The current period is considered one of the most suitable periods for investment and storming the field of clothing manufacturing in light of the current trend to promote industrial investment and the launch of thousands of industrial units within the industrial complexes and areas, which means an increase in the local demand for industrial safety clothing. In August 2021, about 2,500 industrial units were launched in 11 industrial complexes nationwide, and it is expected that the number of industrial complexes nationwide will reach 17 complexes, with a total number of units exceeding 15,000 production units.
The opportunity to strengthen the textile industries sector lies in bridging the local demand gap estimated at about (30% on average) in light of the coverage of local production ranging between 75-80% in ready-made garments, as the market size is estimated at 180-200 billion pounds, while imports amounted to more than For 512 million dollars ready-made clothes in the last fiscal year.
The field of ready-made garments manufacturing is considered one of the promising industries in this regard, especially with the signing of the Chamber of Ready-made Garments and Furniture Industries an agreement with the (TRADE) program, in cooperation with the United States Agency for Development, to qualify local factories for export requirements abroad, which contributes to increasing Egyptian exports of clothes and textiles by about 300 million dollars annually, and by the end of the implementation period of the targeted program (five years), exports will increase by 1.5 billion dollars.
For this reason, this research paper presents the features of the textile industries market, an indication of its complementary sectors and its relative importance, in addition to the country’s trends towards the textile industries sector, and the most prominent challenges. The paper also reviews mechanisms for enhancing its productive contribution and opportunities for the textile industries sector.
First: Features of the textile industries sector and its relative importance
The textile industries sector in Egypt is of great relative importance due to its wide presence in the Delta of Egypt that extends for many decades. In light of the great legacy of this industry, it is possible to build on this sector to be among the most influential sectors in the gross domestic product, which has become a real starting point for the Egyptian economy, as the sector represents 5% of the gross domestic product, with a total of one billion pounds during 2021. With totals exceeding 200 billion pounds for all sectors complementing the textile industries, and about 11% of non-oil exports during 2021, and this sector includes more than 4,600 companies with investments amounting to about 6 billion dollars.
According to Law 70 of 2019 regulating the Federation of Egyptian Industries and Chambers of Industry, this sector includes the Ready-made Garments Division, which includes the following sub-sectors:-Ready-made.-Home furnishings.-Production requirements .In addition to the textile industries sector, which includes four divisions as follows:
-Ginning, pressing, spinning and weaving of wool and cotton
-Spinning and weaving of synthetic fibers and polyester filaments
-Dyeing, printing and processing
Thus, the seven sub-sectors are the main entry points that allow expansion and contribution to economic activity. In view of the importance of the sector and the competitive advantage it enjoys, which can be built upon to achieve large surpluses that enable the Egyptian economy to overcome one of the challenges represented in the trade balance deficit, the trends and features of the government’s directions towards the sector can be addressed as follows.
Second: State’s attitudes towards the textile industries sector
The Egyptian state is committed to adopting a fiscal policy aimed at achieving fiscal discipline, and moving towards more sustainable paths for public debt, in a way that helps expand the fiscal space that supports economic activity.
In addition to a set of policies aimed at improving the business environment for local and foreign investors and reducing their costs, accelerating the pace of digital transformation in the provision of government services, and continuous improvement of their quality levels. The state will also seek, whenever possible, to address market failures through its public financial tools. Perhaps one of the most important measures of the state is the adoption of the state ownership document, the features of which can be addressed as follows:
1-The main features of the state ownership document
The state’s vision is based on encouraging the private sector by setting a governing framework for an integrated policy for the form of state ownership of assets, and exit proposals at the level of various sectors. The state’s logic in economic activity came based on successful international experiences and lessons learned from global crises that affected the state over the years. In this context, the State Ownership Document aims to achieve the following main objectives:
– Raising economic growth rates: to reach levels that fulfill the aspirations of Egyptians, by raising the investment rate to a range of (25:30%), which contributes to increasing the growth rate to range between (7:9%) to provide job opportunities that reduce unemployment rates to the lowest level for him.
