Thursday,16 August, 2018
Current issue | Issue 1144, 18 - 24 April 2013
Thursday,16 August, 2018
Issue 1144, 18 - 24 April 2013

Ahram Weekly

Top spin

Financial problems are threatening to bring state-owned spinning and weaving companies to a screeching halt, Mona El-Fiqi reports

spinning and weaving
spinning and weaving
Al-Ahram Weekly

Spinning and weaving, one of Egypt’s oldest industries, has been in the doldrums for years but recently state-owned companies in the business have become dizzy by all the spin — by the government.
The spinning and weaving industry is made up of the state-owned business sector that includes 32 companies; the investment sector that includes companies owned mainly by foreign investors, and the Egyptian private sector.
Of the 32 state-owned companies, 23 operate in spinning and weaving and represent 90 per cent of the spinning business in Egypt, while the remaining nine operate in cotton trade and export. They are part of the Ministry of Investment and are managed by the Holding Company for Spinning and Weaving.   
For years the performance of these companies has been going downhill. As a result they have ended up being just huge complexes in various governorates with outdated machinery, a large number of workers (around 75,000) with a clear shortage of raw materials and liquidity. Currently only 30 per cent of factories’ total production capacity is in operation. “Unless the government intervenes soon to support these factories, production will come to a halt next month,” Yossri Neshnash, head of the commercial and financial department at Misr Fine for Spinning and Weaving Company in Kafr Al-Dawar, told Al-Ahram Weekly.
The same applies to the Nasr Spinning and Weaving Company in Mahalla Al-Kobra, Egypt’s largest textile manufacturer which employs over 23,000 employees. There are other companies which might also shut down within the next few months as a result of shortages in cotton and raw materials.
Neshnash attributed the poor performance of the spinning and weaving companies to a cycle of trouble starting from their inability to secure supplies of cotton to severe shortages of liquidity that might affect workers’ wages.
The liquidity shortage in companies started two years ago but reached its peak when one of the 32 state-owned textile companies was obliged to sell some of its cotton supplies to pay wages.
One more problem is securing supplies of cotton. The factories blame the government for not providing them with cotton the way it used to. Sayed Ghoneimi, deputy chairman of the General Syndicate for Spinning and Weaving Workers, said that last year during the cotton harvest season the Ministry of Agriculture did not buy the whole crop of cotton from farmers as usual. Private sector wholesalers bought 75 per cent of the cotton harvest “and now control the market. We buy a qentar [50 kilogrammes] at LE1,300 while it was LE850 to LE900,” Ghoneimi said.
Although state-owned companies face a clear shortage of liquidity, private sector traders insist on receiving the money in cash while some require payment in dollars. Moreover, Ghoneimi explained that banks refuse to provide spinning and weaving companies loans to buy cotton supplies due to the government’s shortage of cash.
Ghoneimi predicted that the cotton supplies problem is expected to worsen next season because farmers are reluctant to cultivate cotton since the government is not committed to buy their harvest at a good price. The Ministry of Agriculture did not announce a delivery price for cotton that might have encouraged farmers to cultivate the crop.
The result, according to Ghoneimi, is a reduction in the area of land allocated to cultivate cotton in the current season to less than 100,000 feddans, down from two million feddans 10 years ago. “The government lacks a clear policy to save this industry. We have been getting rosy promises for the past two years but nothing concrete is done,” Ghoneimi said.
As for the Misr Fine for Spinning and Weaving Company in Kafr Al-Dawar, and which has some 8,000 workers, Neshnash explained that the company’s average monthly revenues is estimated at LE20 million but due to lack of liquidity, the company is facing a problem with buying cotton, leading to a reduction of total production. Almost all revenues are paid for workers’ wages which stand at LE16 million but are expected to reach LE18 million by the beginning of July.
To help the company cover its supplies which mainly consist of cotton, Neshnash explained that the Holding Company for Spinning and Weaving Industries used to provide LE5 million per month through a Restructuring Fund but four months ago the financial support was cut to LE2 million, creating a gap in the company’s revenues. The problem worsened when the company’s debts to its customers reached LE8 million. Customers used to pay down payments for their products to the company which could not meet its commitments and was therefore subject to losing its customers, according to Neshnash. Priorities are given to workers wages while the shortage of liquidity was reflected in the shortage of supplies.
Neshnash said that a wage item in a project should not exceed 20 per cent of its total production capacity “but in our case salaries represent 80 per cent of the company’s revenues. The financial problem of our company cannot be easily solved when the minister of investment 10 days ago decided to change the chairman of the company. It is more complicated than that,” Neshnash said.
In response to the companies’ complaints over the past two years, Osama Saleh, minister of investment, held a meeting on Sunday with representatives from the Textiles Workers Union and chairman of the Holding Company for Spinning and Weaving Industries to address issues plaguing the sector in an attempt to help avert near collapse.
During the meeting, the minister promised to provide LE300 million in cooperation with the Ministry of Finance to support the state-owned spinning and weaving companies until 1 July, the beginning of a new fiscal year. The fund will help cover the factories’ supplies of cotton as well as monthly wages. As for the long term, Saleh added that a renovation plan for machinery is expected soon to be implemented by way of Turkish and Chinese loans.
Moreover, in an attempt to rescue the sector from collapse, an official specialised committee has been formed to determine the obstacles facing the sector and possible solutions.
Neshnash agreed that the capacity of factory production should be raised in addition to a complete renovation of machinery, some of which were made in the 1960s. “We already presented a comprehensive study to the Ministry of Investment explaining how to raise our company’s productivity and we are waiting for the government’s intervention to inject new investments to avoid bringing the company to a close”, said Neshnash.
However, experts believe that directing more investments in such companies is a waste. Hanaa Kheireddin, professor of economics at Cairo University, said that reforming the spinning and weaving companies is not an easy job since their problems started 40 years ago. What makes the reform difficult, according to Kheireddin, is that these state-owned factories include different activities such as spinning, weaving, dying and ready-made garments and that each sector has a different problem. “Introducing new investments in these factories with thousands of workers is economically worthless. Spinning and weaving factories are victims of wrong policies made since the 1950s”, said Kheireddin.
Kheireddin suggested that the government should conduct a study to determine which sectors have future prospects and reform them while cancelling the rest. “These companies were mismanaged; the government for years hired a large number of workers without a real need for them,” Kheireddin added.
But at this stage transparency is needed when dealing with workers. The government should only keep workers needed for the factories while the remaining might be compensated or given easy loans to start their own entrepreneurship, according to Kheireddin.

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