Ahmed Farouk Ghoneim* thinks better policy implementation can only enhance the competitiveness of Egypt's textiles and garments industry Representing 27 per cent of the nation's total industrial production, the textiles and clothing industry is of paramount importance to the Egyptian economy. At three per cent of GDP, it is surpassed only by tourism and Suez Canal revenues, and is the largest employer in the industrial sector, absorbing 30 per cent of the 1.3 million strong industrial labor force. LE13- 17 billion is invested into the sector every year. In 2004, textile and clothing exports reached the $1.4 billion mark, representing 24 per cent of Egypt's total non-oil export revenues, up from 17 per cent in 2001. All of these figures have implications on how the government and general public evaluate this industry's role as a key employer, and major contributor to GDP. Yet the industry's relatively elevated importance has not translated into Egypt becoming a big player in the international market. Actually, Egypt's exports do not represent more than 0.3 per cent of total world exports, which are divided between 0.2 per cent for textiles (down from 0.5 per cent in early 1990s), and 0.12 per cent for ready-made garments and clothing. Moreover, in all of the industry's sub categories, Egypt's share is lower than all its competitors in the region, including Jordan, Turkey, Morocco, and Tunisia. Cotton is the only exception. The main export market for Egyptian textiles and ready made garments has been the United States, which absorbs 40 per cent; the EU is next at 38 per cent with the remaining 22 per cent spread out over the world. Recently, as part of the government's efforts to preserve the industry's labour force and enhance exports, Egypt signed the Qualified Industrial Zones (QIZ) protocol with the US and Israel in December 2004. As a result, Egyptian textiles and garments exports to the US were able to withstand the potential damage that would have insued when quotas were lifted in early 2005. In fact, figures show that the QIZ not only overcame that negative impact, but also brought in additional gains. US International Trade Commission statistics show that exports to the US hit $270 million from January-May 2005, as compared with $262 during the same period in 2004. And yet, there is a multitude of ways in which the industry can enhance its competitiveness even more. One is by diversifying its geographical concentration away from the US market; currently, exporters' interests are focused on the American market at the expense of other important markets, including the EU. As a result, all of the government's lobbying efforts to promote ready made garments are targeted at the US. There have been no serious moves -- whether on behalf of exporters or the government -- to engage other markets where Egyptian exports enjoy a competitive advantage not related to tariff preferences. Our geographical proximity to the EU, for instance, needs to be better utilised. These kinds of competitive advantage issues are relatively more important than the tariff preference, since they are likely to last longer, and are not subject to abrupt changes. The industry also needs to bring in know-how and foreign expertise by encouraging joint venture and subcontracting schemes. It should also focus on products with short lead time; becoming more engaged with retail distributors in developed countries is essential to this process. It is also about time that Egypt make better use of the African Growth and Opportunity Act (AGOA) to develop ties with the 38 African countries that are eligible for free quota and duty free access to the US. With AGOA's "third-country fabric" rule extended until the end of 2007, there is no excuse for the government and business community to not make use of this venue, especially those firms that have not enjoyed the benefits of the QIZ. The industry, and the governmental policies regulating it, are clearly in a transitional stage that is transforming the focus from a domestic-oriented to an export-oriented industry. As such, a new overall strategy building on its competitive advantages is needed. There are several issues, for instance, that need to be taken into consideration by the government, or any other body, while designing this strategy. First of all, restructuring the industry should take the costs of creating a job in its different segments into account. According to people working in the field, the cost of creating a job in the ready made garments sector is the least costly (LE40,000), when compared to the cost of creating a job in yarn and textiles (LE150,000), or dying (LE100,000). Next on the list is better implementation of the exports subsidies programme that began in 2001. The government has established a fund aiming at enhancing exports through provision of subsidies. In general, these range between four-10 per cent of the invoice value. The programme has helped overcome transaction costs incurred due to bureaucratic procedures, and has also helped balance out high transport costs. At the same time, however, it has also begun delaying the release of its payments to exporters. With delays reaching a couple of months, the actual value of the subsidy has gone down by three-four per cent. A better implementation of the Cotton Logo project is also needed. Establishing the logo was a highly appreciated first step, following this up by maintaining the system and registering the logo in different countries is an expensive job that requires collective action between the government, the private sector, and donors. There is also an urgent need to enhance training and education. Egypt may have an adequate labour force, but there is a lack of both skilled labour and trained engineers. Some training is provided via the Egyptian-German Mubarak-Kohl project, but it is not enough to meet the industry's overall needs. Starting up vocational centers in places where the industry is concentrated (Cairo, Alexandria, Gharbiya, Qalioubiya, and Giza), while establishing undergraduate and/or graduate departments for textiles engineering in some of the nation's engineering faculties, would both be positive steps in this regard. The port facilities that deal with handling and customs procedures also need to be urgently upgraded. The transaction costs associated with handling, and the inefficiency of the firms undertaking these activities, have been recorded as relatively high. Issues related to trade facilitation -- ranging from inefficient road systems to outdated trucks and a lack of facilities at ports -- significantly add to the costs incurred by Egyptian producers and exporters. There have been several measures undertaken to reform these domains, but much more needs to be done. Export processing zones are another channel that can be better used to enhance exports. In line with government initiatives to overcome different bureaucratic impediments inside the market, export processing zones should be used more efficiently to take advantage of the fewer bureaucratic impediments and better access to technology allocated there. There is also an urgent need for restructuring public-sector firms into small units with separate specialisations, so as to avoid cross subsidisation and bad management. This is not necessarily associated with the privatisation programme, and can be undertaken by redesigning the management and legal system (as was done recently in the air transport sector when EgyptAir was broken down into several firms and a holding company). Whether or not these public sector firms will eventually be privatised, there is an urgent need for investments to be pumped into them. The key, of course, is ensuring that the allotments are carefully designed so as to avoid misallocation. * The writer is an associate professor of economics at Cairo University's Faculty of Economics and Political Science.
