Textiles and Apparel

Xxxx Xxxxx Xxxxxx xxxxxxxx at xxxxxxxxxxx.xxx
Mon Oct 2 18:35:00 MDT 2000


Business Today Egypt Online  September 2000

Textiles and Apparel: Stitching It Together by Fariba Khorasanizadeh

The post-nationalization textiles industry is waking up to modern
methods.The textiles industry has awakened to modern methods since the
Sadat era.

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, knitted garments, bed linen and terry
cloth products.

Approximately 500,000 workers are employed in textiles and apparel -- a
quarter of total employment in manufacturing. Most workers in the
industry are employed by public sector companies.

Severely sheltered by tariff and non-tariff barriers, the domestic
industry has been declining since 1991/92, despite a successful private
sector. While the industry accounted for 22% of total industrial
(non-oil) output and one third of total export earnings in 1993/94,
production and exports were down 30 and 40% respectively from the 1980s.

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 Egypt's uncompetitiveness in this area and cost the country
its share in export markets.

Nevertheless, 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% 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 overcapacity 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

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, however, have led to the wasteful use of extra long
staple cotton. Egypt produces a variety of extra long, 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% of production by 1992.

Meanwhile, the country's production of all varieties of extra long
staple cotton has been falling steadily since the 1980s. While the
output for extra long staple constituted 59.2% of the world total output
in 1980/81, the amount fell to 27% by 1989/90. Meanwhile, India's share
in the
world market rose from 12.2% to 24%.

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% on imports from the European Union. Although there are no
quantitative restrictions on cotton yarn, the imported product is
subject to a flat 30% tariff, plus 10% sales tax and a 3% surcharge. The
tariff charged on imported raw materials used in goods for exports is
refunded to the importer through the drawback system. bt


Xxxx Xxxxx Xxxxxx
PhD Student
Department of Political Science
SUNY at Albany
Nelson A. Rockefeller College
135 Western Ave.; Milne 102
Albany, NY 12222

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