Will Sisi’s Presidency hurt the rich, or the poor?

July 7, 2014 Leave a comment

Egypt’s new President, former military head Abdel Fattah el-Sisi, is beginning to show his hand on economic policy – but despite tax hikes intended to appease populist demands, his regime is still rooted in the support of the country’s business elite.

Following Mr Sisi’s formal election in late May, after nearly a year at Egypt’s helm following last summer’s military coup, the Finance Ministry has revealed plans to raise taxes on companies and high earners. These initiatives are being used by the government to bolster its claim to be pursuing the redistributive policies demanded by protesters in Egypt’s 2011 popular uprising.

The policy drive began when Finance Minister Hani Qadry announced plans for an additional 5 percent tax on individuals with incomes in excess of 1m Egyptian pounds (around $140m) in May.

Although Mr Qadry was keen to stress that the tax would only be in place for the next three years, the announcement of a further tax, this time a 10 percent capital gains tax intended to raise $1.4bn for the state coffers, hit the stock market hard. The country’s key index fell by over 4 percent in two days.

The Finance Ministry feared the market’s reaction and immediately moved to announce that exemptions would be added to the legislation for low value dividends. The tax was also amended to halve the rate paid by the country’s biggest investors – shareholders who own more than 25 percent of a company – thereby tempering the effects of the legislation considerably.

The government then announced that it would abolish a 2013 transactions tax, and that state employees would receive a 10 percent raise beginning at the end of this month. The pay rise will further widen Egypt’s budget deficit which is currently estimated to be around 12 percent of GDP.

According to Amr Saleh-Ahmed, tax consultant at Metlife Egypt, many in the market believe the new taxes are a mistake.

“The tax will definitely raise revenue for the government, but a lot of the gains will disappear because of lost investment,” he tells This is Africa.

“The government says this tax regime will only be in place for three years; however, it is possible that it will go on longer. They are doing this because of holes in the budget, and holes in the budget will not disappear after three years,” he says.

Nevertheless, Egypt’s investors are still treating Mr Sisi kindly, and despite some volatility the market is performing far better than at any time under deposed President Mohammed Morsi. A number of prominent investment decisions have recently been announced, with British Petroleum’s plans to invest $1.5bn in Egypt this year to boost production of natural gas heading the list.

Meanwhile Egyptian billionaire Nassef Sawiris, whose family heads the sprawling Orascom group, announced on 10 June that he will set up a new investment firm with backing from investors in the Persian Gulf, Europe, and the United States. The firm claims to have already invested $55m in Egypt’s health sector.

“Examining the macro picture of Egypt, one would realize immediately that the economy needs fiscal consolidation. This is a measure that would entail increasing the revenue side and reducing the expenditure, and hence this tax would be a step in this direction,” Wael Ziada, head of Research at the Egyptian investment bank EFG Hermes, tells This is Africa.

But Mr Ziada believes that for now the planned taxes will actually have relatively little effect, neither making investors poorer nor the government richer. The true aim may well be to provide the appearance of softening the blow of coming austerity measures, including cutting fuel subsidies.

“The importance behind this move is to usher a clear message to the masses, who perceive investors in the stock market as the highest income bracket, that everyone with no exception will have to shoulder the burden of fiscal consolidation – especially if you are about to deregulate energy prices and restructure subsidies,” he says.

The government is attempting to fill gaps in the budget by cutting spending, especially on social welfare programmes for the poor, and is planning to issue an international bond with a value of between $750m and $1bn sometime this year.

Mr Sisi’s regime has also hired US consulting firm Strategy & (formerly Booz and Company), and Bermuda-based US investment bank Lazard to advise on economic policy. The firms are promoting pro-austerity policies that will prepare Egypt for negotiations for a loan from the International Monetary Fund.

According to Joel Beinin, professor of Middle East history at Stanford University, these firms now appear to be some of the key actors shaping Egyptian economic policy.

“This suggests that there is very likely to be a continuation of the main lines of economic policy followed in the last decade of Hosni Mubarak’s rule, although Sisi will try to cordon off the military’s economic activities from market competition and privatization,” he says. “If this economic program can be successfully installed, the rich have nothing to fear.”

Egypt’s business world is strongly tied to the military establishment that forms Mr Sisi’s power base, and the chief executives of many of its largest companies are former generals. For now, all signs indicate that Mr Sisi stay the course approved by the country’s wealthy investors. Egypt’s poor, however, face the likelihood of austerity measures that will continue to push living costs higher.

 

This article was originally published with Financial Times: This is Africa on June 17 2014.

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North Africa Burns Billions on Energy Subsidies

May 9, 2014 Leave a comment

In total, the governments of Egypt, Algeria, Libya, Morocco and Tunisia spend more than $45bn on energy subsidies each year – a figure that dwarfs spending on healthcare and education, according to the latest available data. Yet as the cost of fuel continues to grow, governments are trapped between the unsavory options of cutting subsidies and facing popular unrest, or going broke trying to continue paying for them.

Governments in energy producing countries, including those in North Africa, have traditionally supported domestic demand for energy by fixing prices at levels deemed affordable so their citizens are not priced out of the market by global energy demand.

The subsidies not only help with the cost of goods like petrol or cooking gas, they also indirectly reduce the costs of goods and services which use energy in production, lowering overall living costs.

However the cost of subsidies has ballooned in recent years. In Egypt, for instance, the government now spends around 20 percent of its annual budget fixing the price of energy.

“The extent of a government’s ability to cut subsidies is dependent on the amount of confidence and support it has from the population. In North Africa, there is clearly little of that at the moment,” Glada Lahn, senior research fellow for Energy, Environment and Resources at Chatham House, tells This is Africa.

However, Ms Lahn says, “the question is whether this is economically sustainable, and the answer in North Africa is definitely not. Governments have seen disasters in other countries where reforms have been tried and are naturally concerned, but long term the problem will have to be addressed.”

Taking the plunge

On 1 February, Morocco broke rank and announced that it had become the first country in the region to stop subsidising gasoline and fuel oil, and that it would be substantially reducing subsidies for diesel over the next few months.

Morocco spent more than $5bn on energy subsidies in 2013. Diesel subsidies were one of the most substantial state bills, but 80 percent of the fuel was consumed by the richest 60 percent of Moroccans.