– Empowering the Egyptian private sector: providing various opportunities for the presence of the private sector in all economic activities, thus helping to raise its economic contribution to the gross domestic product, implemented investments, employment, exports, and government revenues.
-Inject investment and asset ownership into key sectors: these include sectors where the private sector is reluctant to enter, while the development of these sectors is directly reflected in improving the private sector’s working environment.
– Governance of the state’s presence in economic activities: The government aims to be present in economic sectors according to specific criteria, and to shift from managing state institutions to managing state capital, by defining mechanisms for the state’s exit from the assets owned by it, whether from management or ownership.
– Achieving financial savings that enable the support of the general budget situation: which requires achieving financial discipline, ensuring financial sustainability, and strengthening the state’s financial capacity to support social safety nets, to protect vulnerable groups, and to increase the levels of the Egyptian economy’s ability to withstand crises.
In order to achieve the main objectives of approving the state ownership document, there are a number of measures that are considered the main features of the state’s orientations in the economic sector to ensure the implementation and success of the ownership policy, as follows:
-Exit in stages and gradually, even if its are short-term.
-Taking into account the strategic and security dimensions of economic activities when making decisions on state ownership of assets.
– Targeting ownership policy to improve the way economic resources are allocated.
-Determining the methodology for dealing after exit to avoid unfavorable repercussions, in terms of: (employment, revenues, ..).
The implementation of State ownership policy requires the government to adopt a complete system of macroeconomic policies that stimulate private sector activity at a number of levels, as the Egyptian state is keen to adopt a monetary policy that supports price stability and enhances the foundations of macroeconomic stability and would reduce inflation rates and stimulate the levels of credit granted. Applying a flexible exchange rate policy that helps increase the level of competitiveness of Egyptian exports. In a way that supports the business environment and achieves macroeconomic goals.
In light of this general orientation of the state towards the various economic sectors, the state’s orientations towards the textile industries sector can be clarified as follows.
2- State trends towards the development of the textile industries sector
The state adopts a methodology to determine the ownership policy at the level of sectors/activities based on a number of criteria, and comes at gradual levels. Six main criteria were used to determine the mechanism for the state’s exit/remaining from economic sectors and activities, based on international experiences and specialized experts, as follows:
– Classification of the good or service, and whether it is related to national security (including goods related to the daily needs of the citizen).
– The importance of the state entering as an organizer, financier, and supporter of future technological industries related to the fourth industrial revolution, in order to settle them in Egypt.
-The attractiveness of the sector/activity for private investment.
– Enabling private investments, while allowing for the promotion of possible integration opportunities with public investments.
– The state exits from industries/sectors whose market is saturated and which do not need state support.
-The level of profitability of state-owned assets.
Accordingly, three orientations of state ownership and its presence in economic activity have been identified as follows:
– Graduated within three years: by defining the sectors/activities from which the country will graduate during the coming period.
– The continued presence of the state with stabilization or reduction: by defining sectors/activities to which government investments directed to will be stabilized or reduced, while allowing the participation of the private sector in some of them.
– The continued presence of the state with consolidation or increase: by defining sectors / activities in which the state will be present continuously, according to its strategic or social dimensions, while allowing the participation of the private sector in some of its activities.
In this context, the textile industries sector, in its entirety, falls under the heading of manufacturing industries, which follow two directions: Graduated within three years: It includes the following economic activities:
- Activities of the textile industries (cotton pressing industry, dyeing and printing industry, ready-made garments and furnishings)
- Activities of industries (leather / wood products).
- Activities of engineering industries (manufacture of electrical appliances, equipment, machinery, and electronics).
- Activities of the food and beverage industries (production of vegetable and fruit products, and processing of agricultural crops)
- Dairy and juice industry activities, and oil industry.
- Metal industry activities (gold artifacts, and foundries.
