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Egypt Rewritten – May 2001 Executive Summary:
Over the past decade, Egypt has received an annual US Foreign Military Assistance (FMA) allowance of US$1.3B annually, and it will probably continue for the foreseeable future. Egypt has used the funds to finance a military equipment modernization program, which has seen the country gradually replace its aging Russian and Chinese-built equipment with US-made systems. The Egyptian Navy (EN) and Coast Guard (ECG) rank behind the Army and Air Force in terms of resource allocation, and this has slowed the progress of its modernization efforts. However, the EN and ECG have improved their capabilities by acquiring six surplus US Navy frigates, five new US-made mine countermeasures vessels (MCMVs) (two route survey ships and three coastal mine hunters), and several patrol boats and craft. For most of this decade, the EN has tried to acquire two new construction diesel-electric submarines and between 4-10 new construction fast attack craft (FAC), which the Egyptians refer to as Fast Missile Craft (FMC). Up until the late 1990s, neither program had come to fruition, primarily due to financial shortfalls. As of this writing, funding is now apparently available for both programs, however the EN is still faced with delays due to a different set of circumstances. In January 2001, the EN selected the Halter Marine Ambassador Mk III patrol boat design for its FAC program, which is being funded using US Foreign Military Financing (FMF). Unfortunately, in May 2001, Friede Goldman Halter, parent company of Halter Marine, filed for bankruptcy protection (Chapter 11). Options are now being examined for the best course of action to get the FAC program underway. However, it appears that the EN may forego the performance bond requirements for Halter Marine, and implement instead a rigorous financial progress, and management review program to ensure Halter’s performance. If the EN hadn’t taken this course of action, it was anticipated the program would have to be re-competed, and therefore significantly delayed. The Egyptians have also selected the RDM Submarines (RDMS) Moray 1400 design to be built at Litton Ingalls Shipbuilding in the US under an FMS Program as well. Currently, the US Government is reviewing the technology compliance plan to ensure there is no negative technology transfer to the EN. Although there is significant resistance by the US Navy to allow for the construction of diesel submarines in US shipyards, a contract is expected next year. The EN and ECG are also in various stages of planning and implementation for additional patrol boats and craft, swimmer delivery vehicles, and MCMVs that will be started in this decade. Additional requirements for LSTs and a Roll-on/Roll-off (RO/RO) ship will probably be delayed until next decade. Due to limited funding under the US FMS program and National Fund, the EN may fill some of its requirements from the used international market (US excess defense articles (EDA) and Western Europe. While waiting for these new procurements to take place, the EN can be expected to budget some of its resources to finance modest modernization programs for its older units to maintain a degree of operational capability. These modernization programs will probably consist of acquiring and installing Western (primarily US) navigation, electronic warfare, communication, and weapon systems. General
Political
Key Economic Indicators
Currency: Egyptian pound. Economic Overview: At the end of the 1980s, Egypt faced problems of low productivity and poor economic management, compounded by the adverse social effects of excessive population growth, high inflation, and massive urban overcrowding. In the face of these pressures, in 1991 Egypt undertook wide-ranging macroeconomic stabilization and structural reform measures. This reform effort has been supported by three successive International Monetary Fund (IMF) arrangements, the last of which was concluded in October 1996. Egypt’s reform efforts – and its participation in the Gulf War coalition – also led to massive debt relief under the Paris Club arrangements. Although the pace of reform has been uneven and slower than envisaged under the IMF programs, substantial progress has been made in improving macroeconomic performance. Budget deficits have been slashed while foreign reserves continue to increase. Egypt has also been moving toward a more decentralized, market-oriented economy. These economic reforms and growing investment opportunities have prompted increasing foreign investment, but incoming capital has largely been concentrated in stock market portfolio flows. Egypt’s economy was hit by a sharp downturn in tourism – a key foreign exchange and job-producing sector – following the 17 November 1997 massacre of foreign tourists at Luxor. Egypt has recovered from the economic downturn of 1997 with over 6% growth in 1999 and 2000. Inflation and the official government annual deficit currently remain low, and the economy will continue to grow moderately over the next several years. Unsettling to the Egyptian economy is its growing unofficial annual deficits. Debt figures