CAIRO—Three years ago, President Abdel Fattah Al Sisi’s government announced that a gleaming new capital city would rise in Egypt’s eastern desert by 2022, featuring tree-lined boulevards, new homes for five million people and the tallest building in Africa.
The project is now well behind schedule, according to its military-controlled developer. The only finished structure is a military-owned hotel in a cream-colored compound. Project spokesman Khaled El Husseiny said just one of three phases is under construction. “We did not plan for anything other than the first phase, I have to be honest,” he said.
President Sisi won re-election in March with 97% of the vote, facing only a token challenger after every credible opposition candidate was jailed or removed from the race. Within the Arab world, Mr. Sisi’s continued rule is an example of the resurgent regimes that increasingly claim victory over the forces unleashed by the 2011 Arab Spring.
Egypt is also an example of how those same forces are bubbling just under the surface. In many ways, Mr. Sisi’s strategy mirrors that of former President Hosni Mubarak, whose nearly three-decade rule here was ended by popular uprising. Like Mr. Mubarak, Mr. Sisi has relied on a vast security state and an economic approach that privileges the military. Many in the business sector complain that Mr. Sisi has gone even farther in sidelining private enterprise, to the detriment of the economy.
“They trust the military first. And the private sector, they accept them,” said Naguib Sawiris, a billionaire who says some of his own Egyptian business plans have been thwarted by state intervention. “The security can block any project. They have their own companies now. It’s not a good situation.”
Egypt’s economy is growing at a modest clip of about 5.4%, according to the central bank. But for the vast majority of Egyptians, living standards have been slipping amid high youth unemployment and rising food prices, fueling some of the same grievances that preceded the revolution—and raising the prospect of a repeat.
Inflation and economic malaise have triggered demonstrations across the wider Middle East in recent months. In Iran in December and January, economic frustration sparked more than a week of protests that left at least 20 people dead. In Tunisia, budget cuts triggered raucous demonstrations and clashes with security forces in 10 cities and towns coinciding with the anniversary of the ouster of long time strongman Zine Al Abedine Ben Ali. In Jordan, sit-ins and other protests took place in January in reaction to the rising price of bread. Spontaneous protests erupted in Egypt earlier this month after the government announced a surprise increase in the price of subway tickets.
In the Gulf, wealthy monarchies count Egypt’s government as a firewall against a repeat of the popular upheaval.
“I prayed to God that Egypt would not collapse,” said Saudi Arabia’s Crown Prince Mohammed bin Salman during a visit to Cairo in March.
A former commander of the armed forces, Mr. Sisi surged to power after he led the overthrow in 2013 of the elected Islamist President Mohammed Morsi. Following the coup, security forces cracked down on Mr. Morsi’s supporters and other political opponents, killing at least a thousand people and jailing tens of thousands of others, according to rights groups.
Mr. Sisi promised Egyptians stability and prosperity, claiming credit for steering Egypt away from the turmoil and war that engulfed other Arab countries such as Syria, Libya, and Yemen.
For a time, Mr Sisi enjoyed cult status. His inspired supporters stamped his likeness on everything from chocolates to women’s underwear.
But the sheen has worn off his presidency. Stability has proved elusive as the government struggles to halt attacks by militant groups, including the Islamic State which has killed hundreds of soldiers and civilians in recent years.
Discontent has even surfaced within the same military establishment that brought Mr. Sisi to power. Since December, the government has detained and sidelined a series of opponents who stepped forward to challenge the president in the election, including three current and former military officers.
Although Mr. Sisi has helped expand the military’s economic profile, would-be opposition candidates from military backgrounds assailed the president’s record on security, the economy, and a lack of political freedoms.
Mr. Sisi’s office didn’t respond to a request for comment. Egypt’s armed forces spokesman declined to comment.
Analysts say Mr. Sisi sees himself as a part of a world-wide cohort of strongman rulers. Prior to Egypt’s vote, he made a point of congratulating Russia’s President Vladimir Putin on his victory in a scripted election. He also lauded China’s President Xi Jinping, who just became China’s de facto leader for life.
Egypt’s military has played a major role in the economy for decades. Business ventures helped the armed forces offset budget cuts imposed by Mr. Mubarak in the years following the 1978 peace treaty with Israel. By the end of Mr. Mubarak’s 30 years in power, the military owned supermarkets and hotels and also made pasta as well as weapons, taking advantage of its tax-exempt status and access to cheap labor in the form of conscripted soldiers.
But under Mr. Sisi, the military has achieved new heights of economic power. The exact percentage of the economy controlled by the armed forces is impossible to calculate, as military-linked enterprises don’t disclose their profits and the details of the military’s budget aren’t made public. Any accounting by government watchdogs is now even harder, since Egypt’s former chief corruption auditor is on military trial after he joined an opposition presidential campaign and threatened to release incriminating evidence about the military leadership.
In an interview with state TV in March, Mr. Sisi said the military makes up only 2% to 3% of the economy. “If it was 50% I would have been proud,” he said. “The armed forces are part of the government.”
Experts believe the true size of the military’s economic role is much higher than the official figure, based on observations of army-led enterprises.
