A private equity fund launched by Gamal Mubarak managed to reel in millions of dollars of investment from Egypt’s elite, revealing the depths to which political and business connections ran as he began rising in stature in the late 1990s.
According to a document obtained by Rebel Economy, Gamal Mubarak’s $54 million Horus I Fund, created in 1997, attracted some of the country’s most controversial businessmen including steel fugitive tycoon and Mubarak-confidante Hussein Salem, steel magnate Ahmed Ezz, who was acquitted in June after being charged with monopolising the country’s steel market, and the ex-CEO of Egyptian investment bank EFG Hermes, Hassan Heikal. Heikal is a defendant in an insider trading case involving both of the Mubarak sons. His former colleague, Yasser El Mallawany, who is still officially an employee of EFG, is another investor in the Horus Fund.[caption id="attachment_2059" align="aligncenter" width="640"] Full list of investors who committed to Gamal Mubarak’s fund[/caption]
The fund, which was operated by EFG Hermes and invested in Egyptian projects and companies, attracted millions of dollars of investment from members of Egypt’s old guard, some of whom have been targeted in corruption cases since the fall of Hosni Mubarak in 2011. Although there is no evidence the fund engaged in corrupt activity, the connections between the people named as investors on the account has never been properly investigated by the Egyptian authorities.
The list of individuals and companies published above raises questions that have so far been left unanswered by Egyptian investigators.
The document, which details how much individuals and companies committed to the fund at the time of launch, also provides a window into the everlasting influence of Mubarak’s old guard and their long-standing ties to Gulf nationals in Saudi Arabia, Kuwait, the United Arab Emirates and Qatar.
It represents the beginning of Gamal Mubarak’s foray into private equity, where his financial interests in the Egyptian economy, from tourism to agriculture to oil, began to grow. The fund was created prior to Gamal’s entry into political life, when he acquired 18% of EFG Hermes Private Equity.
Among the handful of Gulf companies listed is First Arabian Development and Investment Company, run by Hamza al Kholi, a prominent Saudi Arabian businessman, and Yahya Al Yahya, the chief executive director of Gulf International Bank.
The ZAD Global Direct Investments Fund is also a notable appearance on the list. This investment company, founded by Prince Mishaal Al-Saud, second child of the Prince Abdullah bin Turki bin Abdulaziz Al-Saud in Jeddah is a privately controlled investment company, organized, owned, controlled and operated as the investment vehicle for the family of Prince Mishaal for the purpose of managing the family’s investments.
Some businessmen have used clever ways to hide their investment activity. A company connected to Hussein Salem appears on the document. Clelia Assets Corporation, a Panama registered company, is linked to his name.
Salem fled Egypt in 2011 when he came under fire for tax evasion and his complicity in a corrupt gas deal.
Other controversial names on the list include Mohammed Abou El Enein, the chief executive of Cleopatra Ceramics, a major Middle East ceramics firm that has faced repeated labour strikes.
Abou El Enein, who once called himself “the noblest businessman on Earth”, was at one point under investigation for allegedly violating labour laws. Workers have staged sporadic strikes asking for improved working conditions and higher wages.
The fund is a worrying sign of how little progress Egypt has been made in defeating a tight circle of Egypt’s mafia, some of whom were subject to now forgotten corruption cases.
And now, there is evidence that some of Mubarak-era moguls may make a reappearance on Egypt’s political and business scene. Hussein Salem, who is currently exiled in Spain, has reportedly asked to make a deal with the interim government that would end any court cases against him. He has said he is presenting a new initiative to the interim government which includes funding for the unemployed in the tourism sector, as well as restoration of police stations, churches and mosques.
Hassan Heikal, who resigned from EFG Hermes earlier this year, has indicated that he will be acting in a consultancy basis to the Egyptian government. He has signalled he will offer ideas and launch new initiatives “that offer long-term solutions to Egypt’s fiscal challenges and economic development,” according to a statement he made when he resigned.
But the army has a strategy of its own. It’s interest is in preventing an examination of its own assets and business interests, which not only is likely to affect other investigations but focus on a shift away from Mubarak-era crimes toward the Muslim Brotherhood and the former president Mohammed Morsi.
So as the army continues its assault against the Muslim Brotherhood, journalists and civilians, the more these characters will disappear into the background, leaving them free to operate, uninterrupted.
