Egyptian textiles and garments exporters have managed to maintain their niche in the US market against all odds, Niveen Wahish finds out how Since the lifting of all quota restrictions on textiles and garments exports earlier this year, Chinese exports have inundated the US market and have thus crowded out many other exporters. Despite this however, Egyptian exporters have been able to maintain a solid foothold. Political sensitivities aside, they have the signing of the protocol establishing Qualified Industrial Zones (QIZs) to thank for that. The protocol enables Egyptian manufacturers in seven specified zones in Greater Cairo, Alexandria and the Suez Canal, to export tariff-free to the US provided that 11.7 per cent of their input is Israeli. Although figures for the first half of the year do not show a remarkable increase in Egypt's textiles and garments exports to the US compared to the same period last year, this does not show the full picture. US International Trade Commission statistics show Egyptian textiles and garments exports to the US valuing some $270 million for the first half of this year compared to $262 million during the same period last year. According to Ali Awani, head of the QIZ unit at the Ministry of Foreign Trade and Industry, "that figure is considered an achievement given the lifting of international quotas in January of this year and factors such as Chinese competition." However, he stressed that "we expect to see a growth in orders by the end of the year to make up for this." He explained that the ready-made garment industry is a seasonal one. The fact that the QIZ protocol came into effect at the end of February -- although it was signed in December -- meant that most of the summer orders, which normally take place from December to February, were not processed under the QIZ arrangement. Another factor was the uncertainty of buyers who were concerned about how the implementation of the QIZ protocol would proceed. That meant, according to Khaled Raafat, chairman of the Ready Made Garments Exporters' Association, that all the orders were filled by cheap Chinese suppliers. The advantage of QIZ exports is that they are exempt from customs in the US market. Being customs exempt, Raafat said, has put Egypt on equal footing with Chinese products in terms of price. US customs on textiles and garments typically range from 18 to 34 per cent. "If we had not signed the QIZ protocol, China would have eaten into our share of the market," he explained, pointing out that in the first four months of the year, China exported to the US seven to 10 times what it had exported the year before. Yet, Awani feels that it is still premature to assess the impact of the protocol on the textiles and garments industry. However, he did express that "at least it helped Egyptian exporters maintain their positions at a time when other exporters to the US are in the red." On the other hand, Raafat believes that the effects of the protocol will be more apparent by the end of the year when he expects to see a 20 per cent increase in textiles and garments exports. For 2006, he estimates that exports will double. "The aim is to reach $3 billion in two to three years." Raafat stressed that the growth in exports will not take place overnight. Nevertheless, he continues to remain optimistic. He noted that, "already textiles and garments companies qualified under QIZ are expanding and investing which will eventually generate greater export volumes." However, not everyone is as enthusiastic as Raafat. Ihab Abdallah, commercial manager of Al-Marwa Factory for Manufacturing and Finishing garments, laments that although Egyptian products are now more competitive in the US market, the cost of Israeli inputs are burdensome as they are more expensive than those that could be purchased from other potential input suppliers. Raafat acknowledges that the cost of Israeli inputs may be slightly more expensive; yet he points out that a one per cent additional cost can not be compared to the 18 to 34 per cent in US customs that has been lifted. He also believes that as Egyptian exporters gain experience in the buying of Israeli inputs, they will be able to find cheaper suppliers. To date, a total of 464 companies have been approved under the QIZ arrangement. A joint Egyptian-Israeli committee meets quarterly to look into the applications of companies interested in benefiting from the protocol and to examine whether or not the current QIZ companies have obliged by their commitment to purchase 11.7 per cent of their input from Israel. Although companies are not required to include the 11.7 per cent for every shipment, the figure must be maintained for total operations by the end of each quarter. The bulk of the companies operating under QIZ's applied in February. Since then, the number of companies applying has declined. Awani attributes this decline to the fact that, "since the number of zones -- and therefore, by increasing the number of companies eligible under the protocol -- has not increased, there are fewer companies remaining that are able to apply." The latest committee, which met mid-August in Tel Aviv, approved 19 new companies, but four companies have been disqualified for failing to comply with the stipulated 11.7 per cent Israeli input requirement. While companies are disqualified if they fail to meet the 11.7 per cent rule, companies which register to export under QIZ are not penalised if they do not export. Awani explained, "we see the Qualified Industrial Zones Protocol as a catalyst for efforts to upgrade Egyptian companies and raise their export readiness." Celio Egypt financial manager, Mohamed El-Gindi, stated that his company has received several offers to export but did not find them suitable. Currently the company is manufacturing for the local market and waiting for a good opportunity to export. During the first six months of the protocol's implementation, the main companies to benefit from the arrangement have been companies operating in the ready-made garments and textile sectors. From February to June of 2005, 54 companies, mostly existing exporters of ready-made garments and textile-related goods, exported $61.6 million worth of goods under the QIZ protocol. However, Awani said that the government is committed to encouraging diversification within the QIZs to ensure that manufacturers from a broad range of sectors take advantage of duty- free access to US markets. Continued growth is expected in QIZ exports in general and textiles and garments exports in particular as more zones are included in the protocol. Recently, minister of foreign trade and industry, Rachid Mohamed Rachid, announced during a recent visit to the US, that there are positive signs that in the coming six months the US will approve the addition of Mehallah and Ismailia, two areas which the Egyptian government had originally wanted to include, but the US would not approve. With the approval of these two zones, all companies within these two areas may be eligible to export within the framework of QIZ. The number of companies eligible to participate in QIZs may also increase with new investments. Raafat stated that Indian and Turkish companies are considering setting up shops in Egyptian QIZs. "The textiles industry is an immigrating industry; it goes where it finds an advantage," he explained. According to the American Chamber of Commerce in Cairo's (AmCham) website, Asian foreign investments in Egypt, particularly in apparel sewing is expected to increase to take advantage of the availability of energy, infrastructure and low cost labour. "Having the only vertically integrated textile industry in the Middle East and North Africa, Egypt is the only country with readily available fibres (Egyptian cotton), an established spinning industry, dyeing and finishing capabilities, and an apparel and home textile manufacturing industry." This, according to Raafat, could mean companies relocating from Jordanian QIZs where labour is more costly and the infrastructure is not available. The AmCham figures show that in 2004, Egypt's total exports of textiles and clothing reached $580.3 million. This figure represents 0.63 per cent of total US textiles and garments imports which amount to $92.6 billion. However, while Egypt's exports may appear tiny, they hold a good niche in the US market. According to AmCham data, during 2004, Egypt ranked 12th among exporters of Textile fibers to the US, with a share of 2.1 per cent of the US import market. It was the fifth among exporters of woven carpets, 15th among exporters of home linen and knitted and non-knitted apparel, and 12th among exporters of baby garments. The AmCham website sees home textiles manufacturers and exporters as the primary beneficiaries of the QIZ arrangement, "due to the reputation they have gained through the use of Egyptian cotton by consumers in the US." It points out that exports of home textiles alone exceeded $42 million in 2004.