- Activities in the food and beverage industries (meat, poultry and fish industry, feed industry, sugar and candy industry, cigarette and smoke industry)
- Some activities of the metal industries (forming metals such as iron and copper, and manufacturing aluminum and copper).
- Some activities of the chemical industries (manufacture of batteries, charcoal, and coke)
- A number of activities in the pharmaceutical industries (manufacture of medical supplies and pharmaceutical chemicals)
- Petroleum refining activities.
- Chemical industry activities (paper industry, industrial detergents, glass, and coke.
-Maintenance with stabilization/increase of government investments: The private sector’s participation in the following activities is permitted:
- A number of activities in engineering industries (ship and boat industry, semiconductor)
- A number of activities in printing industries (offset printing, digital, newspapers)
- Pharmaceutical industry activity in pharmaceutical industries.
- Fertilizer industry activity in chemical industries.
We conclude from the foregoing that the state’s approach towards the textile industry sector as a whole includes two directions. The first is a complete exit within three years and includes activities of textile industries, such as: (cotton pressing industry, dyeing and printing industry, ready-made clothes and furnishings), while the second direction includes keeping with Stabilizing/reducing government investments: This includes allowing the private sector to participate in the activity of ginning and weaving cotton and wool in the textile industries. The following figure summarizes the state’s trends in economic activity as shown:
Third: Mechanisms to enhance the productive contribution of the sector
Enhancing the contribution of the textile industries sector, along with the state’s direction, requires working to achieve the following:
– Adopting a well-defined manufacturing policy towards economic sectors and activities in terms of procedures, objectives and support opportunities.
– The state’s expansion in the establishment of petrochemical industries necessary for the production of industrial fibers and imported production supplies.
– Solving problems related to the labor sector specialized in this sector and developing a clear vision regarding dumping policies in order to support the fight against smuggling.
– Maximizing the environmental impact of the used clothing recycling industries to exceed the current rates, which do not exceed 20% of the clothing and textile industries.
-Controlling local markets and preventing monopolistic practices for products in a way that enhances local demand and works on efficient family consumption.
Fourth: the challenges of achieving the approval of the state ownership document and its objectives
The most important challenges can be identified in the following points:
1- Current Financial Policies:
The state’s need for revenues to finance its expenditures may reduce incentives for investment and tax and non-tax incentives for investors, which poses a challenge to its support for the private sector. And to increase the opportunities for the state in this regard, it is possible to refer to the incentive system followed by the most attractive countries for investments in the world, such as Singapore, Canada, the United States and China.
Also, among the challenges that may face the success of the state ownership document in enabling the private sector and investments are the presence of a number of global variables, such as the Russian-Ukrainian war, which caused an energy crisis for many countries and thus affecting the production process, which causes a large number of investors to reduce their investments and expansions. At the present time, the crisis may even cause a large number of investors to liquidate their investments, so the state must exploit its reserves and production of natural gas, oil and other energy sources to attract investors, especially since Egypt is one of the most important natural gas exporting countries.
2- High interest rates globally:
The continuation of the US Federal Bank in raising interest rates is one of the most important external challenges, which recently reached 4.5%, its highest rate in 15 years, and thus the flight of hot money and a large number of investors and directing their money and investments to the United States of America as a strong and more stable economy compared to other countries.
On the other hand, the Central Bank is forced to continue raising the interest rate on deposits and borrowing operations in order to preserve investors and hot money. However, raising the interest rate on borrowing leads to the reluctance of individuals to borrow to invest and establish new projects, which narrows opportunities for more entrepreneurs and residents of small and medium enterprises. and micro.
Therefore, we must focus on several things to attract investors and maintain hot money, including not being satisfied with raising interest rates on deposits, promoting the Egyptian market, which is the most populous and consuming, and investing in the country’s strategic location, allowing it to be used as a gateway for exports to neighboring countries in Africa and the Middle East, and the depreciation of the currency and thus costs. Production, transportation and export compared to other countries, availability of labor and lower costs compared to other countries.
