Thursday, February 03, 2011

Egyptian apparel sector struggles on during the crisis

By Paul Cochrane for

Egypt's garment export industry, worth US$2bn a year, has been struggling to cope with the political crisis in its home country, with ports closed and plants working shorter hours, if at all. But factories are still producing clothing and textiles and international clients have yet to cancel orders.

The protests against the regime of President Hosni Mubarak, which started on 25 January and have since escalated, started affecting the textile and garment industry when the government imposed a daily 17-hour curfew: employees were not able to get to work, and the ports were closed.

"Factories are trying to work from 9am-2pm when there is no curfew, since the curfew starts at 3pm. It is not business as usual but it is running," Bassem Sultan, CEO of Alexandria-based Dyetex, and honorary treasurer of the International Textile Manufacturers Federation (ITMF), told just-style. "I think by Saturday, if the curfew is over, we will try and compensate for lost time."

"Factories are producing, but not shipping," he adds. "The last day that shipping happened was last Friday (28 January), but the situation can only last so long because of its effects on the economy, so the sector should be exporting by next week, although it is impossible to know."

Sultan stresses that retailers and clients in Europe and the US have not, so far, cancelled any orders.

Dr Christian Schindler, director general of the ITMF in Z├╝rich, told just-style that the sector has not been as badly affected as would be thought.

"Business has not been dramatically affected, although companies are not working to a large extent and foreign employees might also have left the country in the mean time for security reasons.

"I imagine the impact on the sector would change if developments show a peaceful transformation is not in sight. Everyone is waiting and looking, and taking some precautions, but I think it doesn't really affect the industry to a major extent," he says.

EU and QIZ exports

The current crisis, which could result in a regime change, puts into question trade agreements recently signed by the Egyptian government with the European Union.

Uncertainty also hangs over the operation of Qualifying Industrial Zones (QIZ), which were set up in 2005 to allow textiles and garments made at Egyptian facilities with 11.7% input made in Israel to enter the United States duty-free.

Currently, overall exports are split 60% towards Europe and 40% for the US market.

Even if there is a change in government that may not be overly pro-Western or pro-Israel, Dr Schindler believes the ongoing crisis will not affect exports to the EU or from the QIZs.

"In my opinion there will not be an effect on business relations or political relations with the EU as long as it is a peaceful transformation and doesn't get radical," he said. He also believes the QIZs will not be affected since this would not be in the long term interests of Egyptian manufacturers.

In the first nine months of 2009, the latest statistics available, textile and textile garment exports from the QIZs were US$199m, down from US$205m during the same period in 2008, according to QIZ documentation.

Cotton situation

Interestingly, the ongoing crisis has not had an impact on international cotton prices or the garment industry due to only 130,000 tonnes of Egyptian cotton being produced a year. Global production is around 24m tonnes, according to the ITMF.

"Egyptian cotton is high quality, as everyone knows, but production quantities are very low so [the crisis] is not affecting the international markets or the futures markets," said Dr Schindler.

"Only the small market for extra long staple cotton will be. The crisis might affect the market psychologically but not really the market itself as cotton has not been destroyed or damaged, so the cotton that is there and planted will be there, and will be sold, that is for sure."

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