Plans to reduce subsidies have been in the works for some time. With support from the IMF, the government developed a plan which linked the hikes to an agreement extending a $6.2bn loan to the Moroccan state in 2012. In addition, a new deal with the World Bank will see the state receive an extra $400m per year between 2014 and 2017.

When the plans were first announced last October, five ministers from the ruling coalition party, Istiqlal, resigned. They accused the leading Islamist Justice and Development party of hurting the poor.

In Tunisia, the Islamist Ennahda government – which was replaced by an independent cabinet in December – had also planned to heavily reduce the amount of money it spends on energy subsidies. The state energy subsidy bill in Tunisia is the smallest in the region, but is still estimated to be worth around $2bn, or more than 10 percent of the national budget.

However, plans had to be suspended in the face of popular pressure. Protests and demonstrations in the capital made policy makers – already burdened with managing a political transition and bringing in a new constitution – cancel the price hikes. Tunisia’s unemployment rate is the highest in the region at 15.9 percent, and youth unemployment has been estimated at around 30 percent.

The IMF ‘s crusade

According to the IMF, which has been strongly lobbying for the removal of the subsidies, while poorer consumers are the main target of subsidy benefits, but in fact disproportionately end up going to the rich and middle classes.

In one example, the IMF shows that in Sudan only around 3 percent of fuel subsidies go to the poorest 20 percent of people, while the richest 20 percent receive over 50 percent of the subsidies.

The IMF now says it is time for action, and has particularly targeted North African countries, where national finances have been severely affected by both the global financial crisis and the wave of popular uprisings that began in 2011.

“Everyone, the rich and the poor, benefit from these subsidies by paying lower prices, but governments in North Africa would get more ‘bang for the buck’ if they removed or reduced subsidies and targeted the money directly at helping only the poor,” a spokesperson for the IMF told This is Africa.

In high level meetings with Finance Ministries and Executives across the region, the IMF is pushing for cuts that would allow funds to be reallocated to more productive public spending, including promoting energy saving technology and reducing pollution.

A World Bank official in Cairo told This is Africa that the Bank is supporting the IMF in this drive, particularly by holding roundtable meetings with government officials, and arranging for international economists to make presentations to leaders promoting subsidy reductions.

But cutting subsidies is often easier planned than done. Sudan is a case in point: last September, the government made a shock announcement that it was removing fuel subsidies, doubling the price of fuel overnight. In response, widespread protests turned into riots. In the end, more than 200 were killed in a brutal crackdown by security forces.

Egypt fears for stability

In Egypt, energy subsidies have become all but unaffordable. Constituting around one fifth of the annual budget, the spend is equal to three times the bill for education and seven times what is spent on healthcare.

Oil minister Sherif Ismail has said that petroleum product subsidies alone are expected to increase by 10 percent in 2014, which would see the cost to the government rise to almost $20bn.

The benefits are also particularly badly distributed. Only around 3 percent of diesel and gasoline subsidies benefit the poorest 40 percent of the population.

The Islamist government of Mohamed Morsi attempted to cut subsidies, but due to popular opposition to the plans – and recollections of riots in Cairo when President Anwar Sadat attempted to cut state subsidies in the 1970s – the administration back-pedalled.

However, the Finance Ministry announced on 15 April that it will again attempt to make Egypt swallow its medicine. The head of the ministry, Hani Qadri, said in a public statement that plans to cut subsidies will be announced after the May Presidential elections, which are expected to bring Field Marshal Abdel Fattah el-Sisi to power.

The smuggling problem

In Algeria, energy subsidies have created additional problems beyond balancing the state’s books. The country spends more than $14bn per year (7 percent of GDP) subsidising energy. Not only do the benefits often miss the poor, many of them are going abroad.

Smuggling across Algeria’s almost 4,000 miles of land border is booming. The black market in fuel along the border with Morocco, which has been officially closed since 1994, is particularly active. As a result, in addition to rising domestic demand for energy damaging export revenues, criminal gangs are profiting from the handouts. The World Bank reports that roughly 25 per cent of all the fuel consumed in Tunisia in fact comes from Algeria through smuggling.

The losses that the Algerian state sustains due to smuggling have been estimated at $1.3bn per year. According to oil minister and temporary prime minister Youcef Yousfi, “smuggling of fuel is a gangrene on the national economy”.

In Libya, the subsidy problem has largely been lost amid drastic security concerns, according to a Libyan banker working for an international bank based in Britain. The aftermath of the country’s 2011 revolution that overthrew long-time dictator Colonel Muammar Gaddafi has been turbulent, with militant groups still roaming the country.

“The two key policy issues we should be talking about are subsidy reductions and the privatisation of state companies, but in the country’s current state important reforms are very difficult,” the individual told This is Africa.

Libya’s subsidy bill is equal to around 9 percent of GDP, or $7bn, taking up almost 16 percent of a national budget already strained by ever rising salaries in a system where almost the entire working population is employed by the government.

 Popular backlash

Critics of IMF policy largely accept that energy subsidies are unsustainable in the long term, but say the IMF is disconnected from the political reality of actually removing them, and that mitigating social projects often will not be enough to support the poor.

“In North Africa, where a significant fraction of the populations suffers from poverty, unemployment, and depressed wages, any near-term subsidy elimination could carry severe socio-economic repercussions for the region’s most vulnerable citizens,” says Hassan Sherry of the Arab NGO Network for Development.

The IMF does note that cutting subsidies poses a risk to the poor. “Price increases can still have a substantial adverse impact on the real incomes of the poor through higher energy costs of cooking, heating, lighting, and personal transport,” the IMF explained in a briefing.

But Mr Sherry says that however much North Africa is spending on subsidies, the wider consequences of cuts have not been fully thought through.

“Given the heightened regional instability and the deteriorating social and economic conditions in North African countries, subsidy reform in the near-term is likely to provoke significant popular backlash,” he says, “which might entail using force by the authorities.”

This article was originally published with Financial Times: This is Africa on May 2.

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What future for Libya’s Banks?

March 27, 2014 Leave a comment

While Libya’s government and economy struggle to stay afloat through the tumultuous post-Gaddafi transition, the country’s banks are holding assets valued at up to $170bn that are doing little more than gathering dust, according to banking sources and financial institutions.

