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Sunday, 21 August 2022

Textiles and garment manufacturers weigh in on privatization

What do textile and garment manufacturers think of the state’s privatization plan? As part of its state ownership policy document, the government is currently looking to exit the textile and garments industry as it aims to transform the sector into a more lucrative investment avenue for foriegn investors. Stakeholders in the textile and garment industry gathered earlier this month to voice their opinions on what the sector needs to thrive and to lay out recommendations on how to bring the private sector on board.

The general sentiment: State involvement is still needed and should in fact grow in sub-sectors like industrial fiber production and continue to safeguard against dumping from foreign producers and smuggling, our sources tell us. Protecting the national manufacturing of these products at a time when imports are restricted, would be a very welcome step, they added.

A refresher on the state’s privatization drive: Every Sunday and Tuesday, workshops are held as part of a series of public consultations over the policy document — which lays out privatization plans on specific industries. These come as the government seeks to widen private sector involvement in the economy over the next three years, and aims to draw new investments worth some USD 40 bn over the next four by selling stakes in state-owned assets to local and international investors. You can refresh your memory of what went down with the pharma industry, engineering and automotive industry reps, FMCG players and the printing and packaging industry in our previous editions of Inside Industry.

There are a few key demands from the last session with textile and garment manufacturers: There are currently some 4.2k factories registered with the Federation of Egyptian Industries’ (FEI) textile industries division, many of which want the government to raise its export subsidies to 30% from the current 20% and to link government support for manufacturers to the volume of their exports and the proportion of local inputs used in their production processes. Smoothing out tax complications, considering the extenuating circumstances faced by the sector in recent years which have led to an unprecedented rise in undocumented costs, would also be a plus, our sources said. Cheaper financing options to encourage companies to update technologies were also floated.

Illicit smuggling is a huge problem for the sector: Some USD 10 bn worth of goods are hitting the black market every year, Mohamed El Morshedy, head of the FEI’s textiles division, tells us. Some level of protection of local industry should be instituted so that foreign investors are further incentivized to build more factories in Egypt, he explained.

Dumping is another problem our domestic textile and garment manufacturing industry has been grappling with recently: Reaching self-sufficiency is possible, El Morshedy says, but it will require either revisiting some of our international trade agreements or enacting some protective anti-dumping duties.

Efforts to revive the textile industry have been in the works for a few years now: Between new infrastructure projects, promoting our local cotton crop and investing some EGP 20 bn into modifying old cotton gins, the sector has been seeing plenty of government support in recent years, Holding Company for Spinning and Weaving Chairman Ahmed Mostafa tells us.

An opening for the private sector? There could be a potential window for private sector players to enter into partnerships with the government to set up six new cotton gins and outfitting them with new technologies. The country’s largest polyethylene production complex, which is geared to produce industrial fibers, is waiting for a private sector player to partner with, International Textiles Chairman Sayed El Barhamtoshy tells us. Petrochemical projects are crucial to providing factories with the raw materials used in the domestic production of synthetic fibers and polyester — of which the country currently imports some USD 4 bn worth every year, Barhamtoshy said. Speeding up the construction of these facilities will also be essential for providing investors with more chances to invest in the industry.

Continued government involvement in ginning and weaving is necessary: Sub-sectors like cotton spinning, ginning and weaving will require continued support from the government, says Mostafa. Purchasing cotton from local farmers and restructuring state-owned companies will also need some government assistance for the time being. The sub-sector could see some private sector players set up cottonseed oil extraction units in close proximity to cotton gins.

Finding well-trained labor is a huge obstacle: Another challenge holding back our local industry is the problem of inadequate training, Samir Riad, chairman of the board of directors of Thebes for Textile Industries, tells us. Paying closer attention to worker training and expanding access to industry-backed technical education programs will be crucial moving forward, Riad says.

Several sub-sectors would benefit from improved training programs too: The ready-to-wear garment sub-sector would see huge gains from partnering with technical training outfits to better train their workforce and attract investors, Ahmed Shaarawy, chairman of the board of directors at Fox Factory for Sportswear. “It has become essential to develop a comprehensive strategy to boost the performance of the spinning and weaving sector and evaluate public enterprises in the sector,” Al Sharq Textile Industries Company President Mohamed Aboul Fotoh told us.

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