The government wants to use public money to deepen Egypt’s supply chain

Egypt’s plans to attract significant foreign investment in its garment and textile manufacturing sectors have been delayed due to the fallout from the Covid-19 pandemic – prompting the government to step in to spur development.

The government’s Vision 2025 strategy had targeted attracting some US$17.5bn in foreign investment to quadruple textile and garment exports. But with the pandemic leaving the global clothing sector in the doldrums – and Egypt’s exports down 20% last year – the government has earmarked some US$600m in public money to be invested in two tranches this year.

A focus of this spending routed by the ministry of public enterprises is previously allocated land and infrastructure for two major industrial park projects for clothing and textile manufacturers, one in El Minya, in upper (southern) Egypt, and in Sadat City, outside of Cairo. In early 2019, Cairo had hoped to attract 50 textile companies from China, South Korea and Bangladesh to the parks.

“The two textile parks were supposed to bring investment in, but they are not moving forward,” with the government effectively putting their development on hold, says Mohamed Kassem, chairman of the Egyptian Company for Textile Parks Development. “The government is now filling the gap, but the key will be to link upstream fabric production capacity with the cutting and sewing capacity of the garment sector.”

One of the few foreign investments that has progressed thus far – albeit not in these two parks – involves China’s Handa Textile Co, which plans to invest US$100m in the clothing market, but has so far invested US$20m, in a clothing factory in 10th of Ramadan City, Sharqiya governate, north east of Cairo, which opened in November 2020. “This is the only [private] investment happening that I am aware of,” Kassem says.

Investments progressing

Government investments are, however, progressing. The Ministry of Public Enterprises has acquired new machinery to modernise ginning mills across the country, while 32 state-owned companies are to be consolidated into 10 companies under the government-owned Holding Company for Cotton, Spinning, Weaving and Garments. This consolidation includes opening what the government says is the world’s largest spinning factory, with 182,000 spindles under one roof, slated to open in El-Mahalla El-Kubra, north of Cairo, during 2022.

“The government is supporting the textile industry and wants it to expand, and is why they are investing in most of the factories. But unlike before, it [the policy] is more towards a private sector way of thinking, to find a partner that can support the investment or manage it,” says Fadel Marzok, vice chairman and CEO of Giza Spinning & Weaving, one of the country’s largest garment and textile manufacturers.

Ultimately, the government wants to use public money to create backwards linkages in Egypt, deepening the domestic supply chain and reduce import dependency.

“The country imports around US$2.5bn in fabrics and garments, so if they reduce this import by 50%, it would be a really a good move as we are importing 30% to 40% of our needs from abroad, especially from the Far East,” says Marzok. His company plans to increase capacity by 10% this year by opening a third factory in El Minya.

Despite the targeting of public finance, Kassem, however, is doubtful whether government investment is the right move for the industry.

“State-owned companies have a tendency to lose a lot of money. If it is managed well, and made profitable, that would be good, but if it continues in the same old way, then it is not money well spent,” he explains, citing debts of almost US$1bn generated by state-owned companies – such as the 35 affiliates of the Spinning and Weaving Holding Company, that were cleared in 2009, only to see the government-owned sector rack up similar debt levels a decade later.

“If we just improve the ease of doing business, and reduce the cost of transactions, it would make us more competitive, and attract an influx of new investment, as there is a move towards near shoring and re-shoring,” says Kassem.

As reported on just-style earlier last year, Egypt’s garment and textile manufacturing sector was hit hard by the Covid-19 pandemic, even though factories have largely remained open.