Questions were already being raised about Egypt’s new liberals and whether they really were as democratic as they claimed to be.
But, as Sharif Abdel Kouddous wrote in the Nation recently, “the turning point came on August 14, when the military and security forces brutally cleared the two mass sit-ins in Cairo that formed the epicenter of support for the ousted president”.
For critics of Egypt’s liberals, the killings of hundreds of people confirmed that this collection of non-Islamist groups were out for blood and their sole objective was to suppress the Muslim Brotherhood and banish them from the political sphere.
Effectively, these groups turned their back on the very morals that defined their movement: political pluralism, or the idea that power should be dispersed among a variety of ideological and economic groups.
For the defenders of the liberal movement, the group has simply lost their way. Pulled between the strong desire to oust an ineffective and unpopular president and the severity of the crackdown against mostly innocent civilians, leading members of the liberal movement have found themselves questioning their political direction.
Hussein Gohar, the international secretary for the Egyptian Social Democratic Party voiced the conflicting emotions of the actions that led to the downfall of Islamist president Mohammed Morsi. Speaking to Abdel Kouddous, he says:
“I think the army was forced to what it did on July 3 and August 14, with the breakup of the sit-ins. But I think the whole thing was handled in the wrong way. And if you say you’re against what has happened, you’re branded a traitor.”
No doubt, the right way would have spared the lives of the protesters. But you can’t have it both ways especially when the motive is to dispose of a president by military coup.
Now the question is, if Egypt’s so-called liberal groups have lost their political compass, how will they approach the challenge of an economic recovery?
The interim government has already shown it is unlikely to brave any sweeping changes to the budget and has instead played a populist card reminiscent of the Mubarak era, by calling for more spending even at a time when expenditure (particularly on public sector jobs and food and energy subsidies) needs to be reigned in.
Some shady characters are also making their way back to the economic decision making scene. Hassan Heikal, who this week formally resigned from Egyptian investment bank EFG Hermes, (though he was quietly replaced as CEO earlier this year, as Rebel Economy reported in February) simultaneously announced his intention to “focus on public service” by “helping devise economic initiatives in Egypt”.
Mr Heikal faces charges of insider trading, along with eight other defendants including the Mubarak sons. Even if he is cleared of any wrongdoing, his reputation has been tainted and is the reason the bank gave him the boot (of course the official statement says otherwise and describes him as “an architect of EFG Hermes’s regional expansion”).
But more worrying is the extent to which the liberals’ connection and reliance on the state will impact economic decision making.
As Samuel Tadros, an Egypt expert and a fellow at Hudson Institute’s Center for Religious Freedom, points out in this Time magazine piece, liberalism has a long history with the state:
“In Egypt, liberalism didn’t start as it did in Europe with the emergence of an independent bourgeoisie that sought to limit the powers of the state and other entrenched institutions.
In Egypt, liberalism was born with the rise of the civil-servant class in the mid–19th century. Since civil servants are a part of the state, this liberalism is not at all interested in limiting the role of the state.”
Even at the height of the revolution, when the Islamists combined forces with the liberals, the state could not be broken completely. And of course, the security apparatus is again acting with impunity.
That is already impacting political decisions that will undoubtedly have economic ramifications.
For one, Kamal Abu Eita, a longtime unionist turned politician (he’s now minister of manpower and migration) appears to have been co-opted by the military to the detriment of an already struggling labour movement.
After first applauding the armed forces’ move to overthrow Morsi, he has since taken steps to sack key members of the country’s trade union federation reportedly because they were Muslim Brotherhood members.
And Mr Abu Eita has already displayed his alliance to the military, by doing little to protect labourers from security crackdowns against two strikes in August, at the Suez Steel Company and at the Scimitar Petroleum Company.
Of course, labour unions were tossed an olive branch when the government decided to raise minimum wages for all state employees from 700 Egyptian pounds ($102) to 1,200 pounds ($174) as of January 2014, but that wasn’t good enough for many local and international trade unions. Plus, with spending on public sector jobs already soaring, Egypt officials may struggle to stick to their promise to pay for another increase.
The military did the liberals a favour by wiping out the Islamist presidency, and now they’re the paying the price for it by returning the favour through watered down economic policies that adhere to the state and the military.
