How Can Egypt Use Its Advantages To Attract Foreign Capital To Change The Status Quo Of Textile Industry?

Egypt, a textile producing industry dating back thousands of years to an ancient civilization, is famous for its super quality and long staple cotton.

As an important node of the "maritime Silk Road" in twenty-first Century, more and more Chinese enterprises went to Egypt to seek opportunities for international production cooperation along with the development of the "one belt and one road" construction to the African continent.

In order to help Chinese textile and garment enterprises invest in Egypt, this paper collate and analyze the general situation of the development and investment environment of the textile and garment industry in Egypt.

First impression of Egypt

Egypt across Asia and Africa two continents, across the Mediterranean and Europe, with an area of 100.145 square kilometers, 94% of the land is covered by desert, the arable area is mostly located near the Nile Valley and delta, the country has a total population of about 96 million 500 thousand, is Africa's third largest population.

The capital city of Cairo is the political, economic and commercial center of Egypt. Its population is close to 19 million. It is the most populous city in Arabia and African countries.

In 2011, the political situation in Egypt continued unrest, the economy was in a predicament, foreign investment fell more than 70%, and the investment environment deteriorated.

Since 2014, the political situation in Egypt has stabilized and the economic situation has improved markedly.

IMF expects that the economic growth rate of Egypt's 2017/2018 fiscal year will exceed 5% (the fiscal year of Egypt is from July 1st to June 30th of next year).

Egyptian textile and garment industry

General situation of development

Egypt is one of the few countries in the world that owns a more complete textile industry chain, and is also one of the largest cotton growing and textile production clusters in the African continent.

The annual output value of the textile industry is about 10 billion US dollars, accounting for about 3% of the total GDP in Egypt, accounting for 27% of the total output value of the manufacturing industry, of which the garment industry output value is 3 billion 200 million US dollars.

Egypt currently has 7150 textile and garment enterprises, accounting for more than 20% of the total number of registered enterprises in the country, of which more than 1500 garment factories.

The textile and garment industry employs more than 1 million 500 thousand people, accounting for about 30% of the total industrial employment population in the country, and textile and garment exports account for about 15% of Egypt's non oil and natural gas exports.

Egyptian textile and garment industry

Development characteristics

01

Cotton is the most important crop and cash crop in Egypt, and its main varieties are long staple cotton (33mm or above).

Egypt's long staple cotton is famous for its excellent quality.

Since 2010, the area and output of cotton in Egypt have been greatly reduced, and the demand for cotton in local cotton mills is about 70% dependent on imports.

After the stable political situation, the Egyptian government reiterated the importance of cotton planting many times. At present, many new cotton varieties are being developed and expanded in various ways.

Egypt has a population of more than 90 million, rich in labor resources.

The wages of Egyptian textile workers are globally competitive.

At present, the average wage in Egypt is about $80-100 per month, and the monthly salary of a skilled textile worker is about $150, and the monthly salary of managers is about 300 dollars.

02

The state-owned textile enterprises in Egypt are struggling to run, and the 3 largest state-owned textile companies are mainly from the military and are seriously short of market competitiveness.

The problem of uneven development of private enterprises is prominent. Small and medium-sized enterprises are affected by political turmoil, shortage of foreign exchange and difficulties in purchasing foreign exchange.

Some large private enterprises have strong international competitiveness. One of the largest woven carpet manufacturing enterprises in the world, --Egypt Oriental Weavers Carpet Company, can produce 110 million square meters per year, accounting for 85% of the total market share of Egypt's products, 25% of the American carpet import market, and 20% of the European Carpet Import market.

03

In recent years, with the advantage of convenient pportation hub, Egypt has formed 3 textile industrial clusters centered on the canal and ports.

Meanwhile, the Egyptian government is building a textile and garment industrial area, and the construction process of textile and garment industrial zone in Sadat city has been started.

Egyptian textile and garment industry

Foreign trade situation

The United States, the European Union and the Arabia countries are the most important export markets for textiles and clothing in Egypt. Textile and clothing exports to the United States and the European Union account for 45% and 38% of Egypt's total exports, respectively.

China, Turkey and Bangladesh are their major source countries of imports.

