up and forced the Russian government to pass laws that ruined the country. The oligarchs were our fault.

So why am I talking about this now? In what looks like a classic example of her thesis, those villains at the IMF have faced down the Egyptian government and forced it to do all the things the IMF always demands — liberalize the exchange rate, expand the private sector, cut spending, balance the budget, blah blah. So presumably I’m furious about it? Hmmmmm, perhaps not.

Egypt may not be the most depressing example of how the Arab Spring turned wintry, but it is depressing enough. The hopes of democratic transformation were extinguished by a coup in 2013, and since then military officers have gradually cemented their hold on pretty much everything.

  • “In addition to launching a massive campaign of repression against the opposition and political parties, the regime has been re-structuring the state apparatus in a manner that has affected the nature of the state. In other words, it is a process that transforms the state into an appendage of the military institution. The classic role of the state as a mediator of social conflict disappears, as it is transformed into a blunt instrument of repression, and a way for a parasitic form of military capitalism to thrive, through the appropriation of public funds,” noted political analyst Maged Mandour, who’s currently writing a book about Egypt under President (and former field marshal) Abdel Fattah al-Sisi.

Egypt’s military is even following that classic example of modern kleptocratic practice (see also: Neom, Ciudad de la Paz, Naypyidaw and whatever the capital of Kazakhstan is called this week) by building a new city, which gives the prospect of almost unlimited kickbacks.

  • “The military will see huge financial returns once the new capital is completed. Moreover, these gains will not be inspected by a civilian authority, as the government has little oversight over the military’s finances,” as Mustafa Menshawy wrote.

The Carnegie Middle East Center produced a very detailed report on the military takeover of Egypt (which was built on decades of creeping klepto-militarization) back in 2019, and it was prescient about the consequences.

  • “The potential consequences of the present policy course for the Egyptian economy are portentous. The World Bank estimated in December 2018 that Egypt needs $675 billion to cover infrastructure needs and financing gaps over the coming twenty years, but faces a shortfall of $230 billion that only private investment or commercial financing can meet. This is wholly dependent on creating an enabling environment, but highly unlikely on current trends,” its author Yezid Sayigh stated.

And then the twin shocks of Covid-19 and the Russian assault on Ukraine happened, the latter was particularly serious for Egypt because it is heavily reliant both on Russian tourists and on imported grain and thus vulnerable to price spikes (in fact, high food prices helped trigger the Arab Spring). And the government in Cairo had to ask the IMF for help. In October, the two sides announced a staff-level agreement, and a full report was released last week.

  • “Egypt’s reform program, supported by the new IMF arrangement, includes an extensive package of structural reforms to support greater private sector activity and to facilitate trade. For example, the state ownership policy sets out ambitious plans to reduce the footprint of the state and catalyze private sector investment. It establishes a clear framework to inform which sectors the state will reduce its presence in and how such divestments will be implemented,” said the IMF’s Ivana Vladkova-Hollar.

On one level, you could see this as a classic Shock Doctrine example of the IMF bullying the Egyptian government into following the Washington Consensus. But on another level, you could see this as a priceless opportunity to force thieving military officers to submit to some basic transparency about what they’re up to, to stop awarding themselves state contracts and to withdraw from bits of the economy that they have no right to be in, which the IMF has quite rightly seized and which leading human rights groups have been asking it to do for months, if not years. Who else can face down the Egyptian military? No one in Egypt can do it. For kleptocrats, bigger money is the only thing that beats big money.

So, what do I think about Klein’s Shock Doctrine idea now? I increasingly think that just blaming the IMF or Western economists for what happened in, say, Russia, is wrong. Yes, Westerners earned healthy sums advising ministries in Moscow on how to sell state assets to insiders, but they could only do that if politicians and oligarchs in Russia were up for it too. You can’t really make a distinction between the developed and developing worlds in terms of who’s to blame for the spread of kleptocracy: people from both sides grabbed the money, and they all deserve criticism.

(I think everyone, however, can agree that the IMF setting conditions before offering loans is better than the 19th century equivalent, which was the British government offering funds in exchange for Egypt giving it the Suez Canal.)

The solution is, as ever for me, more oversight of everyone’s behavior (both the IMF’s and the recipient governments’) and more enforcement of the rules. And if some kleptocrats somewhere run out of money, there is nothing wrong with demanding they stop being so kleptocratic if they want a loan. The question of course is: will it transform Egypt in the long run?