announced by the Egyptian Government (listed in the Key Economic Indicators Table) do not reflect the full range of government commitments. Certain aspects of the budget are not always transparent, and announced deficits usually do not include all 67 economic authorities within the country. Figures listed in the Key Economic Indicators Table for 1999 through 2001 are announced by the government, and unofficial/unannounced spending may be up to three times higher than acknowledged. Alliances and International Organization Participation: Alliances and Foreign Relations: Egypt is a member of the Arab League and is a leading voice among moderate Islamic states. Egypt is also a member of the Non-Aligned Movement (NAM), the United Nations (UN), and many of its affiliate organizations. Since signing the Camp David Peace Accords with Israel in 1979, Egypt has developed and maintained close relations with the US. Currently, US Foreign Military Assistance (FMA) funding support for Egypt totals US$1.3B annually, and as a result, much of the Egyptian military is now armed with US-made equipment. The US and Egypt conduct frequent military exercises and consult regularly at the highest government levels. Since the mid-1980s, Egypt has continued to expand its relations with Western European, African, and Middle Eastern nations. Egypt views itself as a stabilizing force in the Middle East, and maintains government and military relations with many nations in the Middle East and North Africa. As a moderate Arab nation, Egypt is at odds with fundamentalist states as Iran and the Sudan due to their support of terrorists and other extremist groups. International Organization Participation: ABEDA, ACC, ACCT (associate), AfDB, AFESD, AG (observer), AL, AMF, BSEC (observer), CAEU, CCC, EBRD, ECA, ESCWA, FAO, G-15, G-19, G-24, G-77, IAEA, IBRD, ICAO, ICC, ICRM, IDA, IDB, IFAD, IFC, IFRCS, IHO, ILO, IMF, IMO, Inmarsat, Intelsat, Interpol, IOC, IOM, ISO, ITU, MINURSO, MONUA, NAM, OAPEC, OAS (observer), OAU, OIC, OSCE (partner), PCA, UN, UNCTAD, UNESCO, UNIDO, UNITAR, UNMIBH, UNMOP, UNOMIG, UNOMIL, UNPREDEP, UNRWA, UPU, WFTU, WHO, WIPO, WMO, WToO, WtrO. Defense Policy and Strategy Egypt increasingly sees itself as a major player in maintaining regional stability. As a strategic partner with the US, Egypt also maintains military relationships with the UK, France, Italy, China, and most African and Middle Eastern nations. It supported the international response to Iraq’s invasion of Kuwait in August of 1990; and continues to support UN peacekeeping efforts. Egyptian defense policy seeks to develop and maintain a military force capable of deterring regional aggression and terrorism, and better able to participate in regional collective security and peacekeeping operations. The Egyptian Armed Forces (EAF) are an important element in Egypt’s national security policy, and have the following roles:
Defense Organization
Mohammed Hosni Mubarak serves as both the President of the Arab Republic of Egypt and the Supreme Commander of the Armed Forces. As Supreme Commander, President Mubarak presides over the National Defense Council, which is the chief policy-making body within the armed forces. Reporting to the President is the Minister of Defense and Military Production, who is also double-hatted as Commander-in-Chief of the Armed Forces. The Minister of Defense/Commander-in-Chief of the Armed Forces is responsible for the national security of Egypt. Subordinate to the Minister of Defense is the Chief of Staff of the Armed Forces, who also serves as the Commander of the Army. The Chief of Staff exercises operational and administrative control of the Army, Air Force, Air Defense Force, and Navy. Key Defense Organization Personalities:
Additional information on the Egyptian Ministry of Defense is available on the Internet at http://www.mmc.gov.eg/ Defense Forces The Egyptian Armed Forces (EAF) consist of approximately 421,000 active duty personnel, including:
Approximately 360,000 reserve personnel support the active duty force, including:
Approximately 300,000 paramilitary personnel serve in the National Guard, Security Forces, Frontier Corps, and Coast Guard. Naval Organization The Egyptian Navy (EN) is commanded by Commander, Naval Forces (currently Vice Admiral Ahmed Saber Selim), and is organized into two command authorities:
The fleet is commanded by the Chief of Operations, and is divided between the Mediterranean and the Red Sea. Forces operating in the Mediterranean are headquartered in Alexandria, and those in the Red Sea at Hurghada. The Egyptian fleet consists of one hundred three ships and craft, and thirty-seven naval aircraft. The fleet operates from installations in Alexandria, Port Said, Mers Matru, Abu Qir, Suez, Safaqa, and Hurghada. The Coast Guard is a paramilitary force and is directly subordinated to the EN. It consists of one hundred five ships and craft. Key Navy Personalities:
Additional information on the Egyptian Navy is available on the Internet at http://navy.mmc.gov.eg/ Naval Forces The Egyptian Navy currently consists of one hundred three ships and craft:
The Egyptian Coast Guard (ECG) currently consists of one hundred five ships and craft.
