POMED Report Looks At Al-Sisi’s $58 Billion New Capital City: A Bubble About to Burst?

POMED is pleased to publish a major new report by researcher Sarah Taweel,[1] “Al-Sisi’s Bubble in the Desert: The Political Economy of Egypt’s New Administrative Capital,” that draws on extensive research and interviews with industry insiders to provide the first deep dive into who is paying for and who is profiting from al-Sisi’s gargantuan new desert capital.

The POMED Commentary below provides a summary of the report and related policy recommendations for the U.S. government. (The full report is available here.)

BACKGROUND 

Ten years after Egyptian autocrat Abdel Fattah al-Sisi seized power in a military coup, promising to bring “stability and prosperity,” the country is struggling through its worst economic crisis in decades. Al-Sisi’s debt-fueled spending frenzy on megaprojects led by his ruling partner, the armed forces, is no small contributor to Egypt’s current economic woes. Most prominent among these projects is the new administrative capital (NAC), which will replace Cairo as the regime’s headquarters.

Last fall, to secure its fourth bailout in seven years from the International Monetary Fund (IMF), the Egyptian government agreed to slow down megaprojects and to reduce the economic footprint of the state—including that of the military, whose economic role has expanded considerably under al-Sisi. Yet the Egyptian leader has insisted on charging forward with the $58 billion NAC. Originally advertised as a five-year undertaking, this vanity venture in the desert is years behind schedule and billions over budget.

WHAT IS THE NEW ADMINISTRATIVE CAPITAL?

• The largest of al-Sisi’s military-led megaprojects 
• Unveiled at the March 2015 “Egypt the Future” conference in Sharm el Sheikh
• Located approximately 30 miles east of Cairo
• Originally envisioned as a three-phase project spanning about 170,000 acres, to be implemented in its entirety by an Emirati real estate developer and fully financed by Gulf investors
• That plan, however, did not materialize and instead, most of the financing has come from Egypt’s public resources
• Work on phase one—41,500 acres, roughly the size of Washington, D.C.—began in 2016 with an advertised completion date of 2019–2020 
• But the project is significantly delayed; only 60 percent of phase one has been completed 
• Expenditures have already exceeded $45 billion, with the $58 billion total price tag for phase one expected to rise
• The NAC will be a “smart city,” complete with a China-style central-command surveillance system to track all activity, including through live video broadcasts from six thousand cameras 
• The city will include a giant presidential palace and new ministerial headquarters; a diplomatic quarter to which all foreign embassies will be expected to relocate; lavish arts, conference, and sports centers; a Chinese-built central business district with the “tallest tower in Africa”; the largest cathedral in the Middle East; upscale residential and commercial areas; 22 miles of park called the “Green River”; and much else

WHY IS THE REPORT IMPORTANT?

Mirroring the military’s privileged role writ large, the NAC lacks transparency and accountability. Information is available to the public only through piecemeal reporting, and criticism is suppressed or dismissed as ignorance. This report provides the first deep dive into the political economy behind the staggeringly expensive project.

It details how the NAC’s construction has seen resources funneled to the president’s military cronies even as ever more debt is piled on to the civilian government. In other words: a redistribution of wealth from the people to the generals. 

FINDINGS

Key findings include:

• Despite al-Sisi’s repeated insistence that “the Egyptian state won’t pay a penny” for the NAC, most of the funds spent so far have indeed come from the public coffers—whether in the form of direct budget allocations, the sale of state-owned land (often back to the state), state-subsidized loans, or government debt. Future generations of Egyptians will be forced to repay these debts for decades to come. 
• Regime insiders are raking in enormous benefits from the NAC. The armed forces, above all, are profiting to the tune of billions of dollars. As the primary overseer of the project, a military-led company enjoys the proceeds of land sales and handsome cuts of nearly all of the contracts, with income deposited into its private bank account and free from independent oversight.
• Construction and real estate development companies with close ties to the regime—some well established, some new and opaque—are also profiting from lucrative no-bid contracts. Members of the security apparatus are deeply integrated into these patronage networks and profit circles, whether as shareholders, supervisors, suppliers, or middlemen. 
• Foreign companies are reaping profits as well. These companies are complicit in weighing down the Egyptian state’s books with debt and redirecting its scarce resources to expensive showpiece projects that are prioritized over less glamorous, essential social spending. Because their contracts are typically signed with military-controlled entities, they contribute to lining the bank accounts of military fiefdoms along the way. This includes the American company Honeywell, tapped to develop the NAC’s mass surveillance system.