3- Increasing global competition to attract more low-cost investments:
Increasing States’ competitiveness in attracting investments is a challenge to achieving the approval of the State ownership document and its objectives investor-attractive methods, especially investment, tax and non-tax incentives, It has a distinct infrastructure, stable economic growth and indicators compared to the Egyptian economy such as China, Canada, America, Singapore, India, UAE and Saudi Arabia. This requires the development of more attractive methods of investment and the improvement of its environment in Egypt, the consideration of the experiences of those countries and the testing of the applicability of such methods in the Egyptian economy.
the Sovereign Fund of Egypt is working to attract a large segment of investors interested in investing in Egypt, and investors are communicating with it to learn about the projects in which the fund can participate in investment. As the fund enjoys flexibility and institutional support, and the presence of specialized cadres capable of dealing with the investment climate, and finding new investment opportunities for them in a way that benefits the state in its sectors.
4- Distortion of the local markets with regard to the textile industries sector and its accessories:
Market distortion is one of the most important challenges facing local manufacturing, especially the textile industries with their inclusions. Market distortions contribute to the weakness of the capabilities of the productive units of the sector due to the presence of a large part of it that depends on the informal economy, whether in production inputs or in the disposal of the product itself, and therefore requires work to stimulate The informal sector, which enhances its productive efficiency.
5-Lack of raw availability of some textile products
The unavailability of some raw materials needed for manufacturing leads to a decrease in production on the one hand and an increase in available prices on the other hand, and this can be attributed to the Egyptian market’s need for the government to inject large investments in the petrochemical sector Especially industrial fibers and industrial yarns, in order to avoid the textile industries sector production pitfalls resulting from the unavailability of its requirements at times when financial or monetary turmoil occurs, as happened during the last quarter of 2022.
Fifth: Chances for the success of approving the state ownership document to achieve its objectives:
It is expected that the state ownership document will succeed in attracting more investments to the Egyptian economy, as the state’s exit from most economic activities comes at a time when the Egyptian economy needs to make more space for the private sector, especially in light of the existence of a number of opportunities that must be focused on exploiting them in attracting local investments. and foreign ones, which are as follows:
Appropriate Monetary and Credit Policy:
The Central Bank of Egypt is currently pursuing an expansionary monetary policy that encourages industrial investment, as it lowered the return rate on its initiative, which was announced in December 2019, and includes providing an amount of 100 billion pounds through banks, to finance regular industrial private sector companies with annual revenues of 50 percent. One million pounds to one billion pounds, as the return rate became 8% on a decreasing annual basis instead of 10%. Also, the role of non-bank financing, such as financial leasing and factoring, cannot be overlooked. In this context, it is possible to obtain financing from donors (Enterprise Development Agency) within these initiatives, with low-cost financing ranging from (3-8%) decreasing.
Financial policies that support the private sector and achieve financial discipline
Empowering the private sector in the Egyptian economy contributes to supporting social protection networks, achieving financial discipline and financial sustainability, and reducing the burden on the state’s general budget by promoting economic empowerment as one of the dimensions of social protection. This is achieved in the presence of economic policies that stimulate private sector activity, such as the existence of a monetary policy. It helps absorb the high inflation rate and enhance price stability, as well as enhance the level of credit granted, and exploit the liberalized exchange rate to increase the attraction of domestic and foreign investments, and enhance exports and their competitiveness, thus enhancing the business environment.
Contribution of both the public and private sectors to GDP (2020-2016) (%)
Source: Central Bank of Egypt’s annual report, 2016-2020
There is also a financial policy aimed at achieving financial discipline, making public debt in more sustainable paths and thus widening the financial space that supports economic activity, in addition to the existence of a system of policies aimed at improving the business environment for local and foreign investors and reducing its cost, and working to accelerate the pace of digital transformation. In providing government services, raising their quality, and trying to address market failures through public financial tools.
Investment regulatory frameworks:
The General Authority for Investments and Free Zones has a vision to promote investments at the sectoral level, represented by identifying priority sectors for investment, promoting them, and encouraging the private sector to pump investments in them, based on three criteria: economic criteria, social criteria, and environmental criteria.