  • “Past experience suggests that the government will exploit every loophole to delay implementation of provisions of the IMF agreement, and prevaricate across the board. Neither the presidency nor the government have done the kind of intensive political preparation needed to push through something as wide-ranging and far-reaching as the State Ownership Policy. The agreement with the IMF will certainly suffer significant delays and watering down, potentially making it more aspirational than operational,” said the Carnegie Center’s Sayigh.

If it does work, however, there could be lessons to be learned in how to transform the Russian economy when it inevitably collapses under the weight of Vladimir Putin’s mismanagement. Interestingly, on current trends, Egypt’s population is due to overtake Russia’s within 15 years so the comparison is not as outlandish as it perhaps appears.

GOLDEN VISAS

After Putin sent two assassins to the English city of Salisbury to kill defector Sergei Skripal in 2018, the British government began to wonder if it hadn’t perhaps been a little foolish in selling Russian oligarchs anything they wanted. As part of this rethinking process, it said it would review whether the United Kingdom should keep selling so-called Tier One (Investor) visas to anyone able to pony up two million pounds (of whom many had been Russian).

And now, five years later, with all the urgency of an underperforming slug, the results of that review have slithered over the finish line. Or a self-justifying summary of those results has anyway, which is kind of the same thing as long as you don’t take more than three seconds to think about it.

  • “The review of cases identified a small minority of individuals connected to the Tier 1 (Investor) visa route that were potentially at high risk of having obtained wealth through corruption or other illicit financial activity, and/or being engaged in serious and organized crime. I should stress that the work carried out only implies that a particular individual potentially poses a risk of having connections to criminality; it does not mean guilt has been proven,” said Home Secretary Suella Braverman.

The review showed that, of the 6,312 people awarded one of these visas, 10 have since been sanctioned. Braverman conceded there had been a problem in the past but said it was now solved, because this kind of visa would no longer be issued. We should sit back and trust the law enforcement agencies to take care of things from now on.

That is not good enough, and here are four questions we urgently need answers to:

  • The review only looked at visas issued between 2008 and 2015. The program began in 1994 and continued until February 2022. We know that more than 5,000 visas were issued between 2015 and 2022 but have no idea how many were issued from 1996 to 2008. It certainly looks like the review covers less than half of all the golden visas sold since the early 1990s, and possibly much less. What about them? How many of those applicants are questionable?
  • Only Russians have been sanctioned since February, and yet Russians made up less than half of applicants: What about the others? How many of them have been credibly accused of corruption but haven’t been sanctioned because their president hasn’t launched a major and totally unprovoked war?
  • The law enforcement agencies are already flat-out researching sanctions violations, so how would they have time to investigate historic visa violations? Will they get extra funding?
  • How many of these applicants have become British citizens? Will they be stripped of their passports if shown to have bought their visas with dirty money?

And that’s just to start with.

  • “It is critical that the Home Office urgently develops specialist financial and economic crime expertise in its immigration function to make sure the other schemes and future schemes do not allow dirty money to enter the U.K.,” noted Spotlight on Corruption.

TAX THE RICH

It’s Davos time, which means it’s also time for Oxfam’s Inequality Report. Take a look.

  • “Over the last 10 years, the richest 1% of humanity has captured more than half of all new global wealth. Since 2020, according to Oxfam analysis of Credit Suisse Data, this wealth grab by the super-rich has accelerated, and the richest one percent have captured almost two-thirds of all new wealth. This is six times more than the bottom 90% of humanity. Since 2020, for every dollar of new global wealth gained by someone in the bottom 90 percent, one of the world’s billionaires has gained $1.7 million.”

Since the weekend, my wife and I have been slightly obsessed with the person in Maine who won $1.35 billion in the lottery. We decided to win the jackpot too and began by happily spending our winnings on various joint ideas, but then we started to squabble over our respective projects before viciously cutting each other out and pledging to do our utmost to block the other’s plans. Anyway, I don’t know why we were so excited about it since it was clearly peanuts.

  • “Billionaire fortunes are increasing by $2.7bn a day, even as inflation outpaces the wages of at least 1.7 billion workers, more than the population of India.”

WHAT I’M READING

I was lucky enough to get an advance copy of “Chasing Shadows” by Miles Johnson, an investigative reporter from the Financial Times, and zoomed through it. It’s a deep and engrossing voyage into the heart of South American cartels, Italian organized crime, Middle Eastern money launderers and more. Look out for it!