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27.11.2018

EGYPT'S TEXTILE AND CLOTHING SECTOR FACING MODERNIZATION

  • State enterprises get better equipment

Cairo (GTAI) - The Egyptian government plans to modernize the textile sector and private companies are investing in new locations. Increasing machine imports and clothing exports are expected.

In the Egyptian textile and clothing industry, the signs are pointing to expansion and modernization. Local media reported on a number of private and public investment projects. According to the newspaper Al Gomhouria, a Chinese producer in the Suez Canal economic zone is planning the world's largest textile factory for USD 6 billion. The Chinese companies TIDA and Shoon Dong Roy want to build a clothing factory for 800 million USD. Sino-Egypt Minkai is planning to build a textile industry complex for around USD 750 million.

  • State enterprises get better equipment

Cairo (GTAI) - The Egyptian government plans to modernize the textile sector and private companies are investing in new locations. Increasing machine imports and clothing exports are expected.

In the Egyptian textile and clothing industry, the signs are pointing to expansion and modernization. Local media reported on a number of private and public investment projects. According to the newspaper Al Gomhouria, a Chinese producer in the Suez Canal economic zone is planning the world's largest textile factory for USD 6 billion. The Chinese companies TIDA and Shoon Dong Roy want to build a clothing factory for 800 million USD. Sino-Egypt Minkai is planning to build a textile industry complex for around USD 750 million.

The Egyptian state also wants to strengthen the textile and clothing production. In November 2018, the Minister of State Enterprise Hisham Tawfiq negotiated an extensive restructuring of the Cotton & Textile Holding Company with Werner International of the USA. According to press reports, the properties of 14 of the 25 cotton ginning plants should be sold. The ministry estimates the value at USD 1.5 billion. This appropriation is intended to cover the repair of machinery and the import of new equipment for the eleven remaining companies.

A free zone for textile production will also be created in Minya on the initiative of the state. This industrial zone is to be built on an area of 2.2 million square metres: The General Authority for Free Zones and Investment intends to launch the project before the end of 2018.

In autumn 2018, the Cotton & Textiles Industries Holding Company and Marubeni of Japan signed a letter of intent. This relates to the construction of a new textile factory in Kafr El Sheikh. A reduced loan from the Japan Bank for International Cooperation secures the financing of the project.

Import demand for textile and clothing machinery expected to increase
The planned projects are expected to lead to a further increase of a demand of imports. Like other types of equipment, the vast majority of textile and clothing machinery is imported into Egypt. In 2017 the German share of deliveries fell by 8.4 percentage points to an year-on-year comparison to 12 percent. However, this reduction is put into a perspective by the fact that the reference year 2016 was a positive outlier. In 2015, the German share was still 15.8 percent.

Imports of textile and clothing machinery to Egypt (in USD 1,000)
HS-Category 2016 Therof from Germany 2017 Therof from Germany
8444 4,481 2,025 5,554 n.v.
8445 26,105 5,429 32,660 4,807
8446 23,591 13,346 26,170 4,493
8447 15,713 3,052 22,032 4,493
8448 20.574 3,365 18,013 2,698
8449 299 0 1,725 0.4
8451 36,512 2,334 37,887 3,511
8452 23,186 1,698 29,633 1,309
8453 3,678 137 9,892 155
Total 154,139 31,386 183,566 22,028.4

n.a. = not available
Source: Comtrade

Egyptian textile and clothing companies often produce with a lot of manual work and partly with very outdated machines. The government's aim is to create as many jobs as possible due to the continued population growth. On the other hand, a more automated and modern production would allow more complex products. These could be sold at a higher profit, but would also require less human labor.

Important role of the sector companies for the Egyptian economy
The textile and clothing companies in Egypt represent a significant and labor-intensive industry. Local and imported fibers are being processed in the country and there is a broad base of spinning mills, weaving mills, dyeing houses and manufacturers of clothing and home textiles. It is estimated that the companies employ between 1 million and 1.2 million people. A regional focus is Mahala El Kubra. State enterprises are strongly represented in the textile sector, while the private sector plays a greater role in the clothing sector. About 90 percent of the spinning and weaving mills are state-owned.

According to the Readymade Garments Export Council (RMGEC), the garment industry accounts for 3 percent of the country's gross domestic product, 15 percent of exports (excluding oil), and one of three industrial jobs in the country. From January to the end of August 2018, clothing exports to the RMGEC totaled USD 1,040 million. In the same period of 2017, exports amounted to only US$ 980 million.

