In the wake of a significant devaluation of the Egyptian lira by 40 percent last week, Turkish textile manufacturers are eyeing potential shifts in their investments towards Egypt. The allure stems from Egypt’s combination of cheap labor and a weakened currency.
Turkey, known as the world’s seventh-largest ready-made clothing exporter, has seen its textile industry grappling with challenges such as a recent increase in the minimum wage and the strength of the Turkish lira, which manufacturers consider overvalued.
In a report titled “The Decline in the Egyptian Lira Provides a New Avenue for Turkish Textile Manufacturers,” published by Bloomberg’s financial agency and penned by Taylan Bilgiç, Turkish textile industry representatives highlighted Egypt as a promising destination for investment, citing factors like the comparatively stronger Turkish lira, low energy costs, and recent minimum wage hikes.
The plummeting value of the Egyptian currency over the past week, coupled with its low energy costs, has led Turkish businessmen to view Egypt as a viable alternative for their production needs.
The Appeal of the Devalued Egyptian Pound and Low Labor Costs
According to Şeref Fayat, the head of the ready-made clothing department at the Union of Chambers and Commodity Exchanges of Turkey, Egypt’s recent policy adjustments position it as a formidable competitor to Turkey. Companies already invested in Egypt are contemplating expanding their operations there.
Fayat noted that Turkey’s currency strength has made it challenging for producers to absorb cost increases without passing them on to consumers. A stable lira is crucial for the Turkish Central Bank to rein in inflation.
Fayat commented, “Turkey has become very expensive. The business people I talked to say they are laying off workers. It needs to come to a point where the exchange rate is not under pressure.”
Potential for Expanded Investments
Ramazan Kaya, President of the Turkish Clothing Manufacturers Association, suggested that the lira would need to depreciate by approximately 25 percent to compete effectively with Egypt. However, Kaya acknowledged that investing in a North African country would not happen overnight.
Meanwhile, investors in Egypt have long expressed concerns about the marginalization of private enterprise by state institutions. International organizations like the International Monetary Fund (IMF) and the World Bank are urging reforms to address these issues.
Optimism Among Existing Investors
For companies already invested in Egypt, recent developments present opportunities for expansion. Yeşim Group, a Turkish manufacturer of global brands including Zara, Lacoste, and Tommy Hilfiger, has had production operations in Egypt since 2008. Şenol Sankaya, the company’s CEO, indicated that they may explore increasing their investments.
Sankaya highlighted advantages such as the free trade agreement between Egypt and the USA and labor costs in Egypt, which are approximately 30 percent lower than those in Turkey, as factors driving their interest in expanding production in Egypt.