In the last 12 months, rebel blockades of eastern oil terminals and the Tripoli-based central administration’s inability to maintain authority in eastern and southern towns have crippled the country’s national finances.

Only last week, rebel groups orchestrated the lifting of oil from the Es Sider port without authorization from Tripoli. The stolen oil was loaded onto the Morning Glory III, a North Korean flagged 21,000 tonne tanker named, which managed to evade the Libyan authorities for almost a week before being stormed by US Navy SEALs and returned to Libya. The incident led to the sacking of Prime Minister Ali Zeidan by the country’s interim General National Congress (GNC) on March 11.

Oil exports account for more than 90 percent of Libya’s government revenue, so blockades such as this one have led to a ballooning budget deficit. As a result, the country is desperate for capital in order to bridge shortfalls and rebuild vital infrastructure.

The capital is there, at least in theory. According to one source in the Central Bank, the total value of assets held in Libya’s banks may be as high as $170bn, with $90bn at the direct disposal of the Central Bank and $60bn controlled by the state investment company, the Libyan Investment Authority (LIA).

“There’s a huge amount of dormant money because the banks are acting like safe deposit boxes, not financial institutions,” Namaan el-Bouri, the fund manager of Tadawul Real Estate Fund, tells This is Africa.

These assets should be leveraged to help rebuild the country by providing funds for private business and public infrastructure investment, he argues.

“Most of the assets are sat in the Central Bank, and this is a big part of the problem. The status quo suits those in political power, some of whom really do not know what they are doing. Everyone’s focused on the security situation, but security could be restored with growth and investment,” he explains.

Accumulated wealth

In the decade preceding the 2011 uprisings that led to the dismantling of Muammar Qadhafi’s autocratic regime, Libya’s partial reabsorption into the world economic system led to selective wealth accumulation. The value of assets held in Libya’s commercial banks grew by over 300 percent. In 2003 they were held to be around $11.5bn. By 2010 estimates reached over $50bn.

But the assets have historically had difficulty finding their way to use in productive investments.

In 2010 just 13.5 percent of bank assets constituted loans to the private sector. The problem has continued in post-Qadhafi Libya. Last year, the country’s loan-to-deposit ratio was approximately 23 percent. By comparison, the regional average was more than 80 percent.

Libya’s population is growing at around 1.7 percent a year, and 45 percent of the population is under 25 years old. The state claims the unemployment rate is 15 percent, but youth unemployment is believed to be much higher. At least 150,000 jobs a year will be needed for the next five years in addition to the 860,000 jobs currently needed to fix the unemployment problem.

More freely available investment capital could help stimulate job creation, but banks face serious problems in loaning to business – in large part due to problems securing collateral.

“In Libya, unfortunately, we have a structural problem with securitizing any loan and this is the main reason banks are not lending,” says Husni Bey, the chairman of the largest private holding group in Libya, HB group.

“Property is key in all countries as an asset for banks to loan against, but in Libya this is not functioning.”

Mr Bey says that Libya lacks an accurate and readily accessible land registry that can provide a framework for collateral, and as a result banks are not willing to lend to businesses.

“The land registry system is so messed up that banks won’t loan because forgeries are rife and there is no working system to authenticate land ownership, let alone a usable database,” he tells This is Africa.

“We have a very limited stock exchange, so land should be all the more important because banks need security.”

Mr Bey says the procedure to recover debts through assets is currently next to impossible, but the private sector itself is showing some signs of strength, and with political will the problem could be solved.

“This is very easy to fix. We are a country of six million and maybe one million families. Libya is not a city state like Dubai or Kuwait, but neither is it Morocco or Egypt. In Libya we have our own capital – we don’t need foreign capital for investment,” he argues.

Pushing through such significant reforms will nonetheless be difficult without concerted pressure from financial institutions themselves and sympathetic political groups.

The central problem

Such pressure has thus far not materialised. Some point to a high degree of crossover between state institutions and banks as contributing to sclerosis at the heart of the financial system.

“Almost all the banks in Libya are majority owned or even fully owned by the state,” a Libyan banker who works for one of the world’s largest banks and asked not to be named tells This is Africa.

State-owned banks do still dominate Libya’s financial world, but partial privatisations in 2007 saw France’s BNP Paribas buy a 19 percent stake in Sahara Bank, and the Arab Bank of Jordan take 19 percent of Wahada bank.

“The head of the Central Bank, currently Sadiq Kabeer, is selected by the GNC. He is a politically important figure, but frankly thus far hasn’t played an important role,” the individual says. Mr Kabeer is widely considered to be an ally of the Islamist faction within Libya’s GNC.

There have been tentative moves to get rid of Mr Kabeer, who is technically only an interim governor, including opening up the applications process for a new governor. So far, nothing has come of it. Mr Kabeer was criticized as under-qualified and incompetent by multiple sources This is Africa spoke to about the Central Bank.

While leadership remains an issue, structural reforms are also needed in the Central Bank if there is to be any prospect of Libya putting its extensive domestic wealth to use, according to Mark Dempsey, a former advisor to the Central Bank of Iraq who has published extensive research on Libya’s financial institutions.

“The question is how does Libya get its Central Bank working,” he tells This is Africa. “Ultimately we have to stimulate the economy by getting banks lending.”

There are three reforms that are needed, according to Mr Dempsey. First the Central Bank’s duties must be separated by creating an independent regulator. Second conflicts of interest, such as several board members of the Central Bank also having stakes in state banks, should be eliminated. Finally, a credit bureau system should be built in order to provide banks with data to make risk management decisions on potential borrowers, he says.

Though the steps are clear enough, catalyzing the political will to push through banking reform deadlock is difficult while the tenuous security situation remains in the foreground of most players’ thinking.

“All of this comes back to the dilemma of reform in Libya: how can it be done when nothing moves and so much energy is being devoted to security sector reform because of the militia crisis?” Mr Dempsey asks.

Fixing the financial system will not be easy. However, if Libya is to rebuild or begin to shield itself from the economic and political dangers of oil dependence, getting the country’s billions working for it will be a good place to start.

 

This article was originally published with Financial Times: This is Africa on March 26 2014.

