CAIRO: After a slow start, Egypt s Qualified Industrial Zones (QIZs) are finally beginning to deliver significantly increased textile export growth. And, perhaps just as importantly for the long term, they are attracting fast-growing numbers of foreign investors. Top representatives of Italian fashion houses Ferragmo, Ermenegildo Zegna and Marioboselli recently toured Egypt to look at what was on offer. The QIZs were introduced in January 2005 as a lifeline to the textile industry after the Multi-Fiber Agreement (MFA), which gave Egypt preferential access to some foreign markets, ended at the close of 2004. Manufacturers in a QIZ can export products to the U.S. tariff-free on condition that the products are at least 35 percent local value-added and at least 11.7 percent of their inputs come from Israel. Analysts agreed that, after the end of the MFA, the Egyptian textile industry could have quickly died without the QIZs; and they also agreed that the new system was a better deal than the old one, presenting an opportunity which, if well seized, could lead to big export growth and massive new investment. But progress was less than swift, and throughout 2005 the business press oscillated between optimistic predictions for the future and glum reports of the status quo: companies were being very slow to register with QIZs, foreign investors were not flooding in and export figures were creeping up, not soaring. Now, however, it seems to be happening. Over 500 textile companies have registered with one of the 13 QIZs. And, even though there is a necessary time-lag for the assembling of accurate export figures, the effect on exports is already visible: the Ministry of Trade and Industry reports that textile exports to the U.S. increased by more than 30 percent year-on-year, from $192 million to $252 million, during the first four months of 2006. The textile industry is now, alongside hydrocarbons, one of the two industries in Egypt with the fastest export growth. Even more significantly for its longer-term growth, the sector is witnessing fast-increasing foreign investment. Several of the world s best textile-producing countries are coming to Egypt. They are lured by the opportunity of tariff-free exporting to the U.S. combined with cheap labor, world-beating long-staple cotton, lowering import tariffs on yarns and equipment and the distant but tantalizing possibility of a full free trade agreement (FTA) with the U.S. some time in the future. In return, they bring money and a range of expertise. One of the most important of these countries is Turkey. After an FTA was signed with Egypt last December, there was much speculation as to how keen the world-class Turkish textile producers would be to take advantage of Egypt s QIZs: in one example, Noozz reported in February that the Egyptian Trade Representation Department in Anqara had received 35 enquiries about investment regulations in Egypt. Then, finally, in early July, speculation was put to rest, when Rachid Mohammed Rachid, the minister of foreign trade and industry, announced that no fewer than 23 Turkish textile companies would have started operations in Egypt by the end of the year. Turkey has become a global expert in the manufacture of ready-made clothes; precisely the segment of industry which stands to gain most from the QIZs. It has succeeded through the use of methods which the Egyptian textile industry needs badly to learn: using cutting-edge technology to ensure high flexibility in response to changing demand. And the Turks are happy to take on the role of teachers: the chairwoman of the Turkish Clothing Manufacturers Association (TGSD), Aynur Bektas, told the Turkish Daily News on July 17th that Turkey is at a stage where it has an organizer-manufacturer status, citing her members activities in Egypt as a prime example. But while the Turks are good, they are not the global number one for mass production of cheap garments. Nevertheless, Egypt is on the case. On June 17, Prime Minister Ahmed Nazif signed an agreement with China under which Chinese companies will invest more in Egyptian electronics, energy and textiles, in return for which the Chinese companies on the ground in Egypt will get preferential treatment. Chinese investment in Egypt has already been on the rise for some time: a Chinese company is part of a joint venture that administers a manufacturing zone in Suez, and another Chinese firm opened a textile factory in the same area last summer. But June s agreement is likely to lead to a surge of investment in the near future, just as the agreement with Turkey in December led to hugely increased investment only a few months later. For the Chinese, the slightly higher labor costs in Egypt are outweighed by the gains of tariff-free exporting; and this is a welcome chance to gain yet more of a hold on the U.S. market in anticipation of the end, in 2008, of a Sino-U.S. agreement which restricts Chinese imports to the U.S. Although the Turks and Chinese provide expertise in the mass-production of clothes for low and middle-income consumers, they are not masters of high fashion. For that, Egypt is getting help from Italy, and may be about to get more. Since 2002, Arafa, an Egyptian textiles manufacturer, has been carefully nurtured by the Valentino Fashion Group and has produced 1 percent of its menswear. Paolo Zegna, CEO of the Ermenegildo Zegna Group, told Business Today that "Egypt and Italy are part of the same area. We are both traditional textile exporters, and I think we are both open to the new challenges created by a revolution that is currently taking place in our industry worldwide. That revolution is an increasing indifference on the part of even high-end consumers about where their clothes are made, and increasing labor cost differentials. Tonino Perna, CEO of IT Holding SpA, a manufacturer for Versace and Dolce & Gabbana, recently told the Wall Street Journal, It will take another 15 years until luxury brands main lines are completely delocalized, but it will happen. Egypt is at the front of the queue to snap up the ensuing outsourcing opportunities, not least because its QIZs offer the rare chance of free exports to the U.S. There are challenges ahead as the sector grows. The locals must learn from the newcomers, otherwise all the new profits will disappear abroad. And the government must try to integrate the foreign garment-makers with upstream manufacturers, in order to deter them from fleeing the country as soon as better opportunities appear elsewhere. But these challenges are some way off. For now, at least, the near future for the textile industry looks unusually bright. Noozz