RISKS

Given the project’s opacity and rampant cronyism, the NAC is an incredibly risky venture for al-Sisi’s regime. 

• Even in the best case scenario, the state is unlikely to see a positive return on investment from the huge public resources poured into the NAC. The project is almost certain to be scaled back from its original vision; some key elements, such as affordable housing, have already been scrapped, while its abundant high-end housing will struggle to find sufficient buyers. Al-Sisi’s demands that his new capital city be rushed to completion, meanwhile, have led to shoddy construction and waste.
• In the worst case scenario, the bubble will pop. The NAC is uniquely vulnerable to Ponzi schemes, with lax oversight and shadowy pop-up developers reliant on fresh money to repay earlier investors. If the money stops coming in, the whole project would come crashing down, leaving much of the still-unfinished city as sand in the desert.
• Without new streams of cash, al-Sisi will run out of ways to fuel the NAC venture and reward his loyalists. When that happens, not even his military clients will stand by him, deciding their opportunistic allegiances are better placed elsewhere.

POLICY RECOMMENDATIONS

The NAC project raises significant concerns about economic management, indebtedness, cronyism, corruption, mass surveillance, and stability in Egypt. In response, POMED recommends that the United States government take the following steps: 

• Conduct a policy review of the Egyptian regime’s stability and viability as a “strategic partner” in light of al-Sisi’s economic mismanagement, as vividly demonstrated by the NAC project.
• Apply tools outlined in the Biden administration’s Strategy on Countering Corruption, including:
  • Sanctioning any Egyptian or other individuals or entities involved in corrupt activities related to the NAC project.
  • Investigating whether any U.S. companies violated the Foreign Corrupt Practices Act in receiving NAC contracts.
  • Reviewing whether any U.S. foreign assistance has been used in the NAC project to “reinforce corrupt power structures,” and if so, immediately curtailing such aid and implementing policies to avoid future misdirections of aid.
  • Working with the International Monetary Fund (IMF) and other international financial institutions (IFIs) to strengthen transparency and anti-corruption measures in their lending to Egypt.
  • Supporting and defending the work of Egyptian journalists, civil society activists, and government whistleblowers in bringing transparency and accountability to the NAC through initiatives such as USAID’s Reporters Shield and Strengthening Transparency and Accountability through Investigative Reporting programs, as well as the State Department-supported Global Anti-Corruption Consortium.

• Assess, in line with the Export Controls and Human Rights Initiative launched at the Biden administration’s 2021 Summit for Democracy, the role of U.S. firms in the NAC, in particular Honeywell, in potentially abetting the Egyptian government’s human rights abuses through the provision of mass surveillance technology for the new capital city.
• Deduct from U.S. annual military aid to Egypt an amount equal to the cost of any Egyptian government-mandated relocation of the U.S. embassy from Cairo to the NAC.
• Reinforce with the Egyptian authorities the IMF’s call for a slowdown of megaprojects and scaling back of the military’s economic role. Oppose the release of further tranches of IMF funding until Egypt takes these steps. 
• Review the role of the European Bank for Reconstruction and Development (EBRD) in indirectly financing the NAC. Such financing may violate the EBRD’s mandate to “foster the transition towards open market-oriented economies to promote private and entrepreneurial initiative” and to assist only countries “committed to and applying the principles of multi-party democracy [and] pluralism.” If it is in violation, the United States should require the EBRD to suspend its support until Egypt comes into compliance. As a founding member of the EBRD and its largest single shareholder, the United States has a direct interest in ensuring the proper use of EBRD funds.

Read the full report here.

NOTE

1.  Due to the sensitivity of the issues in this report, POMED has chosen to identify the author, a researcher specialized in Middle East politics, by the pseudonym, Sarah Taweel, PhD.