 

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Egypt’s Generals turn to an Old Rival in the Fight against Islamist Militancy in Sinai

February 28, 2014 Leave a comment

For over two years, the Islamist militant group Ansar Bayt al-Maqdis (ABM) has been launching violent attacks against the Egyptian state in North Sinai. These fighters have been responsible for killing dozens of Egyptians in coordinated bombings, carrying out a handful of assassination attempts, and earlier this month demonstrated a possible change in tactics when suicide attackers blew up a bus killing three South Korean tourists and the Egyptian driver.

Despite regular claims to have killed or captured key militants, the Egyptian government’s attempts to quell the violence from this group have so far proven ineffective. There have been over 300 reported attacks since last July, and the run of attacks shows no sign of abating.

With insecurity in the Sinai peninsula deteriorating and Cairo looking short of options, it is little wonder that it has turned to others for help in tackling the Islamist militancy. However its latest choice of partner may raise some eyebrows.

When Cairo met Khartoum

At the start of February, according to Al-Sayyid Al-Badawi, head of the al-Wafd party, an Egyptian delegation returned from a visit to Sudan. There, the officials had agreed a deal with Khartoum over the deployment of joint military patrols along the Egyptian-Sudanese border.

Shortly after that meeting, another higher-level engagement was arranged with the Sudanese Defence Minister Abdel Rahim Mohamed Hussein who flew to Cairo for talks with Field Marshall Abdel Fattah el-Sisi, his counterpart/Egypt’s de facto ruler, and General Sedqi Sobhi, second-in-command of the Egyptian armed forces.

Such meetings are hardly typical of Cairo’s current relationship with Khartoum. Relations had been warm during the presidency of the Muslim Brotherhood’s Mohammed Morsi, with the country’s newfound friendship reaching its apogee in September 2012 when Morsi gave a speech to the United Nations expressing support for President Omar al-Bashir.

But Morsi was toppled in July in a military-led movement. And Egypt’s military establishment has never been particularly genial towards al-Bashir and has always maintained that the Sudanese president, who has been indicted by the International Criminal Court for crimes against humanity, should stand trial. Egypt’s relations with Sudan therefore cooled once more when Morsi was deposed. The new military-led government soon went about clamping down on the Brotherhood and eventually designated the group a terrorist organisation, leading many senior Brotherhood members to try to flee to Sudan.

Sisi’s campaign

In September, a couple of months after Morsi was deposed and Sisi became Egypt’s de facto ruler, the military announced that it was expanding its campaign in Sinai in response to ABM’s attemptedassassination of the Interior Minister Mohammed Ibrahim.

This fit in with Sisi’s general approach to Sinai since being appointed head of the Supreme Council of the Armed Forces (SCAF) in August 2012. Sisi’s predecessor, Mohamed Hussein Tantawi, is known to have been against trying to control Sinai militarily, arguing instead for an informal arrangement whereby the state gave militant groups leeway in return for them confining themselves to specific areas and limiting activity. By contrast, Sisi since taking office has put his own stamp on the government’s policy in Sinai, favouring a much more aggressive approach.

“The Sinai campaign as it is today is very much Sisi’s campaign,” says Issandr el-Amrani, the Cairo-based North Africa Project Director for the International Crisis Group. “Sisi pushed in January 2013 for a more active campaign, where Egypt now takes advantage of its full military deployment quota in Sinai and goes directly after the militant groups.”

Unfortunately for Sisi, however, the results have thus far have not been impressive. Although accurate data is difficult to come by, the number of security forces personnel that have been killed may well be higher than the number of militants.

Indeed, in response to the September announcement that the military would step up its campaign in the region, ABM increased its violent activity. On 11 September, suicide bombers attacked the military intelligence building in Rafah and an armoured personnel carrier at any army checkpoint killing nine soldiers. Next, the group bombed the el-Tor Security Directorate, attacked the military intelligence facility in Ismailia, and in November claimed the assassination of intelligence officer Lieutenant Colonel Mohammed Mabrouk. By December militants had also killed 16 in an attack on a security directorate in Mansoura, bombed the Cairo security directorate in Abdeen, andassassinated senior Interior Ministry official Mohamed Said. On 25 January, the Islamist militants used a SA-18 surface-to-air missile to take down an army helicopter, killing five. And now it seems that it may have adopted a new tactic of also targeting tourists.

My enemy’s enemy

It is in the face of this inability to stem to violence that Cairo has called on Khartoum for help. Part of the problem with a military campaign against Sinai militancy is that the groups involved often don’t have traditional hierarchical command structures and are highly adept at concealing their plans and communications. ABM, for example, doesn’t have a clearly defined organisational structure, and intelligence is not even confident on basic facts about the group − estimates as to its size vary from 500 to 5,000 members. Meanwhile the insurgency is not confined to just one group − ABM appears to be the most active, but the likes of al-Salafiya al-Jihadiya, the Mujahideen Shura Council, al-Tawhid Wal Jihad, Ansar al Jihad, and the Egypt Free Army also operate in Sinai.

However, amidst all the uncertainty, one thing about the militants in Sinai is relatively well-accepted, which is that the militants get at least some of their arms from local Bedouin smuggling gangs. These groups are believed to run weapons from Sudan through routes running along the Red Sea, before passing through the Suez towns or across the Gulf of Suez in small boats. Egyptian intelligence has been particularly concerned by this flow of weapons since the downing of one of its helicopter with a surface-to-air missile.

Military or military border guards are meant to control the roads along these routes, but shipments still appear to be slipping through. One explanation is that the smugglers are highly skilled at avoiding main roads and border guards; another is that the security forces − those supplied by the state as well as by private oil and gas companies in the region − are drawn from local Bedouin communities and have ties with the smugglers.

These gangs are also known to engage in the trafficking of humans, particularly of Eritrean refugees who they torture and hold for ransom. But so far, pressure from international human rights organisations on Egypt and Sudan to coordinate and crackdown on traffickers has largely been unsuccessful, partly perhaps because of the two country’s ongoing disagreements over issues such as the Renaissance Dam project and the Hala’ib Triangle border.

However, with insecurity in Sinai growing, this reluctance to combine forces now seems to be waning. Whether increased co-operation in tackling arms smugglers will lead to closer diplomatic ties between Egypt and Sudan remains to be seen, but with attack after attack undermining Sisi’s control of the Egyptian state, he is hoping he can find a friend in an old rival.

This article was originally published with Think Africa Press on February 26th 2014.