There are many special economic criteria that serve as the government’s medium-term plan for sustainable development, which targets the sectors of industry, agriculture, construction and contracting, and communications and information technology, including the standard of sectoral contribution to GDP, the standard of foreign direct investment flows in economic sectors, and the standard of employment levels. In the sector, the criterion for the sectoral distribution of corporate capital, and the criterion for sectoral investment trends in light of the global investment map, as the country focuses on sectors that work to create shorter value chains and less fragmentation.
– The Egyptian market relies on consumption to a large extent to increase the number of the population and thus the high rates of consumption of goods and services, and to provide a large market for the promotion and sale of products, as shown in the following figure:
Figure 3: Contribution of Items of Demand to the Real Growth Rate of Gross Domestic Product (%)
Source: Annual Report of the Central Bank of Egypt, 2016-2021
The full liberalization of the exchange rate makes the Egyptian market attractive for setting up factories, investments and production due to the depreciation of the local currency and thus lower production costs compared to many other countries.
– A large number of institutions from which imports are made resort to opening production lines inside the country to save transport costs and customs tariffs, and also because of the current crises, such as the lack of sufficient foreign cash reserves for imports in Egypt, the state’s attempt to reduce its imports of essential commodities, and the citizens’ reluctance to buy imported commodities due to their high prices compared to the domestic ones, which causes obstruction to the movement of trade exchange between Egypt and many exporters, so many of them began targeting Egypt as a market for investment and the establishment of projects and factories at the present time, especially major technology companies, pharmaceutical companies, and clothing, as they are among the most consumed commodities in the Egyptian market.
The local market currently enjoys a good investment environment in light of political and security stability and efforts to provide a general climate conducive to investment, especially since the current average production of garment factories is close to achieving 87% of the full production capacity of these factories. Therefore, the Readymade Garments Export Council aims to increase the production volume of garment factories by 10% during the second half of 2022, in order to increase the volume of exports, in one of the sectors supporting the achievement of non-oil exports amounting to $100 billion by 2025.
The most significant opportunities in the readymade garments market are as follows:
The number of officially registered factories is about 4,800, according to questionnaires of public authorities in the market, with a local market size of ready-made garments ranging between 200-250 billion pounds annually, with local production representing 75-80% of the market size, ranging between 180-200 billion pounds.
Current domestic demand:
The market still has opportunities for new manufacturers to enter, especially with the Egyptian market enjoying a huge population that exceeded 104 million people, in addition to considering clothing as one of the indispensable needs for living, and it also witnesses large sales seasons before the holidays and during the summer sales seasons. and winter.
The field of ready-made garment manufacturing is one of the industries that has a competitive export market, especially in the current period, in parallel with the presence of obstacles in other competing markets. Electricity supplies, and thus the quantities supplied to the world witnessed a decline, and the financial crisis in Turkey and the fluctuations in the exchange rates of the Turkish lira led to an increase in its production cost and an increase in export prices. As for East Asian countries and Bangladesh, the cost of exporting them to the main consumer markets in the United States and Europe has increased as a result of freight rates that have multiplied several times.
Diversity of consumer tastes:
The clothing market in Egypt is distinguished by the diversity of tastes. All models and forms of clothing have a local demand with the diversity of consumers’ living standards. Coverage opportunity (covering factories and industrial complexes to be established in villages with regard to security and safety clothing).
Finally u can say that the Egyptian economy In the current situation is going through a number of crises as a result of global crises or local imbalances, represented, for example, in the weak productive capacity of sectors necessary to meet the needs of domestic demand and create a surplus for export such as the industry, agriculture and information technology sectors, as well as the increase in imports over exports and thus the continuation of the trade balance deficit as The weak production capacity of the sectors necessary to meet the local demand leads to resorting to imports from abroad, as most of the imported goods are necessary and have no local alternative, which leads to raising the import bill over exports and the continuation of the trade balance deficit.