Egypt's textile and clothing import and export trade has entered a distinct growth stage since 2008.

Affected by the downturn in global consumer demand, Egypt's exports of textiles and clothing in 2016 decreased by 17.1% and 15.3% compared with the same period last year.

In 2017, Egypt exported $2 billion 822 million of textiles and clothing, an increase of 12% over the same period last year, accounting for 10.9% of the total annual export volume of Egypt's goods.

From the point of view of the key export products, woven garments account for the largest proportion of total exports of textiles and clothing in Egypt, with an export volume of US $911 million, accounting for 32.28%. The second is cotton spinning products (cotton, cotton yarn and cotton fabrics), third of knitted apparel, and fourth of carpet products.

In 2017, Egypt imported $3 billion 483 million of textiles and clothing, an increase of 20.9% over the same period last year, accounting for 5.25% of the total annual imports of goods in Egypt.

From the point of view of key import products, the total import value of chemical fiber filament fabrics reaches US $945 million, which accounts for the largest proportion in the total import volume of its industry, followed by chemical fiber staple fabrics, cotton textile products ranked third, and imports ranked fourth in tatting garments.

Egyptian textile and garment industry

Attracting foreign investment

Textile and garment industry is one of the five strategic industries identified by the Egyptian government in the development of industry and foreign trade, and it is also a key industry attracting foreign investment.

The Egyptian government put forward the vision for the development of the textile industry in 2025. The textile and garment industrial zone currently under construction and bidding is an important way for Egypt to attract overseas investment in the textile industry.

At present, textile enterprises mainly invest in neighboring countries in Turkey. China has begun to pay close attention to Egypt in recent years, and some small and medium-sized textile enterprises have set up factories in Egypt. Shandong's Ruyi and other leading enterprises are also planning to invest in Egypt.

GAP, Pierre Cardin, Marks&Spencer and other famous brands have set up foundry factories in Egypt.

According to the 2018 African investment index (AII), Egypt has the second largest attraction of foreign investment in all African countries, second only to Morocco.

So, what is the problem? What are the efforts of the Egyptian government to attract foreign investment? What are the advantages and constraints of the textile and garment enterprises investing in Egypt?

01

After the political stability, the Egyptian government adopted a series of reform and development measures, and the effect of economic recovery was remarkable. Attracting foreign investment has become one of the core contents of Egyptian economic reform and future development.

In fiscal year 2017, Egypt's GDP growth rate was 4.1%, rising steadily compared with the turbulent period.

In terms of foreign trade, in 2017 1-12, the import and export volume of Egypt's goods amounted to US $92 billion 282 million, an increase of 14.55% over the same period last year.

Economic recovery has increased investor confidence.

In 2017, the amount of foreign direct investment (FDI) in Egypt was $7 billion 900 million, an increase of 14.5% over the same period last year, basically returning to the level before the political turmoil.

02

The president personally acted as the head of investment institutions, and launched a number of provisions to encourage investment. The new investment law incentive measures are conducive to attracting foreign investment and improving the investment environment.

In May 2017, Egypt promulgated the new investment law, simplifying the examination and approval procedures, shortening the time of examination and approval, unblocking complaints channels, and providing preferential policies for investment in different regions.

The main contents of the new investment law are:

According to different investment areas, investors can recover 50% of the investment cost through tax deduction.

The number of foreign workers that can be used should be adjusted from 10% of total employment to 20%.

Profits from investment projects can be freely remitted abroad.

In order to set up necessary machinery and equipment imported by the company, customs duties shall be paid according to the uniform duty rate of 2%.

In addition to the promulgation of the new investment law, the Egyptian government has also revised the business registration law, the industrial license law, the securities market management and the financial law.

With the revision and improvement of a series of laws, the business environment in Egypt has been gradually improved.

03

Egypt has obvious regional advantages, and the establishment of the free trade area and the signing of several trade agreements have created convenient international trade terms for investors.

Location advantage

The land connects the Asia and the non two continents. The sea road connects the Mediterranean and the India ocean through the Suez canal. The northern part of the sea is in the opposite direction to Europe, and the southwest is through the hinterland of the African continent.