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Tunisia’s NSA-style intelligence drive

February 27, 2014 Leave a comment

A few weeks ago, in a coastal suburb of Tunis known as Raoued, the government of Tunisia set the stage for creating an NSA-style spy agency to monitor telecommunications and Internet activity, including by its own citizens.

That day, the nation’s counterterrorism police fanned out through the normally quiet residential area as special forces armed with automatic weapons surrounded a large house, inside of which heavily armed militants were believed to be hiding. Onlookers were cordoned off at a distance.

The operation unfolded slowly over the course of 24 hours. When police finally issued orders by loudspeaker for those inside the building to give themselves up, there was silence. Then suddenly a firefight broke out, and by the time it was over, seven militants and one national guardsman were dead.

The government would later proclaim the successful raid a victory for the people, made possible by its increasing ability to monitor terrorist groups and prevent attacks before they happen. Underlying those claims was a subtext that has often been cited by American intelligence agencies and the Obama administration in recent years: that monitoring the activities of private citizens is essential to counterrorism efforts.

In Tunisia, the birthplace of the Arab Spring, that approach has a particular resonance, because the protests in 2011 were in part sparked by the authoritarian government’s spying on its own citizens. As Tunisia prepares to create an agency known as the Technical Agency for Telecommunications (abbreviated ATT), some are concerned that the country is headed back in the direction of where the trouble began.

Jillian York, director of the San Francisco-based International Freedom of Expression at the Electronic Freedom Foundation, noted that the ATT “is entirely inspired by the NSA, and in much the same way, there’s the justification for spying on a state’s own citizens using legitimate security concerns.”

Others inside Tunisia are more critical. Tunisian lawyer Kais Berrjab accused the government of “voyeurism” and claims the establishment of the ATT represents a “battery of legal irregularities related to unconstitutionality and illegality.” Berrjab added that what little official documentation exists regarding the ATT is obfuscated and fails to properly define the organization’s relationship with judicial authorities, and that there is no legal framework for providing civilian accountability over the agency’s actions.

The day after the attack on the house in Raoued, on Feb. 3, 2014, Tunisia’s minister of the interior, Lotfi Ben Jeddou, released a photograph of one of the slain men wearing a belt laden with explosives. The man was Kamel Gadhgadhi, a senior member of the militant organization Ansar al-Sharia Tunisia.

Gadhgadhi had been wanted for some time, and his death was considered more significant evan than the much-publicized government crackdown on Ansar al-Sharia. Gadhgadhi was the main suspect in the assassination of popular left-wing politician Chokri Belaid last year, an event that plunged the country into new political turmoil, from which it has only recently recovered.

Belaid had been an outspoken critic of Zine el-Abidine Ben Ali’s dictatorial Tunisian regime and the Islamist Ennahda movement then leading the country’s ruling coalition. Though partisan, Belaid was respected across the political spectrum, so when suspicions surrounding his assassination fell on Ansar al-Sharia Tunisia, the government’s reputation suffered. Belaid’s assassination was seen by many as evidence that the Ennahda government was incapable of providing security for its own citizens, while others suspected that it was secretly encouraging extremists like Ansar al-Sharia.

The killing sparked a general strike and protests in which as many as a million people, or around 10 percent of the population of Tunisia, took to the streets. Demonstrators flooded the central thoroughfares and economic heart of the city, Avenue de France and Avenue Habib Bourguiba. The anger was palpable. Business and day-to-day life ground to a halt. The following month, then-Prime Minister Hamadi Jebali was forced to resign.

Six months later, a second secular opposition figure, Mohamed Brahmi, was assassinated under strikingly similar circumstances. Tunisians again took to the streets, and this time anger with the government reached a higher pitch. Popular pressure then set in motion a chain of events that led to the dissolution of the entire cabinet and the appointment of a new, technocratic prime minister from outside Ennahda. So when the Interior Ministry announced that it had killed Gadhgadhi – the man accused of pulling the trigger that started it all – they wasted no time in declaring the operation a victory for the people.

“Gadhgadhi is the one who carried out the political assassination of Chokri Belaid… this is a gift to the families of the martyrs,” Interior Minister Ben Jeddou said in a national press conference.

“Inspired by the NSA”

With the anniversary of Chokri Belaid’s murder marked by Gadhgadhi’s death, and the country having recently passed a new constitution widely praised for achieving consensus between secular and Islamist camps, Tunisia’s new prime minister, Medhi Jomaa, is in an enviable position among North African leaders.

Neighboring Libya is gripped by militia violence, and Egypt’s political system and economy are in shambles, yet Tunisia’s reputation in diplomatic and international business circles remains good despite recent setbacks. U.N. Secretary General Ban Ki-Moon went so far as to describe Tunisia as “a model to other peoples seeking reform.”

Beneath this hopeful veneer, the relationship between Tunisia’s government and its people is uneasy, and unstable. And the fight against extremism remains a sore spot. Some Tunisians (including the widows of Belaid and Brahmi) pushed the government to account for how they had discovered his whereabouts, and though the government has offered few details, it has acknowledged that a captured member of Ansar al-Sharia, Mahjoub Ferchichi, gave up the location of the militants’ house.

Intelligence of the kind that led to security forces tracking down Gadhgadhi had previously been gathered by two separate organizations based in the Interior Ministry’s imposing building: the General Directorate for Specialized Services, and the General Directorate for Technical Services.

Now, Tunisian authorities are creating a new, more professional spying service and establishing a single centralized intelligence agency that will include the kinds of mass-monitoring of telecommunications and Internet traffic that made the NSA so controversial in the U.S.

Rights advocates and observers fear that in the government’s desire to ameliorate popular dissatisfaction and secure the state against extremists like Gadhgadhi, it will return to the authoritarianism of the past. York pointed out that the head of the ATT will be directly appointed by the government’s Ministry of Information and Communication, making it difficult to argue that the agency is independent of the central state.

The group Reporters Without Borders has also heavily criticized what some call “Tunisia’s NSA,” arguing that it revives unwelcome memories of Ben Ali’s security state. “This violates the principles that should govern Internet surveillance mechanisms, above all control by an independent judicial authority and the principles of need, relevance and proportionality of surveillance measures, as well as transparency and monitoring by the public,” the organization said in a release, which also noted that the government plans to exempt the ATT from legal obligations of transparency that are required of other agencies, and that doing so “endangers respect for fundamental freedoms.”

