CAIRO: Minister of Trade and Industry Rachid Mohamed Rachid said that Egypt will disburse LE 280 million in support funds to 120 local spinning and weaving factories, reported the state-run Al-Akhbar newspaper.
The money, to be allocated from the Export Development Fund, is meant to support local producers due to a lack of supply in yarn as well as increased global prices which have affected local businesses, according to a Beltone Financial note.
In response to what was called a “textile crisis,” Prime Minister Ahmed Nazif said textiles will be exempt from customs duties until March 31, 2011, the state-run Al-Ahram reported. Subsidies to the textile exporters using local raw materials will be raised by 50 percent, the paper reported on Monday.
Hany Genena, research director at Pharos Holdings, said that a global recovery in demand for textiles over the past months is the main reason behind this apparent crisis in Egypt’s industry.
“Over the past few years, cotton prices were in decline causing farmers worldwide to reduce supply. When demand recovered so quickly for both medium- and high-end cotton products, farmers who had been lowering their cotton yields in favor of more lucrative crops could not respond in time,” Genena said.
Due to the relatively slower rotation of crop cycles, there is a lag in the cotton markets’ reaction, Genena said, which is common in most agricultural products.
Cotton production in Egypt has been on a downward trend over the past 30 years, reaching a record low in 2008/2009. According to Genena, this is why the government has reacted with subsidies and funds to boost the industry.
“For medium- to low-end final consumer products, what we specialize in exporting, we are unable to meet and capitalize on increased growth in demand mainly because the raw materials, which we now import, are more expensive and cotton production is low,” said Genena.
According to an April 2010 report on Egypt by the United States Department of Agriculture (USDA), the declining trend in cotton utilization in Egypt is expected to continue in fiscal year 2010/11 because of high prices for both domestic and imported cotton.
According to the report, until recently, Egypt’s textile industry required an average of 1.2 and 1.4 million bales of raw cotton annually.
In 2009/10, however, the USDA expects total utilization to reach only 882,000 bales.
Approximately 60 percent of total cotton consumption is imported, mainly from Greece and Sudan, due to lower prices compared to locally produced cotton. Total cotton area and production in 2010/11 is forecast to increase by 34 percent, as a result of the recent increase in cotton prices and the less attractive prices for other competing crops.
The report finds that in order to satisfy local factories and replenish depleted stocks, cotton imports are expected to increase in 2010/11.
Cotton production — Egypt’s traditionally treasured crop once referred to as white gold — is forecast to increase from 432,000 bales in 2009/10 to 580,000 bales in 2010/11 with the expected increase in cotton area. While imports are expected to increase to satisfy the local industry, exports are expected to decrease in order to replenish the dwindling stocks.
Imports in 2010/11 are forecast to increase by about 19 percent to maintain supplies to the Egyptian textile and garment industries.
According to trade ministry figures, Egypt exports of cotton products totaled $115.85 million from January to March 2010, including clothes and linens.
Genena said that more research was needed in order to discern whether financial support from the government and subsidies can revamp the Egyptian cotton industry, which has lost its competitive edge to the point that developing countries, such as Turkey, have surpassed Egypt in terms of price and quality.
Competition from China and India may be too much for Egypt to compete with, he added, suggesting the government study investing only in raw cotton, an area where Egypt has a comparative advantage.
More importantly, Genena concludes, the government ask: “Should we actually be investing in this sector?”