Khairat El-Shater - Source

Investigating the Muslim Brotherhood Economy

07/07/2014 . By Amr Adly

A mid-June decision to withhold the funds of the Zad and Seoudi grocery stores and place them under government financial control raises some significant questions about the significance and timing of the move. While the decision was ostensibly a judicial one—to assess the suspected channeling of funds to the banned Muslim Brotherhood—it has considerable economic and political ramifications.

The closure of the businesses took place almost a year after Muhammad Morsi was removed from the presidency. In the few months after Morsi’s ouster, the government targeted the sources of Muslim Brotherhood funding. These measures included the freezing of assets of hundreds of charities suspected of being linked to the Brotherhood and the freezing of assets of some Brotherhood leaders. These earlier measures make the delayed move against the two companies interesting, particularly given that the Egyptian state has precedents in this field.

In 2006, in what has come to be known as the “Al Azhar militias” case, a number of Brotherhood leaders were arrested and convicted of money laundering, financing banned political activity, and attempting to revive a paramilitary organization. After the initial arrests of those involved in the case, the government froze the assets of a large number of companies that the court considered implicated in one way or another. Interestingly, one of the owners of the Zad chain currently under investigation, Brotherhood Deputy Supreme Guide Khairat al-Shater, was also implicated in (and imprisoned as a result of) this earlier case. Not only did al-Shater face prison, but he and his partner, Hassan Malek, who were both managing the Brotherhood’s financial affairs, emerged as the biggest financial losers from this case. Those affected also included a number of Brotherhood leaders abroad, including Youssef Nada and Medhat al-Haddad. Their names were listed in a military court case at the time as parties to the smuggling and laundering of Brotherhood funds abroad, as well as linking internal networks to others in Europe and some Arab Gulf countries.

The question of the timing of the government’s decision to target al-Shater’s Zad stores, as well as the Seoudi stores owned by businessman Abdulrahman al-Seoudi (known for his Brotherhood leanings), will probably remain a mystery. This is especially true since the procedures to freeze the Brotherhood’s finances that were started last July target NGOs for the first time. According to the estimates of former member and researcher Sameh Al-Barqui, these religious and/or charity NGOs receive the lion’s share of the Brotherhood’s money, which is collected from donations or members’ fees (Brotherhood members commit 8% of their monthly or annual income to the group). Where, then, do these companies that have been targeted over the last decade as the Brotherhood’s financial or investment arm fall? Are they only owned by businessmen who happen to belong to the Brotherhood or are they the result of capital collected from Brotherhood memberships being run by businessmen, some of whom (especially Khairat al-Shater) held prominent positions in the Brotherhood hierarchy?

Once again, these key questions remain unanswered thanks to the Brotherhood’s commitment to secrecy in response to constantly threats from state security. As things stand today, there is no accessible, specific data on the number of members and their estimated contributions. No one, other than a few within the Brotherhood’s ranks, knows the details of the group’s financing; during Mubarak’s years in power, the management of the Brotherhood never released financial details or documents (such as an annual budget or a financial statement) for fear of security leaks regarding details of the then (and currently) illegal group.

Perhaps some answers may be revealed in considering the character of the Brotherhood leadership’s economic activities. The membership of the upper echelons of the Brotherhood have transformed since the nineties, especially in the last decade before the January 25 revolution. This happened with the rise of businessmen who have commercial, financial, and service activities inside Egypt. These businessmen also have access to commercial and financing networks outside of Egypt, formed when the Brotherhood was banished from Egypt in the fifties and sixties, starting out in the Arab Gulf and extending to other countries, such as Turkey, in the eighties and nineties. This was dramatically exemplified by the rise of Khairat al-Shater to become the organization’s strongman. Al-Shater’s most prominent feature is that he is a “successful businessman,” which is how the Brotherhood described him when putting him up for a presidential nomination in 2012, before replacing him with Muhammad Morsi in the presidential race.

This group of businessmen was not limited to people inside the Brotherhood organization. It also extended to networks of businessmen known for their Brotherhood leanings or sympathies, such as Abdelrahman al-Seoudi, whose name was also listed in the 2006 militias case. What sets these businessmen apart is that their activities are mostly focused in the commercial, financial, and services sectors, such as the wholesale and retail sales. This may be due to the fact that access to assets such as land or divested public-sector companies needed for activities such as industry, construction, or tourism has historically been limited to the network of people close to the state in the Mubarak years. This has left others to focus on less capital-intensive activities and the service sectors—enterprises which also lend themselves to reduce the risk of confiscation or retrieval of these funds in case of a clash with the authorities. While they may remain targets, by not holding wealth in fixed assets like land or concentrated in larger companies, Brotherhood businessmen may more easily relocate or hide their assets to reduce the risk of seizure.