“He doesn’t trust the private sector. He doesn’t trust businessmen,” said Andrew Miller, a former official responsible for Egypt at the U.S. National Security Council.
When Mr. Sisi came to power, he turned to the military to help fix the stumbling economy. He assigned the Armed Forces Engineering Authority to organize an expansion of the Suez Canal, one of his signature megaprojects.
With Mr. Sisi’s blessing, the military soon encroached on civilian enterprises too. The government discarded a civilian-authored plan to parcel out land along the canal to build an industrial zone and port area. He instead awarded a pair of contracts, including one to a partnership between the military and a private developer, according to Ahmed Darwish, the former chairman of the Suez Canal Economic Zone. To date, the planned zone hasn’t materialized, although the government says it is pressing ahead with the project.
Mr. Darwish was later replaced at his post by Admiral Mohab Mamish, a military leader who also heads the Suez Canal Authority. Several other business-oriented civilian officials have departed Mr. Sisi’s government over the years, including two economists who served in previous cabinets, leaving the military even more dominant.
The military also exerts influence through a diffuse network of current and former officers who sit on corporate boards and own stakes in private businesses. Those holdings help the military class gain control and profit even from enterprises it doesn’t directly own.
“They just have a finger in every pie,” said Shana Marshall, an expert on Egyptian political economy at George Washington University.
Military and security officials have orchestrated a takeover of at least three major privately owned television channels in the past two years. A former military spokesman took charge of the satellite channel Al Asema in January 2017. A security company headed by a former military intelligence official took over Al Hayat TV in mid-2017.
The takeover rolled back the influence of some of Egypt’s most powerful civilian businessmen. Mr. Sawiris, the former owner of popular network OnTV, said the government asked him to fire at least three news anchors. When he refused, the network OnTV was taken over by a pro-government steel magnate, before his shares were sold to a company owned by Egypt’s intelligence service in 2017.
Mr. Sawiris said the security forces also have thwarted private-sector business plans. He said his attempt to acquire the investment firm CI Capital was blocked by the security services in 2016. CI Capital didn’t respond to a request for comment.
Objections by Egyptian security services scuttled an attempt last year by Archer Daniels Midland Co. to acquire Egypt’s National Company for Maize Products, according to Mr. Sawaris. A person familiar with the matter confirmed that Egyptian regulators blocked the planned acquisition.
The maize company, which couldn’t be reached for comment, later merged with another Egyptian company instead.
During Mr. Sisi’s years in power, the government has ushered in regulatory changes that make it easier for the armed forces to do business. His government expanded their ability to strike real estate deals and authorized the military to form a pharmaceutical company.
When a currency crisis resulted in shortages of staples like sugar in 2016, the army began selling subsidized parcels of food out of the backs of trucks. It also supplied baby formula at a discount through pharmacies, touting the move as a victory over the private sector. “The Armed Forces has landed a blow against the greedy monopoly of traders and companies working in the milk industry,” the military spokesman said in a written statement in September 2016.
The most visible element of the military’s expanding economic empire is a vast array of government construction projects, including roads and apartment buildings, such as a national initiative to build a million housing units across the country. New regulations have allowed military-linked contractors to establish a virtual monopoly over public building contracts, experts say.
The so-called “New Administrative Capital” is the most ambitious of those projects. Announced in 2015, the government hoped it would attract five million residents, alleviating overcrowding in greater Cairo, currently home to an estimated 20 million people. Millions live in slums and other informal housing with unreliable access to government services.
The planned new city has offered the military ample opportunity to flex its economic muscle. When a Chinese state company backed out of a $3 billion deal to build government buildings at the site in 2017, the Armed Forces Engineering Authority offered to complete construction at half the price through subcontracts, according to Mr Husseiny.
In March, the Egyptian government announced the start of construction of a commercial district in the new capital, an area that includes plans for a 1,263-foot skyscraper. The building would be Africa’s tallest if completed. To complete this section of the new capital, the military-backed company overseeing the new capital contracted with China State Construction Engineering Corp.
On the dusty road to the construction site is a billboard for the Talaat Moustafa Group, which is one of the largest known investors in the project. The firm of Hisham Talaat Moustafa, a former senior member of Mr. Mubarak’s party, has poured nearly $2 billion in the new capital.
Mr. Moustafa emerged from an extraordinary bout of legal trouble to contribute to the project.
A Cairo criminal court convicted Mr. Moustafa of hiring the former police officer who stabbed to death a Lebanese pop star Suzanne Tamim in a Dubai hotel in 2008. The trial made Mr. Moustafa into a symbol of what many saw as a culture of excess and cronyism in the twilight years of Mr. Mubarak’s presidency. Mr. Moustafa’s office didn’t respond to requests for comment.
In June 2017, Mr. Sisi pardoned Mr. Moustafa, freeing him from prison and allowing him to resume his position as CEO of his company, TMG Holding. The firm later reported that its revenue more than doubled following Mr. Mousafa’s release and its involvement in the military-led new capital project.
—Amira El Fekki in Cairo and Jacob Bunge in Chicago contributed to this article.