Part of the impetus for the new surveillance program is to prove to Western allies that Tunisia can monitor terrorist communications on its own, according to Monica Marks, an Oxford University researcher based in Tunis. “The government was embarrassed by the fact that the CIA managed to get information on Brahmi’s assassination before they did, after the Americans had sent a notice to Tunisia’s interior ministry letting them know Brahmi was potentially in danger,” Marks said. “The Tunisian government wants to plug security gaps by building a new intelligence facility with well-trained employees and more-sophisticated technology.”

Doing so will not only reassure allies; it will help galvanize Tunisia’s position in the eyes of a wary international business investors that the country will continue to be more stable than its neighbors.

International Pressure

Signs that Tunisia is expanding intelligence operations, including the operation against Gadhgadhi and a subsequent raid in the suburb of Borj Louzir that resulted in the capture of Ahmed Malki (a suspect in the Brahmi case), are most welcomed by international observers in counterterrorism. A Western diplomat in Tunis told IBTimes that during the past few months European countries have been pushing their contacts in the Tunisian government to accelerate plans for an upgrade to its intelligence services. The International Crisis Group has also advised the Tunisian government to improve counterterrorism operations and crack down on smuggling. And when U.S. Secretary of State John Kerry made a surprise visit to Tunis to meet with Tunisia’s new prime minister, Medhi Jomaa, on Feb. 18, he publicly pledged American support for the country’s security program.

“No democracy can survive or prosper without security,” Kerry said in a speech at the U.S. embassy in which he praised the “very significant arrests that were made and the breakup of Ansar al-Sharia’s cells in the last weeks.”

Immediately following the visit, the U.S. agreed to provide Tunisian police with a mobile command and control vehicle and a forensic laboratory.

The West is not alone in its encouragement. Tunisian authorities are shoring up relations with neighboring states that have long since mastered the art of internal surveillance. Earlier this month, Jomaa visited Algeria for two days of meetings with high level officials there. Algeria’s shadowy security apparatus is known to be accomplished in both counterinsurgency operations and communications surveillance, and after the visit, the two countries agreed to set up three military surveillance systems along their joint border.

And, for better or worse, Tunisia has no shortage of people with experience in operating mass communications surveillance technology. Under Ben Ali, the country was a regional pioneer of state surveillance and a testing ground for surveillance products of U.S. origin, such as SmartFilter, technology created by McAfee that has been used in Tunisia since 2002 to block access to parts of the Internet.

Opacity at all levels

“Especially since the Snowden scandal, the commitment of Tunisians regarding net-freedom and privacy is strong,” said Moez Chakchouk, chair and CEO of the Tunisian Internet Agency (ATI), which was previously in charge of national cyberspace investigation but has since been superseded by the ATT. Chakchouk was responsible for reforming the Tunisian state’s Internet policies after the 2011 revolution, when transparency was the major goal. He is known for bringing bloggers and activists together in a cooperative drive to end the era of the state as Internet censor and monitor.

But since the establishment of the ATT, the role of Chakchouk’s organization has changed. He has been sidelined, and whatever progress his reformist agenda achieved will have little bearing on the actions of the ATT. He also has grave doubts about the future of Tunisian citizens’ freedoms.

“The benefits, if they exist, are about the fact that for the first time surveillance has a form, an agency, and we are no longer in the era of Ben Ali where monitoring was done without anyone knowing who practiced it,” Chakchouk told IBTimes.

Though Tunisia’s former information minister, Mongi Marzouk, claims the ATT was inspired by the model of countries such as Peru and Sweden, Chakchouk says he has his doubts. “There is a risk to users’ data protection, transparency, and in the composition of the ATT’s board — it isn’t nonpartisan,” he says.

Berrjab said he also has concerns about “the opacity of the agency at all levels, the lack of audit mechanism or neutrality, and impartial technical control over the work of the ATT, and the fact that its officers are not sworn,” which he said means citizens have no assurances that their rights and freedoms will be respected.

Representatives of the Tunisian government did not respond to requests for comment on the role of the ATT, but fears persist that it could be overzealous in its effort to track down militants like Gadhgadhi, and to allay Tunisians’ desires for security.

As York put it, “Starting with legitimate concerns about security, the state can then push beyond that and you see surveillance used against political dissidents or just in violation of basic privacy. This isn’t a total regression for Tunisia back to the days of dictatorship, but it is certainly very concerning.”

This article was originally published with the International Business Times on February 26th 2014.

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Egypt’s government on collision course with labour

February 11, 2014 Leave a comment

Egypt’s military government heads for collision with organised labour as doctors hold their fourth strike of the year, and pressure builds in the country’s textile industry.

Medical professionals in Egypt are planning an unprecedented series of strikes this month to demand authorities answer their calls for increases in spending on healthcare and a raise to the minimum wage for doctors, according to an announcement by Khairy Abdel-Dayem, head of the Doctors’ Syndicate.

On Wednesday the union held what was already its fourth strike of 2014, and second in February, when professionals across the country – excluding those working in emergency service roles – held protests at syndicate headquarters.

Doctors and nurses are claiming that the government has ignored their repeated complaints about poor working conditions, structural problems in the Egyptian healthcare service, and low pay.

The Doctors’ Syndicate saw a radical restructuring in December when an independent movement within the union won 11 of the 12 board seats, beating out Muslim Brotherhood candidates who had previously been dominant. The syndicate also elected its first female secretary-general, Mona Mina, a veteran labour campaigner and founding member of the activist group Doctors Without Rights.

But in a development this weekend Dr Mina announced that she was resigning from her post in the syndicate. “Doctors are suffering from a horrible deterioration in their status and they are hugely divided,” she said, adding that internal divisions had made her position impossible.

Dr Mina was involved in organising sit-ins and protests against the regime of the ousted president Hosni Mubarak, and helped found a group called Tahrir Doctors during the January 25 2011 uprising which provided medical assistance to demonstrators injured in the protests. Tahrir Doctors went on to support those injured in subsequent protests against the rule of the Supreme Council of the Armed Forces under Field Marshal Mohammed Tantawi, and against Mohamed Morsi’s Islamist government.

