Egypt’s textile and apparel industry has boomed and is poised to begin taking share from Jordan since an accord two years ago among Israel, Egypt and the U.S. established special export zones allowing Egyptian manufacturers duty free access to the U.S. market. Jordan has had similar benefits since 1997.
“This agreement has proved to be quite a success,” Yair Shiran, economic minister to North America of the Israel Economic Mission, said during a conference at the Union League Club in Manhattan last Wednesday.
The Israel-Egypt-U.S. pact on Qualifying Industrial Zones was signed Dec. 14, 2004, allowing finished products manufactured in specific regions in Egypt to enter the U.S. market duty free. The impact of the zones was felt almost immediately by Israel and Egypt, Shiran said. Israeli exports of apparel-related items to Egypt, including woven and knitted fabric, packing materials and chemicals for washing and dyeing, have soared more than 300 percent to about $93 million last year — and $75 million were so-called QIZ exports, compared with less than $30 million in 2004.
Israel’s export levels this year are poised to exceed those of 2005. For the first eight months of the year, exports were $80.6 million, 85 percent of which are from the zones. Only three special export zones were qualified at the time of the agreement’s signing in 2004. Now seven more have been added, further spurring growth. There are six zones in the Cairo metropolitan area and two each in Alexandria and Port Said.
Shiran offered the Israel-Jordan QIZ agreement, signed in October 1997, as a point of comparison and an example of what could be in store for Egypt.
“This agreement created [a textile] industry in Jordan,” Shiran said.
Israeli exports to Jordan totaled $130 million in 2005 compared with $15 million in 1998, he said. And Jordan’s exports to the U.S. vaulted to $1.2 billion last year from $50 million in 1998.
Shiran believes Egypt’s advantages in size, geographic location and lower energy and labor costs give it the potential for even greater growth. And, of the more than 500 Egyptian companies that were registered to be eligible for QIZ benefits at the end of 2005, only 150 were actively exporting goods to the U.S., Shiran said.
Related Articles
You May Also Like
“The figures are quite remarkable,” he said. “Again, we believe the potential is much greater. Our task is to let the buyers here [in the U.S.] know about it.”
The textile industry already represents a significant portion of the Egyptian economy, said Ahmed Hosni, Egypt’s commercial and economic counselor in New York. Egypt’s more than 1,500 textile manufacturers employ some 500,000 people and produce $3.2 billion worth of goods a year, representing 3.5 percent of the country’s gross domestic product.
Egypt also has the advantage of being able to draw on its own history in the cotton industry, as well as low costs for labor, energy and construction. Hosni said only China and India have lower hourly labor costs when it comes to textiles. Electrical power costs about 3 cents per kilowatt hour, compared with between 8 cents and 9 cents for Italy and India, and gas prices are so low that one manufacturer attending the conference characterized them as “essentially free.”
Egypt’s textile exports to the U.S. grew to more than $463 million in the third quarter of this year, up from $312 million during the same period in 2004. Top U.S. buyers include Gap, Wal-Mart, Levi Strauss, VF Jeanswear and Target.
The number of manufacturing facilities in Egypt qualifying under QIZ benefits is also steadily rising. By mid-September, the Egyptian government registered a total of 638 companies. Again, the majority had yet to take advantage of those benefits, with only 41 percent saying they frequently exported to the U.S.
Gideon Laks, chief executive officer of Polgat Jeans, Israel’s largest exporter to the Egypt QIZ, believes Egypt’s rise will come at the expense of Jordan.
“The cost structure in Egypt, it’s probably the most favorable,” Laks said.
Although labor costs are lower, Egypt has the added advantage of being able to draw from a significantly larger pool of native workers. In Jordan, for example, the majority of factories established in the zones have been foreign-owned, and the country’s smaller population made bringing in workers from China, India and Pakistan a necessity. A study by the National Labor Committee, a U.S. worker advocacy group, released in May found that this situation created an environment in many factories that resulted in abuse of workers’ rights. The majority of factory owners and workers in Egypt, however, are native-born, Laks said.
Laks expects exports from Jordan to decline marginally this year.
“Jordan will continue declining, while Egypt will continue to expand,” he said.
Egypt and Israel share geographical benefits, as well. Laks said it takes only one day, either by ground or by sea, to move Israeli fabrics into Egypt. As a result, lead times to the U.S. can be reduced by as much as 30 days, with lower freight costs, compared with sourcing in Asia.
Most of the factories Laks has dealt with in Egypt have doubled in size since the implementation of the QIZ agreement. The rapid growth has created another set of problems that Laks believes may not be resolved for several years.
“To buy a building and the machinery is not a problem…employees is not a problem…the problem is the mid-management,” he said.
Factory owners will likely begin to bring in foreign managers to fill the void, Laks said. Egyptian workers should acquire enough experience to become managers during the next two to three years.