Morsi’s time in office was not long enough for Brotherhood members to replace the traditional networks of beneficiaries. There are, however, some indicators (or rather, tales) of attempts to exploit Morsi’s rise to power for economic gain. These narratives suggest that Brotherhood-related businessmen were enabled to use their newfound political clout and take over the assets of companies open for privatization or to enter the land privatization network. As previously mentioned, however, it seems that any plans were interrupted due to the short time the Brotherhood spent in power.

It may be clear to keen observers that the Brotherhood’s immediate plans after reaching power in 2012 tended towards expansion in traditional and familiar fields. This was especially true of the commercial sector, such as foodstuffs. Most prominently, the Brotherhood was able to directly penetrate the Ministry of Supply, with the organization’s branches taking over the responsibility of distributing subsidized goods. There were also plans laid out for expanding the construction of granaries in tandem with increasing the prevalence of the al-Shater-owned Zad supermarkets. There were also rumors at the time of al-Shater’s plans to buy out some of his most prominent competitors. Although it is now no more than talk of an incomplete attempt, it seems that the objective at the time was to solidify the Brotherhood’s political influence by increasing its visibility in the economically and socially vital field of foodstuffs trade. This was part of the plan to support a long-term populist agenda by entering into the process of providing foodstuffs to vast sectors of the population, a model that had been carried out before in a number of countries. ((The Italian Communist Party succeeded in the decades following WWII to connect vast networks of co-ops into a supermarket chain known as “Coop,” which is today one of the largest, if not the single largest, network in the country. The purpose at the time was both economic and social: to provide foodstuffs across the country at discounted prices to prop up the party’s social image. This facilitated its social and political agenda, in addition to being a successful economic venture.))

As for whether or not the investigations are merited, an assessment is again marred by opacity. The great mystery in the relationship between the Brotherhood and its businessmen comes in terms of the ownership and control of capital. What is the extent of its mixture as, on the one hand, a religious group with hundreds of thousands of followers and, on the other, the money managed by people like Khairat al-Shater in a generally opaque context of private ownership in the Egyptian economy? Many, if not most, of the Brotherhood’s financial transactions have been carried out informally and without ceding to the legal guidelines laid down by the state and its institutions. This is a prominent phenomenon in developing world economies, which often lack the official infrastructure of private ownership, thus depending on parallel structures to carry out transactions and agreements and contracts. While not necessarily totally illegal, the Brotherhood’s economy fell into this widespread grey area between what is formal (companies registered to individuals or families) and what is not (informal relationships to religious or political entities not acknowledged by the law). Therefore, the state’s move against the assets of political opponents reflects the issue of a lack of guarantees for private property rights that remains vulnerable to being targeted in the name of the law (whether under the guise of protecting national security, or combating money-laundering schemes, or fighting tax evasion). The accusations of violence filed against the Brotherhood since last June remain possible; however, the broader political environment does not inspire confidence. Particularly given significant concerns over the judiciary, it appears doubtful that state institutions have the necessary objectivity or credibility to guarantee that the Brotherhood be subjected only to the law without it being abused for political reasons.

Naturally, there are concerns that targeting private enterprise, particularly at a crucial beginning moment in Abdel-Fattah El Sisi’s presidency, undermines an atmosphere of political and economic stability conducive to much-needed investment. While this may be theoretically true, it is also quite exaggerated. At the time the state targeted prominent Brotherhood businessmen in 2006, there was unprecedented economic growth, as well as growth in foreign investment; the cases against the Brotherhood had a negligible effect on investor confidence in the country. Of far greater concern today, both foreign and Egyptian investors are fully aware of the weakness of the legal infrastructure and property guarantees in Egypt and take the decision to invest, weighing a weak rule of law as nothing more or less than an investment risk. Therefore, it is unlikely that these most recent decisions against Zad or Seoudi would, in and of themselves, have a large negative effect on the chances of recovery in the Egyptian economy. Indeed, these chances remain linked, first and foremost, to the larger questions of legal and political stability, institutional integrity, and the Sisi government’s immediate efforts to improve upon these.