In an announcement to press in January, Dr Mina claimed the government’s attitude to healthcare, and budgetary commitments to its improvement were unacceptable. “Egypt’s health expenditure is below that of poor countries, not just that of developed economies,” she said.

According to World Bank data Egypt’s healthcare spending is equivalent to around 4.9 percent of GDP, lower than the 8.4 percent of Sudan, 6.2 percent of Tunisia, or 6 percent of Morocco, but higher than in Algeria or Libya, which spend just 3.9 and 4.4 percent of GDP respectively.

Under Dr Mina, the syndicate was locked in disputes with the Ministry of Health and its head Dr Maha el-Rabat. Dr Rabat’s reputation among labour campaigners has never been good due to her involvement in a series of hospital privatisations (in collaboration with USAID) during the Mubarak regime.

The Health Ministry claims the government is taking the strikes seriously. On Thursday interim president Adly Mansour announced a decree that offered doctors bonus pay, although did not increase the base salary. The government also offered to marginally raise hazardous pay.

“We take the strikes very seriously and respect the constitutional right to strike, but we believe this bill is a step in the right direction for the negotiations given what the budget can currently withstand,” Dr Ahmed Kamel, an official in the Health Ministry, tells This is Africa.

The union has said it will continue to strike twice a week until its next major meeting on February 21.

On Saturday hundreds of junior ranked police officers also went on strike in seven different governorates to protest against bad pay and poor working conditions. Leaders claimed they would expand their demands to include the resignation of the Interior Minister, Mohamed Ibrahim, if their complaints are not addressed.

A legacy of revolution

Egypt’s professional classes have played an important role in recent uprisings. “The professional syndicates played a key role in the removal of Mubarak in early 2011, and remain a potent force within Egyptian politics,” says Citigroup’s chief economist for the Middle East, Farouk Soussa.

Mr Soussa believes that the greater political engagement of the middle classes resulting from the uprising against former-president Mubarak will now be a long-term trend.

“So far, professional unions have restricted their activities to the pursuit of the interests of their members, but their actions are still disruptive to economic activity, and reflect a legacy of the 2011 revolution that is unlikely to recede anytime soon,” he says.

The revolutionary April 6 movement, which was central in organising against Mr Mubarak during the 2011 uprising, originally arose from strikes in Egypt’s textile producing region, Mahalla, in 2008. The leadership of the April 6 movement has been imprisoned since the July military coup.

Over the past few months press in the textile industry has been building again. In July, more than 20,000 workers in the Mahalla state spinning and weaving company went on strike, claiming to have received just half of the bonuses previously promised to them by the state.

Plant managers attempted to placate the strike by promising to make up the difference the following month, but payments didn’t come through, and in August tens of thousands of workers again went on strike to demand the promised funds, reportedly equivalent to over a month’s salary.

Disputes have continued and in October Mahalla workers staged a major strike, this time storming the office of the company’s CEO, Fouad Abdel-Alim. For three days the plant was shut down by the sit-ins until the company agreed to pay another tranche of missing payments.

Bread, freedom, and social justice

Officials are aware that many of their planned policies put them in conflict with the interests of Egypt’s lower-paid workers, who are demanding social reform, and they have made some attempts to mitigate popular dissatisfaction.

In December of last year the government announced plans to introduce a minimum wage for public sector workers of 1,200 Egyptians pounds or just over $170 per month. The increase would have a practical effect, given roughly a quarter of the country’s population currently live below the poverty line, but only applies to around five million workers. The cost of the plans has been estimated at $2.6bn per year.

Average salaries are in fact higher in the public sector than the private, where no minimum wage regulations are planned. The overwhelming majority of spending outlined in two separate $4.3bn fiscal stimulus packages has still been targeted at the business community and not workers.

A World Bank official in Cairo tells This is Africa that it has launched a $200m intensive labour

programme in Egypt aimed at getting unemployed, unskilled workers into short-term employment in public works projects. The programme gives unemployed labourers jobs cleaning canals, repairing houses and roads, and working in community service roles.

“The current strike reflects the deeper structural challenges that the Egyptian state has been facing for over two decades: an inability to meet its responsibility to protect the social and economic rights of a variety of important social groups that the state had traditionally protected,” according to Hesham Sallam, a fellow at the Center on Democracy, Development, and the Rule of Law at Stanford University.

Mr Sallam argues that this trend is a reminder that the structural problems and widespread societal grievances that contributed to Mr Mubarak’s downfall are still prevalent.

“That three years have passed since Mubarak’s downfall and demands for more humane wages and working conditions have persisted reflects the harsh reality that the quest for ‘bread, freedom, and social justice’ is still ongoing,” he says.

This article was originally published with Financial Times: This is Africa on February 10th 2014.

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UK government faces questions over arms exports to North Africa

January 14, 2014 Leave a comment

The British government has approved licenses worth at least £800m for the sale of military equipment and dual-use goods to countries across North Africa, , drawing criticism from rights groups and select committees.

In the past five years the British government has approved 1,258 licenses for the sale of military and dual-use military/civilian goods worth £833m to North African countries with extensive records of internal repression, a This is Africa investigation reveals.

The items licensed for sale include tear gas, explosives, military class helicopters, sniper rifles, surface to surface missiles, and small arms such as shotguns and assault rifles.

According to data obtained through Freedom of Information requests and the Campaign against the Arms Trade (CAAT) database, sales to North Africa have weathered the aftermath of the Arab revolts that touched every country in the region, and saw Egypt’s Hosni Mubarak, Libya’s Muammar Gaddafi, and Tunisia’s Zine El Abidine Ben Ali deposed.

Over a quarter of the licenses granted in the last five years, which have a known value of around £140m, are active to this day.

The two biggest North Africa markets for British arms exporters over the period, Libya and Algeria, are also currently included in the UK Trade and Investment Defence and Security Organisation’s list of “priority markets for UK arms exports”, despite Libya being listed by the Foreign and Commonwealth Office as a “country of human rights concern”.

Egypt: Leading importer of British arms

The most evident trend in arms sales to the region over the 2008-13 period is the rising prominence of Egypt as an export market, the data show

Despite being listed as a “country of concern” by the Foreign Office, Egypt now represents over 40 percent of the value of active licenses for British military and dual use goods sold to North Africa, making it the biggest current market for UK arms in the region.

