17 - 23 May 2001
Issue No.534
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Al-Ahram Weekly On-line 17 - 23 May 2001 Issue No.534 |
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Textiles gear up for free trade
With the deadline for the abolition of trade barriers on garment imports imminent, the competitiveness of Egypt's textile industry is now in question. Shaimaa Labib reports
One of the most potentially lucrative industries in the new, global economy is textiles. The Egyptian textiles sector, a pillar of the economy, employs around one third of Egypt's total industrial labour force. Textiles is the second largest industrial sector in the country following the food industry and investments in the sector reached almost LE29 billion in the last two years.
Textile exports comprise 25 per cent of total Egyptian exports. Having reached a value of $848 million last year, textile exports are expected to jump to a target of $1.895 billion by the year 2003.
Because of its enormous market and cheap labour, an increasing number of international garment companies are manufacturing their products in Egypt.
However, much remains to be done to make Egypt more attractive to foreign investors. Next January, Egypt, in accordance with its obligations under the World Trade Organisation (WTO) agreement, is committed to lifting all non-tariff barriers on garment imports. As this deadline draws nearer, Egyptian textile experts are debating whether the textile industry can survive the mass influx of foreign commercial competition and continue to compete locally and internationally.
The problems facing the textile industry were discussed this week at a two-day seminar organised by SAHARA Group, a marketing company that organises conferences discussing textile-related issues, and the Management Development Centre for the Business Sector.
The seminar tackled issues such as manufacturing cotton, exporting textiles, decreasing customs on imported raw materials, as well as ineffective marketing strategies.
According to Ahmed Mossallam, chief executive officer of Misr Company for Spinning and Weaving in Al-Mahalla Al-Kobra, one of the main problems facing the textile industry is the high price of Egyptian cotton, which raises the cost of producing yarns and finished products.
"In Egypt, the price of raw cotton and the cost of processing it into yarn reaches an average of 65 per cent of the total production system, whereas the international average does not exceed 45 per cent," Mossallam said. He said the government should develop an efficient pricing system for Egyptian cotton in order to render textile producers more competitive.
Encouraging farmers to cultivate cotton is equally important, Mossallam added. "This could be done by providing farmers with high-productivity cotton varieties that will increase the profitability of the feddan and thus increase their revenues," he said.
Since its nationalisation in the early 1960s, the Egyptian textile sector went into steady decline in terms of output, quality and capacity utilisation. Although some companies were privatised with the structural adjustment programme of the 1990s, public sector factories are still overstaffed, badly managed and under-funded and new techniques are slow in coming. "The government has a role to play in this area. It should provide these factories with soft loans to finance their modernisation endeavours," Mossallam said.
Another problem faced by the sector is that, despite Egypt's traditional role as cotton exporter par excellence, a large portion of its domestically-produced garments contains high percentages of imported material. Not only that, but the local market has witnessed a flow of quality, reasonably-priced smuggled foreign textiles and ready-made garments, which has negatively affected local production.
"Smuggling cases totalled 545 in the second half of last year. This shows that local producers are still threatened by the flow of these products, which come in duty-free and are sold at exceptionally low prices," Mossallam said.
High customs duties and sales taxes on imported raw materials, often reaching 30 per cent, also burden factories seeking to export. "Lifting customs duties and sales taxes on raw materials and decreasing taxes imposed on factories and textile companies would allow them to decrease their costs and realise profits," Mossallam said.
Akram Bastawi, senior manager at Price WaterHouse Coopers, stressed that Egypt remains far behind its peers in realising its full textile potential. He said this is due to reasons ranging from a lack of economic incentives provided to the agricultural sector to produce cotton domestically to a complex export regulatory structure. "There are still 30 public sector companies in this industry which are plagued with many problems, the most severe of which are indebtedness and overstaffing. The position of these public companies is further complicated by the restrictions imposed by Law 203 of 1991, which bans new investments in those companies," Bastawi said.
He added that a viable restructuring plan for the sector would need to address both the core problems and realistically develop a framework within which the restructuring process could become a privatisation process.
Mohamed Abdel-Salam, professor at the Cotton Research Institute, proposed the establishment of an Egyptian Cotton Development Council that would implement three programmes dealing with the development of agricultural production, cotton manufacturing, and marketing and exporting. "These programmes should then be carried out under the supervision of the Ministry of Agriculture and Land Reclamation," he said.
Moreover, Abdel-Salam proposed that the government develop a strategy for the next 15 years during which it should work on increasing cotton cultivation and productivity to increase its export quotas and to satisfy local demand.
A number of industrialists attending the seminar claimed that the real problem lies in the government's interference in production and exporting policies. However, Ahmed Guweili, secretary-general of the Council of Arab Economic Unity, asserted that the government's role is indispensable for economic growth. "The problem is confined to incompetence in governmental entities. Therefore, what should be demanded is increasing the competitiveness of these entities rather than eliminating them from the scene," Guweili said.
For its part, the Ministry of Industry and Technological Development helped SAHARA Group in developing Egypt's official textile industry portal named 'Egytex.com'. The site provides a list of Egyptian spinning and weaving factories to provide foreign investors with an opportunity to view closely the key players in the local market. It also tracks local and international exhibitions and conferences related to the textile and apparel industry in a comprehensive and user-friendly calendar interface.
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