Defense Budget
* Currency conversions based on exchange rates for 14 May 2001 (US$1=3.8800EGP) ** Does not include the transfer of surplus equipment under the Excess Defense Articles (EDA) program Since the 1979 Egyptian-Israeli peace treaty, Israel and Egypt (in that order) have been the largest recipients of Foreign Military Aid (FMA) from the US. Over the past decade, US FMA to Egypt has averaged US$1.3B annually, and all available evidence indicates Egypt will continue to receive this level of assistance for the foreseeable future. The official EAF defense budget has averaged around US$2.5B annually throughout the 1990s. Logically, the armed forces require a significant portion of the military budget for maintenance, operations, and personnel issues. As discussed in the economic section of this report, certain aspects of the budget are not transparent, and additional funding is being spent unofficially. Due to the lack of transparency in the procurement system, and additional unofficial funding, the EAF is probably spending significantly more on defense than publicly acknowledged. Within the EAF, the EN clearly ranks last in terms of resource priorities, and receives approximately 8% of defense funding, US FMA and Egyptian. Defense Acquisition and Procurement Process The Egyptian Government maintains a two-track policy with regard to military procurements. Recent procurement laws increase transparency to provide openness and competition for government purchases. However, defense procurements are kept secret because of potential political ramifications, as well as national security issues. In 1998, the government passed a new procurement law (Law 89 of 1998) in an effort to increase transparency, assure equal opportunity among bidders, and protect contractor rights. The law mandates that: a bid may not be transformed into a tender (a main defect of a prior law dating from 1983); decisions on bids are to be explained in writing; and more weight will be accorded to technical considerations in awarding contracts. The law also required the immediate return of bid bonds and other guarantees once the tender is awarded. Egypt is not a signatory to the World Trade Organization (WTO) Government Procurement Agreement. Analysis of Law 89 indicates that it violates the "national treatment" clause of the general principles of the WTO. Defense procurements will, in effect; remain secret for the foreseeable future. Since 1972, the Egyptian President has been allowed to make defense and security-related decisions without parliamentary review. These decisions include the right to make arms purchases and to keep the defense budget classified. Elements within the Egyptian Parliament have called for greater openness in defense procurements, but the government has maintained that arms deals must be kept secret because of political ramifications. Most of Egypt’s defense procurements are made using the US$1.3B received annually in FMA from the US. As a result, since the US Government has told Egypt that it will not approve the use of its FMA funds to finance non-American content in weapon systems, Egypt has been driven to acquire US systems. Non-US acquisitions require funding from the general defense budget (National Funds), which is primarily committed to funding personnel, operations and maintenance, and other non-procurement expenses. As a result of the closed character of the Egyptian defense procurement process, a local representative is needed to assist in gaining access to potential procurements. Key Defense Acquisition Personalities:
Supplier Trends From the 1950s through the 1970s, Egypt received most of its military equipment from the Soviet Union, and large amounts of ex-Soviet equipment remains in the Egyptian inventory, as well as several units of Chinese origin. However, as part of the 1979 peace treaty between Egypt and Israel, the US agreed to help shift Egypt from Soviet to Western (mostly US) arms. Egypt has retained some military ties with Russia, if for no other reason than to maintain a logistic and repair source for its Soviet-made equipment. In January of 1999, a Russian military mission visited Egypt to get acquainted with the status of the Soviet-era weapons that were provided to Egypt in the 1960s. Russia also continues to submit bids for Egyptian military procurements. The majority of Egypt’s future military equipment will derive from the US under FMS, direct commercial sales (DCS), and excess defense article (EDA) programs. A secondary source will be from Western Europe, primarily the UK and France. Egypt has also expressed an interest in building some smaller vessels in its own shipyards, most likely with foreign assistance. Egypt has several shipyards that are capable of construction, however, will require modification and training to construct modern naval vessels. Major shipyards are listed as follows:
Naval Threat – Mission Since World War II, Israel has been Egypt’s primary threat; however, since peace was reached with Israel in 1979, Egypt has viewed its primary threat as that posed by militant Islamic fundamentalist regimes – primarily Iran and the Sudan. As a result, the EN views Iran’s acquisition of three Russian-built Kilo class submarines as a significant threat to maritime commerce transiting to/from the Suez Canal. Similarly, although now at peace with Israel, Egypt is also concerned with Israel’s acquisition of three Dolphin class submarines. The EN and ECG are responsible for executing the following missions: Naval power projection to:
· Support for ground operations by:
· Deter economic threats through:
Naval Ship Projections Over the past decade, the EN and ECG have made modest progress in their replacement of obsolete Russian and Chinese-made ships and systems with Western (primarily US) equivalents. To acquire modern surface vessels and submarines, the EN has pursued both surplus ("second hand ships") and new construction options. Since 1990, the EN and ECG have taken delivery of six ex-US Navy frigates (two Knox and four Perry class), five mine countermeasures vessels (MCMVs) built by Swiftships (three coastal mine hunters (MHCs) and two route survey vessels (MSIs), and several classes of patrol craft. All of these vessels originated in the US under the FMS and EDA programs. Over the next several years, the EN priority will be two new submarines to replace the four Improved Romeo class, and four fast attack craft (FAC) to begin replacing older Chinese and Russian units. The new submarines will more than likely be the RDM Submarines (RDMS) Moray design built in the US under an FMS program. Currently, the US government is reviewing a Litton Ingalls Shipbuilding (prime contractor) technology compliance plan. The FAC program is currently on hold due to the bankruptcy of Friede Goldman Halter Inc., parent company of Halter Marine. Halter Marine was selected as the prime contractor of the FAC Program with the Ambassador Mk III design early in 2001, with Lockheed Martin subcontracted as the combat systems integrator. Previous bidders and the EN are now evaluating various options. This is an FMS project, and a US shipyard will build the FAC. Other programs planned by the EN and ECG include additional mine countermeasures vessels (MCMVs), swimmer delivery vehicles (SDVs), patrol boats, patrol craft, tank landing ships (LSTs), and a logistic landing ship (LSL). The SDV program got underway at the Columbia Research Center in the US in 2000. Water testing of the first unit will commence by the end of 2001, with additional units starting construction in 2002. Request for Proposals (RfPs) for the patrol craft program were issued in 2000, with funding and source selections by 2003. In the second half of this decade, it can be expected that Egypt will attempt to fulfill some of its other vessel requirements to include patrol boats, additional coastal mine hunters (MHCs) and route survey vessels (MSIs). New LSTs and a RO/RO ship will probably be procured some time in the next decade. The EN also has the option of fulfilling some of these requirements through the US EDA program as vessels become available, or from other foreign sources. Additionally, Egypt has expressed a desire to construct some of the smaller vessels indigenously with foreign assistance, although the funding will come entirely from the National Fund. Egyptian Navy New Construction Projects
* FOC RfP is the First of Class Request for Proposal.
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