Egyptian exports of textiles and clothing (selection; in USD million;
change in %)
HS-Category 2016 2017 Change 2017 / 2016
57 303.5 313.9 3.4
60 35.7 44.3 24.1
61 388.0 466.0 20.1
62 756.6 910.7 20.4
63 227.2 231.1 1.7
Total 1,711.0 1,966.0 14.9

Source: UN Comtrade

The Qualified Industrial Zones (QIZ) play a special role. These are special zones with Israeli added value, which are fixed during production, and the products enjoy customs advantages when exported to the USA. Since 2005, the QIZ system has provided more private investments in the garment sector. Jeans and other clothing for well-known brands are delivered to the USA from the 25 zones.
Egyptian manufacturers are also generally not always recognizable as such, as they often manufacture for major international brands. Middle East Eye names Calvin Klein, Decathlon, Tommy Hilfiger and Zara as examples. In November 2017 Dice Sport and Casual Wear agreed to supply Levi Strauss & Co. with children's clothing.

The US company Disney even purchases 33 types of products from Egypt. Since 2017, Egypt has been cooperating with the International Labor Organization ILO as part of the Better Work Program. Working conditions are to be improved in 30 clothing factories. According to media reports, for Disney these measures were a reason to extend the licenses of the Egyptian suppliers until December 2019.

Currency effect improves competitiveness
The labor-intensive production benefited from the currency devaluation in 2016. According to a report by the news portal Middle East Eye, Egypt has at least 100 USD monthly salary for workers and is about at the same level as India or Bangladesh and at about 50 of percent Chinese salaries. In addition, prompt and fast deliveries to Europe and the USA are possible.

On the other hand, the companies are dependent on foreign supplies, which became more expensive. In Egypt especially soft and high-quality long staple cotton is cultivated and exported. Domestic producers, on the other hand, mainly use short-staple cotton and other foreign fibers as raw materials. The RMGEC complained about rising production costs in October 2018. Wages, electricity, water, natural gas, transports and more expensive imports of raw materials contributed to this development.


Further information on Egypt can be found at http://www.gtai.de

 

More information:
GTAI Ägypten
Source:

Oliver Idem, Germany Trade & Invest www.gtai.de

30.01.2018

TEXTILE AND CLOTHING MANUFACTURERS INVEST IN EGYPT

  • Chinese companies are planning several major projects
  • Germany is supplying more textile and clothing machinery

Several Egyptian and Chinese companies have announced some heavy manufacturing investments in textiles and clothing. The government is committed to creating new production priorities for textiles and wants to increase added value. Labor-intensive industries benefit from the low value of the Egyptian pound for their exports. For textile and clothing machinery, Germany achieved a delivery share of around 20 percent in 2016. In the Egyptian textile and clothing industry, the signs point to expansion and modernization. Local media reported on a series of investment plans by Chinese and Egyptian companies. According to the newspaper Al Gomhouria, a Chinese producer is planning the world's largest textile factory for USD 6 billion in the economic zone on the Suez Canal.

  • Chinese companies are planning several major projects
  • Germany is supplying more textile and clothing machinery

Several Egyptian and Chinese companies have announced some heavy manufacturing investments in textiles and clothing. The government is committed to creating new production priorities for textiles and wants to increase added value. Labor-intensive industries benefit from the low value of the Egyptian pound for their exports. For textile and clothing machinery, Germany achieved a delivery share of around 20 percent in 2016. In the Egyptian textile and clothing industry, the signs point to expansion and modernization. Local media reported on a series of investment plans by Chinese and Egyptian companies. According to the newspaper Al Gomhouria, a Chinese producer is planning the world's largest textile factory for USD 6 billion in the economic zone on the Suez Canal. The Chinese companies TIDA and Shoon Dong Roy want to build a clothing factory for USD 800 million. Sino-Egypt Minkai plans to build a textile industry complex for around USD 750 million. The local paper and stationery manufacturer Mintra plans to start the production of sports shoes with an initial investment of USD 50 million. Manufacturing in the 10th of Ramadan City is scheduled to begin in mid-2018, serving both the domestic and overseas markets. Egypt is still importing about 85 percent of the shoes sold in the country.
Oriental Weavers plans to purchase new production lines, machinery and equipment in 2018. For this purpose, EUR 6 million are to be invested. According to the newspaper Al Shorouk, the expansion will be financed by a bank loan.

State relies on new textile cities and more value added
The Egyptian state also wants to strengthen textile and clothing production. The Ministry of Investment and International Cooperation, the Supreme Council for Textile Industries and an unnamed Chinese partner want to set up a free zone for textile production in Minya. The ministry plans to provide part of the funding through international institutions and create specialized training programs for workers. According to media reports, the project value should be at USD 324 million.

