The sector is seen as a major pillar of the Egyptian economy, accounting for just under a quarter of the country’s non-oil exports. It’s also a major job-generating engine, employing roughly a million people.
Egypt is home to the largest and most productive cotton and textile clusters in the African continent. The government recently indicated it hopes to raise exports by 10% in the new fiscal year, with special focus on agricultural products, leather goods, chemicals, fertilisers and textiles.
As many as 4,399 companies operate in the country, with another 196 operating in free zones. Combined, the companies have invested nearly US$6 billion in the economy, according to the General Authority for Investment and Free Zones.
The United States makes up 53.5% of Egypt exports of ready-made garments, with the European Union accounting for 31.7% and 4% being exported to Arab countries, according to the General Organization for Exports & Imports Control (GOEIC).
But the sector has suffered some setbacks with strikes, power shortages and currency challenges facing the country.
The Egypt Central Bank also surprised analysts by raising the interest rate in December, strengthening the Egyptian pound against the US dollar. There is a dollar shortage in the country and some market observers believe devaluation is necessary in 2016.
While the falling currency would make the Egyptian textile industry more competitive, the situation is complicated as the industry also relies on imports of yarn, fabrics and other items, which would be costlier if the dollar is stronger.
A number of other issues are also hurting the industry’s progress.
Last year, the Egyptian government announced it was withdrawing its subsidies programme for cotton growers.
Egyptian cotton, has the unique position of producing the prized “long staple” cotton, considered “white gold” in the industry, and used for luxurious and high-priced textile products.
Egypt is the world’s largest global producer of high-end cotton, but its high price has led to losses. Indeed, the long-staple version is too expensive to be used in western markets for shirts and jeans.
Power shortages in the country and insufficient infrastructure also create hurdles for export growth.
Qualifying Industrial Zones
Despite the challenges, there have been pockets of growth, notably the Qualifying Industrial Zones (QIZ), which offer duty-free access to US, provided that 35% of the product sold is manufactured in the qualifying zone, apart from other stipulations.
As many as 15 QIZs have propped up in the country. The value of Egyptian exports to the US through the QIZ agreement stood at around US$824.2 million in 2014, of which US$816.7 million from the spinning, weaving and garments sector.
Analysts say the authorities will need to further upgrade the QIZ infrastructure to raise revenues from the zone. This includes enhancing the role of industrial zones and raising the quality of public services provided such as electricity, water, housing facilities to workers, etc. and the construction of roads, ports and rail networks.
The government is also working on a few policy initiatives to boost the local industry. Late last year, the Egyptian government imposed an export fee of EGP 3,500 (US$ 447) per tonne on fabric scrap.
The move would help avoid a shortage of scrap in the local markets. The Home Textile Export Council had suggested slapping a fee on fabric scrap as the local industry – particularly small-scale manufacturers – can recycle the scrap to produce thick yarn for use in the textile industry.
The prohibitive levies were necessary as fabric scrap export from Egypt has risen to 93 tonnes in 2015, from 43 tonnes in 2013, and reportedly nearly 300 tonnes of fabric scrap has been exported last year, according to government data.
Textile hub in the making
These series of reforms and policy measures can go a long way to help raise Egypt’s profile as an international textile hub. Exports of textiles and ready-made garments reached US$2.5 billion last year, and the Ready Made Garment Export Council hopes to raise that figure to US$10 billion in 10 years; while the National Strategy for Textile Industries by 2025 also envisions training of 500,000 workers.
The industry aims to focus on strengthening the upstream supply chain and expand the industry to include a range of new textile segments.
The CBI, the European Union’s centre for promoting imports from developing countries, said increased focus on the fast delivery of apparel to the EU will enable the Egyptian industry’s entry to a higher value market segment. Other key areas of focus include denim mills, denim laundries, intimate apparel and premium knitter.
The textile sector presents a growth area for Egypt, provided it can pursue the right policies to incentivise the industry.
The industry is set to grow at an impressive rate on growing demographics and rising income levels across much of the developing world.
Egypt’s proximity to the lucrative market of the European Union and the growing markets of the Arab world and Africa presents it with opportunities to take advantage. But it must be ready to take bold policy measures to get ahead of the competition.