Weaving it all together: International agreements provide a strong foundation for the textiles industry

The textiles sector is among Egypt’s oldest and most important industrial segments. With the introduction of Qualified Industrial Zones (QIZs) in 2004, giving exporters tariff-free access to the US market, the textiles industry reached new heights. Indeed, for much of the 2000s, the industry was experiencing double-digit growth. However, the 2011 Arab Spring and the insecurity that followed hindered development, and the challenge now is to push forward to meet ambitious government goals.

Major Contributor

Between 2005 and 2010, textiles were a major contributor to the country’s industrial output. The sector made an average contribution of 18% to industrial value added and 28% to non-oil exports. According to 2013 figures from the Central Agency for Public Mobilisation and Statistics, textiles contributed approximately 3% of the country’s GDP, making it the third-largest contributor to the economy after tourism and the Suez Canal.

The introduction of the QIZs has certainly helped. Established in 2004, they allow local producers in the zones to access the US market tariff free, as long as 35% of the product is manufactured in the zone and 10.5% of the product was made in Israel. There are 15 QIZs in the country and 83% of the companies operating in them are in the clothing and textiles sector.

Given that Jordan established its first QIZ in 1997 and that sub-Saharan African countries were gaining tariff-free access to the US through the Africa Growth Opportunity Act, signing the QIZ framework was crucial as a means of remaining competitive. The results have been impressive. The QIZs generated a 54.2% increase in Egyptian textile and clothing exports to the US in the first 10 years of operation.

Operational Issues

Despite the progress through the 2000s, the 2011 Arab Spring had a detrimental impact on the performance of the industry. A lack of security, backlogs created by shipment delays, increasing transaction costs and negative sentiment in target markets all contributed to a difficult operating environment for local producers and exporters.

“After the Arab Spring, orders went down mainly because of security reasons. Spending also decreased as money was used for food. In 2014 the situation improved, and orders are now at the same level as before the Arab Spring. However, security is still a problem,” Khalid El Behairy, the executive director of the Chamber of Textile Industries, told OBG.


However, the sector has managed to rebound and even benefitted from the situation to some degree, with exports becoming more cost competitive as a result of the devaluation of the Egyptian pound. In 2014 exports of textiles and ready-made garments reached $2.5bn. The foreign earnings from this sector have once again become a key contributor to the overall economy. Textile exports to the US comprised 25% of the country’s total non-oil exports and 20% of the total manufacturing in Egypt.

Given this return to form, the government and the industry have set their sights on taking the sector to the next level. Under a national strategy for textiles, the government hopes to boost exports to $10bn by 2025. This will be no easy feat. Long-fibre cotton production in the country, the basis of Egypt’s strong reputation in textiles, has been dwindling, falling from 2.5m bales in 1970 to 340,000 in 2014. The government’s decision to completely remove cotton subsidies in January 2015 will not help either.

However, this raw material is used in niche high-end products and to succeed Egypt will also have to compete in the mass market garment and textile sector, according to Mohamed Kassem, chairman of the Egyptian Ready Made Garment Export Council. This will also require developing the country’s supply chain so that exporters are not as reliant on intermediate imports. If such moves toward restructuring prove successful, the sector has every chance to maintain its position as a leading exporter in the next decade.