NEW YORK — Egypt's apparel and textiles sector has had explosive growth since a 2004 accord among Israel, Egypt and the U.S. that allows Egyptian manufacturers duty free access to the U.S. market. But expansion is beginning to flatten, spurring the Egyptian government's efforts to jump-start the momentum.
Sourcing executives from companies such as Phillips-Van Heusen Corp., Jones Apparel Group and Mothers Work Inc. met at the Marriott Marquis hotel here on Jan. 16 to hear Egyptian officials present an update on the country's textile industry and their efforts to keep the momentum going.
The rise is a result of the 2004 pact permitting finished products manufactured in specific regions (Qualifying Industrial Zones) of Egypt to enter the U.S. market duty free as long as at least 11.7 percent of the garment's content contains material from Israel.
A 10 percent cap was placed on foreign workers to ensure that Egyptians benefit the most from the creation of new jobs. The strategy has helped Egypt avoid the types of labor abuses that have been alleged at factories in Jordan, which has a similar trade agreement and has relied almost exclusively on foreign workers.
"We have an industry," said Ali Awni, an Egyptian trade minister. "This is not a country where we have footloose sew-and-cut operations that will come and then migrate."
The impact of the program has been a significant driver of Egypt's rising apparel exports to the U.S. Apparel imports from Egypt rose 22.7 percent in 2006 to 202 million square meter equivalents valued at $624.8 million, compared with imports of 164.7 million SME valued at $444.3 million in 2005, according to the Commerce Department's Office of Textiles & Apparel. By the end of November, apparel imports from Egypt had already reached 195 million SME and Awni expected their value to be near $800 million. Cresting the $1 billion mark appears to be an immediate goal.
"Are we happy with this [growth]? Yes, but we can do better," Awni said.
Developing Egypt's labor pool is one area impeding expansion, although the government is working with factories and investing in training programs.
"When you're talking about growth, usually the bottleneck is skilled labor and we have our share of problems with skilled labor," Awni said.He noted that Egypt has historically been regarded as a manufacturer of cotton-based products, a perception that the government believes may be hampering efforts to expand into new areas of growth.
Cotton bottoms, particularly denim bottoms, are the country's largest export product, followed by T-shirts. As a result, Awni suggested there is ample opportunity for producing synthetic fiber-based apparel, as well as footwear, leather goods and jewelry. This will take a considerable investment to upgrade facilities and labor.
Relatively few of the textile companies operating in the Qualifying Industrial Zones program are able to meet the operating and record-keeping standards demanded by large U.S. brands and retailers. Egypt's foreign trade ministry said there were 547 textile companies operating in the zones last month. However, Awni indicated that the pool of viable factories exporting to the U.S. was closer to 200. Of those, Awni said only 40 to 50 had the operational efficiency and record-keeping capabilities to adequately meet the needs of U.S. clients. To address the problem, the government established teams to work with smaller factories to help them get up to speed.
"We're trying to enforce this kind of discipline on the remaining 150 companies," he said.
Ted Sattler, executive vice president of foreign operations at PVH, believes Egypt is missing opportunities to expand as a sourcing destination, especially given warnings from manufacturers in China regarding rising costs of labor and energy. During his presentation, Sattler shared an e-mail he received from one of the company's suppliers in China in which the factory owner said oil prices, higher labor costs and currency appreciation would force him to raise prices.
"I don't think this is a unique message," Sattler said, noting that PVH sources 7 to 8 percent of its product from Egypt. "I don't see us increasing that to a significant amount more, but I do see that it could be higher than it is."
Awni acknowledged that the Egyptian textile industry is facing a pivotal moment.
"We realize we have a window of opportunity and it's not going to last forever," he said.
The Fiber Price Sheet
The last Tuesday of every month, WWD publishes the current, month-ago and year-ago fiber prices. Prices listed reflect the cost of one pound of fiber or, in the case of crude oil, one barrel.
Price on 1/28/08*
Price on 12/26/07
Price on 1/29/07
August Synthetic PPI
*The current cotton price is the December average on fiber being delivered to Southeastern region mills, according to Agricultural Marketing Services/USDA. The wool price is based on the average price for the week ended Jan. 25 of 11 different thicknesses of fiber, ranging from 15 microns to 30 microns, according to The Woolmark Co. Information on polyester pricing is provided by the consulting firm DeWitt & Co. The synthetic-fiber producer index, or PPI, is compiled by the Bureau of Labor Statistics and reflects the overall change in all synthetic-fiber prices. It is not a price in dollars but a measurement of how prices have changed since 1982, which had a PPI of 100. Oil prices reflect last week’s closing price on the New York Mercantile Exchange of future contracts for light, sweet crude oil to be delivered next month.
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