According to Foreign Office data, 62 percent, or £77m of the £124m of controlled exports to Egypt, were purely for military goods with no dual civilian use. One of the largest arms deals to Egypt took place in March 2013, when the government approved a £43.5m license for components for military helicopters, This is Africa has found.

Egypt underwent a military coup in July last year, a development which subsequently led to the temporary suspension of 47 of the 134 active export licenses to the country in August after severe security crackdowns on supporters of the deposed former president, Mohamed Morsi.

Security forces raided protest camps at Rabaa al-Adawiya mosque on August 14 2013, killing hundreds in acts described by Human Rights Watch as “the most serious incident of mass unlawful killings in modern Egyptian history”.

Export licenses were suspended pending investigation in cases where the goods they included “could be used for internal repression”. Their status was then reviewed, leading to seven being permanently revoked, and a further 16 placed on indefinite suspension. Twenty four were restored.

“Suspension will be kept under review until such time as conditions in Egypt indicate that it is appropriate to lift these restrictions,” the Government said in a response to UK Foreign Affairs Committee questioning on arms exports to Egypt.

“The suspended licences cover a wide range of equipment including spares for helicopters and aircraft, specialist software and communications equipment,” according to a public statement by the Export Control Organisation, which issues licences for the export of strategic goods.

Libya: The Qadhafi legacy

While Egypt is currently the leading importer of British arms in North Africa, Libya was the region’s largest overall recipient of UK military and dual-use goods, with £329m of controlled goods exported there from the UK between 2008 and 2013.

British corporate interests in Libya improved after diplomatic ties were reopened by a meeting between the Muammar Qadhafi and former British prime minister Tony Blair in 2004.

The majority of the goods were dual military and civilian use, but licenses were issued for military helmets, anti-riot shields, assault rifles, hand grenades, and combat shotguns.

An unknown British company also attempted to gain a license on August 11th 2010 for a £22m deal to export “spacecraft” to Libya.

This is Africa has been unable to discover exactly what goods were being exported or if the deal was successfully completed, however defence analyst and Middle East and North Africa editor at Jane’s Defence Weekly, Jeremy Binnie says, “there are Wikileaks cables that say Gaddafi was interested in buying a US satellite capable of tracking desertification in Libya.”

“A British company may have been attempting to obtain a contract related to that satellite programme,” Mr Binnie says.

In September of last year an Early Day Motion was raised in parliament over British arms exports to Libya by Green Party MP Caroline Lucas and signed by members of all parties.

The motion noted “an inherent conflict between strongly promoting arms exports to authoritarian regimes whilst strongly criticising their lack of human rights at the same time.”

Algeria: Falling sales in priority market

The single largest deal licensed by Export Control in North Africa took place in 2010, when the sale of military helicopters with a value of £260m was approved to Algeria. The Algerian state uses military helicopters in its border security programmes and in campaigns against Sahel militant groups such as Al-Qaeda in the Islamic Maghreb (AQMI).

Algeria was the second highest recipient of UK arms during the period for which data are available (largely as a result of the single helicopter deal) but sales have fallen dramatically, and it now represents just 6 percent of the value of active British licenses to the region.

As the country with the largest defence budget in Africa, estimated to be over $10bn (approximately 3.8 percent of GDP), Algeria is now listed as a priority market for British military exports by the UK Trade & Investment Defence & Security Organisation.

A total of 96 percent of controlled exports to Algeria were for military equipment, including weapon sights, aerial targeting equipment, and components for guided missiles.

Morocco: Arms in Western Sahara

In neighbouring Morocco, which was the subject of just under 20 percent of export licenses to the region, the majority of them military only, the largest single deal was a 2011 contract for technical equipment supporting the Moroccan drone programme.

Morocco is known to operate an unarmed version of the predator drone, a BAE systems “Skyeye” drone, and Moroccan forces have received training from the US military’s Africa Command in the operation of the smaller RQ-11B Raven drone.

British arms exports to Morocco have also involved the sale of armoured vehicles, sniper rifles, mortar bombs, tear gas, rocket launchers and surface to surface missiles. The majority of Morocco’s armed forces are deployed in the occupied territory of Western Sahara, where more than 100,000 troops are stationed but the population numbers just 500,000. International partners neither recognise Morocco’s legitimate authority over Western Sahara nor the state’s sovereignty.

Sudan and Tunisia: Smaller markets

Sudan is likely the smallest market for British arms in the region, as although controlled exports totalled a value slightly higher to Sudan than Tunisia, overwhelmingly exports to Sudan were for dual-use military and civilian goods.

Nonetheless, British companies have sold body armour, military helmets, weapon sight mounts, and military explosive devices to Sudan, which features alongside Libya as a Foreign Office- designated country of human rights concern.

Sudan is alleged to be out an air-war against its own population in Blue Nile State, South Kordofan, and Darfur, which according to the Enough Project’s Akshaya Kumar are “indiscriminate towards civilians” and constitute “war crimes”. The country’s leader Omar al-Bashir is charged with war crimes by the International Criminal Court.

Tunisia is the subject of just under 10 percent of licenses granted for restricted military or dual-use goods to North Africa over the last five years, and 15 percent of the active export licenses. Sales to Tunisia total around £20m and include cryptographic software, ammunition for small arms, military support vehicles, and anti-armour ammunition.

Human rights concerns

The British Government has faced written questions from the Foreign Affairs Select Committee on its policy of allowing military equipment to be sold to regimes with histories of human rights abuses. In its response to concerns raised about the scale of arms sales to repressive regimes, the government said it “has confidence in the UK’s thorough and robust export licensing system to distinguish between exports for legitimate defence and security purposes, and exports which pose unacceptable risks to human rights.”

According to the Campaign Against the Arms Trade (CAAT), only 14 percent of the British public believe that the UK is justified in selling military equipment to governments that have a poor human rights record.

“It is deeply concerning that the UK government is still exporting so many weapons to countries with such grave and serious human rights concerns,” Andrew Smith, a spokesperson for CAAT tells This is Africa.

“The Arab Spring should have seen a re-appraisal of how we do business with these countries. All military exports send a message of support to the recipient regime and undermine calls to respect human rights.”

 

This article was originally published with Financial Times: This is Africa on January 14th 2014.

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