Egypt's textile industry faces challenges
One of Egypt's oldest industries, textiles is the country's largest manufacturing sector after food processing. Textiles and apparel exports generate $800 million annually and constitute one-fifth of the country's total exports to the European Union and the United States.
Blessed with fine quality wool and the world's best cotton, Egypt is considered one of the largest textiles and apparel centers in the Middle East and the largest in North Africa. The industry manufactures a variety of fabrics, garments, and knitted garments, bed linen and terry cloth products.
According to the Business Today magazine, approximately 500,000 workers are employed in textiles and apparel -- a quarter of total employment in manufacturing. Public sector companies employ most workers in the industry.
Severely sheltered by tariff and non-tariff barriers, the domestic industry has been declining since 1991/92. The decline in production is due to the world textile recession in the early 90s and the domestic recession that followed the country's macroeconomic stabilization program.
In the early 90s the country witnessed lower textiles exports and a dramatic decline in raw cotton exports. High export and low procurement prices and the increase in consumption by local spinning mills exacerbated the situation.
The industry's loss of the Eastern European market's demand for fine-count yarn forced the industry to switch from the production of fine to coarse yarns. The subsequent decline in cotton yarn exports pointed to the lack of competition in this area.
But despite a substantial decrease in exports of cotton lint, yarns and fabrics, the export of manufactured clothing increased at an average annual rate of 24 percent during the first half of the 90s.
The public sector's obligation to use domestic yarn and cotton fabrics has reduced the competitiveness of its products in international markets. Exporting high value-added products (clothing and other textile-manufactured products), the private sector's share in the international markets has increased. The government's heavy investments in the spinning sector of the industry, for the purpose of modernization and the upgrading of the sector, has led to over capacity and has thrown various stages of production off balance.
Rigid production guidelines and pricing policies, coupled with the global recession in textiles, resulted in huge inventories mostly made from 30 count yarns, and caused the spinning sector to lose its competitiveness in the world market. The public sector is also at a disadvantage when compared with its local private counterpart, as the public sector firms have to integrate the spinning, weaving and garment manufacturing processes.
The integration has reduced the sector's flexibility in responding to the changing demands of foreign clients. The public sector is also overburdened with the acute problem of overstaffing, lacks quality customer service and has difficulty with meeting delivery timetables, mostly due to government red tape and barriers. The sector also severely suffers from a lack of marketing and information dissemination capabilities.
Despite some reforms within the sector, the Cotton Textiles Consolidation Fund continues to set minimum export prices for yarn and fabrics for both the private and public sectors. The private sector has full authority over its export prices for knitted fabrics and ready-made woven products. Yarn input prices in particular remain highly regulated. A highly subsidized product, yarn has traditionally benefited from high cotton subsidies. Although subsidy rates differ from one year to the next, prices for spinners are usually set far below their respective export prices and often below their farm-gate prices.
High subsidies have led to the wasteful use of extra long staple cotton. Egypt produces a variety of extra long, (1 1/4 inches long) and medium-long (1 1/8 inches) staple cotton. While long staple production began to fall during the mid-70s, the production of medium-long varieties increased and the total cotton output for medium-long constituted over 70 percent of production by 1992.
Taking labor costs into consideration, Egypt's textiles and apparel products are not competitive when compared with China, Indonesia, Pakistan, Sri Lanka and Vietnam. The country, however, could easily compete fairly with India, the Philippines and Thailand, especially if location and transportation costs are taken into account.
While the government has tried to facilitate exports, restrictions on imports have been sustained and some products have even been barred altogether. Aside from a few exceptions, imports of cotton fabrics and ready-made textile products are prohibited.
Currently, there is a tariff of 150 percent on imports from the European Union. Although there are no quantitative restrictions on cotton yarn, the imported product is subject to a flat 30 percent tariff, plus 10 percent sales tax and a 3 percent surcharge. The tariff charged on imported raw materials used in goods for exports is refunded to the importer through the drawback system. –(Albawaba-MEBG)
© 2000 Mena Report (www.menareport.com)