Despite runway potential, the textile industry still needs help, writes Pierre Loza The Chairman of the Council for Textile Exports (CTE) Magdi Tolba believes the future of the textile sector looks much more promising than it did in the recent past. "Two years ago, when I wanted to expand my production line I thought of going to Jordan or Tunisia because the business climate here was terrible," Tolba confided to Al-Ahram Weekly. "We used to spend between 50 and 60 per cent of our time drifting through a labyrinth of red tape and bureaucracy." But no more. The founder of the Cairo Cotton Company (CCC) believes that several changes such as the Qualified Industrial Zone (QIZ) agreement, a new attitude of openness and dialogue within the government, and giving producers input in the decision-making process, have helped improve the business climate considerably. Other measures, including streamlining procedures and slashing tariffs on materials to be used in products for export from 25 per cent to 100 per cent, and the amendment of Article 98 of the customs law -- to prevent the criminalisation of exporters who make procedural mistakes -- also encouraged the business community. Tolba views the signing of the QIZ agreement in December, 2004 as a central impetus to the industry's growth. The QIZ allowed Egyptian products access into the American market quota free and tariff free, as long as 35 per cent of the export commodity's value is produced in a QIZ, and a minimum 11.7 per cent is composed of components made in Israel. "If it were not for the QIZ, which provided us with a free quota and zero tariffs in the US market, competition from the Far East would have killed us," he predicted. "It allowed us to reduce our costs by 17 to 33 per cent, and we are starting to see rewards." In the third quarter of 2005, the value of garment exports jumped from $850 million to more than $1 billion, according to Tolba. A QIZ signatory, Union Textiles Chairman Mohamed Shal, however, feels that the agreement has done nothing for smaller producers like himself. "The QIZ is nothing but a framed certificate we have on our wall," revealed Shal. "But in terms of production, it makes absolutely no difference." After the initial excitement of realising that his factory was located in an area that is eligible for QIZ privileges, two years later Shal has yet to export a single garment. "When we asked the Ministry [of Trade and Industry] about who to work with in Israel, they sent us a 12-page list of firms; when we asked them for firms in the United States, they were surprised ," he recalled. "So, at the end of the day we have no one to sell to." Although the Ministry of Trade and Industry promised smaller producers that it would bring 60 US importers to Egypt for matchmaking activities with their Egyptian counterparts, so far nothing has materialised. "I don't know whether it's a matter of being well-connected to the powers that be or not," reflected Shal. "The point is that Israeli prices are red hot, and we have no access to the American market because the database of possible American importers seems to be a much coveted secret." He believes that QIZ benefits are monopolised by a small cartel of large producers who are reaping most of the profits, while smaller producers are left empty-handed. Shal also denied claims that cash liquidity was available for smaller producers like himself. "Although we operate in a factory that employs 60 people, with an investment of over LE2.5 million, we were unable to get funding," he complained. Even when he turned to the Industry Modernisation Programme (IMP) for help, he was told he needed an approved consultancy firm to endorse his feasibility study -- at a cost of about LE100,000. "Why would I be applying for a loan if I had this sort of money," wondered Shal. After his regretful experience with QIZ, Shal has turned his attention to the European market where he believes market access might be less troublesome. Unlike Shal, Tolba's prediction for QIZ is more floral. Although Egypt does not compare favourably with similar markets like Tunisia, which exports more than $4 billion in garments annually, Tolba believes that Egyptian textiles will pick up momentum in 2007. Some 400 businesses are signatories to the QIZ agreement, 90 of which are making use of it, he said, and every month new businesses are joining. The QIZ has also prompted new interest by foreign investors in the textile industry. "We are beginning to see firms from Turkey and Italy coming in and bringing their technology with them," noted the CTE chairman. "Goods that require advanced production techniques like polyester and micro fibres, which in the past were considered too complex to produce here, are now on the agenda." Like many in the ready-made garment business, owner and manager of the HH galabeya retail chain Heba Hagrass hoped the market would improve by the end of year, especially that the past two years witnessed the lowest demand on Egyptian textiles. According to Hagrass, the slump may be attributed to an increased market share for the much cheaper Chinese garments, coupled with the fact that the quality of Egyptian garments cannot compete with those from countries like Italy. But Minister of Industry Rachid Mohamed Rachid remains confident. "We are expecting a real boom," declared Rachid two months ago, while visiting four textiles factories in Kafr Al-Dawar -- previously one of the crown jewels of Egyptian industry. "In the last quarter, production has increased by 26 per cent and exports jumped by 40 per cent." Nonetheless, the picture remained bleak for the host factories, which were visited by Rachid and the ministers of investment and manpower. The four factories are heavily in debt to the tune of LE4.7 billion -- LE2.3 billion of which is owed to private banks. According to Minister of Investment Mahmoud Mohieddin, an estimated initial investment of LE375 million is needed to enable these factories to reach an acceptable production level. The three ministers pledged their cooperation in propelling these companies out of their dire present into a more dynamic future. Rachid pointed out that the factories need new investments, modern management, better use of existing assets, the introduction of advanced technology, as well as the development of cotton pricing policies which will encourage production. And it is not only public sector companies that need help; the private sector also needs assistance. Hagrass complained of the low productivity of her untrained employees, and the lack of quality local materials. But for CCC Tolba, the real burden comes from hidden costs embedded in the regulatory system. These include requiring factory owners to transport workers from their homes to work and a salary percentage deducted by the government for training. "Transportation is an extra cost that no other producer in the world is burdened with," he declared. "And the Ministry of Manpower has never trained any of my employees. This extra cost is not at all justified."