In early 2017 the Egyptian Ministry of Industry announced that it would set up new textile production centers at a total of ten locations. In particular, spinning mills and weaving mills are in the spotlight. This perspective is shared by the Ministry of the Public Sector. It is aimed primarily at increasing value adding and therefore carried out a study in 2017.

Import demand for textile and clothing machinery is expected to increase
Egyptian textile and clothing companies often produce with a lot of manual work and partly outdated machines. On the one hand, the government is keen to ensure that as many jobs as possible are created for the approximately 800,000 young people who enter the market each year. On the other hand, a more automated and modern production of textiles and clothing would enable more complex products. These could be sold at a higher profit, but may also require less human labor.

An Indian company has secured a contract to modernize cotton processing. In compliance with a framework agreement with the Cotton and Textile Industries Holding, Bajaj Clothing automates cotton ginning systems. A total of eleven companies in different parts of the country will be equipped with the new machinery until August 2018. In late December 2017, Egypt Today announced that the government wants to modernize the spinning and weaving mills in Northern Egypt. The investment volume will amount to a total of one billion Euro over a period of five years.

The newly announced projects are expected to increase the demand of import machinery in the near future. Like other types of equipment, the vast majority of textile and clothing machinery will be imported into Egypt. Deliveries from Germany were able to improve both in absolute terms and relatively in 2016, despite an overall shrinking of the volume of imports. The German supply share jumped from 15.8 to 20.4 percent compared to 2015.

Import of textile and clothing machinery into Egypt (in USD  1,000)
HS Category 2015 thereof from Germany 2016 thereof from Germany
8444 1,135 0 4,481 2,025
8445 34,550 10,653 26,105 5,429
8446 18,902 984 23,591 13,346
8447 26,040 5,940 15,713 3,052
8448 23,39 5,158 20,574 3,365
8449 440 0 299 0
8451 34,796 3,335 36,512 2,334
8452 30,456 1,264 23,186 1,698
8453 3,087 5 3,678 137
Summe 173,145 27,339 154,139 31,386

Source: UN Comtrade

The consequences of the release of the Egyptian pound in November 2016 will mainly benefit labor-intensive industries and those that are processing mainly local raw materials. After October 2016, the value of the EURO soared from just under 9 to 21 Egyptian pounds and has stabilized at this level. According to various figures the textile and clothing companies in the country employs between 1.0 and 1.2 million workers. It is reported that state-owned enterprises are strongly represented in the textile sector, while the private sector plays a greater role in the clothing sector.

The advantage is dampened by the import requirements for cotton. In Egypt, especially soft and high-quality long-staple cotton is grown and exported. By contrast, domestic textile and clothing companies mainly use short-staple cotton from abroad as a raw material. Their import as become more expensive due to the currency developments. Nevertheless the competitiveness of Egypt's textile and clothing exporters has improved as a result of the new foreign exchange situation. Their exports should have developed better in 2017 than at the peak of the currency liquidity crisis in the previous year. At that time, exports fell by12.6 percent to around USD 1.7 billion.

Egyptian exports of textiles and clothing
(Selection, in USD millions, Change in %)
HS Category 2015 2016 Change 2016/2015
57 339.8 303.5 -10.7
60 2.0 35.7 1,685.0
61 483.6 388.0 -19.9
62 870.4 756.6 -13.1
63 262.2 227.2 -13.3
Summe 1,958.0 1,711.0 -12.6

Source: UN Comtrade

Increasing labor costs at Asian production sites, long transport routes and sometimes dissatisfaction with the product quality make some customers look for new sources of supply for textile and clothing products. According to a report by the news portal Middle East Eye, Egypt lies at least with USD 100 as a monthly salary for workers roughly equivalent on a level with India or Bangladesh and about half of Chinese salaries. In addition, the country at the Suez Canal is capable of fast deliveries to Europe and the United States. Regional competitors include Turkey and Tunisia. Egyptian manufacturers are not always recognizable as such, as they often manufacture for major international brands. Middle East Eye names Calvin Klein, Decathlon, Tommy Hilfiger and Zara as examples. In November 2017, Dice Sport and Casual Wear agreed to supply Levi Strauss & Co. with children's clothing.

Since 2017, Egypt became part of the Better Work Program of the International Labor Organization. The program includes 30 apparel factories in which the working conditions should be improved. Such confirmations could then give Egyptian products competitive advantages in export. However, to stand up to the tough international price warfare and at the same time to meet by the customers expected production standards will be a challenge.