Could Egypt see a return of Mubarakesque policies that prioritise subsidies on heavy industry (that have not yet been successfully removed), instead of subsidies for the poor? Will officials continuously promise impossible levels of investment or development in state projects that will inevitably stall, rather than actively implementing economic legislation designed to improve Egypt’s competitiveness?
So far, the liberal interim government has shown it will take the course that the state and the military determines at the expense of the ideology that it stands for and the people it serves.
Some said it was the biggest protest they had ever witnessed in Egypt, even during the demonstrations against Hosni Mubarak, the former president. Indeed, yesterday’s anti-government marches calling for the resignation of President Mohammed Morsi exceeded everyone’s expectations in size and were, until late in the day, peaceful.[caption id="attachment_1775" align="aligncenter" width="600"] Via Twitter. Tens of thousands protest in Cairo.[/caption]
Now, protestors, led by the “Tamarod” or “Rebel” grassroots opposition campaign, are putting increased pressure on Morsi to resign.
The Rebel group say they have given the president until 5pm tomorrow to resign, after collecting 22 million signatures from Egyptians, surpassing the 15 million quota they had envisioned.
But are calls for his resignation in the best interests of the country?
That is not to undermine the country’s protests, which yesterday brought the biggest crowds to the streets surpassing even the uprising of January 25, 2011. But despite the ocean of opposition against Morsi, the costs of a sudden handover of power to anyone – the head of the Supreme Constitutional Court (as Tamarod wants), the military (as some have called for) or the head of the Shura Council, the Muslim Brotherhood’s Ahmad Fahmy, (as the constitution requires, if Morsi were to resign) – would likely be enormous and probably lead many more to lose their jobs.
An abrupt departure of the president would send alarm bells to all the major Egypt-watchers: international lenders (the country would kiss goodbye to any chance of an IMF loan until a new president was democratically elected), investors looking at sectors that have been neglected, namely oil and gas, and even Egyptians themselves. Ultimately, replacing the President only delays the country’s transition to democracy.
While politically his exit may be required by the millions who want him out, economically, the last thing Egypt needs is another period of chaos, uncertainty and confusion. Investors and Egyptians alike are looking for rule of law and order, not another limbo period.
If anything, the parliamentary elections should be brought forward, giving Egyptians a chance to channel their frustration and elect a new parliament that can pass and amend laws.
What is more, history shows that speed is essential for democratic transitions, as Caroline Freund, former chief economist for the Middle East and North Africa at the World Bank writes in this excellent op-ed for Bloomberg:
Countries that democratize rapidly grow faster over the long run by about one percentage point above their pre-transition levels. In contrast, countries that take more than three years to adjust suffer extended weak growth. Years of uncertainty and sometimes unrest leave investors on the sidelines waiting for signs of political and economic stability.
She compares Poland and Romania, where “Poland’s economic success was facilitated by peaceful elections and clear market-oriented reforms” while Romania’s economic transition was “was hijacked by the communists and accompanied by frequent demonstrations”.
Let’s be clear here: the right to protest and challenge the powers that be are vital in a democracy. And the solidarity created through mass demonstrations show the strength of the nation. However, Egypt’s economy is already struggling too much to cope with another political shock.
A new president will have the same challenges as Morsi: he would also need to impose new reforms on Egyptians and he would also be fearful about going through with it. Delaying these reforms now will cost the nation too much.
The best chance for Egypt would be for the president to announce early presidential elections for the end of the year, bowing to the force of the protesters but not sending the country back to square one.
Then, the new president’s first course of action could be to hold parliamentary elections within a few months and create a new committee representing the whole spectrum of Egypt (i.e., not dominated by Islamists) to amend the constitution.
But considering yesterday’s turn-out and Egypt’s political history, this may not be a viable option. Like Mubarak, Morsi is doing everything too little, too late and the people who will suffer the most in the end are the country’s neediest who have already seen their quality of life badly impaired by the instability.
Middle East economists and analysts have tried and often failed to answer Egypt’s million dollar question: Will the country’s economy collapse and, if so, when?
Finally, someone has crunched the numbers to give us an answer.
London-based economist Ziad Daoud pored over Central Bank data and reckons the scare-mongering (of which the media is to blame of course…) of Egypt’s imminent economic collapse is largely unwarranted.
Egypt needs to raise $11.7 billion in the next 12 months, according to International Monetary Fund estimates.