Egypt’s apparel industry: A promising trajectory?

May 1, 2022


Egypt’s exports managed to hit an all-time high of $31 billion in 2021, despite the economic challenges created by the ongoing COVID-19 pandemic. Hoping to build on that momentum, the government has set a target to reach $100 billion in exports over the coming three years, in part by boosting key sectors.

Ready-made garments (RMG), a key segment of Egypt’s textiles and clothing sector, is one of five key industries included in the Ministry of Trade and Industry national strategy to improve the competitiveness of the Egyptian market. In 2021 RMG exports grew to reach its all-high time level as well, reaching $1.7 billion, while in 2020, RMG accounted for 3.3% of Egypt’s total exports. 

The textiles and clothing sector also encompasses the spinning and weaving segment  (fabrics, fibers, thread and yarn); and the home furnishings segment, which includes carpets and mattresses as well as home textiles such as curtains and bed linens. Between January and September 2020, spinning and weaving exports grew by 22% percent to reach $660 million, up from $539 million during the corresponding period in 2020, according to the Ministry of Trade and Industry. Home furnishing exports also jumped significantly by 40% to $465 million, up from $333 million year-on-year. 

But the star performer of Egypt’s textiles industry is the RMG segment, which saw exports rise 38% during the first eleven months of 2021 to $1.7 billion, up from $1.3 billion in the same period of 2020, according to the Apparel Export Council of Egypt (AECE). 

AECE’s report listed the United States as the top market for Egyptian RMG with a total value of about $1.0 billion, up 44% year on year from  $726 million. The European market was a distant second, with Egyptian RMG exports increasing by 3% to $320 million, up from $310 million in the same period last year. Exports to Arab countries, the third biggest market for Egyptian RMG, more than doubled in the reporting period, up 128% to $235 million, compared to $83 million in January-November 2020.

It is a welcome recovery for Egypt’s RMG companies, which were hit hard by disrupted supply chains and canceled orders as countries locked down early in the pandemic. 

Challenges lie ahead

Egypt’s RMG industry includes 400 exporters, 4,500 factories, and 1.5 million active workers in the formal sector, according to the AECE. Despite the recent growth and optimistic goals, the industry faces challenges that could impede its post-pandemic recovery as well as hamper its future export growth.

Marie Louis, chairwoman of AECE’s Board of Directors, says the pandemic has caused an almost threefold increase in shipping fees, making imported inputs more expensive and driving up the cost of the final product in both the local and international markets.

New local regulations have also impacted operating costs.In particular, Louis pointed to the 20% increase in Egypt’s minimum wage to EGP 2,400. Set by the National Council for Wages, the new minimum wage took effect on January 2, 2022, and applies to private sector companies.

According to Louis, 40% of the RMG sector’s workers are hired as unskilled labor, and business owners enroll them in training programs that last for up to two years. Applying the EGP 400 increase in the minimum wages would be an additional burden on business owners.

The deputy head of the Egyptian Chamber of Ready-made Garments at the Federation of Egyptian Industries, Mohamed El Sayad, also says the sector’s business owners are currently suffering from the high costs and prices. “Prices of raw material have doubled and shipping fees have gone up, which have both put heavy pressure on the manufacturers’ liquidity. Furthermore, highway tolls have increased, while the recent action taken by the government … increasing the fees and taxes on all businesses have caused a 20% hike in the operational costs”, El Sayad explains.

Louis adds that the government needs to work on servicing all the industrial zones to be attractive for investors willing to enter the RMG sector in the local market.

Furthermore, “the Central Bank of Egypt (CBE) could offer incentives for the sector’s businesses, especially in terms of the loans’ interest rates as well as increasing the payment maturity,” Louis explains.

While there hasn’t been a stimulus program specifically targeting the RMG industry, companies still benefited from general measures taken to ease the economic impact of the pandemic, including such as tax and loan holidays, and subsidized loans for medium-sized manufacturers. The government also expedited payments from the Export Subsidy Fund, and at press time, the trade ministry had confirmed that about 80% of arrears have been paid.

RMGs fall under the trade ministry’s strategy launched in November 2016 to develop Egypt’s industry and foreign trade, which focused on increasing the industrial sector’s growth rate to 8% of GDP, with a special focus on small- and medium- sized enterprises (SMEs). The strategy aimed to increase non-petroleum exports to $30 billion.

According to Trade Minister Nevine Gamea, that plan has succeeded. Egypt crossed the $30 billion mark in FY 2019/2020 before the onset of the pandemic, with the industrial sector recording a growth of 6.3% and representing 17.1% of the GDP.

Despite the challenges, Egypt’s RMG sector has a significant opportunity to increase its exports. “Most of Egypt’s export markets are seeking alternatives to China in the wake of the supply-chain disruptions as a result of the pandemic,” Louis stresses, “Egypt is the ideal market for these countries.”