Will renationalisations transform Egypt's textile sector?
A key figure in the Egyptian textile industry has called on his government to invest in the two companies that have recently been re-nationalised after a court decision ruled their privatisation by the deposed Mubarak regime was illegal.
Judges said that the Shebin El-Kom Textile Company (which has major international clothing sector clients), and the Tanta Company for Linen and Derivatives (which does not sell to the clothing sector) had both been sold off without sufficient due process - and restored the companies' ownership to the state.
While Tanta was owned by a Saudi investor, Shebin had been owned by Indonesian investment group Indorama since 2007. It sells yarns to global brands including Esprit, Nike, and Gap, and currently exports 35% of its output to Europe.
Its product range covers combed cotton, cotton melange, polyester and cotton blends, polyester sewing threads, dyed yarns, open end yarns, rayon and its blends. Other customers include Marks &Spencer, s. Oliver, Lerros, Jockey, Spiritex and Adidas.
Despite the court decision, which has been supported by employees, industry experts and trade unionists, the factories now face new challenges as they rejoin the 75% of Egyptian textile companies that remain languishing in the public sector, with old machines, underpaid staff and, as a result, poor fabric.
"We've spent about 20 years with nearly no investment and, if these companies don't have yearly investment to help modernise and be competitive, they're going to fall apart" says Mohsen El Gilani, the chairman of the government-run Holding Company for Cotton, Spinning and Weaving.
The textile industry in Egypt faces many challenges in an increasingly globalised market. In 2004, a presidential decree lifted protectionist tariffs on imported short and medium-staple cotton products just before the World Trade Organisation Multi-Fibre Agreement expired and stopped the imposition of import quotas.
The market opened to cheap materials, spun threads and fabrics and has become saturated with cheap inputs from Spain to India, while local production struggles to remain price competitive.
This has left the industry on a tightrope, according to El Gilani. "We must continue an open market policy, but the social depth of this policy must be increased, because we have a lot of poor people we need to consider in the country."
Despite this, Ahmed El-Sayed El-Naggar, a chief economist at the Ahram Center for Political and Strategic Studies, is optimistic about the move. He says legal oversight of privatised companies would promote good practice. "I think the results in the private sector will be an improvement on what they were before."
Under the Mubarak regime, there was a push to privatise Egypt's important textile industry under a general switch from a state-controlled to a market-driven economy.
Until the mid-1990s, the government offered financial support to factories in the form of price controls. In 1994, a new cotton trade liberalisation law removed the subsidies, and the government began attempting to push the textile industry into the private sector.
However, critics claimed many of the factories were sold to those loyal to the regime or well-connected foreign buyers. And while some private investors modernised their plants and boosted exports, many factory owners got rich by cutting wages and benefits.
In the months since the revolution, Egyptians have been striking for wage rises, reinstatement of sacked former workers, and renationalisation of factories sold under allegedly corrupt circumstances - claims that have now been backed by the courts.
"It's not nationalising, but restoring the factories," says El Nagger.
As for Shebin El-Kom, Indorama declined to comment to just-style about the decision. In the last four years, it has laid off around 50% of the Egyptian company's previous workforce of more than 4,000 workers, while production increased, say employee groups.
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