18 Feb 2011
Let’s just get this clear from the start. It is extremely unlikely that deposed Egyptian president Hosni Mubarak is worth anywhere near $70 billion and he isn’t close to being the richest person in the world.
The basis for his valuation, which has been carried across the world in various media reports, appears to emanate from an article in Britain’s Guardian newspaper, which referenced “middle east experts” as having made the snap evaluation.
On closer inspection, Amaney Jamal, a political science professor at Princeton said an estimate of $40-70 billion for the Mubarak family fortune was “comparable with the vast wealth of leaders in other Gulf countries”.
But as Forbes pointed out in a blog last week, the worth of the richest ruler in the region, King Abdullah bin Abdul Aziz of Saudi Arabia, has been put at $15 billion, which is a long way from $70 billion.
Nevertheless, it is clear that Mubarak did very well out his time in charge.
Despite receiving a salary of just $808 a year, Mubarak and his family – specifically his sons Gamal and Alaa – amassed billions of dollars by establishing a system of endemic corruption.
Exactly how much they squirrelled away in banks around the world (the Swiss banking system has already frozen the Mubarak’s family assets) is unlikely to ever be revealed, but a sense of the regime’s money-making ability can be gleaned from research by Global Financial Integrity, a not-for-profit organisation that tracks illicit financial flows.
It says a staggering $57 billion flowed out of Egypt between 2000 and 2008.
Regardless of the size of his fortune Mubarak joins a long list of dictators who have become fabulously wealthy on the back of their time in power.
According to Paul Barry’s Dictator Watch on Crikey, the pack is led by former Indonesian president Suharto, who was crowned in 2004 by Transparency International as the world’s most corrupt leader, with a fortune of $35 billion.
But it should be noted that building a fortune from political rule is no mean feat. Straight-out bribes are simply too obvious and dictators instead use their far-reaching power to build up a system from which they can siphon off money at multiple points.
Here are some of the steps that dictators must take to turn an iron grip into a giant fortune.
Get long-term control
Destroying all opposition is a key plank of any dictator’s strategy, but it’s also a key part of a corrupt ruler’s money-making plans.
Building a corrupt system and moving money out of the country takes time, so the longer you can remain in power the better your chances of getting rich. Cancel elections, get friendly with the military and settle in for the long haul.
Put cronies in place
A money-making dictator needs to surround himself with people he can trust. Installing relatives in key posts is essential – Mubarak’s sons Gamal and Alaa served as the president’s key contacts with business in the latter years of the reign, with brothers-in-law and other relatives also given plum posts.
If you’re really serious about turning a buck from politics, stacking parliament with business people – a classic Mubarak trick – is a great idea.
And we mean everything. The more things a government can control the more ways it can make money. In Mubarak’s Egypt for example, many businesses need a license to operate and then had to apply to get government quotas of raw materials.
An entrepreneur wanting to set up a bakery might need to pay a bribe to secure a licence and another bribe to secure a quota of wheat. As the business grew so would the bribes.
Controlling access rights and production levels in major industries is particularly important, especially in nations rich in minerals assets.
Share the wealth
Under the baker example above the bribes would go to local officials and not to Mubarak. But making sure that corruption is widespread – and that the little people get their palms greased – is essential if you want to ensure you remain in office and can pull off major deals.
Turn public assets into private wealth
The best way to raise cash is to sell stuff. And when you’re a dictator you don’t need to differentiate between your stuff and the country’s stuff – just sell whatever you want.
As Samer Soliman, a professor of political economy at American University in Cairo, told the New York Times, the key to Mubarak’s fortune was the sale of hundreds of public assets to private companies.
“The corruption of the Mubarak family was not stealing from the budget, it was transforming political capital into private capital,” Soliman says.
Mubarak’s privatisation campaign began in the 1990s with the goal of selling 314 companies.
According to a report from a USAID-sponsored monitoring program, by June 2002 there were 190 state assets owned. The program paused during the GFC and was stopped in 2010, when there were 149 companies still under state control, according to a report in the Wall Street Journal.
The Mubarak family and its cronies made money from privatisation, selling assets in sweetheart deals with mainly foreign business people.
A great example is a company called Tanta Flax & Oils Company, which was acquired by Saudi investor Abdellah El-Ka’aky in 2005.
The price was just $14 million, but Egyptian labour expert Mostafa Bassiouni told local newspaper Al-Masry Al-Youm the business was actually valued at more than $500 million.
In some cases the assets were sold lock, stock and barrel to foreign investors – with appropriate “facilitation” payments no doubt extracted from the buyers.
In other cases the buyer was forced to take on an Egyptian joint venture partner who would take a stake between 20 per cent and 50 per cent.
According to reports, Mubarak had interests in many of those Egyptian-partner businesses, thereby completing the transfer of public assets into his private wealth.
Stash the loot
The Mubaraks are said to have favoured parking profits in property in London, New York and Paris, and in foreign bank accounts. Suharto liked art and jewels.
Personally I’d lean towards gold bars, which are universally accepted, hold their value and best of all are handily portable if you have to flee into exile.
Beware the backlash
The protests against Mubarak were mainly focused on bringing democracy to Egypt, although it could be argued that they had their origins in a long series of protests against the privatisation program.
In March 2010, almost 12 months before Mubarak’s departure, Al-Masry Al-Youm said more than 1.7 million workers had engaged in more than 1900 strikes between 2004 and 2008.
Protests started at Tanta Flax & Oils in February and sparked a series of protests that forced the government to can the program in mid 2010.
In hindsight that’s when Mubarak should have taken his cue to pull the plug.
Imagine how much more cash he could have taken with him.