Exports to Europe, Africa, the Middle East and other places are convenient and pport costs are low.

Shipping time to the United States is 12 days, and only 5-7 days to European countries.

Free Trade Area

There are 10 free trade zones in the country. The procedures for import and export goods are simplified and there is no need to pay customs duties or other taxes and charges.

Trade agreement

Egypt's multi bilateral trade agreements cover nearly 2 billion of the market population.

1. Egypt - EU partnership agreement

At present, Egypt's industrial products enter the EU market to enjoy zero tariff and quota free.

2, Egypt - European Free Trade Association free trade agreement

3, the framework agreement of the African continent free trade area (AfCFTA)

4, Egypt, Israel and the United States signed the "qualified industrial zone" agreement.

5. Egypt Turkey free trade agreement

6, Egypt, Jordan, Morocco and Tunisia signed the four countries free trade area agreement.

Qualified industrial area

According to the QIZs agreement signed between Egypt and the United States and Israel, all products exported to the United States from 7 qualified industrial zones in Egypt are exempt from all import duties.

At present, the most important export products of qualified industrial zones are textiles and garments.

Since the QIZ agreement requires that 10.5% or more of the value of US exports be manufactured by Israel, it will be able to enjoy the tax exemption policy. Therefore, Egypt imported a lot of textile and clothing from Israel to produce raw materials, with imports exceeding 60% of the total imports from Egypt.

04

Relatively abundant natural resources and better infrastructure provide a good foundation for attracting foreign investment.

Egypt has abundant natural resources, a large number of undeveloped wasteland is cheap, and oil and natural gas resources are constantly being discovered.

Egypt is rich in cotton resources and has high quality. It is the most important crop and cash crop.

As far as Africa is concerned, the infrastructure of Egypt is relatively perfect. At present, Egypt has 64 thousand kilometers of all kinds of highways and basically connects most towns and villages in the whole country.

The railway network is 9570 kilometers, and there are many international airports, of which Cairo Airport is the second largest airport in Africa.

Egypt has 15 commercial ports with an annual cargo handling capacity of nearly 2.4 billion tons.

In addition, Egypt has more than 30 thousand megawatts of installed capacity, generating capacity in Africa and the Middle East in the forefront, the government plans to increase by 50 thousand MW power capacity before 2030.

05

Human resources are abundant, domestic market is full of potential, and production factors have international competitiveness.

Middle East and Africa's large population, domestic

The demand is large and full of potential.

Labor resources are abundant, and 2016/2017 has reached 29 million 180 thousand people in the fiscal year.

A total of 41 colleges and universities have a large number of well-trained technical personnel and higher education population, and high-end and low-end labor force coexist.

The number of Internet users is 47 million 200 thousand, which is close to half of the total population.

The overall energy price is low, and some factors of production have certain international competitiveness.

Comparison of production factors between Egypt and other countries

Limiting factors for investment

At present, the textile and garment industry investment in Egypt, there are the following constraints need to focus on:

01

The economy is extroverted and dependent.

The economic recovery has a good growth momentum, but the real economy foundation is weak. The total foreign debt accounts for almost 100% of the GDP. There is no strong support for the main industry. The major measures to boost economic growth now rely mainly on foreign aid and international borrowing. In the long run, the steady development of the economy is still difficult, and the adjustment of the industrial structure still needs to be carried out in depth.

02

Political situation and security situation are still facing challenges.

Although the national political turmoil has been suspended, local demonstrations have taken place. Many terrorist attacks have occurred in recent years, and the security situation is still grim.

Affected by the high domestic inflation rate and the depreciation of the pound, people's living pressure is high and the proportion of the poor is high. If economic development can not solve the needs of people's livelihood as soon as possible, the political stability will still face enormous challenges.

03

Business environment still has constraints.

Although the top government has vigorously implemented various initiatives to revitalize the economy, the administrative efficiency of all levels of government departments is still low. Various laws and regulations are complicated and policies are changeable, which restricts the speed and effectiveness of the improvement of the business environment in Egypt.

Although the industrial base is better than other African countries, the pace of infrastructure upgrading is still slow, and the shortage of power facilities and the shortage of investment land need time to overcome.