The Egyptian textile and clothing industry occupies a central role in the country's economy, with Egyptian cotton the bedrock of the local industry. Even so, the current global economic downturn is likely to have an adverse effect on the sector, a new report says, with sales and output set to decline this year and next.

The Egyptian textile and clothing sector covers everything from the processing of raw cotton through to knitting and garment manufacture, and is dominated by medium to large-scale companies with a strong public sector presence in spinning and weaving.

But the industry's trade performance is linked to the international economic situation - and during the current difficult period textile and clothing exports are seen falling by 5.3% in 2009 to US$2.169bn, according to a new report from Business Monitor International (BMI).

'Egypt Textiles & Clothing Report Q2 2009,' which includes five-year industry forecasts by BMI, sees the sector recovering quite strongly the following year, up by 7.5% to US$2.33bn.

The Egyptian industry employs an estimated half a million people and is an important foreign exchange earner.
 
Its bedrock is Egyptian cotton, which has a longer staple length than other varieties.

Extra long staple (ELS) cotton is used to produce fine yarns for top-end shirts, blouses and high quality knitted garments; while long staple (LS) cotton produces medium and coarse yarns used in products such as shirts, socks and knitwear.

It has been estimated that there are some 1,500 private companies in the local clothing industry, some using very modern capital equipment and information technology. These firms are strongest in knitting and garment manufacture.

Public sector companies dominate spinning and weaving, but the government is seeking to privatise some of its spinning companies.

QIZ export boost
Egyptian exports have faced strong competition from Asian producers, but the creation of qualifying industrial zones (QIZs) under an agreement signed with the US and Israel in 2004, has given the country duty free access to the US market.

Under this trade pact, textile and clothing products manufactured in the QIZs and using at least 11.7% Israeli-produced content qualify for duty-free access to the US market.

Although originally introduced as a temporary measure, the QIZs have been associated with an improvement in export performance in 2006 and subsequent years.

In 2007, exports totalled US$2.02bn against imports of US$2.04bn. In that year the country had a US$510m clothing trade surplus, and a US$532m textiles trade deficit.

Economic downturn
BMI expects the current global economic downturn will have an adverse effect on the industry, with sales and output set to decline this year and next.

Overall Egyptian textile and clothing value added will fall by 9.3% in 2009, and again by 6.6% in 2010, reflecting very difficult international economic conditions.

Moderate recovery is expected to set in from 2011, with growth of 4.5%.

As far as the textile sector is concerned, the industry requires significant new investment, as well as progress in the government's long-stated plans to privatise some of the big state-owned enterprises.

In the current international climate, however, radical restructuring is not likely in the immediate future.

BMI predicts that textile value added will drop quite sharply in 2009 and 2010, before resuming moderate growth thereafter.

The garments sector is likely to be a little more dynamic than textiles, although value added is also expected to fall in 2009 and 2010 as a result of the global slowdown. It will begin a recovery in 2011.

On the export front, Egypt's good price and quality positioning will help, but the country will still have struggle on its hands to hold on to market share against competition from Asian exporters.

In the longer-term, BMI believes Egypt will continue to remain a significant player in the world textiles and clothing industry, but says new investment and specialisation are two key requirements if Egypt is to hold its own against Asian competitors.

Even so, for the five years from 201 to 2018 industry value added is likely to represent a modest 2.7% of Egyptian GDP.

For more details on the Egypt Textiles and Clothing Report, click here